Form 10-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
2, 2021
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Inc.
|
|
|
|
| ||||||
|
|
|
|
| ||||||
| (State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
| ||||||
|
|
|
|
| ||||||
| 40 Westminster Street, |
| 02903 |
| ||||||
| (Address of principal executive offices) |
| (Zip code) |
| ||||||
|
|
|
|
| ||||||
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| ||||||
| Common Stock — par value $0.125 | TXT | New York Stock Exchange |
| ||||||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ⌧xYes ◻¨ No
Large accelerated filer | x | Accelerated filer | ☐ | ||||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | |||||||||||||||
☐ | Emerging growth company | ☐ | |||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
☒
Yes ¨No
Documents Incorporated by Reference
| Documents Incorporated by Reference | ||
28, 2021.
|
|
| |||||||
|
| ||||||||
|
| ||||||||
|
|
| |||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
|
|
| |||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
|
|
| |||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
|
|
| |||||||
| |||||||||
|
|
|
| ||||||
| |||||||||
|
|
|
| ||||||
|
| ||||||||
Operations.
authorized independent sales representatives.
Longitude. Textron Aviation’s turboprop aircraft include the Beechcraft King Air C90GTx,260, King Air 250, King Air 350ER360ER and King Air 350i,360, and the Cessna Caravan and Grand Caravan EX. Textron Aviation is developing the Cessna Skycourier, a twin-engine, high-wing, large-utility turboprop aircraft, which is targeted for first flight in early 2020. The Denali, a high-performance single engine turboprop aircraft under development, is also expected to achieve its first flight in 2021. In addition, Textron Aviation’s piston engine aircraft include the Beechcraft Baron and Bonanza, and the Cessna Skyhawk, Skylane, and the Turbo Stationair HD.
Textron Aviation’s military trainer and defense aircraft include the T-6 trainer, which has been used to train pilots from more than 20 countries. Textron Aviation also offerscountries, and the AT-6 light attack military aircraft. Textron Aviation also offers piston engine aircraft including the Beechcraft Baron and Bonanza, and the Scorpion, a highly affordable, multi-mission aircraft, both of which are not yet in production, pending customer orders.
Cessna Skyhawk, Skylane, and the Turbo Stationair HD.
3
alliance with Boeing, Bell produces and supports the V-22 tiltrotor aircraft primarily for the U.S. Department of Defense, (DoD), and also for Japanoffers this aircraft to other countries under the U.S. Government-sponsored foreign military sales program. The H-1 helicopter program includes a utility model, the UH-1Y, and an advanced attack model, the AH-1Z, which have 84% parts commonality between them. While the U.S. Marine Corps is the primary customer for H-1 helicopters, we also sell H-1these helicopters under the U.S. Government-sponsored foreign military sales program.
Bell is developing the V-280 Valor, a next generation vertical lift aircraft as part of the Joint Multi Role Technology Demonstrator (JMR-TD) initiative. The JMR-TD program is the science and technology precursor to the Department of Defense’s Future Vertical Lift program. Aircraft designed through this initiative will compete to replace thousands of aging utility and attack helicopters for the U.S. Armed Forces over the next decade. The V-280 achieved its first flight in December 2017 and its first cruise mode flight in May 2018, and continues to perform ongoing flight testing. In October 2019, Bell announced a new rotorcraft, the Bell 360 Invictus, which it is developing as its entrant for the U.S. Army's Future Attack Reconnaissance Aircraft (FARA) Competitive Prototype Program. This program was initiated by the Army to develop a successor to the retired Bell OH-58D Kiowa Warrior helicopter.
currently in the certification process with the Federal Aviation Administration (FAA).
Textron Systems’ product lines consist of Unmanned Systems, Marine and Land systems, and Simulation, Training and Other.
lines: Unmanned Systems,
Marine and Land Systems and Simulation, Training and Other.
Marine and Land Systems
4
Simulation, Training and Other
The Simulation, Training and Other product line includes products and services provided by the following operating units and businesses: Electronic Systems, Weapons and Sensors Systems, Lycoming, Airborne Tactical Advantage Company (ATAC) and TRU Simulation + Training Textron Airborne Solutions, Electronic Systems, Lycoming, and Weapons and Sensors Systems. TRU Simulation + Training designs, develops, manufactures, installs, and provides maintenance of advanced flight training devices, including full flight simulators, for both rotary- and fixed-wing aircraft for commercial airlines, aircraft original equipment manufacturers (OEMs), flight training centers and training organizations worldwide. Textron Airborne Solutions, which includes Airborne Tactical Advantage Company, focuses on live military air-to-air and air-to-ship training and support services for U.S. Navy, Marine and Air Force pilots.(TRU). Electronic Systems provides high technology test equipment, electronic warfare test and training solutions and intelligence software solutions for U.S. and international defense, intelligence and law enforcement communities. Lycoming specializes in the engineering, manufacture, service and support of piston aircraft engines for the general aviation and remotely piloted aircraft markets. Weapons and Sensors Systems offers advanced precision guided weapons systems, airborne and ground-based sensors and surveillance systems, and protection systems for the defense and aerospace industries.
Lycoming specializes in the engineering, manufacture, service and support of piston aircraft engines for the general aviation and remotely piloted aircraft markets. ATAC focuses on live military air-to-air and air-to-ship training and support services for U.S. Navy, Marine and Air Force personnel. TRU designs, develops, manufactures, installs, and provides maintenance of advanced flight training devices, including full flight simulators, for commercial airlines, aircraft original equipment manufacturers (OEMs), flight training centers and training organizations. On January 25, 2021, we sold TRU Simulation + Training Canada Inc., which manufactured and maintained flight simulators for commercial airlines.
Fuel Systems and Functional Components
Our automotive products have several major competitors worldwide, some of which are affiliated with the OEMs that comprise our targeted customer base. Competition typically is based on a number of factors including price, technology, environmental performance, product quality and reliability, prior experience and available manufacturing capacity.
Specialized Vehicles
These businesses have a Their diversified customer base that includes golf courses and resorts, government agencies and municipalities, consumers, outdoor enthusiasts, and commercial and industrial users such as factories, warehouses, airlines, planned communities, hunting preserves, educational and corporate campuses, sporting venues, municipalities and landscaping professionals. Sales are made through a combination of a network of independent distributors and dealers worldwide, the Bass Pro Shops and Cabela’s retail outlets, which sell our products under the Tracker Off-Road brand, and factory direct resources. We have two major competitors for both golf cars and professional turf-maintenance equipment, and several competitors for off-road utility vehicles, recreational all-terrain and light transportation vehicles, side-by-sides and snowmobiles, aviation ground support equipment, and specialized turf-care products. Competition is based primarily on price, product quality and reliability, product features, product support and reputation.
5
Finance Segment
The commercial finance business traditionally is extremely competitive. Our Finance segment is subject to competition from various types of financing institutions, including banks, leasing companies, commercial finance companies and finance operations of equipment vendors. Competition within the commercial finance industry primarily is focused on price, term, structure and service.
Backlog
Our backlog at the end
| (In millions) | January 2, 2021 | January 4, 2020 | ||||||
| Bell | $ | 5,342 | $ | 6,902 | ||||
| Textron Aviation | 1,603 | 1,714 | ||||||
| Textron Systems | 2,556 | 1,211 | ||||||
| Total backlog | $ | 9,501 | $ | 9,827 | ||||
In 2019, approximately 24% and Other Governmental Regulation
technical data. New laws, regulations or procurement requirements, or changes to current ones, can significantly increase our costs, reducing our profitability.
Human Capital Resources
Environmental Considerations
Our operations are subject to numerous laws and regulations designed to protect the environment. Compliance with these laws and expenditures for environmental controls has not had a material effect on our capital expenditures, earnings or competitive position. Additional information regarding environmental matters is contained in Note 19 to the Consolidated Financial Statements on page 72 of this Annual Report on Form 10-K.
We do not believe that existing or pending climate change legislation, regulation, or international treaties or accords are reasonably likely to have a material effect in the foreseeable future on our business or markets nor on our results of operations, capital expenditures or financial position. We will continue to monitor emerging developments in this area.
Employees
At January 4, 2020, we had approximately 35,000 employees.
|
| |||||||||
| Name | Age | Current Position with Textron Inc. | ||||||||
Scott C. Donnelly |
|
|
| Chairman, President and Chief Executive Officer | ||||||
Frank T. Connor |
|
|
| Executive Vice President and Chief Financial Officer | ||||||
Julie G. Duffy |
|
|
| Executive Vice President, Human Resources | ||||||
E. Robert Lupone |
|
|
| Executive Vice President, General Counsel, Secretary and Chief Compliance Officer | ||||||
7
Mr. Connor joined Textron in August 2009 as Executive Vice President and Chief Financial Officer. Previously, Mr. Connor was head of Telecom Investment Banking at Goldman, Sachs & Co. from 2003 to 2008. Prior to that position, he served as Chief Operating Officer of Telecom, Technology and Media Investment Banking at Goldman, Sachs & Co. from 1998 to 2003. Mr. Connor joined the Corporate Finance Department of Goldman, Sachs & Co. in 1986 and became a Vice President in 1990 and a Managing Director in 1996.
8
9
As a U.S. Government contractor, we are subject to procurement rules and regulations ;regulations; our failure to comply with these rules and regulations could adversely affect our business.
10
Demand for our aircraft products is cyclical and lower demand adversely affects our financial results.
Demand for business jets, turbo props and commercial helicopters has been cyclical and difficult to forecast. Therefore, future demand for these products could be significantly and unexpectedly less than anticipated and/or less than previous period deliveries. Similarly, there is uncertainty as to when or whether our existing commercial backlog for aircraft products will convert to revenues as the conversion depends on production capacity, customer needs and credit availability. Changes in economic conditions has in the past caused, and in the future may cause, customers to request that firm orders be rescheduled, deferred or cancelled. Reduced demand for our aircraft products or delays or cancellations of orders previously has had and, in the future, could have a material adverse effect on our cash flows, results of operations and financial condition.
We have made and may continue to make acquisitions that increase the risks of our business.
We enter into acquisitions in an effort to expand our business and enhance shareholder value. Acquisitions involve risks and uncertainties that, in some cases, have resulted, and, in the future, could result in our not achieving expected benefits. Such risks include difficulties in integrating newly acquired businesses and operations in an efficient and cost-effective manner; challenges in achieving expected strategic objectives, cost savings and other benefits; the risk that the acquired businesses’ markets do not evolve as anticipated and that the acquired businesses’ products and technologies do not prove to be those needed to be successful in those markets; the risk that our due diligence reviews of the acquired business do not identify or adequately assess all of the material issues which impact valuation of the business or result in costs or liabilities in excess of what we anticipated; the risk that we pay a purchase price that exceeds what the future results of operations would have merited; the risk that the acquired business may have significant internal control deficiencies or exposure to regulatory sanctions; and the potential loss of key customers, suppliers and employees of the acquired businesses.
Failure to perform by our subcontractors or suppliers could adversely affect our performance.
We rely on other companies to provide raw materials, major components and subsystems for our products. Subcontractors also perform services that we provide to our customers in certain circumstances. We depend on these suppliers and subcontractors to meet our contractual obligations to our customers and conduct our operations. Our ability to meet our obligations to our customers could be adversely affected if suppliers or subcontractors do not provide the agreed-upon supplies or perform the agreed-upon services in compliance with customer requirements and in a timely and cost-effective manner. Likewise, the quality of our products could be adversely impacted if companies to whom we delegate manufacture of major components or subsystems for our products, or from whom we acquire such items, do not provide components or subsystems which meet required specifications and perform to our and our customers’ expectations. Our suppliers may be less likely than us to be able to quickly recover from natural disasters and other events beyond their control and may be subject to additional risks such as financial problems that limit their ability to conduct their operations. The risk of these adverse effects would likely be greater in circumstances where we rely on only one or two subcontractors or suppliers for a particular raw material, product or service. In particular, in the aircraft industry, most vendor parts are certified by the regulatory agencies as part of the overall Type Certificate for the aircraft being produced by the manufacturer. If a vendor does not or cannot supply its parts, then the manufacturer’s production line may be stopped until the manufacturer can design, manufacture and certify a similar part itself or identify and certify another similar vendor’s part, resulting in significant delays in the completion of aircraft. Such events may adversely affect our financial results, damage our reputation and relationships with our customers, and result in regulatory actions and/or litigation.
Our business could be negatively impacted by information technology disruptions and security threats.
Our information technology (IT) and related systems are critical to the efficient operation of our business and essential to our ability to perform day to day processes. From time to time, we update and/or replace IT systems used by our businesses. The implementation of new systems can present temporary disruptions of business activities as existing processes are transitioned to the new systems, resulting in productivity issues, including delays in production, shipments or other business operations. We also outsource certain support functions, including certain global IT infrastructure services, to third-party service providers, and any disruption of such outsourced processes or functions could have a material adverse effect on our operations. In addition, as a U.S. defense contractor, we face certain security threats, including threats to our IT infrastructure and unlawful attempts to gain access to our information via phishing / malware campaigns and other cyberattack methods, as well as threats to the physical security of our facilities and employees, as do our customers, suppliers, subcontractors and joint venture partners. Attempts to gain unauthorized access to our confidential, classified or otherwise proprietary information or that of our employees or customers, as well as other security breaches, are persistent, continue to evolve and require highly skilled IT resources.
We maintain Information Systems Incident Management Standards applicable to all our businesses intended to ensure information security events and weaknesses associated with information systems are communicated and acted on in a timely manner. Our enterprise risk management program includes cyber risk/network protection mitigation plans, and our disclosure controls and procedures address cybersecurity and include processes intended to ensure that security breaches are analyzed for potential disclosure. Additionally, we conduct periodic training for our employees regarding the protection of sensitive information which includes training intended to prevent the success of cyberattacks. Further, our insider trading compliance program addresses restrictions against trading while in possession of material, nonpublic information in connection with a cybersecurity incident.
11
While we have experienced cybersecurity attacks, we have not suffered any material losses relating to such attacks, and we believe our threat detection and mitigation processes and procedures are robust. Due to the evolving nature of security threats, the possibility of future material incidents cannot be completely mitigated, and we may not always be successful in detecting, reporting or responding to cyber incidents. Future attacks or breaches of data security, whether of our systems or the systems of our service providers or other third parties who may have access to our data for business purposes, could disrupt our operations, cause the loss of business information or compromise confidential information, exposing us to liability or regulatory action. Such an incident also could require significant management attention and resources, increase costs that may not be covered by insurance, and result in reputational damage, potentially adversely affecting our competitiveness and our results of operations. Products and services that we provide to our customers may themselves be subject to cyberthreats which may not be detected or effectively mitigated, resulting in potential losses that could adversely affect us and our customers. In addition, our customers, including the U.S. Government, are increasingly requiring cybersecurity protections and mandating cybersecurity standards in our products, and we may incur additional costs to comply with such demands.
Developing new products and technologies entails significant risks and uncertainties.
12
Additionally, some international government customers require contractors to agree to specific in-country purchases, technology transfers, manufacturing agreements or financial support arrangements, known as offsets, as a condition for a contract award. These contracts generally extend over several years and may include penalties if we fail to perform in accordance with the offset requirements which are often subjective. We also are exposed to risks associated with using foreign representatives and consultants for international sales and operations and teaming with international subcontractors and suppliers in connection with international programs. In many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act. Although we maintain policies and procedures designed to facilitate compliance with these laws, a violation of such laws by any of our international representatives, consultants, joint ventures, business partners, subcontractors or suppliers, even if prohibited by our policies, could have an adverse effect on our business and reputation.
If
A key determinantsubject to repurchase or recall as a result of safety issues.
We periodically needrequire us to obtain financing and such financing may not be available to us on satisfactory terms, if at all.
We periodically need to obtain financing in order to meet our debt obligations as they come due, to support our operations and/repair, replace or to make acquisitions. Our access torefund the debt capital markets and the cost of borrowings are affected by a number of factors including market conditions and the strength of our credit ratings. If we cannot obtain adequate sources of credit on favorable terms, or at all, our business, operating results, and financial condition could be adversely affected.
Natural disasters or other events outside of our control may disrupt our operations, adversely affect our results of operations and financial condition, and may not be fully covered by insurance.
Natural disasters, including hurricanes, fires, tornados, floods and other forms of severe weather, the intensity and frequency of which are being exacerbated by climate change, other impacts of climate change, such as rising sea waters, as well as other events outside of our control including public health crises or pandemics, power outages, industrial explosions or other accidents, have in the past and could in the future disrupt our operations and adversely affect our business. Any of these events could result in physical damage to and/or complete or partial closurepurchase price of one or more of our facilities, temporaryproducts, or long-term disruptionpotentially even discontinue entire product lines. We also may voluntarily take such action and, from time to time, have done so, but within strictures recommended by the CPSC. The CPSC also can impose fines or penalties on a manufacturer for non-compliance with its requirements. Furthermore, failure to timely notify the CPSC of a potential safety hazard can result in significant fines being assessed against us. Any repurchases or recalls of our operationsproducts or an imposition of fines or penalties could be costly to us and could damage the reputation or the operationsvalue of our suppliers by causing business interruptions or by impacting the availability and cost of materials needed for manufacturing or otherwise impactingbrands. Additionally, laws regulating certain consumer products exist in some states, as well as in other countries in which we sell our ability to deliver products, and servicesmore restrictive laws and regulations could be adopted in the future.
13
Globalglobal climate change could negatively affect our business.
Certain of our products are subject
As a distributor of consumer products in the U.S., certain of our products are subject to the Consumer Product Safety Act, which empowers the U.S. Consumer Product Safety Commission (CPSC) to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the CPSC could require us to repair, replace or refund the purchase price of one or more of our products, or potentially even discontinue entire product lines. We also may voluntarily take such action and, from time to time, have done so, but within strictures recommended by the CPSC. The CPSC also can impose fines or penalties on a manufacturer for non-compliance with its requirements. Furthermore, failure to timely notify the CPSC of a potential safety hazard can result in significant fines being assessed against us. Any repurchases or recalls of our products or an imposition of fines or penalties could be costly to us and could damage the reputation or the value of our brands. Additionally, laws regulating certain consumer products exist in some states, as well as in other countries in which we sell our products, and more restrictive laws and regulations could be adopted in the future.
Human Capital
14
The increasing costs of certain employee and retiree benefits could adversely affect our results.
Currency, raw material price and interest rate fluctuations can adversely affect our results.
We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, raw material prices and interest rates. Fluctuations in foreign currency rates contribute to variations in revenues and costs in impacted jurisdictions which can adversely affect our profitability. We monitor and manage these exposures as an integral part of our overall risk management program. Nevertheless, changes in currency exchange rates, raw material prices and interest rates can have substantial adverse effects on our results of operations.
We may be unable to effectively mitigate pricing pressures.
In some markets, particularly where we deliver component products and services to OEMs, we face ongoing customer demands for price reductions, which sometimes are contractually obligated. However, if we are unable to effectively mitigate future pricing pressures through technological advances or by lowering our cost base through improved operating and supply chain efficiencies, our results of operations could be adversely affected.
Unanticipated changes in our tax rates or exposure to additional income tax liabilities could affect our profitability.
We are subject to income taxes in the U.S. and various non-U.S. jurisdictions, and our domestic and international tax liabilities are subject to the location of income among these different jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings indefinitely reinvested offshore, changes to unrecognized tax benefits or changes in tax laws, which could affect our profitability. In particular, the carrying value of deferred tax assets is dependent on our ability to generate future taxable income, as well as changes to applicable statutory tax rates. In addition, the amount of income taxes we pay is subject to audits in various jurisdictions, and a material assessment by a tax authority could affect our profitability.
15
On
dismiss the Second Amended Complaint. On July 20, 2020, the Court granted Textron’s motion to dismiss and closed the case. On August 18, 2020, plaintiffs filed a notice of appeal contesting the dismissal, which Textron has opposed. That appeal remains pending.
March 10, 2020, the jury returned a verdict in favor of TFC and against the Trustee. On the same day, the Court entered judgment in TFC's favor. On March 23, 2020, the Trustee filed a notice of appeal, which Textron has opposed. That appeal remains pending.
16
| | | | | |
| | | | | Maximum |
| Total | Average Price | Total Number of | Number of Shares | |
| Number of | Paid per Share | Shares Purchased as | that may yet be | |
| Shares | (excluding | part of Publicly | Purchased under | |
Period (shares in thousands) | Purchased * | commissions) | Announced Plan * | the Plan | |
September 29, 2019 – November 2, 2019 | 275 | $ | 46.75 | 275 | 7,615 |
November 3, 2019 – November 30, 2019 | — |
| — | — | 7,615 |
December 1, 2019 – January 4, 2020 | 434 |
| 44.13 | 434 | 7,181 |
Total | 709 | $ | 45.14 | 709 |
|
Period (shares in thousands) | Total Number of Shares Purchased * | Average Price Paid per Share (excluding commissions) | Total Number of Shares Purchased as part of Publicly Announced Plan * | Maximum Number of Shares that may yet be Purchased under the Plan | ||||||||||
| October 4, 2020 – November 7, 2020 | 75 | $ | 38.60 | 75 | 24,050 | |||||||||
| November 8, 2020 – December 5, 2020 | 1,205 | 43.56 | 1,205 | 22,845 | ||||||||||
| December 6, 2020 – January 2, 2021 | 1,555 | 47.49 | 1,555 | 21,290 | ||||||||||
| Total | 2,835 | $ | 45.58 | 2,835 | ||||||||||
On February 25, 2020, our Board of Directors authorized the repurchase of up to 25 million shares of our common stock. This new plan has no expiration date and replaced the existing plan adopted in 2018 that had 6.7 million remaining shares available for repurchase.
| | | | | | | | | | | | |
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | ||||||
Textron Inc. | $ | 100.00 | $ | 99.81 | $ | 115.60 | $ | 134.93 | $ | 108.99 | $ | 106.99 |
S&P 500 |
| 100.00 |
| 101.40 |
| 113.53 |
| 138.32 |
| 131.12 |
| 174.15 |
S&P 500 A&D |
| 100.00 |
| 105.33 |
| 125.25 |
| 177.07 |
| 160.65 |
| 220.35 |
S&P 500 Industrials |
| 100.00 |
| 102.95 |
| 113.37 |
| 138.95 |
| 133.52 |
| 178.27 |
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||||||||
| Textron Inc. | $ | 100.00 | $ | 115.82 | $ | 135.19 | $ | 109.20 | $ | 107.20 | $ | 116.07 | ||||||||
| S&P 500 | 100.00 | 111.96 | 136.40 | 129.31 | 171.74 | 203.04 | ||||||||||||||
| S&P 500 A&D | 100.00 | 118.90 | 168.11 | 152.51 | 209.19 | 169.05 | ||||||||||||||
| S&P 500 Industrials | 100.00 | 110.12 | 134.97 | 129.69 | 173.16 | 212.71 | ||||||||||||||
17
| | | | | | | | | | | | | | | |
(Dollars in millions, except per share amounts) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Revenues (a) | |
| |
| |
| |
| |
| |||||
Textron Aviation | $ | 5,187 | $ | 4,971 | $ | 4,686 | $ | 4,921 | $ | 4,822 | |||||
Bell |
| 3,254 |
| 3,180 |
| 3,317 |
| 3,239 |
| 3,454 | |||||
Textron Systems |
| 1,325 |
| 1,464 |
| 1,840 |
| 1,756 |
| 1,520 | |||||
Industrial |
| 3,798 |
| 4,291 |
| 4,286 |
| 3,794 |
| 3,544 | |||||
Finance |
| 66 |
| 66 |
| 69 |
| 78 |
| 83 | |||||
Total revenues | $ | 13,630 | $ | 13,972 | $ | 14,198 | $ | 13,788 | $ | 13,423 | |||||
Segment profit |
|
|
|
|
|
|
|
|
|
| |||||
Textron Aviation | $ | 449 | $ | 445 | $ | 303 | $ | 389 | $ | 400 | |||||
Bell |
| 435 |
| 425 |
| 415 |
| 386 |
| 400 | |||||
Textron Systems |
| 141 |
| 156 |
| 139 |
| 186 |
| 129 | |||||
Industrial |
| 217 |
| 218 |
| 290 |
| 329 |
| 302 | |||||
Finance |
| 28 |
| 23 |
| 22 |
| 19 |
| 24 | |||||
Total segment profit |
| 1,270 |
| 1,267 |
| 1,169 |
| 1,309 |
| 1,255 | |||||
Corporate expenses and other, net |
| (110) |
| (119) |
| (132) |
| (172) |
| (154) | |||||
Interest expense, net for Manufacturing group |
| (146) |
| (135) |
| (145) |
| (138) |
| (130) | |||||
Special charges (b) |
| (72) |
| (73) |
| (130) |
| (123) |
| — | |||||
Gain on business disposition (c) |
| — |
| 444 |
| — |
| — |
| — | |||||
Income tax expense (d) |
| (127) |
| (162) |
| (456) |
| (33) |
| (273) | |||||
Income from continuing operations | $ | 815 | $ | 1,222 | $ | 306 | $ | 843 | $ | 698 | |||||
Earnings per share |
|
|
|
|
|
|
|
|
|
| |||||
Basic earnings per share — continuing operations | $ | 3.52 | $ | 4.88 | $ | 1.15 | $ | 3.11 | $ | 2.52 | |||||
Diluted earnings per share — continuing operations | $ | 3.50 | $ | 4.83 | $ | 1.14 | $ | 3.09 | $ | 2.50 | |||||
Basic average shares outstanding (in thousands) |
| 231,315 |
| 250,196 |
| 266,380 |
| 270,774 |
| 276,682 | |||||
Diluted average shares outstanding (in thousands) |
| 232,709 |
| 253,237 |
| 268,750 |
| 272,365 |
| 278,727 | |||||
Common stock information |
|
|
|
|
|
|
|
|
|
| |||||
Dividends declared per share | $ | 0.08 | $ | 0.08 | $ | 0.08 | $ | 0.08 | $ | 0.08 | |||||
Book value at year-end | $ | 24.21 | $ | 22.04 | $ | 21.60 | $ | 20.62 | $ | 18.10 | |||||
Price at year-end | $ | 44.74 | $ | 45.65 | $ | 56.59 | $ | 48.56 | $ | 42.01 | |||||
Financial position |
|
|
|
|
|
|
|
|
|
| |||||
Total assets | $ | 15,018 | $ | 14,264 | $ | 15,340 | $ | 15,358 | $ | 14,708 | |||||
Manufacturing group debt | $ | 3,124 | $ | 3,066 | $ | 3,088 | $ | 2,777 | $ | 2,697 | |||||
Finance group debt | $ | 686 | $ | 718 | $ | 824 | $ | 903 | $ | 913 | |||||
Shareholders’ equity | $ | 5,518 | $ | 5,192 | $ | 5,647 | $ | 5,574 | $ | 4,964 | |||||
Manufacturing group debt-to-capital (net of cash) |
| 26 | % |
| 29 | % |
| 26 | % |
| 23 | % |
| 26 | % |
Manufacturing group debt-to-capital |
| 36 | % |
| 37 | % |
| 35 | % |
| 33 | % |
| 35 | % |
Investment data |
|
|
|
|
| |
|
|
|
| |||||
Capital expenditures | $ | 339 | $ | 369 | $ | 423 | $ | 446 | $ | 420 | |||||
Manufacturing group depreciation | $ | 346 | $ | 358 | $ | 362 | $ | 368 | $ | 383 | |||||
(Dollars in millions, except per share amounts) | 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||
| Revenues (a) | |||||||||||||||||
| Textron Aviation | $ | 3,974 | $ | 5,187 | $ | 4,971 | $ | 4,686 | $ | 4,921 | |||||||
| Bell | 3,309 | 3,254 | 3,180 | 3,317 | 3,239 | ||||||||||||
| Textron Systems | 1,313 | 1,325 | 1,464 | 1,840 | 1,756 | ||||||||||||
| Industrial | 3,000 | 3,798 | 4,291 | 4,286 | 3,794 | ||||||||||||
| Finance | 55 | 66 | 66 | 69 | 78 | ||||||||||||
| Total revenues | $ | 11,651 | $ | 13,630 | $ | 13,972 | $ | 14,198 | $ | 13,788 | |||||||
| Segment profit | |||||||||||||||||
| Textron Aviation | $ | 16 | $ | 449 | $ | 445 | $ | 303 | $ | 389 | |||||||
| Bell | 462 | 435 | 425 | 415 | 386 | ||||||||||||
| Textron Systems | 152 | 141 | 156 | 139 | 186 | ||||||||||||
| Industrial | 111 | 217 | 218 | 290 | 329 | ||||||||||||
| Finance | 10 | 28 | 23 | 22 | 19 | ||||||||||||
| Total segment profit | 751 | 1,270 | 1,267 | 1,169 | 1,309 | ||||||||||||
| Corporate expenses and other, net | (122) | (110) | (119) | (132) | (172) | ||||||||||||
| Interest expense, net for Manufacturing group | (145) | (146) | (135) | (145) | (138) | ||||||||||||
| Special charges (b) | (147) | (72) | (73) | (130) | (123) | ||||||||||||
| Inventory charge (c) | (55) | — | — | — | — | ||||||||||||
| Gain on business disposition (d) | — | — | 444 | — | — | ||||||||||||
| Income tax (expense) benefit (e) | 27 | (127) | (162) | (456) | (33) | ||||||||||||
| Income from continuing operations | $ | 309 | $ | 815 | $ | 1,222 | $ | 306 | $ | 843 | |||||||
| Earnings per share | |||||||||||||||||
| Basic earnings per share — continuing operations | $ | 1.35 | $ | 3.52 | $ | 4.88 | $ | 1.15 | $ | 3.11 | |||||||
| Diluted earnings per share — continuing operations | $ | 1.35 | $ | 3.50 | $ | 4.83 | $ | 1.14 | $ | 3.09 | |||||||
| Basic average shares outstanding (in thousands) | 228,536 | 231,315 | 250,196 | 266,380 | 270,774 | ||||||||||||
| Diluted average shares outstanding (in thousands) | 228,979 | 232,709 | 253,237 | 268,750 | 272,365 | ||||||||||||
| Common stock information | |||||||||||||||||
| Dividends declared per share | $ | 0.08 | $ | 0.08 | $ | 0.08 | $ | 0.08 | $ | 0.08 | |||||||
| Book value at year-end | $ | 25.81 | $ | 24.21 | $ | 22.04 | $ | 21.60 | $ | 20.62 | |||||||
| Price at year-end | $ | 48.33 | $ | 44.74 | $ | 45.65 | $ | 56.59 | $ | 48.56 | |||||||
| Financial position | |||||||||||||||||
| Total assets | $ | 15,443 | $ | 15,018 | $ | 14,264 | $ | 15,340 | $ | 15,358 | |||||||
| Manufacturing group debt | $ | 3,707 | $ | 3,124 | $ | 3,066 | $ | 3,088 | $ | 2,777 | |||||||
| Finance group debt | $ | 662 | $ | 686 | $ | 718 | $ | 824 | $ | 903 | |||||||
| Shareholders’ equity | $ | 5,845 | $ | 5,518 | $ | 5,192 | $ | 5,647 | $ | 5,574 | |||||||
| Manufacturing group debt-to-capital (net of cash) | 21% | 26% | 29% | 26% | 23% | ||||||||||||
| Manufacturing group debt-to-capital | 39% | 36% | 37% | 35% | 33% | ||||||||||||
| Investment data | |||||||||||||||||
| Capital expenditures | $ | 317 | $ | 339 | $ | 369 | $ | 423 | $ | 446 | |||||||
| Manufacturing group depreciation | $ | 325 | $ | 346 | $ | 358 | $ | 362 | $ | 368 | |||||||
18
At the beginning of 2018, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASC 606) using a modified retrospective transition method applied to contracts that were not substantially complete at the end of 2017. We recorded a $90 million adjustment to increase retained earnings to reflect the cumulative impact of adopting this standard at the beginning of 2018, primarily related to certain long-term contracts our Bell segment has with the U.S. Government that converted to the cost-to-cost method for revenue recognition. For 2019 and 2018, revenues for our U.S. Government contracts were primarily recognized as costs are incurred, while revenues for 2017 were primarily recognized as units were delivered. The comparative information for 2017 has not been restated and is reported under the accounting standards in effect at that time.
2019 Financial Highlights
% Change (Dollars in millions) 2019 2018 2017 2019 2018 Revenues $ 13,630 $ 13,972 $ 14,198 (2) % (2) % Cost of sales 11,406 11,594 11,827 (2) % (2) % Gross margin as a percentage of Manufacturing revenues 15.9 % 16.6 % 16.3 % Selling and administrative expense 1,152 1,275 1,334 (10) % (4) % Interest expense 171 166 174 3 % (5) %Consolidated Results of Operations% Change (Dollars in millions) 2020 2019 2018 2020 2019 Revenues $ 11,651 $ 13,630 $ 13,972 (15)% (2)% Cost of sales 10,094 11,406 11,594 (12)% (2)% Gross margin as a percentage of Manufacturing revenues 13.0% 15.9% 16.6% Selling and administrative expense 1,045 1,152 1,275 (9)% (10)% Interest expense 166 171 166 (3)% 3% 20RevenuesRevenues decreased $342 million, 2%$2.0 billion, 15%, in 2019,2020, compared with 2018.2019. The revenue decrease included the following factors:●Lower Industrial revenues of $493 million, primarily reflecting a $248 million impact from the 2018 disposition of the Tools and Test Equipment product line and lower volume and mix of $233 million at the remaining product lines, primarily in the Specialized Vehicles product line. ●Lower Textron Systems revenues of $139 million, largely reflecting lower volume of $103 million in the Marine and Land Systems product line and $41 million in the Unmanned Systems product line.●Higher Textron Aviation revenues of $216 million, largely due to higher Citation jet volume of $286 million, primarily reflecting the Longitude’s entry into service in the fourth quarter of 2019, and higher aftermarket volume of $44 million, partially offset by lower defense volume.●Higher Bell revenues of $74 million, resulting from an increase in commercial revenues of $116 million, largely reflecting higher deliveries, partially offset by lower military volume.
Revenues decreased $226•Textron Aviation revenues were lowerby$1.2 billion,largelyduetolowerCitationjetandcommercialturbopropvolumeof $916 million, 2%,reflecting a decline in 2018, compared with 2017,demand related to the pandemic, and lower aftermarket volume of $337 million, reflecting lower aircraft utilization resulting from the pandemic.
19
Cost of Sales and Selling and Administrative Expense
idle facility costs and inventory valuation charges.
In 2018, cost of sales decreased $233 million, 2%, compared with 2017, largely resulting from the disposition of the ToolsTextron Aviation and Test Equipment product line and lower net volume as described above. Selling and administrative expense decreased $59 million, 4%, in 2018, compared with 2017, primarily reflecting the impact from the disposition of the Tools and Test Equipment product line.
Interest Expense
Interest expense on the Consolidated Statements of Operations includes interest for both the Finance and Manufacturing borrowing groups with interest related to intercompany borrowings eliminated. Interest expense for the Finance segment is included within segment profit and includes intercompany interest. Consolidated interest expense increased $5 million in 2019, compared with 2018, primarily due to higher average debt outstanding. In 2018, consolidated interest expense decreased $8 million, compared with 2017, primarily due to lower average debt outstanding.
Industrial segments.
Gain on Business Disposition
On July 2, 2018, we completedStatements in Item 8. Financial Statements and Supplementary Data.
| 2020 | 2019 | 2018 | |||||||||
| Effective tax rate | (9.6%) | 13.5% | 11.7% | ||||||||
Income Taxes
| | | | | | |
| 2019 | 2018 | 2017 | |||
Effective tax rate | 13.5 | % | 11.7 | % | 59.8 | % |
research credits. In 2019, the effective tax rate of 13.5% was lower than the U.S. federal statutory tax rate of 21%, primarily due to $61 million in benefits recognized for additional tax credits related to prior years as a result of the completion of a research and development tax credit analysis.
In 2018, our effective tax rate of 11.7% was lower than the U.S. federal statutory tax rate of 21%, primarily due to the disposition of the Tools and Test equipment product line which resulted in a gain taxable primarily in non-U.S. jurisdictions that partially exempt such gains from tax. The effective tax rate for 2018 also reflects a $25 million benefit recognized upon the reassessment of our reserve for uncertain tax positions based on new information, including interactions with the tax authorities and recent audit settlements. In addition, we finalized the 2017 impacts of the Tax Cut and Jobs Act (the Tax Act) and recognized a $14 million benefit in the fourth quarter of 2018.
Our effective tax rate of 59.8% for 2017 was higher than the U.S. federal statutory tax rate of 35%, largely due to the impact from the Tax Act. In the fourth quarter of 2017, we recorded a provisional estimate of $266 million for one-time adjustments resulting from the Tax Act. Approximately $154 million of this provisional estimate represented a charge resulting from the remeasurement of our U.S. federal deferred tax assets and liabilities, and the remainder represented a provision for the transition tax on post-1986 earnings and profits previously deferred from U.S. income taxes.
20
Segment Analysis
| | | | | | | | | | | | | |
| | | | | | | | | | % Change |
| ||
(Dollars in millions) | 2019 | 2018 | 2017 | 2019 | 2018 | ||||||||
Revenues: | |
|
| |
|
| |
|
|
|
|
| |
Aircraft | $ | 3,592 | | $ | 3,435 | | $ | 3,112 | | 5 | % | 10 | % |
Aftermarket parts and services |
| 1,595 | |
| 1,536 | |
| 1,574 | | 4 | % | (2) | % |
Total revenues |
| 5,187 | |
| 4,971 | |
| 4,686 | | 4 | % | 6 | % |
Operating expenses |
| 4,738 | |
| 4,526 | |
| 4,383 | | 5 | % | 3 | % |
Segment profit |
| 449 | |
| 445 | |
| 303 | | 1 | % | 47 | % |
Profit margin |
| 8.7 | % |
| 9.0 | % |
| 6.5 | % |
|
|
| |
Backlog | $ | 1,714 | | $ | 1,791 | | $ | 1,180 | | (4) | % | 52 | % |
| % Change | |||||||||||||||||
| (Dollars in millions) | 2020 | 2019 | 2018 | 2020 | 2019 | ||||||||||||
| Revenues: | |||||||||||||||||
| Aircraft | $ | 2,714 | $ | 3,592 | $ | 3,435 | (24)% | 5% | |||||||||
| Aftermarket parts and services | 1,260 | 1,595 | 1,536 | (21)% | 4% | ||||||||||||
| Total revenues | 3,974 | 5,187 | 4,971 | (23)% | 4% | ||||||||||||
| Operating expenses | 3,958 | 4,738 | 4,526 | (16)% | 5% | ||||||||||||
| Segment profit | 16 | 449 | 445 | (96)% | 1% | ||||||||||||
| Profit margin | 0.4% | 8.7% | 9.0% | ||||||||||||||
| Backlog | $ | 1,603 | $ | 1,714 | $ | 1,791 | (6)% | (4)% | |||||||||
|
|
| |||
| 2020 versus | ||||
|
| ||||
Volume and mix | $ |
| |||
Pricing | 5 |
| |||
Total change | $ |
| |||
21
Textron Aviation’s operating expenses increased $212decreased $780 million, 5%16%, in 2019,2020, compared with 2018,2019, largely due to higher netlower volume and mix as described above and an unfavorableabove. A favorable impact from inflation, partiallycost reduction activities, including employee furloughs and other actions, was more than offset by improved$115 million of idle facility costs recognized in the period and higher inventory valuation charges of $60 million, largely resulting from the pandemic. Idle facility costs reflect unfavorable absorption of manufacturing performance.
Factors contributingcosts attributable to abnormally low production levels resulting from the 2018 year-over-year revenue change are provided below:
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
|
Textron Aviation’s revenues increased $285 million, 6%, in 2018, compared with 2017, due to higher volumepandemic and mixtemporary manufacturing facility closures.
Textron Aviation’s operating expenses increased $143 million, 3%, in 2018, compared with 2017, largely due to higher net volume as described above.
|
|
| |||
| 2020 versus | ||||
|
| ||||
|
|
| |||
|
| ||||
Volume and mix | $ |
| |||
Inflation and pricing | (45) | ||||
| Performance | (41) | ||||
| Total change | $ |
| |||
Factors contributing to 2018 year-over-year segment profit change are provided below:
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
| |
|
|
|
Segment profit at Textron Aviation increased $142 million, 47%, in 2018, compared with 2017, primarily2019, due to the impact from higherlower volume and mix described above. Performance includes $115 million of $65 million asidle facility costs, described above, and higher inventory valuation charges of $60 million, largely resulting from the pandemic, partially offset by a favorable impact from pricing, net of inflation.
Textron Aviation Backlog
Backlog at Textron Aviation increased $611 million, 52%, in 2018 as a result of orders in excess of deliveries.
22
Bell
| | | | | | | | | | | | | |
| | | | | | | | | | % Change |
| ||
(Dollars in millions) | 2019 | 2018 | 2017 | 2019 | 2018 | ||||||||
Revenues: | |
|
| |
|
| |
|
|
|
|
| |
Military aircraft and support programs | $ | 1,988 | | $ | 2,030 | | $ | 2,076 | | (2) | % | (2) | % |
Commercial helicopters, parts and services |
| 1,266 | |
| 1,150 | |
| 1,241 | | 10 | % | (7) | % |
Total revenues |
| 3,254 | |
| 3,180 | |
| 3,317 | | 2 | % | (4) | % |
Operating expenses |
| 2,819 | |
| 2,755 | |
| 2,902 | | 2 | % | (5) | % |
Segment profit |
| 435 | |
| 425 | |
| 415 | | 2 | % | 2 | % |
Profit margin |
| 13.4 | % |
| 13.4 | % |
| 12.5 | % |
|
|
| |
Backlog | $ | 6,902 | | $ | 5,837 | | $ | 4,598 | | 18 | % | 27 | % |
% Change (Dollars in millions) 2020 2019 2018 2020 2019 Revenues: Military aircraft and support programs $ 2,213 $ 1,988 $ 2,030 11% (2)% Commercial helicopters, parts and services 1,096 1,266 1,150 (13)% 10% Total revenues 3,309 3,254 3,180 2% 2% Operating expenses 2,847 2,819 2,755 1% 2% Segment profit 462 435 425 6% 2% Profit margin 14.0% 13.4% 13.4% Backlog $ 5,342 $ 6,902 $ 5,837 (23)% 18%
|
|
| |||
| 2020 versus | ||||
|
| ||||
Volume and mix | $ |
| |||
Other | 14 |
| |||
Total change | $ |
| |||
2019.
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
|
Bell’s revenues decreased $137 million, 4%, in 2018, compared with 2017, due to lower commercial revenues of $91 million, largely reflecting the mix of aircraft sold in the year, and lower military revenues of $46 million. We delivered 192 commercial helicopters in 2018, compared with 132 commercial helicopters in 2017.
Bell’s operating expenses decreased $147 million, 5%, in 2018, compared with 2017, primarily due to lower volume and mix as described above and improved performance on military programs described below.
Bell Segment Profit
Factors contributing to 20192020 year-over-year segment profit change are provided below:
|
|
| |||
| 2020 versus | ||||
|
| 16 | |||
Performance and other |
|
| |||
|
| ||||
Total change | $ |
| |||
23
Factors contributing to 2018 year-over-year segment profit change are provided below:
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
Bell’s segment profit increased $10 million, 2%backlog decreased $1.6 billion, 23%, in 2018, compared with 2017, due to2020, primarily as a favorable impact of $60 million from performance and other, partially offset by an unfavorable impact from volume and mix, largely due to the mix of commercial aircraft sold in the year. The impact from performance and other was largely the result of $77 million in improved performancerevenues recognized on military programs, which included an increase in favorable profit adjustments reflecting retirements of risk related to cost estimates and improved labor and overhead rates, partially offset by higher research and development costs.
Bell Backlog
Bell’s backlog increased $1.1 billion, 18%, in 2019, primarily reflecting new contracts with theour U.S. Government for spares and logistic support for the V-22 tiltrotor aircraft and the H-1 helicopter programs,contracts in excess of revenues recognized.
Bell’s backlog increased $1.2 billion, 27%, in 2018. Newnew contracts received in excess of revenues recognized totaled $2.0 billion, which primarily reflected an increase of $2.4 billion for Bell’s portion of a third multi-year V-22 contract for the production and delivery of 63 units along with related supplies and services through 2024. This was partially offset by a decrease of $760 million upon the adoption of ASC 606 at the beginning of 2018, largely resulting from the acceleration of revenues upon conversion to the cost-to-cost method of revenue recognition.
received.
| | | | | | | | | | | | | |
| | | | | | | | | | % Change |
| ||
(Dollars in millions) | 2019 | 2018 | 2017 | 2019 | 2018 | ||||||||
Revenues | $ | 1,325 | | $ | 1,464 | | $ | 1,840 | | (9) | % | (20) | % |
Operating expenses |
| 1,184 | |
| 1,308 | |
| 1,701 | | (9) | % | (23) | % |
Segment profit |
| 141 | |
| 156 | |
| 139 | | (10) | % | 12 | % |
Profit margin |
| 10.6 | % |
| 10.7 | % |
| 7.6 | % |
| |
| |
Backlog | $ | 1,211 | | $ | 1,469 | | $ | 1,406 | | (18) | % | 4 | % |
| % Change | |||||||||||||||||
| (Dollars in millions) | 2020 | 2019 | 2018 | 2020 | 2019 | ||||||||||||
| Revenues | $ | 1,313 | $ | 1,325 | $ | 1,464 | (1)% | (9)% | |||||||||
| Operating expenses | 1,161 | 1,184 | 1,308 | (2)% | (9)% | ||||||||||||
| Segment profit | 152 | 141 | 156 | 8% | (10)% | ||||||||||||
| Profit margin | 11.6% | 10.6% | 10.7% | ||||||||||||||
| Backlog | $ | 2,556 | $ | 1,211 | $ | 1,469 | 111% | (18)% | |||||||||
|
|
| |||
| 2020 versus | ||||
|
| (16) | |||
|
|
| |||
|
| ||||
Total change | $ |
| |||
Within the Simulation, Training and Other product line, lower volume of $107 million in the TRU Simulation + Training business, largely due to a decline in demand and order cancellations related to the pandemic, was largely offset by higher volumes at other businesses included in this product line.
24
Factors contributing to the 2018 year-over-year revenue change are provided below:
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
|
Revenues at Textron Systems decreased $376 million, 20%, in 2018, compared with 2017, primarily due to lower volume of $159 million in the Marine and Land Systems product line reflecting lower Tactical Armoured Patrol Vehicle program (TAPV) deliveries, along with a decrease due to the discontinuance of our sensor-fuzed weapon product in 2017.
Textron Systems’ operating expenses decreased $393 million, 23%, in 2018, compared with 2017, primarily due to lowernet volume described above. The decrease in operating expenses in 2018 also included the impact from unfavorable net program adjustments recorded in 2017 as described below.
|
|
| |||
| 2020 versus | ||||
|
| 13 | |||
Performance and other |
|
| |||
|
| ||||
Total change | $ |
| |||
new contracts received in excess of revenues recognized across all product lines.
| % Change | |||||||||||||||||
| (Dollars in millions) | 2020 | 2019 | 2018 | 2020 | 2019 | ||||||||||||
| Revenues: | |||||||||||||||||
| Fuel Systems and Functional Components | $ | 1,751 | $ | 2,237 | $ | 2,352 | (22)% | (5)% | |||||||||
| Specialized Vehicles | 1,249 | 1,561 | 1,691 | (20)% | (8)% | ||||||||||||
| Tools and Test Equipment | — | — | 248 | —% | (100)% | ||||||||||||
| Total revenues | 3,000 | 3,798 | 4,291 | (21)% | (11)% | ||||||||||||
| Operating expenses | 2,889 | 3,581 | 4,073 | (19)% | (12)% | ||||||||||||
| Segment profit | 111 | 217 | 218 | (49)% | —% | ||||||||||||
| Profit margin | 3.7% | 5.7% | 5.1% | ||||||||||||||
| (In millions) | 2020 versus 2019 | ||||
| Volume and mix | $ | (817) | |||
| Foreign exchange | 7 | ||||
| Other | 12 | ||||
| Total change | $ | (798) | |||
|
|
| |||
|
2019 | ||||
|
| ||||
|
|
| |||
Volume and mix | $ |
| |||
|
|
| |||
Textron Systems’ segment profit increased $17 million, 12%, in 2018, compared with 2017, primarily due to favorable performance and other of $62 million, partially offset by lower volume described above. Performance and other improved largely due to unfavorable program adjustments of $44 million recorded in 2017 related to the TAPV program. In 2017, this program experienced inefficiencies resulting from various production issues during the ramp up and subsequent production.
Textron Systems Backlog
In 2019, backlog decreased $258 million, 18%, primarily in the Marine and Land Systems product line as revenues recognized exceeded new contracts.
25
Industrial
| | | | | | | | | | | | | |
| | | | | | | | | | % Change |
| ||
(Dollars in millions) | 2019 | 2018 | 2017 | 2019 | 2018 | ||||||||
Revenues: | |
| | |
| | |
|
|
|
|
| |
Fuel Systems and Functional Components | $ | 2,237 | | $ | 2,352 | | $ | 2,330 | | (5) | % | 1 | % |
Specialized Vehicles | | 1,561 | | | 1,691 | | | 1,486 | | (8) | % | 14 | % |
Tools and Test Equipment |
| — | |
| 248 | |
| 470 | | — | | (47) | % |
Total revenues |
| 3,798 | |
| 4,291 | |
| 4,286 | | (11) | % | — | |
Operating expenses |
| 3,581 | |
| 4,073 | |
| 3,996 | | (12) | % | 2 | % |
Segment profit |
| 217 | |
| 218 | |
| 290 | | — | | (25) | % |
Profit margin |
| 5.7 | % |
| 5.1 | % | | 6.8 | % |
|
|
| |
Industrial Revenues and Operating Expenses
Factors contributing to the 2019 year-over-year revenue change are provided below:
|
|
| ||
|
| |||
|
| |||
|
|
| ||
|
| |||
|
| |||
|
| |||
|
|
| ||
Industrial segment revenues decreased $493 million, 11%, in 2019, compared with 2018, largely due to the impact of $248 million from the disposition of the Tools and Test Equipment product line in 2018 and $233 million of lower volume and mix at the remaining product lines, primarily in the Specialized Vehicles product line. The reduction in volume in the Specialized Vehicles product line largely reflected our management of the distribution channel related to products under the Arctic Cat brand, including a reduction of inventories sold into the channel.
Operating expenses for the Industrial segment decreased $492 million, 12%, in 2019 compared with 2018, primarily due to lower operating expenses of $226 million from the disposition of our Tools and Test Equipment product line, lower volume and mix described above and improved performance described below.
Factors contributing to the 2018 year-over-year revenue change are provided below:
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
|
Industrial segment revenues increased $5 million, in 2018, compared with 2017. Higher volume of $149 million, largely related to the Specialized Vehicles product line, a favorable impact of $57 million from foreign exchange, primarily related to the strengthening of the Euro against the U.S. dollar, and the impact of $49 million from the acquisition of Arctic Cat on March 6, 2017, were largely offset by $246 million in lower revenues due to the disposition of the Tools and Test Equipment product line.
Operating expenses for the Industrial segment increased $77 million, 2%, in 2018, compared with 2017, primarily due to higher volume described above, the impact from foreign exchange and additional operating expenses from the Arctic Cat acquisition. These increases were partially offset by lower operating expenses from the disposition of our Tools and Test Equipment product line.
26
Industrial Segment Profit
Factors contributing to 2019 year-over-year segment profit change are provided below:
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
|
Segment profit for the Industrial segment was largely unchanged in 2019, compared with 2018, as favorable performance of $94 million, principally in the Specialized Vehicles product line primarily reflecting cost reduction activities, was largely offset by the impact from lower volume and mix described above. Performance also includes the impact of a $17 million favorable adjustment recognized in the fourth quarter of 2018 related to a patent infringement matter.
Factors contributing to 2018 year-over-year segment profit change are provided below:
|
|
| |||
|
| ||||
|
| ||||
|
|
| |||
Pricing and inflation |
|
| |||
| 2 |
| |||
|
| ||||
Total change | $ |
| |||
| | | | | | |
(In millions) | 2019 | 2018 | 2017 | |||
Revenues | $ | 66 | $ | 66 | $ | 69 |
Segment profit |
| 28 |
| 23 |
| 22 |
Finance segment revenues were unchanged and segment profit increased $5 million in 2019, compared with 2018.
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Revenues | $ | 55 | $ | 66 | $ | 66 | |||||
| Segment profit | 10 | 28 | 23 | ||||||||
| | | | | | |
| January 4, | December 29, | ||||
(Dollars in millions) | 2020 | 2018 | ||||
Finance receivables | $ | 707 | $ | 789 | ||
Nonaccrual finance receivables |
| 39 |
| 40 | ||
Ratio of nonaccrual finance receivables to finance receivables |
| 5.52 | % |
| 5.07 | % |
60+ days contractual delinquency | $ | 17 | $ | 14 | ||
60+ days contractual delinquency as a percentage of finance receivables |
| 2.40 | % |
| 1.77 | % |
| (Dollars in millions) | January 2, 2021 | January 4, 2020 | ||||||
| Finance receivables | $ | 779 | $ | 707 | ||||
| Allowance for credit losses | 35 | 25 | ||||||
| Ratio of allowance for credit losses to finance receivables | 4.49% | 3.54% | ||||||
| Nonaccrual finance receivables | 93 | 39 | ||||||
| Ratio of nonaccrual finance receivables to finance receivables | 11.94% | 5.52% | ||||||
| 60+ days contractual delinquency | 29 | 17 | ||||||
| 60+ days contractual delinquency as a percentage of finance receivables | 3.72% | 2.40% | ||||||
27
Liquidity and Capital Resources
| | | | | | |
| January 4, | December 29, | ||||
(Dollars in millions) | 2020 | 2018 | ||||
Manufacturing group | |
|
| |
| |
Cash and equivalents | $ | 1,181 | $ | 987 | ||
Debt |
| 3,124 |
| 3,066 | ||
Shareholders’ equity |
| 5,518 |
| 5,192 | ||
Capital (debt plus shareholders’ equity) |
| 8,642 |
| 8,258 | ||
Net debt (net of cash and equivalents) to capital |
| 26 | % |
| 29 | % |
Debt to capital |
| 36 | % |
| 37 | % |
Finance group |
|
| |
|
| |
Cash and equivalents | $ | 176 | $ | 120 | ||
Debt |
| 686 |
| 718 | ||
We believe that
| (Dollars in millions) | January 2, 2021 | January 4, 2020 | ||||||
| Manufacturing group | ||||||||
| Cash and equivalents | $ | 2,146 | $ | 1,181 | ||||
| Debt | 3,707 | 3,124 | ||||||
| Shareholders’ equity | 5,845 | 5,518 | ||||||
| Capital (debt plus shareholders’ equity) | 9,552 | 8,642 | ||||||
| Net debt (net of cash and equivalents) to capital | 21% | 26% | ||||||
| Debt to capital | 39% | 36% | ||||||
| Finance group | ||||||||
| Cash and equivalents | $ | 108 | $ | 176 | ||||
| Debt | 662 | 686 | ||||||
On October 18, 2019, the availability of our existing credit facility.
In June 2019,August 2020, we amendedissued $500 million of SEC-registered fixed-rate notes due March 2031 with an annual interest rate of 2.45%, the proceeds of which were used to repay $500 million of outstanding borrowings under a new 364-Day Term Loan Credit Agreement entered into in April 2020.
28
Manufacturing Group Cash Flows
| | | | | | |
(In millions) | 2019 | 2018 | 2017 | |||
Operating activities | $ | 960 | $ | 1,127 | $ | 930 |
Investing activities |
| (329) |
| 539 |
| (728) |
Financing activities |
| (439) |
| (1,738) |
| (266) |
In 2019, cash
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Operating activities | $ | 833 | $ | 960 | $ | 1,127 | |||||
| Investing activities | (277) | (329) | 539 | ||||||||
| Financing activities | 393 | (439) | (1,738) | ||||||||
Cash flows provided by operating activities in 2018working capital accounts.
Net tax payments/(receipts) were $120 million, $129 million and $(16) million in 2019, 2018 and 2017, respectively. Pension contributions were $47 million and $51 million $52 millionin 2020 and $358 million in 2019, 2018respectively.
In 2019, investing cash flows included capital expenditures of $317 million and $339 million. Investing cashmillion, respectively. Cash flows provided by financing activities in 20182020 primarily included $1.1 billion of net cash proceeds of $807 million from the dispositionissuance of the Toolslong-term debt and Test Equipment product line and net$377 million of proceeds from borrowings against corporate-owned life insurance policies. These cash inflows were partially offset by $548 million of payments on long-term debt, $377 million of payments on borrowings against corporate-owned life insurance policies, and $183 million of $110cash paid to repurchase an aggregate of 4.1 million partially offset by capital expendituresshares of $369 million. In 2017, cash flows used by investing activities included capital expenditures of $423 millionour common stock under both a prior 2018 share repurchase plan and a $316 million aggregate2020 share repurchase plan described below. In 2019, cash payment for the Arctic Cat acquisition.
Cash flows used in financing activities in 2019 primarily included $503 million of cash paid to repurchase an aggregate of 10.0 million shares of our outstanding common stock under a 2018 share repurchase authorization and $252 million of payments on long-term debt, partially offset by net proceeds of $301 million from the issuance of long-term debt. In 2018, financing cash flows included $1.8 billion of cash paid to repurchase an aggregate of 29.1 million shares of our outstanding common stock under the 2018 authorization and a prior 2017 authorization. Financing cash flows in 2017 included $582 million of cash paid to repurchase an aggregate of 11.9 million of our outstanding common stock under prior share repurchase authorizations and the repayment of outstanding debt of $704 million, partially offset by proceeds from long-term debt of $992 million.
authorization.
29
Finance Group Cash Flows
| | | | | | |
(In millions) | 2019 | 2018 | 2017 | |||
Operating activities | $ | 34 | $ | 14 | $ | (24) |
Investing activities |
| 135 |
| 99 |
| 140 |
Financing activities |
| (113) |
| (176) |
| (94) |
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Operating activities | $ | 13 | $ | 34 | $ | 14 | |||||
| Investing activities | (48) | 135 | 99 | ||||||||
| Financing activities | (33) | (113) | (176) | ||||||||
2019.
| | | | | | |
(In millions) | 2019 | 2018 | 2017 | |||
Operating activities | $ | 1,016 | $ | 1,109 | $ | 963 |
Investing activities | | (266) | | 620 | | (645) |
Financing activities | | (502) |
| (1,864) | | (360) |
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Operating activities | $ | 769 | $ | 1,016 | $ | 1,109 | |||||
| Investing activities | (248) | (266) | 620 | ||||||||
| Financing activities | 360 | (502) | (1,864) | ||||||||
In 2018, consolidated cash flows provided by operating activities were $1,109 million, compared with $963 million in 2017, a 15% increase, primarily reflecting lower pension contributions of $306 million and higher earnings, partially offset by a higher use of net working capital in 2018, reflecting a $114 million increase in net tax payments and $45 million in lower cash flows related to captive financing activities.
accounts.
In 2019, investing cash flows included capital expenditures of $339 million. Investing cash flows in 2018 included net cash proceeds of $807 million from the disposition of the Tools and Test Equipment product line and net proceeds from corporate-owned life insurance policies of $110 million, partially offset by capital expenditures of $369 million. In 2017, cash flows used by investing activities included capital expenditures of $423$317 million and a $316$339 million, aggregate cash payment for the Arctic Cat acquisition.
In 2019, 2018 and 2017, cash used inrespectively. Cash flows provided by financing activities in 2020 primarily included share repurchases$1.1 billion of $503 million, $1,783 million and $582 million, respectively, and the repayment of outstanding debt of $303 million, $131 million and $841 million, respectively. In 2019 and 2017, financing cash flows also includednet proceeds from the issuance of long-term debt and $377 million from borrowings against corporate-owned life insurance policies. These cash inflows were partially offset by $593 million of payments on outstanding debt, $377 million of payments on borrowings against corporate-owned life insurance policies, and $183 million of share repurchases. In 2019, cash flows used in financing activities primarily included $503 million of share repurchases and $303 million of payments on outstanding debt, partially offset by $301 million and $1,036 million, respectively.
30
Captive Financing and Other Intercompany Transactions
| | | | | | |
(In millions) | 2019 | 2018 | 2017 | |||
Reclassification adjustments from investing activities: | |
| |
| |
|
Cash received from customers | $ | 229 | $ | 199 | $ | 241 |
Finance receivable originations for Manufacturing group inventory sales |
| (184) |
| (177) |
| (174) |
Other |
| 27 |
| (4) |
| (10) |
Total reclassification adjustments from investing activities |
| 72 |
| 18 |
| 57 |
Reclassification adjustments from financing activities: |
|
|
|
|
|
|
Dividends received by Manufacturing group from Finance group |
| (50) |
| (50) |
| — |
Total reclassification adjustments to cash flow from operating activities | $ | 22 | $ | (32) | $ | 57 |
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Reclassification adjustments from investing activities: | |||||||||||
| Finance receivable originations for Manufacturing group inventory sales | $ | (195) | $ | (184) | $ | (177) | |||||
| Cash received from customers | 106 | 229 | 199 | ||||||||
| Other | 12 | 27 | (4) | ||||||||
| Total reclassification adjustments from investing activities | (77) | 72 | 18 | ||||||||
| Reclassification adjustments from financing activities: | |||||||||||
| Dividends received by Manufacturing group from Finance group | — | (50) | (50) | ||||||||
| Total reclassification adjustments to cash flow from operating activities | $ | (77) | $ | 22 | $ | (32) | |||||
| | | | | | | | | | |
| | | Payments Due by Period | |||||||
| | | | | | | | | More Than 5 | |
(In millions) | Total | Year 1 | Years 2-3 | Years 4-5 | Years | |||||
Debt | $ | 3,139 | $ | 561 | $ | 514 | $ | 368 | $ | 1,696 |
Purchase obligations not reflected in balance sheet |
| 3,376 |
| 2,570 |
| 729 |
| 76 |
| 1 |
Interest on borrowings |
| 631 |
| 127 |
| 182 |
| 154 |
| 168 |
Pension benefits for unfunded plans |
| 405 |
| 27 |
| 53 |
| 47 |
| 278 |
Postretirement benefits other than pensions |
| 246 |
| 26 |
| 46 |
| 40 |
| 134 |
Other long-term liabilities |
| 293 |
| 62 |
| 93 |
| 44 |
| 94 |
Operating leases |
| 356 |
| 57 |
| 88 |
| 57 |
| 154 |
Total Manufacturing group | $ | 8,446 | $ | 3,430 | $ | 1,705 | $ | 786 | $ | 2,525 |
2, 2021:
| Payments Due by Period | |||||||||||||||||
| (In millions) | Total | Year 1 | Years 2-3 | Years 4-5 | More Than 5 Years | ||||||||||||
| Debt | $ | 3,731 | $ | 509 | $ | 16 | $ | 718 | $ | 2,488 | |||||||
| Purchase obligations not reflected in balance sheet | 3,103 | 2,284 | 774 | 45 | — | ||||||||||||
| Interest on borrowings | 819 | 134 | 225 | 194 | 266 | ||||||||||||
| Operating leases | 456 | 59 | 97 | 68 | 232 | ||||||||||||
| Pension benefits for unfunded plans | 440 | 28 | 54 | 50 | 308 | ||||||||||||
| Postretirement benefits other than pensions | 230 | 23 | 42 | 36 | 129 | ||||||||||||
| Other long-term liabilities | 293 | 63 | 104 | 30 | 96 | ||||||||||||
| Total Manufacturing group | $ | 9,072 | $ | 3,100 | $ | 1,312 | $ | 1,141 | $ | 3,519 | |||||||
31
Other Long-Term Liabilities
| | | | | | | | | | |
| | | Payments Due by Period | |||||||
| | | | | | | | | More Than 5 | |
(In millions) | Total | Year 1 | Years 2-3 | Years 4-5 | Years | |||||
Term debt | $ | 387 | $ | 167 | $ | 181 | $ | 32 | $ | 7 |
Subordinated debt | | 299 | | — | | — | | — | | 299 |
Interest on borrowings |
| 269 |
| 22 |
| 33 |
| 24 |
| 190 |
Total Finance group | $ | 955 | $ | 189 | $ | 214 | $ | 56 | $ | 496 |
2, 2021:
| Payments Due by Period | |||||||||||||||||
| (In millions) | Total | Year 1 | Years 2-3 | Years 4-5 | More Than 5 Years | ||||||||||||
| Term debt | $ | 368 | $ | 13 | $ | 332 | $ | 20 | $ | 3 | |||||||
| Subordinated debt | 294 | — | — | — | 294 | ||||||||||||
| Interest on borrowings | 140 | 15 | 19 | 12 | 94 | ||||||||||||
| Total Finance group | $ | 802 | $ | 28 | $ | 351 | $ | 32 | $ | 391 | |||||||
At the beginning of 2018, we adopted ASC 606 as discussed in Note 1 to the Consolidated Financial Statements. With the adoption of this standard , due to the continuous transfer of control to the U.S. Government, we recognize revenue over the time that we perform under the contract. Selecting the method to measure progress towards completion requires judgmentparts and is based on the nature of the products or service to be provided.services. We generally use the cost-to-cost method to measure progress for ourthese contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts. Under this measure, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion of the performance obligation, and revenue is recorded proportionally as costs are incurred.
Prior to the ASC 606 adoption, we accounted for our long-term contracts under the percentage of completion method of accounting. Under this method, we estimated profit as the difference between total estimated revenues and cost of a contract. We then recognized that estimated profit over the contract term based on either the units-of-delivery method or the cost-to-cost method (which typically was used for development effort as costs were incurred), as appropriate under the circumstances. Revenues under fixed price contracts generally were recorded using the units-of-delivery method, while revenues under cost-reimbursement contracts were recorded using the cost-to-cost method.
32
The transaction price for our contracts represents our best estimate of the consideration we expect towill receive and includes assumptions regarding variable consideration as applicable. Certain of our long-term contracts contain incentive fees or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance, historical performance, and all other information that is reasonably available to us.
| | | | | | |
(In millions) | 2019 | 2018 | 2017 | |||
Gross favorable | $ | 173 | $ | 249 | $ | 92 |
Gross unfavorable |
| (82) |
| (53) |
| (87) |
Net adjustments | $ | 91 | $ | 196 | $ | 5 |
With the adoption of ASC 606 in 2018, a significant portion of our contracts with the U.S. Government converted to the cost-to-cost method for revenue recognition from the units of delivery method. The cost-to-cost method generally results in larger cumulative catch-up adjustments since revenue is recognized earlier on these contracts requiring the estimation of costs over longer periods of time. Under the units of delivery method that we used for many of our contracts in 2017, we had more time to develop and refine our estimates as we were not required to recognize revenue until our products were delivered much later in the contract term.
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Gross favorable | $ | 148 | $ | 173 | $ | 249 | |||||
| Gross unfavorable | (76) | (82) | (53) | ||||||||
| Net adjustments | $ | 72 | $ | 91 | $ | 196 | |||||
33
Goodwill
We evaluate the recoverability of goodwill annually in the fourth quarter or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying valuea potential impairment of a reporting unit might be impaired. Theunit. A reporting unit represents the operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment, in which case such component is the reporting unit. In certain instances, we have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics.
34
| | | | | | |
(In millions) | 2019 | 2018 | 2017 | |||
Increase (decrease) in revenues | $ | (66) | $ | 57 | $ | 27 |
Increase (decrease) in segment profit |
| (10) |
| 1 |
| (1) |
This strategy includes the use of interest rate swap agreements. At the end of 2020, we had an interest rate swap agreement for a notional amount of $294 million, which effectively converted certain floating-rate debt to a fixed-rate equivalent.
| | | | | | | | | | | | |
| January 4, 2020 | December 29, 2018 | ||||||||||
| | | | | Sensitivity of | | | | | Sensitivity of | ||
| | | | | Fair Value | | | | | Fair Value | ||
| Carrying | Fair | to a 10% | Carrying | Fair | to a 10% | ||||||
(In millions) | Value* | Value* | Change | Value* | Value* | Change | ||||||
Manufacturing group | |
| |
| |
| |
| |
| |
|
Foreign currency exchange risk | |
| |
| |
| |
| |
| |
|
Debt | $ | (210) | $ | (212) | $ | (21) | $ | (197) | $ | (208) | $ | (21) |
Foreign currency exchange contracts |
| (1) |
| (1) |
| 20 |
| (8) |
| (8) |
| 50 |
| $ | (211) | $ | (213) | $ | (1) | $ | (205) | $ | (216) | $ | 29 |
Interest rate risk |
|
|
|
|
|
|
|
|
|
|
|
|
Debt | $ | (3,097) | $ | (3,249) | $ | (21) | $ | (2,996) | $ | (2,971) | $ | (30) |
Finance group |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate risk | | | | | | | | | | | | |
Finance receivables | $ | 493 | $ | 527 | $ | 9 | $ | 582 | $ | 584 | $ | 14 |
Debt |
| (686) |
| (634) |
| 1 |
| (718) |
| (640) |
| 1 |
| January 2, 2021 | January 4, 2020 | |||||||||||||||||||
(In millions) | Carrying Value* | Fair Value* | Sensitivity of Fair Value to a 10% Change | Carrying Value* | Fair Value* | Sensitivity of Fair Value to a 10% Change | ||||||||||||||
| Manufacturing group | ||||||||||||||||||||
| Foreign currency exchange risk | ||||||||||||||||||||
| Debt | $ | (10) | $ | (10) | $ | (1) | $ | (210) | $ | (212) | $ | (21) | ||||||||
| Foreign currency exchange contracts | 3 | 3 | 22 | (1) | (1) | 20 | ||||||||||||||
| $ | (7) | $ | (7) | $ | 21 | $ | (211) | $ | (213) | $ | (1) | |||||||||
| Interest rate risk | ||||||||||||||||||||
| Debt | $ | (3,690) | $ | (3,986) | $ | (16) | $ | (3,097) | $ | (3,249) | $ | (21) | ||||||||
| Finance group | ||||||||||||||||||||
| Interest rate risk | ||||||||||||||||||||
| Finance receivables | $ | 549 | $ | 599 | $ | 9 | $ | 493 | $ | 527 | $ | 9 | ||||||||
| Debt | (662) | (587) | — | (686) | (634) | 1 | ||||||||||||||
35
|
| |||||||||||
|
|
| ||||||||||
Consolidated Statements of Operations for each of the years in the three-year period ended January |
| |||||||||||
|
|
| ||||||||||
| ||||||||||||
|
|
| ||||||||||
Consolidated Balance Sheets as of January 2, 2021 and January 4, 2020 |
| |||||||||||
|
|
| ||||||||||
| ||||||||||||
|
|
| ||||||||||
Consolidated Statements of Cash Flows for each of the years in the three-year period ended January |
| |||||||||||
|
|
| ||||||||||
|
| |||||||||||
|
|
| ||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
|
|
| ||||||||||
| ||||||||||||
|
|
| ||||||||||
Supplementary Information: |
|
| ||||||||||
|
|
| ||||||||||
| ||||||||||||
| ||||||||||||
36
| | | | | | |
(In millions, except per share data) | 2019 | 2018 | 2017 | |||
Revenues | | | | | | |
Manufacturing revenues | $ | 13,564 | $ | 13,906 | $ | 14,129 |
Finance revenues |
| 66 |
| 66 |
| 69 |
Total revenues |
| 13,630 |
| 13,972 |
| 14,198 |
Costs, expenses and other | | | | | | |
Cost of sales |
| 11,406 |
| 11,594 |
| 11,827 |
Selling and administrative expense |
| 1,152 |
| 1,275 |
| 1,334 |
Interest expense |
| 171 |
| 166 |
| 174 |
Special charges | | 72 | | 73 | | 130 |
Non-service components of pension and postretirement income, net | | (113) | | (76) | | (29) |
Gain on business disposition | | — | | (444) | | — |
Total costs, expenses and other |
| 12,688 |
| 12,588 |
| 13,436 |
Income from continuing operations before income taxes |
| 942 |
| 1,384 |
| 762 |
Income tax expense |
| 127 |
| 162 |
| 456 |
Income from continuing operations |
| 815 |
| 1,222 |
| 306 |
Income from discontinued operations, net of income taxes |
| — |
| — |
| 1 |
Net income | $ | 815 | $ | 1,222 | $ | 307 |
Earnings per share from continuing operations | | | | | | |
Basic | $ | 3.52 | $ | 4.88 | $ | 1.15 |
Diluted | $ | 3.50 | $ | 4.83 | $ | 1.14 |
2, 2021
| (In millions, except per share data) | 2020 | 2019 | 2018 | ||||||||
| Revenues | |||||||||||
| Manufacturing revenues | $ | 11,596 | $ | 13,564 | $ | 13,906 | |||||
| Finance revenues | 55 | 66 | 66 | ||||||||
| Total revenues | 11,651 | 13,630 | 13,972 | ||||||||
| Costs, expenses and other | |||||||||||
| Cost of sales | 10,094 | 11,406 | 11,594 | ||||||||
| Selling and administrative expense | 1,045 | 1,152 | 1,275 | ||||||||
| Interest expense | 166 | 171 | 166 | ||||||||
| Special charges | 147 | 72 | 73 | ||||||||
| Non-service components of pension and postretirement income, net | (83) | (113) | (76) | ||||||||
| Gain on business disposition | 0 | 0 | (444) | ||||||||
| Total costs, expenses and other | 11,369 | 12,688 | 12,588 | ||||||||
| Income before income taxes | 282 | 942 | 1,384 | ||||||||
| Income tax expense (benefit) | (27) | 127 | 162 | ||||||||
| Net income | $ | 309 | $ | 815 | $ | 1,222 | |||||
| Earnings per share | |||||||||||
| Basic | $ | 1.35 | $ | 3.52 | $ | 4.88 | |||||
| Diluted | $ | 1.35 | $ | 3.50 | $ | 4.83 | |||||
37
| | | | | | |
(In millions) | 2019 | 2018 | 2017 | |||
Net income | $ | 815 | $ | 1,222 | $ | 307 |
Other comprehensive income (loss), net of taxes: | | | | | | |
Pension and postretirement benefits adjustments, net of reclassifications |
| (84) |
| (74) |
| 109 |
Foreign currency translation adjustments, net of reclassifications | | (4) | | (43) | | 107 |
Deferred gains (losses) on hedge contracts, net of reclassifications |
| 3 |
| (13) |
| 14 |
Other comprehensive income (loss) |
| (85) |
| (130) |
| 230 |
Comprehensive income | $ | 730 | $ | 1,092 | $ | 537 |
2, 2021
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Net income | $ | 309 | $ | 815 | $ | 1,222 | |||||
| Other comprehensive income (loss), net of tax | |||||||||||
| Pension and postretirement benefits adjustments, net of reclassifications | 31 | (84) | (74) | ||||||||
| Foreign currency translation adjustments, net of reclassifications | 78 | (4) | (43) | ||||||||
| Deferred gains (losses) on hedge contracts, net of reclassifications | (1) | 3 | (13) | ||||||||
| Total other comprehensive income (loss), net of tax | 108 | (85) | (130) | ||||||||
| Comprehensive income | $ | 417 | $ | 730 | $ | 1,092 | |||||
38
Consolidated Balance Sheets
| | | | |
| January 4, | December 29, | ||
(In millions, except share data) | 2020 | 2018 | ||
Assets | | | | |
Manufacturing group | | | | |
Cash and equivalents | $ | 1,181 | $ | 987 |
Accounts receivable, net |
| 921 |
| 1,024 |
Inventories |
| 4,069 |
| 3,818 |
Other current assets |
| 894 |
| 785 |
Total current assets |
| 7,065 |
| 6,614 |
Property, plant and equipment, net |
| 2,527 |
| 2,615 |
Goodwill |
| 2,150 |
| 2,218 |
Other assets |
| 2,312 |
| 1,800 |
Total Manufacturing group assets |
| 14,054 |
| 13,247 |
Finance group | | | | |
Cash and equivalents |
| 176 |
| 120 |
Finance receivables, net |
| 682 |
| 760 |
Other assets |
| 106 |
| 137 |
Total Finance group assets |
| 964 |
| 1,017 |
Total assets | $ | 15,018 | $ | 14,264 |
Liabilities and shareholders’ equity | | | | |
Liabilities | | | | |
Manufacturing group | | | | |
Current portion of long-term debt | $ | 561 | $ | 258 |
Accounts payable |
| 1,378 |
| 1,099 |
Other current liabilities |
| 1,907 |
| 2,149 |
Total current liabilities |
| 3,846 |
| 3,506 |
Other liabilities |
| 2,288 |
| 1,932 |
Long-term debt |
| 2,563 |
| 2,808 |
Total Manufacturing group liabilities |
| 8,697 |
| 8,246 |
Finance group | | | | |
Other liabilities |
| 117 |
| 108 |
Debt |
| 686 |
| 718 |
Total Finance group liabilities |
| 803 |
| 826 |
Total liabilities |
| 9,500 |
| 9,072 |
Shareholders’ equity | | | | |
Common stock (228.4 million and 238.2 million shares issued, respectively, | | 29 | | 30 |
Capital surplus |
| 1,674 |
| 1,646 |
Treasury stock |
| (20) |
| (129) |
Retained earnings |
| 5,682 |
| 5,407 |
Accumulated other comprehensive loss |
| (1,847) |
| (1,762) |
Total shareholders’ equity |
| 5,518 |
| 5,192 |
Total liabilities and shareholders’ equity | $ | 15,018 | $ | 14,264 |
| (In millions, except share data) | January 2, 2021 | January 4, 2020 | ||||||
| Assets | ||||||||
| Manufacturing group | ||||||||
| Cash and equivalents | $ | 2,146 | $ | 1,181 | ||||
| Accounts receivable, net | 787 | 921 | ||||||
| Inventories | 3,513 | 4,069 | ||||||
| Other current assets | 950 | 894 | ||||||
| Total current assets | 7,396 | 7,065 | ||||||
| Property, plant and equipment, net | 2,516 | 2,527 | ||||||
| Goodwill | 2,157 | 2,150 | ||||||
| Other assets | 2,436 | 2,312 | ||||||
| Total Manufacturing group assets | 14,505 | 14,054 | ||||||
| Finance group | ||||||||
| Cash and equivalents | 108 | 176 | ||||||
| Finance receivables, net | 744 | 682 | ||||||
| Other assets | 86 | 106 | ||||||
| Total Finance group assets | 938 | 964 | ||||||
| Total assets | $ | 15,443 | $ | 15,018 | ||||
| Liabilities and shareholders’ equity | ||||||||
| Liabilities | ||||||||
| Manufacturing group | ||||||||
| Current portion of long-term debt | $ | 509 | $ | 561 | ||||
| Accounts payable | 776 | 1,378 | ||||||
| Other current liabilities | 1,985 | 1,907 | ||||||
| Total current liabilities | 3,270 | 3,846 | ||||||
| Other liabilities | 2,357 | 2,288 | ||||||
| Long-term debt | 3,198 | 2,563 | ||||||
| Total Manufacturing group liabilities | 8,825 | 8,697 | ||||||
| Finance group | ||||||||
| Other liabilities | 111 | 117 | ||||||
| Debt | 662 | 686 | ||||||
| Total Finance group liabilities | 773 | 803 | ||||||
| Total liabilities | 9,598 | 9,500 | ||||||
| Shareholders’ equity | ||||||||
Common stock (231.0 million and 228.4 million shares issued, respectively, and 226.4 million and 228.0 million shares outstanding, respectively) | 29 | 29 | ||||||
| Capital surplus | 1,785 | 1,674 | ||||||
| Treasury stock | (203) | (20) | ||||||
| Retained earnings | 5,973 | 5,682 | ||||||
| Accumulated other comprehensive loss | (1,739) | (1,847) | ||||||
| Total shareholders’ equity | 5,845 | 5,518 | ||||||
| Total liabilities and shareholders’ equity | $ | 15,443 | $ | 15,018 | ||||
39
Consolidated Statements of Shareholders’ Equity
| | | | | | | | | | | | |
| | | | | | | | | Accumulated | | | |
| | | | | | | | | Other | Total | ||
| Common | Capital | Treasury | Retained | Comprehensive | Shareholders’ | ||||||
(In millions, except per share data) | Stock | Surplus | Stock | Earnings | Loss | Equity | ||||||
Balance at December 31, 2016 | $ | 34 | $ | 1,599 | $ | — | $ | 5,546 | $ | (1,605) | $ | 5,574 |
Net income | | — | | — | | — | | 307 | | — | | 307 |
Other comprehensive income | | — | | — | | — | | — | | 230 | | 230 |
Dividends declared ($0.08 per share) | | — | | — | | — | | (21) | | — | | (21) |
Share-based compensation activity | | — | | 139 | | — | | — | | — | | 139 |
Purchases of common stock | | — | | — | | (582) | | — | | — | | (582) |
Retirement of treasury stock | | (1) | | (69) | | 534 | | (464) | | — | | — |
Balance at December 30, 2017 |
| 33 | | 1,669 | | (48) | | 5,368 | | (1,375) | | 5,647 |
Adoption of ASC 606 | | — | | — | | — | | 90 | | — | | 90 |
Net income | | — | | — | | — | | 1,222 | | — | | 1,222 |
Other comprehensive loss | | — | | — | | — | | — | | (130) | | (130) |
Reclassification of stranded tax effects | | — | | — | | — | | 257 | | (257) | | — |
Dividends declared ($0.08 per share) | | — | | — | | — | | (20) | | — | | (20) |
Share-based compensation activity | | — | | 166 | | — | | — | | — | | 166 |
Purchases of common stock |
| — | | — | | (1,783) | | — | | — | | (1,783) |
Retirement of treasury stock | | (3) | | (189) | | 1,702 | | (1,510) | | — | | — |
Balance at December 29, 2018 |
| 30 | | 1,646 | | (129) | | 5,407 | | (1,762) | | 5,192 |
Net income | | — | | — | | — | | 815 | | — | | 815 |
Other comprehensive loss | | — | | — | | — | | — | | (85) | | (85) |
Dividends declared ($0.08 per share) | | — | | — | | — | | (18) | | — | | (18) |
Share-based compensation activity | | — | | 117 | | — | | — | | — | | 117 |
Purchases of common stock |
| — | | — | | (503) | | — | | — | | (503) |
Retirement of treasury stock | | (1) | | (89) | | 612 | | (522) | | — | | — |
Balance at January 4, 2020 | $ | 29 | $ | 1,674 | $ | (20) | $ | 5,682 | $ | (1,847) | $ | 5,518 |
| (In millions, except per share data) | Common Stock | Capital Surplus | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | ||||||||||||||
| Balance at December 30, 2017 | $ | 33 | $ | 1,669 | $ | (48) | $ | 5,368 | $ | (1,375) | $ | 5,647 | ||||||||
| Adoption of ASC 606 | — | — | — | 90 | — | 90 | ||||||||||||||
| Net income | — | — | — | 1,222 | — | 1,222 | ||||||||||||||
| Other comprehensive loss | — | — | — | — | (130) | (130) | ||||||||||||||
| Reclassification of stranded tax effects | — | — | — | 257 | (257) | 0 | ||||||||||||||
| Dividends declared ($0.08 per share) | — | — | — | (20) | — | (20) | ||||||||||||||
| Share-based compensation activity | — | 166 | — | — | — | 166 | ||||||||||||||
| Purchases of common stock | — | — | (1,783) | — | — | (1,783) | ||||||||||||||
| Retirement of treasury stock | (3) | (189) | 1,702 | (1,510) | — | 0 | ||||||||||||||
| Balance at December 29, 2018 | 30 | 1,646 | (129) | 5,407 | (1,762) | 5,192 | ||||||||||||||
| Net income | — | — | — | 815 | — | 815 | ||||||||||||||
| Other comprehensive loss | — | — | — | — | (85) | (85) | ||||||||||||||
| Dividends declared ($0.08 per share) | — | — | — | (18) | — | (18) | ||||||||||||||
| Share-based compensation activity | — | 117 | — | — | — | 117 | ||||||||||||||
| Purchases of common stock | — | — | (503) | — | — | (503) | ||||||||||||||
| Retirement of treasury stock | (1) | (89) | 612 | (522) | — | 0 | ||||||||||||||
| Balance at January 4, 2020 | 29 | 1,674 | (20) | 5,682 | (1,847) | 5,518 | ||||||||||||||
| Net income | — | — | — | 309 | — | 309 | ||||||||||||||
| Other comprehensive income | — | — | — | — | 108 | 108 | ||||||||||||||
| Dividends declared ($0.08 per share) | — | — | — | (18) | — | (18) | ||||||||||||||
| Share-based compensation activity | — | 111 | — | — | — | 111 | ||||||||||||||
| Purchases of common stock | — | — | (183) | — | — | (183) | ||||||||||||||
| Balance at January 2, 2021 | $ | 29 | $ | 1,785 | $ | (203) | $ | 5,973 | $ | (1,739) | $ | 5,845 | ||||||||
40
| | | | | | |
| Consolidated | |||||
(In millions) | 2019 | 2018 | 2017 | |||
Cash flows from operating activities | | | | | | |
Net income | $ | 815 | $ | 1,222 | $ | 307 |
Less: Income from discontinued operations, net of income taxes |
| — |
| — |
| 1 |
Income from continuing operations |
| 815 |
| 1,222 |
| 306 |
Adjustments to reconcile income from continuing operations | | | | | | |
Non-cash items: | | | | | | |
Depreciation and amortization |
| 416 |
| 437 |
| 447 |
Gain on business disposition | | — | | (444) | | — |
Deferred income taxes |
| 89 |
| 49 |
| 346 |
Asset impairments | | 15 | | 48 | | 47 |
Other, net |
| 79 |
| 102 |
| 90 |
Changes in assets and liabilities: | | | | | | |
Accounts receivable, net |
| 99 |
| 50 |
| (236) |
Inventories |
| (292) |
| 41 |
| 412 |
Other assets |
| (37) |
| (88) |
| (44) |
Accounts payable |
| 280 |
| (63) |
| (156) |
Other liabilities |
| (348) |
| (223) |
| (113) |
Income taxes, net |
| (83) |
| (33) |
| 78 |
Pension, net |
| (62) |
| (14) |
| (277) |
Captive finance receivables, net |
| 45 |
| 22 |
| 67 |
Other operating activities, net |
| — |
| 3 |
| (4) |
Net cash provided by operating activities of continuing operations |
| 1,016 |
| 1,109 |
| 963 |
Net cash used in operating activities of discontinued operations |
| (2) |
| (2) |
| (27) |
Net cash provided by operating activities |
| 1,014 |
| 1,107 |
| 936 |
Cash flows from investing activities | | | | | | |
Capital expenditures |
| (339) |
| (369) |
| (423) |
Net proceeds from corporate-owned life insurance policies | | 2 | | 110 | | 17 |
Net proceeds from business disposition | | — | | 807 | | — |
Net cash used in acquisitions |
| (2) |
| (23) |
| (331) |
Finance receivables repaid |
| 48 |
| 27 |
| 32 |
Other investing activities, net |
| 25 |
| 68 |
| 60 |
Net cash provided by (used in) investing activities |
| (266) |
| 620 |
| (645) |
Cash flows from financing activities | | | | | | |
Proceeds from long-term debt |
| 301 |
| — |
| 1,036 |
Principal payments on long-term debt and nonrecourse debt |
| (303) |
| (131) |
| (841) |
Purchases of Textron common stock |
| (503) |
| (1,783) |
| (582) |
Proceeds from exercise of stock options |
| 24 |
| 74 |
| 52 |
Dividends paid |
| (18) |
| (20) |
| (21) |
Other financing activities, net |
| (3) |
| (4) |
| (4) |
Net cash used in financing activities |
| (502) |
| (1,864) |
| (360) |
Effect of exchange rate changes on cash and equivalents |
| 4 |
| (18) |
| 33 |
Net increase (decrease) in cash and equivalents |
| 250 |
| (155) |
| (36) |
Cash and equivalents at beginning of year |
| 1,107 |
| 1,262 |
| 1,298 |
Cash and equivalents at end of year | $ | 1,357 | $ | 1,107 | $ | 1,262 |
2, 2021
| Consolidated | |||||||||||
| (In millions) | 2020 | 2019 | 2018 | ||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | 309 | $ | 815 | $ | 1,222 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: | |||||||||||
| Non-cash items: | |||||||||||
| Depreciation and amortization | 391 | 416 | 437 | ||||||||
| Deferred income taxes | (7) | 89 | 49 | ||||||||
| Asset impairments and TRU inventory charge | 116 | 15 | 48 | ||||||||
| Gain on business disposition | 0 | 0 | (444) | ||||||||
| Other, net | 79 | 79 | 102 | ||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable, net | 149 | 99 | 50 | ||||||||
| Inventories | 434 | (292) | 41 | ||||||||
| Other assets | 66 | (37) | (88) | ||||||||
| Accounts payable | (613) | 280 | (63) | ||||||||
| Other liabilities | (5) | (348) | (223) | ||||||||
| Income taxes, net | (62) | (83) | (33) | ||||||||
| Pension, net | (15) | (62) | (14) | ||||||||
| Captive finance receivables, net | (89) | 45 | 22 | ||||||||
| Other operating activities, net | 16 | 0 | 3 | ||||||||
| Net cash provided by operating activities of continuing operations | 769 | 1,016 | 1,109 | ||||||||
| Net cash used in operating activities of discontinued operations | (1) | (2) | (2) | ||||||||
| Net cash provided by operating activities | 768 | 1,014 | 1,107 | ||||||||
| Cash flows from investing activities | |||||||||||
| Capital expenditures | (317) | (339) | (369) | ||||||||
| Proceeds from an insurance recovery and sale of property, plant and equipment | 33 | 9 | 14 | ||||||||
| Net proceeds from corporate-owned life insurance policies | 22 | 2 | 110 | ||||||||
| Net proceeds from business disposition | 0 | 0 | 807 | ||||||||
| Net cash used in acquisitions | (15) | (2) | (23) | ||||||||
| Finance receivables repaid | 22 | 48 | 27 | ||||||||
| Other investing activities, net | 7 | 16 | 54 | ||||||||
| Net cash provided by (used in) investing activities | (248) | (266) | 620 | ||||||||
| Cash flows from financing activities | |||||||||||
| Net proceeds from long-term debt | 1,137 | 301 | 0 | ||||||||
| Proceeds from borrowings against corporate-owned life insurance policies | 377 | 0 | 0 | ||||||||
| Payments on borrowings against corporate-owned life insurance policies | (377) | 0 | 0 | ||||||||
| Principal payments on long-term debt and nonrecourse debt | (593) | (303) | (131) | ||||||||
| Purchases of Textron common stock | (183) | (503) | (1,783) | ||||||||
| Proceeds from exercise of stock options | 22 | 24 | 74 | ||||||||
| Dividends paid | (18) | (18) | (20) | ||||||||
| Other financing activities, net | (5) | (3) | (4) | ||||||||
| Net cash provided by (used in) financing activities | 360 | (502) | (1,864) | ||||||||
| Effect of exchange rate changes on cash and equivalents | 17 | 4 | (18) | ||||||||
| Net increase (decrease) in cash and equivalents | 897 | 250 | (155) | ||||||||
| Cash and equivalents at beginning of year | 1,357 | 1,107 | 1,262 | ||||||||
| Cash and equivalents at end of year | $ | 2,254 | $ | 1,357 | $ | 1,107 | |||||
41
Consolidated Statements of Cash Flows continued
| | | | | | | | | | | | |
| Manufacturing Group | Finance Group | ||||||||||
(In millions) | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||
Cash flows from operating activities | | | | | | | | | | | | |
Net income | $ | 793 | $ | 1,198 | $ | 248 | $ | 22 | $ | 24 | $ | 59 |
Less: Income from discontinued operations, net of income taxes |
| — |
| — |
| 1 |
| — |
| — |
| — |
Income from continuing operations |
| 793 |
| 1,198 |
| 247 |
| 22 |
| 24 |
| 59 |
Adjustments to reconcile income from continuing operations | | | | | | | | | | | | |
Non-cash items: | | | | | | | | | | | | |
Depreciation and amortization |
| 410 |
| 429 |
| 435 |
| 6 |
| 8 |
| 12 |
Gain on business disposition | | — | | (444) | | — | | — | | — | | — |
Deferred income taxes |
| 91 |
| 54 |
| 390 |
| (2) |
| (5) |
| (44) |
Asset impairments | | 15 | | 48 | | 47 | | — | | — | | — |
Other, net |
| 79 |
| 97 |
| 94 |
| — |
| 5 |
| (4) |
Changes in assets and liabilities: | | | | | | | | | | | | |
Accounts receivable, net |
| 99 |
| 50 |
| (236) |
| — |
| — |
| — |
Inventories |
| (319) |
| 45 |
| 422 |
| — |
| — |
| — |
Other assets |
| (34) |
| (87) |
| (43) |
| (3) |
| (1) |
| (1) |
Accounts payable |
| 280 |
| (63) |
| (156) |
| — |
| — |
| — |
Other liabilities |
| (352) |
| (219) |
| (108) |
| 4 |
| (4) |
| (5) |
Income taxes, net |
| (90) |
| (20) |
| 119 |
| 7 |
| (13) |
| (41) |
Pension, net |
| (62) |
| (14) |
| (277) |
| — |
| — |
| — |
Dividends received from Finance group | | 50 | | 50 | | — | | — | | — | | — |
Other operating activities, net |
| — |
| 3 |
| (4) |
| — |
| — |
| — |
Net cash provided by (used in) operating activities of continuing operations |
| 960 |
| 1,127 |
| 930 |
| 34 |
| 14 |
| (24) |
Net cash used in operating activities of discontinued operations |
| (2) |
| (2) |
| (27) |
| — |
| — |
| — |
Net cash provided by (used in) operating activities |
| 958 |
| 1,125 |
| 903 |
| 34 |
| 14 |
| (24) |
Cash flows from investing activities | | | | | | | | | | | | |
Capital expenditures |
| (339) |
| (369) |
| (423) |
| — |
| — |
| — |
Net proceeds from corporate-owned life insurance policies | | 2 | | 110 | | 17 | | — | | — | �� | — |
Net proceeds from business disposition | | — | | 807 | | — | | — | | — | | — |
Net cash used in acquisitions |
| (2) |
| (23) |
| (331) |
| — |
| — |
| — |
Finance receivables repaid |
| — |
| — |
| — |
| 277 |
| 226 |
| 273 |
Finance receivables originated | | — | | — | | — | | (184) | | (177) | | (174) |
Other investing activities, net |
| 10 |
| 14 |
| 9 |
| 42 |
| 50 |
| 41 |
Net cash provided by (used in) investing activities |
| (329) |
| 539 |
| (728) |
| 135 |
| 99 |
| 140 |
Cash flows from financing activities | | | | | | | | | | | | |
Proceeds from long-term debt |
| 301 |
| — |
| 992 |
| — |
| — |
| 44 |
Principal payments on long-term debt and nonrecourse debt |
| (252) |
| (5) |
| (704) |
| (51) |
| (126) |
| (137) |
Purchases of Textron common stock |
| (503) |
| (1,783) |
| (582) |
| — |
| — |
| — |
Proceeds from exercise of stock options |
| 24 |
| 74 |
| 52 |
| — |
| — |
| — |
Dividends paid |
| (18) |
| (20) |
| (21) |
| (50) |
| (50) |
| — |
Other financing activities, net |
| 9 |
| (4) |
| (3) |
| (12) |
| — |
| (1) |
Net cash used in financing activities |
| (439) |
| (1,738) |
| (266) |
| (113) |
| (176) |
| (94) |
Effect of exchange rate changes on cash and equivalents |
| 4 |
| (18) |
| 33 |
| — |
| — |
| — |
Net increase (decrease) in cash and equivalents |
| 194 |
| (92) |
| (58) |
| 56 |
| (63) |
| 22 |
Cash and equivalents at beginning of year |
| 987 |
| 1,079 |
| 1,137 |
| 120 |
| 183 |
| 161 |
Cash and equivalents at end of year | $ | 1,181 | $ | 987 | $ | 1,079 | $ | 176 | $ | 120 | $ | 183 |
2, 2021
| Manufacturing Group | Finance Group | |||||||||||||||||||
| (In millions) | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | ||||||||||||||
| Cash flows from operating activities | ||||||||||||||||||||
| Net income | $ | 301 | $ | 793 | $ | 1,198 | $ | 8 | $ | 22 | $ | 24 | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: | ||||||||||||||||||||
| Non-cash items: | ||||||||||||||||||||
| Depreciation and amortization | 386 | 410 | 429 | 5 | 6 | 8 | ||||||||||||||
| Deferred income taxes | (2) | 91 | 54 | (5) | (2) | (5) | ||||||||||||||
| Asset impairments and TRU inventory charge | 116 | 15 | 48 | 0 | 0 | 0 | ||||||||||||||
| Gain on business disposition | 0 | 0 | (444) | 0 | 0 | 0 | ||||||||||||||
| Other, net | 69 | 79 | 97 | 10 | 0 | 5 | ||||||||||||||
| Changes in assets and liabilities: | ||||||||||||||||||||
| Accounts receivable, net | 149 | 99 | 50 | 0 | 0 | 0 | ||||||||||||||
| Inventories | 434 | (319) | 45 | 0 | 0 | 0 | ||||||||||||||
| Other assets | 68 | (34) | (87) | (2) | (3) | (1) | ||||||||||||||
| Accounts payable | (613) | 280 | (63) | 0 | 0 | 0 | ||||||||||||||
| Other liabilities | (15) | (352) | (219) | (2) | 4 | (4) | ||||||||||||||
| Income taxes, net | (61) | (90) | (20) | (1) | 7 | (13) | ||||||||||||||
| Pension, net | (15) | (62) | (14) | 0 | 0 | 0 | ||||||||||||||
| Dividends received from Finance group | 0 | 50 | 50 | 0 | 0 | 0 | ||||||||||||||
| Other operating activities, net | 16 | 0 | 3 | 0 | 0 | 0 | ||||||||||||||
| Net cash provided by operating activities of continuing operations | 833 | 960 | 1,127 | 13 | 34 | 14 | ||||||||||||||
| Net cash used in operating activities of discontinued operations | (1) | (2) | (2) | 0 | 0 | 0 | ||||||||||||||
| Net cash provided by operating activities | 832 | 958 | 1,125 | 13 | 34 | 14 | ||||||||||||||
| Cash flows from investing activities | ||||||||||||||||||||
| Capital expenditures | (317) | (339) | (369) | 0 | 0 | 0 | ||||||||||||||
| Proceeds from an insurance recovery and sale of property, plant and equipment | 33 | 9 | 14 | 0 | 0 | 0 | ||||||||||||||
| Net proceeds from corporate-owned life insurance policies | 22 | 2 | 110 | 0 | 0 | 0 | ||||||||||||||
| Net proceeds from business disposition | 0 | 0 | 807 | 0 | 0 | 0 | ||||||||||||||
| Net cash used in acquisitions | (15) | (2) | (23) | 0 | 0 | 0 | ||||||||||||||
| Finance receivables repaid | 0 | 0 | 0 | 128 | 277 | 226 | ||||||||||||||
| Finance receivables originated | 0 | 0 | 0 | (195) | (184) | (177) | ||||||||||||||
| Other investing activities, net | 0 | 1 | 0 | 19 | 42 | 50 | ||||||||||||||
| Net cash provided by (used in) investing activities | (277) | (329) | 539 | (48) | 135 | 99 | ||||||||||||||
| Cash flows from financing activities | ||||||||||||||||||||
| Net proceeds from long-term debt | 1,137 | 301 | 0 | 0 | 0 | 0 | ||||||||||||||
| Proceeds from borrowings against corporate-owned life insurance policies | 377 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||
| Payments on borrowings against corporate-owned life insurance policies | (377) | 0 | 0 | 0 | 0 | 0 | ||||||||||||||
| Principal payments on long-term debt and nonrecourse debt | (548) | (252) | (5) | (45) | (51) | (126) | ||||||||||||||
| Purchases of Textron common stock | (183) | (503) | (1,783) | 0 | 0 | 0 | ||||||||||||||
| Proceeds from exercise of stock options | 22 | 24 | 74 | 0 | 0 | 0 | ||||||||||||||
| Dividends paid | (18) | (18) | (20) | 0 | (50) | (50) | ||||||||||||||
| Other financing activities, net | (17) | 9 | (4) | 12 | (12) | 0 | ||||||||||||||
| Net cash provided by (used in) financing activities | 393 | (439) | (1,738) | (33) | (113) | (176) | ||||||||||||||
| Effect of exchange rate changes on cash and equivalents | 17 | 4 | (18) | 0 | 0 | 0 | ||||||||||||||
| Net increase (decrease) in cash and equivalents | 965 | 194 | (92) | (68) | 56 | (63) | ||||||||||||||
| Cash and equivalents at beginning of year | 1,181 | 987 | 1,079 | 176 | 120 | 183 | ||||||||||||||
| Cash and equivalents at end of year | $ | 2,146 | $ | 1,181 | $ | 987 | $ | 108 | $ | 176 | $ | 120 | ||||||||
42
We adopted ASU No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606) and its related amendments, collectively referred to as ASC 606 at the beginning of 2018. We adopted ASC 606 using the modified retrospective transition method applied to contracts that were not substantially complete at the end of 2017. We recorded a $90 million adjustment to increase retained earnings to reflect the cumulative impact of adopting this standard at the beginning of 2018, primarily related to certain long-term contracts our Bell segment has with the U.S. Government that converted to the cost-to-cost method for revenue recognition. The comparative information for 2017 included in our financial statements and notes was not restated and is reported under the accounting standards in effect at that time based on the policies described in this note.
standard.
43
adoption of ASC 606.method. We include all assets used in performance of the V-22 Contracts that we own and all liabilities arising from our obligations under the V-22 Contracts in our Consolidated Balance Sheets.
With the adoption of ASC 606 at the beginning of 2018, revenue
44
Our contracts are frequently modified for changes in contract specifications and requirements. Most of our contract modifications with the U.S. Government are for goods and services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as part of that existing contract. The effect of these contract modifications on our estimates is recognized using the cumulative catch-up method of accounting.
Revenue Recognition for 2017
Prior to the adoption of ASC 606, we generally recognized revenue for the sale of products, which were not under long-term contracts, upon delivery. Commercial aircraft were considered to be delivered upon completion of manufacturing, customer acceptance, and the transfer of the risk and rewards of ownership. When a sale arrangement involved multiple deliverables, such as sales of products that include customization and other services, we evaluated the arrangement to determine whether there were separate items that were required to be delivered under the arrangement that qualify as separate units of accounting. These arrangements typically involved the customization services we offer to customers who purchase Bell helicopters, with the services generally provided within the first six months after customer acceptance of the aircraft and risk of loss assumption. The aircraft and the customization services were considered to be separate units of accounting and we allocated contract price between the two on a relative selling price basis using the best evidence of selling price for each of the deliverables, typically by reference to the price charged when the same or similar items were sold separately by us. Revenue was then recognized when the recognition criteria for each unit of accounting was met.
Revenues under long-term contracts were accounted for under the percentage-of-completion method of accounting. Under this method, we estimated profit as the difference between the total estimated revenues and cost of a contract. We then recognized that estimated profit over the contract term based on either the units-of-delivery method or the cost-to-cost method (which typically was used for development effort as costs were incurred), as appropriate under the circumstances. Revenues under fixed-price contracts generally were recorded using the units-of-delivery method. Revenues under cost-reimbursement contracts were recorded using the cost-to-cost method.
45
Finance Revenues
any, historical payment experience and loss history, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For amounts due from the U.S. Government, we have not established an allowance for credit losses as we have zero loss expectation based on a long history of no credit losses and the explicit guarantee of a sovereign entity.
46
Property, Plant and Equipment
We also establish an allowance for losses to cover probable but specifically unknown losses existing in the portfolio. This allowance is established as a percentage of non-recourse finance receivables, which have not been identified as requiring specific reserves. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values and both general economic and specific industry trends.
47
Pension and Postretirement Benefit Obligations
which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of the inactive participants. This determination is made on a plan-by-plan basis.
48
We have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and asbestos materials used in insulation, adhesive fillers and floor tiles. ThereCurrently, there is no legal requirement to remove these items and there currently is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset retirement obligations are not estimable,probable, there is 0 related liability recorded in the Consolidated Balance Sheets.
Accounting Pronouncements Not Yet Adopted
In 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for our company at the beginning of 2020. Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date. We completed our evaluation of the standard and determined that the impact on our consolidated financial statements is not significant.
49
liabilities of this business met the criteria to be classified as held for sale and are recorded at the lower of the carrying value or fair value, less cost to sell. The net carrying amounts classified as held for sale in the Consolidated Balance Sheet included $78 million of assets, primarily inventories, recorded in Other current assets and $77 million of liabilities, primarily contract liabilities, recorded in Other current liabilities. The transaction closed on January 25, 2021, and we expect to record an after-tax gain of approximately $10 million in the first quarter of 2021.
On March 6, 2017, we completed the acquisition of Arctic Cat Inc. (Arctic Cat), a publicly-held company (NASDAQ: ACAT), pursuant to a cash tender offer for $18.50 per share, followed by a short-form merger. The cash paid for this business, including repayment of debt and net of cash acquired, totaled $316 million. Arctic Cat was incorporated into our Textron Specialized Vehicles business in the Industrial segment and its operating results have been included in the Consolidated Statements of Operations since the closing date.
Textron Textron (In millions) Aviation Bell Systems Industrial Total Balance at December 30, 2017 $ 614 $ 31 $ 1,087 $ 632 $ 2,364 Disposition — — — (153) (153) Acquisition — — 13 — 13 Foreign currency translation — — — (6) (6) Balance at December 29, 2018 614 31 1,100 473 2,218 Disposition* — — (71) — (71) Acquisition — — 4 — 4 Foreign currency translation — — — (1) (1) Balance at January 4, 2020 $ 614 $ 31 $ 1,033 $ 472 $ 2,150 January 4, 2020 December 29, 2018 Weighted-Average Gross Gross Amortization Carrying Accumulated Carrying Accumulated (Dollars in millions) Period (in years) Amount Amortization Net Amount Amortization Net Patents and technology 14 $ 501 $ (242) $ 259 $ 514 $ (211) $ 303 Trade names and trademarks 14 223 (8) 215 224 (7) 217 Customer relationships and 15 413 (298) 115 413 (275) 138 Other 4 6 (6) — 6 (6) — Total $ 1,143 $ (554) $ 589 $ 1,157 $ (499) $ 658Note 3. Goodwill and Intangible AssetsGoodwillThe changes in the carrying amount of goodwill by segment are as follows:(In millions) Textron
AviationBell Textron
SystemsIndustrial Total Balance at December 29, 2018 $ 614 $ 31 $ 1,100 $ 473 $ 2,218 Disposition (a) 0 0 (71) 0 (71) Acquisition 0 0 4 0 4 Foreign currency translation 0 0 0 (1) (1) Balance at January 4, 2020 614 31 1,033 472 2,150 Acquisitions 4 4 0 0 8 Reclassifications (b) 12 0 (24) 0 (12) Foreign currency translation 1 0 0 10 11 Balance at January 2, 2021 $ 631 $ 35 $ 1,009 $ 482 $ 2,157 (a)*See Note 7 for additional information.(b)Reclassifications include $12 million of goodwill classified as held for sale in connection with a business disposition described in Note 2 and amounts transferred between segments.Intangible AssetsOur intangible assets are summarized below:January 2, 2021 January 4, 2020 (Dollars in millions) Weighted-Average
Amortization
Period (in years)Gross
Carrying
AmountAccumulated
AmortizationNet Gross
Carrying
AmountAccumulated
AmortizationNet Patents and technology 14 $ 484 $ (263) $ 221 $ 501 $ (242) $ 259 Trade names and trademarks 14 182 (8) 174 223 (8) 215 Customer relationships and
contractual agreements15 412 (318) 94 413 (298) 115 Other 4 6 (6) 0 6 (6) 0 Total $ 1,084 $ (595) $ 489 $ 1,143 $ (554) $ 589 47
contractual agreementsTrade names and trademarks in the table above include $169 million and $208 million of indefinite-lived intangible assets at bothJanuary 2, 2021 and January 4, 2020, and December 29, 2018.respectively. In 2020, we recognized $47 million of intangible asset impairment charges, primarily related to indefinite-lived assets as discussed in Note 17. Amortization expense totaled $54 million, $59 million and $66 million in 2020, 2019 and $69 million in 2019, 2018, and 2017, respectively. Amortization expense is estimated to be approximately $55$51 million, $53$51 million, $54$35 million, $37$32 million and $32$30 million in 2020, 2021, 2022, 2023, 2024 and 2024,2025, respectively.50
January 4, December 29, (In millions) 2020 2018 Commercial $ 835 $ 885 U.S. Government contracts 115 166 950 1,051 Allowance for doubtful accounts (29) (27) Total $ 921 $ 1,024 January 4, December 29, (In millions) 2020 2018 Finance receivables $ 707 $ 789 Allowance for losses (25) (29) Total finance receivables, net $ 682 $ 760 Finance receivables primarily includes loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. These loans typically have initial terms ranging from five to twelve years, amortization terms ranging from eight to fifteen years and an average balance of In March 2020, due to the economic impact of the COVID-19 pandemic and at the request of certain of our customers, we began working with them to provide temporary payment relief through loan modifications. The types of temporary payment relief we offered to these customers included delays in the timing of required principal payments, deferrals of interest payments and/or interest-only payments. For loan modifications that cover payment-relief periods in excess of six months, even if the loan was previously current, the loan is deemed a troubled debt restructuring and considered impaired. These impaired loans are classified as either nonaccrual or watchlist based on a review of the credit quality indicators as discussed above. January 4, December 29, (Dollars in millions) 2020 2018 Performing $ 664 $ 704 Watchlist 4 45 Nonaccrual 39 40 Nonaccrual as a percentage of finance receivables 5.52 % 5.07 % Less than 31 days past due $ 637 $ 719 31-60 days past due 53 56 61-90 days past due 7 5 Over 90 days past due 10 9 60+ days contractual delinquency as a percentage of finance receivables 2.40 % 1.77 % January 4, December 29, (In millions) 2020 2018 Recorded investment: Impaired loans with related allowance for losses $ 17 $ 15 Impaired loans with no related allowance for losses 22 43 Total $ 39 $ 58 Unpaid principal balance $ 50 $ 67 Allowance for losses on impaired loans 3 5 Average recorded investment 40 61 January 4, December 29, (In millions) 2020 2018 Allowance based on collective evaluation $ 22 $ 24 Allowance based on individual evaluation 3 5 Finance receivables evaluated collectively 564 630 Finance receivables evaluated individually 39 58 January 4, December 29, (In millions) 2020 2018 Finished goods $ 1,557 $ 1,662 Work in process 1,616 1,356 Raw materials and components 896 800 Total $ 4,069 $ 3,818 Useful Lives January 4, December 29, (Dollars in millions) (in years) 2020 2018 Land, buildings and improvements 3-40 $ 1,991 $ 1,927 Machinery and equipment 2-20 4,941 4,891 6,932 6,818 Accumulated depreciation and amortization (4,405) (4,203) Total $ 2,527 $ 2,615 January 4, December 29, (In millions) 2020 2018 Contract liabilities $ 715 $ 876 Salaries, wages and employer taxes 362 381 Current portion of warranty and product maintenance liabilities 147 177 Other 683 715 Total $ 1,907 $ 2,149 (In millions) 2019 2018 2017 Balance at beginning of year $ 149 $ 164 $ 138 Provision 68 72 81 Settlements (70) (78) (69) Acquisitions — 1 35 Adjustments* (6) (10) (21) Balance at end of year $ 141 $ 149 $ 164 Operating Finance (In millions) Leases Leases 2020 $ 57 $ 4 2021 48 4 2022 40 4 2023 32 4 2024 25 5 Thereafter 154 46 Total lease payments 356 67 Less: interest (75) (25) Total lease liabilities $ 281 $ 42 January 4, December 29, (In millions) 2020 2018 Manufacturing group 7.25% due 2019 $ — $ 250 6.625% due 2020 199 190 Variable-rate notes due 2020 (2.45% and 3.17%, respectively) 350 350 3.65% due 2021 250 250 5.95% due 2021 250 250 4.30% due 2024 350 350 3.875% due 2025 350 350 4.00% due 2026 350 350 3.65% due 2027 350 350 3.375% due 2028 300 300 3.90% due 2029 300 — Other (weighted-average rate of 3.01% and 2.63%, respectively) 75 76 Total Manufacturing group debt $ 3,124 $ 3,066 Less: Current portion of long-term debt (561) (258) Total Long-term debt $ 2,563 $ 2,808 Finance group Variable-rate note due 2020 (2.87% and 3.57%, respectively) $ 150 $ 150 2.88% note due 2022 150 150 Fixed-rate notes due 2019-2028 (weighted-average rate of 3.20% and 3.17%, respectively) (a) (b) 65 84 Variable-rate notes due 2019-2027 (weighted-average rate of 3.31% and 3.99%, respectively) (a) (b) 22 35 Fixed-to-Floating Rate Junior Subordinated Notes (3.64% and 4.35%, respectively) 299 299 Total Finance group debt $ 686 $ 718 2, 2021: (In millions) 2020 2021 2022 2023 2024 Manufacturing group $ 561 $ 507 $ 7 $ 7 $ 361 Finance group 167 14 167 17 15 Total $ 728 $ 521 $ 174 $ 24 $ 376 $294 million with a fair value of a $4 million liability. January 4, 2020 December 29, 2018 Carrying Estimated Carrying Estimated (In millions) Value Fair Value Value Fair Value Manufacturing group Debt, excluding leases $ (3,097) $ (3,249) $ (2,996) $ (2,971) Finance group Finance receivables, excluding leases 493 527 582 584 Debt (686) (634) (718) (640) (In thousands) 2019 2018 2017 Balance at beginning of year 235,621 261,471 270,287 Share repurchases (10,011) (29,094) (11,917) Share-based compensation activity 2,346 3,244 3,101 Balance at end of year 227,956 235,621 261,471 (In thousands) 2019 2018 2017 Basic weighted-average shares outstanding 231,315 250,196 266,380 Dilutive effect of stock options 1,394 3,041 2,370 Diluted weighted-average shares outstanding 232,709 253,237 268,750 Pension and Foreign Deferred Accumulated Postretirement Currency Gains (Losses) Other Benefits Translation on Hedge Comprehensive (In millions) Adjustments Adjustments Contracts Loss Balance at December 30, 2017 $ (1,396) $ 11 $ 10 $ (1,375) Other comprehensive loss before reclassifications (198) (49) (8) (255) Reclassified from Accumulated other comprehensive loss 124 6 (5) 125 Reclassification of stranded tax effects (257) — — (257) Balance at December 29, 2018 $ (1,727) $ (32) $ (3) $ (1,762) Other comprehensive loss before reclassifications (166) (4) 5 (165) Reclassified from Accumulated other comprehensive loss 82 — (2) 80 Balance at January 4, 2020 $ (1,811) $ (36) $ — $ (1,847) The before and after-tax components of other comprehensive income (loss) are presented below: 2019 2018 2017 Tax After- Tax After- Tax After- Pre-Tax (Expense) Tax Pre-Tax (Expense) Tax Pre-Tax (Expense) Tax (In millions) Amount Benefit Amount Amount Benefit Amount Amount Benefit Amount Pension and postretirement benefits adjustments: Unrealized gains (losses) $ (218) $ 52 $ (166) $ (248) $ 58 $ (190) $ 18 $ (1) $ 17 Amortization of net actuarial loss* 99 (23) 76 152 (35) 117 136 (48) 88 Amortization of prior service cost* 8 (2) 6 9 (2) 7 7 (2) 5 Recognition of prior service cost — — — (20) 5 (15) (1) — (1) Business disposition — — — 7 — 7 — — — Pension and postretirement benefits adjustments, net (111) 27 (84) (100) 26 (74) 160 (51) 109 Foreign currency translation adjustments: Foreign currency translation adjustments (6) 2 (4) (46) (3) (49) 100 7 107 Business disposition — — — 6 — 6 — — — Foreign currency translation adjustments, net (6) 2 (4) (40) (3) (43) 100 7 107 Deferred gains (losses) on hedge contracts: Current deferrals 8 (3) 5 (8) — (8) 10 (2) 8 Reclassification adjustments (2) — (2) (7) 2 (5) 7 (1) 6 Deferred gains (losses) on hedge 6 (3) 3 (15) 2 (13) 17 (3) 14 Total $ (111) $ 26 $ (85) $ (155) $ 25 $ (130) $ 277 $ (47) $ 230 buyers, and U.S. and non-U.S. governments. The Finance segment provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. Revenues Segment Profit (In millions) 2019 2018 2017 2019 2018 2017 Textron Aviation $ 5,187 $ 4,971 $ 4,686 $ 449 $ 445 $ 303 Bell 3,254 3,180 3,317 435 425 415 Textron Systems 1,325 1,464 1,840 141 156 139 Industrial 3,798 4,291 4,286 217 218 290 Finance 66 66 69 28 23 22 Total $ 13,630 $ 13,972 $ 14,198 $ 1,270 $ 1,267 $ 1,169 Corporate expenses and other, net (110) (119) (132) Interest expense, net for Manufacturing group (146) (135) (145) Special charges (72) (73) (130) Gain on business disposition — 444 — Income from continuing operations before income taxes $ 942 $ 1,384 $ 762 Assets Capital Expenditures Depreciation and Amortization January 4, December 29, (In millions) 2020 2018 2019 2018 2017 2019 2018 2017 Textron Aviation $ 4,692 $ 4,290 $ 122 $ 132 $ 128 $ 137 $ 145 $ 139 Bell 2,783 2,652 81 65 73 107 108 117 Textron Systems 2,352 2,254 38 39 60 48 54 65 Industrial 2,781 2,815 97 132 158 108 112 105 Finance 964 1,017 — — — 6 8 12 Corporate 1,446 1,236 1 1 4 10 10 9 Total $ 15,018 $ 14,264 $ 339 $ 369 $ 423 $ 416 $ 437 $ 447 Property, Plant Revenues* and Equipment, net** January 4, December 29, (In millions) 2019 2018 2017 2020 2018 United States $ 8,963 $ 8,667 $ 8,786 $ 2,054 $ 2,115 Europe 1,986 2,187 1,962 244 267 Asia and Australia 1,070 1,253 1,206 97 88 Other international 1,611 1,865 2,244 132 145 Total $ 13,630 $ 13,972 $ 14,198 $ 2,527 $ 2,615 (In millions) 2019 2018 2017 Aircraft $ 3,592 $ 3,435 $ 3,112 Aftermarket parts and services 1,595 1,536 1,574 Textron Aviation 5,187 4,971 4,686 Military aircraft and support programs 1,988 2,030 2,076 Commercial helicopters, parts and services 1,266 1,150 1,241 Bell 3,254 3,180 3,317 Unmanned systems 572 612 714 Marine and land systems 208 311 470 Simulation, training and other 545 541 656 Textron Systems 1,325 1,464 1,840 Fuel systems and functional components 2,237 2,352 2,330 Specialized vehicles 1,561 1,691 1,486 Tools and test equipment — 248 470 Industrial 3,798 4,291 4,286 Finance 66 66 69 Total revenues $ 13,630 $ 13,972 $ 14,198 (In millions) Textron Bell Textron Industrial Finance Total 2019 Customer type: Commercial $ 4,956 $ 1,238 $ 359 $ 3,775 $ 66 $ 10,394 U.S. Government 231 2,016 966 23 — 3,236 Total revenues $ 5,187 $ 3,254 $ 1,325 $ 3,798 $ 66 $ 13,630 Geographic location: United States $ 3,708 $ 2,440 $ 1,083 $ 1,698 $ 34 $ 8,963 Europe 678 142 73 1,091 2 1,986 Asia and Australia 244 348 103 374 1 1,070 Other international 557 324 66 635 29 1,611 Total revenues $ 5,187 $ 3,254 $ 1,325 $ 3,798 $ 66 $ 13,630 2018 Customer type: Commercial $ 4,734 $ 1,114 $ 431 $ 4,277 $ 66 $ 10,622 U.S. Government 237 2,066 1,033 14 — 3,350 Total revenues $ 4,971 $ 3,180 $ 1,464 $ 4,291 $ 66 $ 13,972 Geographic location: United States $ 3,379 $ 2,186 $ 1,118 $ 1,957 $ 27 $ 8,667 Europe 612 162 74 1,333 6 2,187 Asia and Australia 336 427 127 357 6 1,253 Other international 644 405 145 644 27 1,865 Total revenues $ 4,971 $ 3,180 $ 1,464 $ 4,291 $ 66 $ 13,972 2018 Effect of the Under As adoption of Prior (In millions, except per share amounts) Reported ASC 606 Accounting Consolidated Statements of Operations Manufacturing revenues $ 13,906 $ (201) $ 13,705 Total revenues 13,972 (201) 13,771 Cost of sales 11,594 (174) 11,420 Income from continuing operations before income taxes 1,384 (27) 1,357 Income tax expense 162 (7) 155 Income from continuing operations 1,222 (20) 1,202 Net income 1,222 (20) 1,202 Basic earnings per share - continuing operations $ 4.88 $ (0.08) $ 4.80 Diluted earnings per share - continuing operations 4.83 (0.08) 4.75 Consolidated Statements of Comprehensive Income Other comprehensive loss $ (130) $ (20) $ (150) Comprehensive income 1,092 (20) 1,072 Consolidated Statements of Cash flows Net income $ 1,222 $ (20) $ 1,202 Income from continuing operations 1,222 (20) 1,202 Deferred income taxes 49 (7) 42 Accounts receivable, net 50 (16) 34 Inventories 41 (50) (9) Other assets (88) 34 (54) Other liabilities (223) 59 (164) Net cash provided by operating activities of continuing operations 1,109 — 1,109 2018. (In millions) 2019 2018 2017 Compensation expense $ 52 $ 35 $ 77 Income tax benefit (12) (8) (28) Total compensation expense included in net income $ 40 $ 27 $ 49 2019 2018 2017 Fair value of options at grant date $ 14.62 $ 15.83 $ 13.80 Dividend yield 0.2 % 0.1 % 0.2 % Expected volatility 26.6 % 26.6 % 29.2 % Risk-free interest rate 2.5 % 2.6 % 1.9 % Expected term (in years) 4.7 4.7 4.7 The stock option activity during Weighted- Number of Average (Options in thousands) Options Exercise Price Outstanding at beginning of year 8,284 $ 40.58 Granted 1,618 54.27 Exercised (877) (27.84) Forfeited or expired (281) (52.76) Outstanding at end of year 8,744 $ 44.00 Exercisable at end of year 5,937 $ 38.95 Units Payable in Stock Units Payable in Cash Weighted- Weighted- Number of Average Grant Number of Average Grant (Shares/Units in thousands) Shares Date Fair Value Units Date Fair Value Outstanding at beginning of year, nonvested 598 $ 45.22 1,143 $ 45.48 Granted 173 54.22 332 54.31 Vested (166) (39.34) (299) (39.27) Forfeited (62) (49.16) (72) (48.72) Outstanding at end of year, nonvested 543 $ 49.44 1,104 $ 49.61 (In millions) 2019 2018 2017 Fair value of awards vested $ 23 $ 25 $ 27 Cash paid 16 18 19 Weighted- Number of Average Grant (Units in thousands) Units Date Fair Value Outstanding at beginning of year, nonvested 404 $ 53.63 Granted 262 54.43 Vested (196) (49.58) Forfeited (59) (53.94) Outstanding at end of year, nonvested 411 $ 56.03 The fair value of the performance share units that vested and/or amounts paid under these awards is as follows: (In millions) 2019 2018 2017 Fair value of awards vested $ 9 $ 12 $ 15 Cash paid 10 11 15 Postretirement Benefits Pension Benefits Other than Pensions (In millions) 2019 2018 2017 2019 2018 2017 Net periodic benefit cost Service cost $ 91 $ 104 $ 100 $ 3 $ 3 $ 3 Interest cost 326 306 323 10 10 12 Expected return on plan assets (556) (553) (507) — — — Amortization of prior service cost (credit) 14 15 15 (6) (6) (8) Amortization of net actuarial loss (gain) 101 153 137 (2) (1) (1) Net periodic benefit cost (credit) $ (24) $ 25 $ 68 $ 5 $ 6 $ 6 Other changes in plan assets and benefit obligations recognized in OCI Current year actuarial loss (gain) $ 207 $ 270 $ (11) $ 11 $ (22) $ (7) Current year prior service cost — 20 1 — — — Amortization of net actuarial gain (loss) (101) (153) (137) 2 1 1 Amortization of prior service credit (cost) (14) (15) (15) 6 6 8 Business disposition — (7) — — — — Total recognized in OCI, before taxes $ 92 $ 115 $ (162) $ 19 $ (15) $ 2 Total recognized in net periodic benefit cost (credit) and OCI $ 68 $ 140 $ (94) $ 24 $ (9) $ 8 Postretirement Benefits Pension Benefits Other than Pensions (In millions) 2019 2018 2019 2018 Change in projected benefit obligation Projected benefit obligation at beginning of year $ 7,901 $ 8,563 $ 250 $ 289 Service cost 91 104 3 3 Interest cost 326 306 10 10 Plan participants’ contributions — — 5 5 Actuarial losses (gains) 1,001 (615) 11 (22) Benefits paid (421) (422) (33) (35) Plan amendment — 20 — — Business disposition — (15) — — Foreign exchange rate changes and other 40 (40) — — Projected benefit obligation at end of year $ 8,938 $ 7,901 $ 246 $ 250 Change in fair value of plan assets Fair value of plan assets at beginning of year $ 7,122 $ 7,877 Actual return on plan assets 1,350 (335) Employer contributions 38 39 Benefits paid (421) (422) Foreign exchange rate changes and other 40 (37) Fair value of plan assets at end of year $ 8,129 $ 7,122 Funded status at end of year $ (809) $ (779) $ (246) $ (250) Postretirement Benefits Pension Benefits Other than Pensions (In millions) 2019 2018 2019 2018 Non-current assets $ 152 $ 112 $ — $ — Current liabilities (27) (27) (26) (28) Non-current liabilities (934) (864) (220) (222) Recognized in Accumulated other comprehensive loss, pre-tax: Net loss (gain) 2,271 2,157 (21) (34) Prior service cost (credit) 55 69 (20) (27) (In millions) 2019 2018 Accumulated benefit obligation $ 8,050 $ 7,137 Fair value of plan assets 7,500 6,589 (In millions) 2019 2018 Projected benefit obligation $ 8,462 $ 7,481 Fair value of plan assets 7,500 6,589 The weighted-average assumptions we use for our pension and postretirement plans are as follows: Postretirement Benefits Pension Benefits Other than Pensions 2019 2018 2017 2019 2018 2017 Net periodic benefit cost Discount rate 4.24 % 3.67 % 4.13 % 4.25 % 3.50 % 4.00 % Expected long-term rate of return on assets 7.55 % 7.58 % 7.57 % Rate of compensation increase 3.50 % 3.50 % 3.50 % Benefit obligations at year-end Discount rate 3.36 % 4.24 % 3.66 % 3.20 % 4.25 % 3.50 % Rate of compensation increase 3.50 % 3.50 % 3.50 % Interest crediting rate for cash balance plans 5.25 % 5.25 % 5.25 % U.S. Plan Assets Domestic equity securities 17 % to 33 % International equity securities 8 % to 19 % Global equities 5 % to 17 % Debt securities 27 % to 38 % Real estate 7 % to 13 % Private investment partnerships 5 % to 11 % Non-U.S. Plan Assets Equity securities 51 % to 75 % Debt securities 25 % to 45 % Real estate 0 % to 13 % The fair value of our pension plan assets by major category and valuation method is as follows: January 4, 2020 December 29, 2018 (In millions) Level 1 Level 2 Level 3 Not Level 1 Level 2 Level 3 Not Cash and equivalents $ 18 $ 12 $ — $ 174 $ 19 $ 19 $ — $ 113 Equity securities: Domestic 1,257 — — 1,160 1,256 — — 828 International 929 — — 780 835 — — 450 Mutual funds 176 — — — 266 — — — Debt securities: National, state and local governments 414 308 — 56 366 290 — 53 Corporate debt 14 1,062 — 240 — 908 — 220 Asset-backed securities — — — 18 — — — 104 Private investment partnerships — — — 745 — — — 650 Real estate — — 473 293 — — 460 285 Total $ 2,808 $ 1,382 $ 473 $ 3,466 $ 2,742 $ 1,217 $ 460 $ 2,703 (In millions) 2019 2018 Balance at beginning of year $ 460 $ 460 Unrealized gains, net 7 13 Realized gains, net 5 12 Purchases, sales and settlements, net 1 (25) Balance at end of year $ 473 $ 460 (In millions) 2020 2021 2022 2023 2024 2025-2029 Pension benefits $ 426 $ 433 $ 441 $ 450 $ 460 $ 2,426 Postretirement benefits other than pensions 26 25 24 23 22 88 Acquisition Contract Integration and Severance Terminations Asset Transaction (In millions) Costs and Other Impairments Costs Total 2019 Industrial $ 21 $ 11 $ 6 $ — $ 38 Textron Aviation 25 — 4 — 29 Corporate — — — 5 5 Total special charges $ 46 $ 11 $ 10 $ 5 $ 72 2018 Industrial $ 8 $ 18 $ 47 $ — $ 73 2017 Industrial $ 26 $ 19 $ 1 $ 12 $ 58 Textron Aviation 11 — 17 — 28 Bell 3 8 12 — 23 Textron Systems 6 (1) 16 — 21 Total special charges $ 46 $ 26 $ 46 $ 12 $ 130 Contract Severance Terminations (In millions) Costs and Other Total Balance at December 30, 2017 $ 24 $ 20 $ 44 Provision for 2018 plan 8 18 26 Cash paid (21) (9) (30) (Reversals)/provision for prior plans (3) 3 — Balance at December 29, 2018 8 32 40 Provision for 2019 plan 46 11 57 Cash paid (8) (23) (31) Foreign currency translation — (1) (1) Balance at January 4, 2020 $ 46 $ 19 $ 65 (In millions) 2019 2018 2017 U.S. $ 668 $ 557 $ 428 Non-U.S. 274 827 334 Income from continuing operations before income taxes $ 942 $ 1,384 $ 762 (In millions) 2019 2018 2017 Current expense (benefit): Federal $ (48) $ 3 $ 29 State 16 9 (9) Non-U.S. 70 101 79 38 113 99 Deferred expense (benefit): Federal 112 60 358 State (20) (5) (14) Non-U.S. (3) (6) 13 89 49 357 Income tax expense $ 127 $ 162 $ 456 The following table reconciles the federal statutory income tax rate to our effective income tax rate: 2019 2018 2017 U.S. Federal statutory income tax rate 21.0 % 21.0 % 35.0 % Increase (decrease) resulting from: Research and development tax credits (7.6) (2.9) (2.6) U.S. amended returns tax rate differential (1.2) — — State income taxes (net of federal impact) 0.3 (0.1) (1.9) Non-U.S. tax rate differential and foreign tax credits 1.4 1.3 (2.9) U.S. tax reform enactment impact — (1.0) 34.9 Domestic manufacturing deduction — — (1.1) Gain on business disposition, primarily in non-U.S. jurisdictions — (5.0) — Other, net (0.4) (1.6) (1.6) Effective income tax rate 13.5 % 11.7 % 59.8 % In 2020, the benefit of research and development tax credits as a percentage of pre-tax income was higher than prior periods primarily due to lower pre-tax income. In 2019, valuation allowance release. (In millions) 2019 2018 2017 Balance at beginning of year $ 141 $ 182 $ 186 Additions for tax positions related to current year 9 5 12 Additions for tax positions of prior years 74 13 16 Reductions for settlements and expiration of statute of limitations (1) (22) (17) Reductions for tax positions of prior years (2) (37) (15) Balance at end of year $ 221 $ 141 $ 182 January 4, December 29, (In millions) 2020 2018 Obligation for pension and postretirement benefits $ 289 $ 272 U.S. operating loss and tax credit carryforwards (a) 235 212 Accrued liabilities (b) 214 236 Deferred compensation 95 96 Operating lease liabilities (c) 70 — Non-U.S. operating loss and tax credit carryforwards (d) 52 69 Valuation allowance on deferred tax assets (145) (157) Amortization of goodwill and other intangibles (160) (143) Property, plant and equipment, principally depreciation (153) (142) Operating lease right-of-use assets (c) (68) — Other leasing transactions, principally leveraged leases (80) (77) Prepaid pension benefits (29) (21) Other, net (51) (23) Deferred taxes, net $ 269 $ 322 Accrued liabilities include warranty reserves, self-insured liabilities and interest. January 4, December 29, (In millions) 2020 2018 Manufacturing group: Deferred tax assets, net of valuation allowance $ 341 $ 397 Deferred tax liabilities (4) (5) Finance group – Deferred tax liabilities (68) (70) Net deferred tax asset $ 269 $ 322 (In millions) 2019 2018 2017 Interest paid: Manufacturing group $ 138 $ 132 $ 133 Finance group 23 25 29 Net taxes paid/(received): Manufacturing group 120 129 (16) Finance group 1 17 48 Long Term Contracts Description of the As described in Note 1 to the consolidated financial statements, revenues under long-term contracts with the U.S. Government are generally recognized over time using the cost-to-cost method of accounting. Under this method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion, and revenue is recorded proportionally as costs are incurred. Contract costs, which are estimated utilizing current contract specifications and expected engineering requirements, typically are incurred over a period of several years, and the estimation of these costs at completion requires substantial judgment. The Company’s cost estimation process is based on professional knowledge and experience of engineers and program managers along with finance professionals. The Company updates its projections of costs quarterly or more frequently when circumstances significantly change. When adjustments are required, any changes from prior estimates are recognized using the cumulative catch-up method with the impact of the change from inception-to-date of the contract recorded in the current period and required disclosure is provided in the consolidated financial statements. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable. Auditing the Company’s estimated costs at completion was challenging and complex due to the How We Addressed We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls related to the Company’s revenue recognition process, including controls over management’s review of the estimated costs at completion and related key assumptions and management’s review that the data underlying the estimated costs at completion was complete and accurate. To test the accuracy of the Company’s estimated costs at completion, our audit procedures included, among others, evaluating the key assumptions used by management to determine such Defined Benefit Pension Obligations Description of the As described in Note 16 to the consolidated financial statements, at January Auditing the defined benefit pension obligations was complex due to the highly judgmental nature of the actuarial assumptions (e.g., discount rate, mortality rate, How We Addressed We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls that address the risks of material misstatement relating to the measurement and valuation of the defined benefit pension obligation. For example, we tested controls over management’s review of the defined benefit pension obligation actuarial calculations, the significant actuarial assumptions, and the data inputs provided to the actuaries. To test the defined benefit pension obligation, our audit procedures included, among others, evaluating the methodology used, the significant actuarial assumptions discussed above, and the underlying data used by management and its actuaries. We compared the actuarial assumptions used by management to historical trends and evaluated the change in the defined benefit pension obligation from the prior year due to the change in service cost, interest cost, benefit payments, actuarial gains and losses, contributions, new longevity assumptions and plan amendments, as applicable. In addition, we involved an actuarial specialist to assist in evaluating management’s methodology for determining the discount rate that reflects the maturity and duration of the benefit payments and is used to measure the defined benefit pension obligation. As part of this assessment, we compared the projected cash flows to prior year and compared the current year benefits paid to the prior year projected cash flows. To evaluate the mortality rate, 19, 2021 (Unaudited) 2019 2018 (Dollars in millions, except per share amounts) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenues Textron Aviation $ 1,134 $ 1,123 $ 1,201 $ 1,729 $ 1,010 $ 1,276 $ 1,133 $ 1,552 Bell 739 771 783 961 752 831 770 827 Textron Systems 307 308 311 399 387 380 352 345 Industrial 912 1,009 950 927 1,131 1,222 930 1,008 Finance 17 16 14 19 16 17 15 18 Total revenues $ 3,109 $ 3,227 $ 3,259 $ 4,035 $ 3,296 $ 3,726 $ 3,200 $ 3,750 Segment profit Textron Aviation $ 106 $ 105 $ 104 $ 134 $ 72 $ 104 $ 99 $ 170 Bell 104 103 110 118 87 117 113 108 Textron Systems 28 49 31 33 50 40 29 37 Industrial 50 76 47 44 64 80 1 73 Finance 6 6 5 11 6 5 3 9 Total segment profit 294 339 297 340 279 346 245 397 Corporate expenses and other, net (47) (24) (17) (22) (27) (51) (29) (12) Interest expense, net for Manufacturing group (35) (36) (39) (36) (34) (35) (32) (34) Special charges (a) — — — (72) — — — (73) Gain on business disposition (b) — — — — — — 444 — Income tax expense (33) (62) (21) (11) (29) (36) (65) (32) Net income $ 179 $ 217 $ 220 $ 199 $ 189 $ 224 $ 563 $ 246 Earnings per share from continuing operations Basic $ 0.76 $ 0.94 $ 0.96 $ 0.87 $ 0.73 $ 0.88 $ 2.29 $ 1.02 Diluted 0.76 0.93 0.95 0.87 0.72 0.87 2.26 1.02 Basic average shares outstanding (in thousands) 234,839 232,013 229,755 228,653 260,497 253,904 246,136 240,248 Diluted average shares outstanding (in thousands) 236,437 233,545 231,097 229,790 263,672 257,177 249,378 242,569 Segment profit margins Textron Aviation 9.3 % 9.4 % 8.7 % 7.8 % 7.1 % 8.2 % 8.7 % 11.0 % Bell 14.1 13.4 14.0 12.3 11.6 14.1 14.7 13.1 Textron Systems 9.1 15.9 10.0 8.3 12.9 10.5 8.2 10.7 Industrial 5.5 7.5 4.9 4.7 5.7 6.5 0.1 7.2 Finance 35.3 37.5 35.7 57.9 37.5 29.4 20.0 50.0 Segment profit margin 9.5 % 10.5 % 9.1 % 8.4 % 8.5 % 9.3 % 7.7 % 10.6 % (In millions) 2019 2018 2017 Allowance for doubtful accounts Balance at beginning of year $ 27 $ 27 $ 27 Charged to costs and expenses 7 5 3 Deductions from reserves* (5) (5) (3) Balance at end of year $ 29 $ 27 $ 27 Allowance for losses on finance receivables Balance at beginning of year $ 29 $ 31 $ 41 Reversal of the provision for losses (6) (3) (11) Charge-offs (4) (4) (6) Recoveries 6 5 7 Balance at end of year $ 25 $ 29 $ 31 Inventory FIFO reserves Balance at beginning of year $ 280 $ 262 $ 231 Charged to costs and expenses 58 56 63 Deductions from reserves* (29) (38) (32) Balance at end of year $ 309 $ 280 $ 262 2, 2021. 2, 2021. Report of Independent Registered Public Accounting Firm Exhibits 3.1A 3.1B 3.2 4.1A 4.1B NOTE: Instruments defining the rights of holders of certain issues of long-term debt of Textron have not been filed as exhibits because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of Textron and its subsidiaries on a consolidated basis. Textron agrees to furnish a copy of each such instrument to the Commission upon request. NOTE: Exhibits 10.1 through 10.17 below are management contracts or compensatory plans, contracts or agreements. 10.1A 10.1B 10.1C Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014. 10.3B 10.3C 10.3D 10.5A 10.5B 10.5C 10.6 10.7A 10.7B 10.7C 10.7D 10.7E 10.8A 10.8B 10.8C 10.9 10.10 10.11A 10.11B 10.11C 10.11D 10.12A 10.12B 10.13 10.14A 10.14B 10.15 10.16 10.17 10.18 21 23 24 31.1 31.2 32.1 32.2 101 The following materials from Textron Inc.’s Annual Report on Form 10-K for the year ended January 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). TEXTRON INC. Registrant By: /s/ Frank T. Connor Frank T. Connor Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below on this Name Title /s/ Scott C. Donnelly Scott C. Donnelly Chairman, President and Chief Executive Officer * Director * R. Kerry Clark Director * James T. Conway Director * Paul E. Gagné Director * Ralph D. Heath Director * Deborah Lee James Director * Lionel L. Nowell III Director * James L. Ziemer Director * Maria T. Zuber Director /s/ Frank T. Connor Frank T. Connor Executive Vice President and Chief Financial Officer /s/ Mark S. Bamford Mark S. Bamford Vice President and Corporate Controller *By: Jayne M. Donegan, Attorney-in-factNote 4. Accounts Receivable and Finance ReceivablesAccounts ReceivableAccounts receivable is composed of the following:(In millions) January 2,
2021January 4,
2020Commercial $ 668 $ 835 U.S. Government contracts 155 115 823 950 Allowance for doubtful accounts (36) (29) Total $ 787 $ 921 Finance ReceivablesFinance receivables are presented in the following table:(In millions) January 2,
2021January 4,
2020Finance receivables $ 779 $ 707 Allowance for losses (35) (25) Total finance receivables, net $ 744 $ 682 $1$1.6 million at January 4, 2020.2, 2021. Loans generally require the customer to pay a significant down payment, along with periodic scheduled principal payments that reduce the outstanding balance through the term of the loan.Our finance receivables are diversified across geographic region and borrower industry. At both January 2, 2021 and January 4, 2020, and December 29, 2018, 59% of our finance receivables were distributed internationally and 41% throughout the U.S. At January 2, 2021 and January 4, 2020, and December 29, 2018 finance receivables of $148$125 million and $201$148 million, respectively, have been pledged as collateral for TFC’s debt of $68 million and $87 million, and $119 million, respectively.Finance Receivable Portfolio QualityWe internally assess the quality of our finance receivables based on a number of key credit quality indicators and statistics such as delinquency, loan balance to estimated collateral value and the financial strength of individual borrowers and guarantors. Because many of these indicators are difficult to apply across an entire class of receivables, we evaluate individual loans on a quarterly basis and classify these loans into three categories based on the key credit quality indicators for the individual loan. These 3three categories are performing, watchlist and nonaccrual.We classify finance receivables as nonaccrual if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three months unless collection of principal and interest is not doubtful. Accounts are classified as watchlist when credit quality indicators have deteriorated as compared with typical underwriting criteria, and we believe collection of full principal and interest is probable but not certain. All other finance receivables that do not meet the watchlist or nonaccrual categories are classified as performing.We measure delinquency based on the contractual payment terms of our finance receivables. In determining the delinquency aging category of an account, any/all principal and interest received is applied to the most past-due principal and/or interest amounts due. If a significant portion of the contractually due payment is delinquent, the entire finance receivable balance is reported in accordance with the most past-due delinquency aging category.5148During 2020, we modified finance receivable contracts for 94 customers with an outstanding balance totaling $278 million at January 2, 2021. Of the modifications occurring during 2020, contracts for 32 customers, or $129 million of finance receivables, were categorized as troubled debt restructurings. Due to the nature of these restructurings, the financial effects were not significant. We had 2 customer defaults related to finance receivables previously modified as a troubled debt restructuring that had an insignificant outstanding balance. We believe our allowance for credit losses adequately covers our exposure on these loans as our estimated collateral values largely exceed the outstanding loan amounts.Finance receivables categorized based on the credit quality indicators and by delinquency aging category are summarized as follows:(Dollars in millions) January 2,
2021January 4,
2020Performing $ 612 $ 664 Watchlist 74 4 Nonaccrual 93 39 Nonaccrual as a percentage of finance receivables 11.94% 5.52% Less than 31 days past due $ 738 $ 637 31-60 days past due 12 53 61-90 days past due 11 7 Over 90 days past due 18 10 60+ days contractual delinquency as a percentage of finance receivables 3.72% 2.40% At January 2, 2021, 48% of our performing finance receivables were originated since the beginning of 2019 and 26% were originated from 2016 to 2018. For finance receivables categorized as watchlist and nonaccrual, 9% and 25%, respectively, were originated since the beginning of 2019, and 47% and 36%, respectively, from 2016 to 2018. For accounts modified in 2020, the origination date prior to the modification was maintained based on the types of temporary payment relief provided.On a quarterly basis, we evaluate individual larger balance accounts for impairment. A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators described above. Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified. If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification.A summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment is provided below:(In millions) January 2,
2021January 4,
2020Recorded investment: Impaired loans with specific allowance for losses $ 46 $ 17 Impaired loans with no specific allowance for losses 117 22 Total $ 163 $ 39 Unpaid principal balance $ 175 $ 50 Allowance for losses on impaired loans 7 3 Average recorded investment 126 40 49A summary of the allowance for losses on finance receivables based on how the underlying finance receivables are evaluated for impairment, is provided below. The finance receivables reported in this table specifically exclude $104$95 million and $101$104 million of leveraged leases at January 2, 2021 and January 4, 2020, and December 29, 2018, respectively, in accordance with U.S. generally accepted accounting principles.(In millions) January 2,
2021January 4,
2020Allowance based on collective evaluation $ 28 $ 22 Allowance based on individual evaluation 7 3 Finance receivables evaluated collectively 521 564 Finance receivables evaluated individually 163 39 Note 5. InventoriesInventories are composed of the following:(In millions) January 2,
2021January 4,
2020Finished goods $ 1,228 $ 1,557 Work in process 1,455 1,616 Raw materials and components 830 896 Total $ 3,513 $ 4,069 Inventories valued by the LIFO method totaled $2.5$2.2 billion and $2.2$2.5 billion at January 2, 2021 and January 4, 2020, and December 29, 2018, respectively, and the carrying values of these inventories would have been higher by approximately $475$507 million and $457$475 million, respectively, had our LIFO inventories been valued at current costs.52Note 6. Property, Plant and Equipment, NetOur Manufacturing group’s property, plant and equipment, net is composed of the following:(Dollars in millions) Useful Lives
(in years)January 2,
2021January 4,
2020Land, buildings and improvements 2 - 40 $ 2,031 $ 1,991 Machinery and equipment 2 - 20 5,181 4,941 7,212 6,932 Accumulated depreciation and amortization (4,696) (4,405) Total $ 2,516 $ 2,527 The Manufacturing group’s depreciation expense, which included amortization expense on finance leases, totaled $325 million, $346 million and $358 million in 2020, 2019 and $362 million in 2019, 2018, and 2017, respectively.Note 7. Other AssetsOn April 1,Other assets includes the cash surrender value of corporate-owned life insurance policies, net of any borrowings against these policies. During the first quarter of 2020, we borrowed $377 million against the policies as we strengthened our cash position in light of disruptions caused by the COVID-19 pandemic. These borrowings were subsequently repaid and there were 0 outstanding borrowings against these policies at January 2, 2021. Proceeds from these borrowings and subsequent payments have been classified as financing activities in the consolidated statement of cash flows. Interest expense incurred on borrowings against corporate-owned life insurance policies is recorded as an offset with policy income.In 2019, TRU Simulation + Training Inc., a business within our Textron Systems segment, contributed assets associated with its training business into FlightSafety Textron Aviation Training LLC, a company formed by FlightSafety International Inc. and TRU to provide training solutions for Textron Aviation’s commercial business and general aviation aircraft. We have a 30% interest in this newly formed company and our investment is accounted for under the equity method of accounting. We contributed assets with a carrying value of $69 million to the company, which primarily included property, plant and equipment. In addition, $71 million of the Textron Systems segment’s goodwill was allocated to this transaction. Based on the fair value of our share of the business, we recorded a pre-tax net gain of $18 million in 2019 to cost of sales in our Consolidated Statements of Operations.50Note 8. Other Current LiabilitiesThe other current liabilities of our Manufacturing group are summarized below:(In millions) January 2,
2021January 4,
2020Contract liabilities $ 758 $ 715 Salaries, wages and employer taxes 381 362 Current portion of warranty and product maintenance liabilities 133 147 Other 713 683 Total $ 1,985 $ 1,907 Changes in our warranty liability are as follows:(In millions) 2020 2019 2018 Balance at beginning of year $ 141 $ 149 $ 164 Provision 54 68 72 Settlements (64) (70) (78) Adjustments* (12) (6) (9) Balance at end of year $ 119 $ 141 $ 149 * Adjustments include changes to prior year estimates, new issues on prior year sales, reclassifications to held for sale, business acquisitions/dispositions and currency translation adjustments.53We primarily lease certain manufacturing plants, offices, warehouses, training and service centers at various locations worldwide that are classified as either operating or finance leases. Our leases have remaining lease terms up to 3028 years, which include options to extend the lease term for periods up to 25 years when it is reasonably certain the option will be exercised. In 2019, our operatingOperating lease cost totaled $61 million and $64 million. Our financemillion, in 2020 and 2019, respectively. Finance lease cost and our variable and short-term lease costs were not significant. CashIn 2020 and 2019, cash paid for operating lease liabilities during 2019 totaled $60 million and $62 million, respectively, which is classified inas cash flows from operating activities. Noncash transactions totaled $119 million in 2020 and $25 million in 2019, reflecting the recognition of operating lease assets and liabilities for new or extended leases. Balance sheet and other information related to our leases is as follows:(Dollars in millions) January 2,
2021January 4,
2020Operating leases: Other assets $ 349 $ 277 Other current liabilities 47 48 Other liabilities 306 233 Finance leases: Property, plant and equipment, net $ 35 $ 39 Current portion of long-term debt 2 2 Long-term debt 38 40 Weighted-average remaining lease term (in years) Operating leases 11.6 10.2 Finance leases 16.8 17.9 Weighted-average discount rate Operating leases 4.17% 4.42% Finance leases 4.35% 4.37% January 4,(Dollars in millions)2020Operating leases:Other assets$277Other current liabilities48Other liabilities233Finance leases:Property, plant and equipment, less accumulated amortization of $8 million$39Current portion of long-term debt2Long-term debt40Weighted-average remaining lease term (in years)Finance leases17.9Operating leases10.2Weighted-average discount rateFinance leases4.37%Operating leases4.42%At December 29, 2018, assets under finance leases totaled $168 million and had accumulated amortization51Maturities of our lease liabilities at January 4, 20202, 2021 are as follows:(In millions) Operating
LeasesFinance
Leases2021 $ 59 $ 4 2022 53 4 2023 44 4 2024 35 4 2025 33 5 Thereafter 232 42 Total lease payments 456 63 Less: interest (103) (23) Total lease liabilities $ 353 $ 40 54Note 10. Debt and Credit FacilitiesOur debt is summarized in the table below:(a)Notes amortize on a quarterly or semi-annual basis.(b)Notes are secured by finance receivables as described in Note 4.(In millions) January 2,
2021January 4,
2020Manufacturing group 6.625% due 2020 $ 0 $ 199 Variable-rate notes due 2020 (2.45%) 0 350 3.65% due 2021 250 250 5.95% due 2021 250 250 4.30% due 2024 350 350 3.875% due 2025 350 350 4.00% due 2026 350 350 3.65% due 2027 350 350 3.375% due 2028 300 300 3.90% due 2029 300 300 3.00% due 2030 650 0 2.45% due 2031 500 0 Other (weighted-average rate of 2.60% and 3.01%, respectively) 57 75 Total Manufacturing group debt $ 3,707 $ 3,124 Less: Current portion of long-term debt (509) (561) Total Long-term debt $ 3,198 $ 2,563 Finance group Variable-rate note due 2022 (1.70% and 2.87%, respectively) $ 150 $ 150 2.88% note due 2022 150 150 Fixed-rate notes due 2020-2028 (weighted-average rate of 3.25% and 3.20%, respectively)* 51 65 Variable-rate notes due 2020-2027 (weighted-average rate of 1.73% and 3.31%, respectively)* 17 22 Fixed-to-Floating Rate Junior Subordinated Notes (1.96% and 3.64%, respectively) 294 299 Total Finance group debt $ 662 $ 686 * Notes amortize on a monthly basis and are secured by finance receivables as described in Note 4.The following table shows required payments during the next five years on debt outstanding at January 4, 2020:(In millions) 2021 2022 2023 2024 2025 Manufacturing group $ 509 $ 8 $ 8 $ 361 $ 357 Finance group 13 316 16 15 5 Total $ 522 $ 324 $ 24 $ 376 $ 362 On October 18, 2019, Textron entered intohas a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 billion, of which up to $100 million is available for the issuance of letters of credit. TextronWe may elect to increase the aggregate amount of commitments under the facility to up to $1.3 billion by designating an additional lender or by an existing lender agreeing to increase its commitment. The facility expires in October 2024, subject to up to 2 one-yearone-year extensions at Textron'sour option with the consent of lenders representing a52majority of the commitments under the facility. This new facility replaced the prior 5-year facility, which was scheduled to expire in September 2021. At January 2, 2021 and January 4, 2020, and December 29, 2018, there were 0 amounts borrowed against either facility. At January 4, 2020,the facility and there were $9 million and $10 million, respectively, of outstanding letters of credit issued under the new facility and at December 29, 2018, there were $10 million of outstanding letters of credit issued under the prior facility.Fixed-to-Floating Rate Junior Subordinated NotesThe Finance group’s $299$294 million of Fixed-to-Floating Rate Junior Subordinated Notes are unsecured and rank junior to all of its existing and future senior debt. The notes mature on February 15, 2067; however, we have the right to redeem the notes at par at any time and we are obligated to redeem the notes beginning on February 15, 2042. During 2020, TFC repurchased $5 million of these notes. Interest on the notes was fixed at 6% through February 15, 2017 and is now variable at the three-month London Interbank Offered Rate + 1.735%.Support AgreementUnder a Support Agreement between Textron and TFC, Textron is required to maintain a controlling interest in TFC. The agreement, as amended in December 2015, also requires Textron Inc. is required to ensure that TFC maintains fixed charge coverage of no less than 125% and consolidated shareholder’sshareholders' equity of no less than $125 million. There were 0 cash contributions required to be paid to TFC in 2020, 2019 2018 and 20172018 to maintain compliance with the support agreement.55Note 11. Derivative Instruments and Fair Value MeasurementsWe measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We prioritize the assumptions that market participants would use in pricing the asset or liability into a three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exist, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of Level 1, which include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect our estimates about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. Valuation techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are utilized only to the extent that observable inputs are not available or cost effective to obtain.Assets and Liabilities Recorded at Fair Value on a Recurring BasisWe manufacture and sell our products in a number of countries throughout the world, and, therefore, we are exposed to movements in foreign currency exchange rates. We primarily utilize foreign currency exchange contracts with maturities of no more than three years to manage this volatility. These contracts qualify as cash flow hedges and are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and overhead expenses. Net gains and losses recognized in earnings and Accumulated other comprehensive loss on cash flow hedges, including gains and losses related to hedge ineffectiveness, were not significant in the periods presented. Our foreign currency exchange contracts are measured at fair value using the market method valuation technique. The inputs to this technique utilize current foreign currency exchange forward market rates published by third-party leading financial news and data providers. These are observable data that represent the rates that the financial institution uses for contracts entered into at that date; however, they are not based on actual transactions so they are classified as Level 2. At January 2, 2021 and January 4, 2020, and December 29, 2018, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $318 million and $342 million, respectively. At January 2, 2021, the fair value amounts of our foreign currency exchange contracts were a $5 million asset and $379a $2 million respectively.liability. At January 4, 2020, the fair value amounts of our foreign currency exchange contracts were a $2 million asset and a $2 million liability. At December 29, 2018, the fair value amounts of our foreign currency exchange contracts were a $2 million asset and a $10 million liability.We hedge our net investment positionOur Finance group enters into interest rate swap agreements to mitigate exposure to fluctuations in certain major currencies and generate foreign currency interest payments that offset other transactional exposures in these currencies. To accomplish this, we borrow directly in the foreign currency and designate a portion of the debt as a hedge of the net investment. We record changes in the fair value ofrates. By using these contracts, in other comprehensive incomewe are able to the extent theyconvert floating-rate cash flows to fixed-rate cash flows. These agreements are effectivedesignated as cash flow hedges. Currency effects on the effective portionAt January 2, 2021, we had one swap agreement that matures in February 2022 for a notional amount of these hedges, which are reflected in the foreign currency translation adjustments within Accumulated other comprehensive loss, were not significant in the periods presented.53Assets and Liabilities Not Recorded at Fair ValueThe carrying value and estimated fair value of our financial instruments that are not reflected in the financial statements at fair value are as follows:January 2, 2021 January 4, 2020 (In millions) Carrying
ValueEstimated
Fair ValueCarrying
ValueEstimated
Fair ValueManufacturing group Debt, excluding leases $ (3,690) $ (3,986) $ (3,097) $ (3,249) Finance group Finance receivables, excluding leases 549 599 493 527 Debt (662) (587) (686) (634) Fair value for the Manufacturing group debt is determined using market observable data for similar transactions (Level 2). The fair value for the Finance group debt was determined primarily based on discounted cash flow analyses using observable market inputs from debt with similar duration, subordination and credit default expectations (Level 2). Fair value estimates for finance receivables were determined based on internally developed discounted cash flow models primarily utilizing significant unobservable inputs (Level 3), which include estimates of the rate of return, financing cost, capital structure and/or discount rate expectations of current market participants combined with estimated loan cash flows based on credit losses, payment rates and expectations of borrowers’ ability to make payments on a timely basis.56Note 12. Shareholders’ EquityCapital StockWe have authorization for 15 million shares of preferred stock with a par value of $0.01 and 500 million shares of common stock with a par value of $0.125. Outstanding common stock activity is presented below:(In thousands) 2020 2019 2018 Balance at beginning of year 227,956 235,621 261,471 Share repurchases (4,145) (10,011) (29,094) Share-based compensation activity 2,633 2,346 3,244 Balance at end of year 226,444 227,956 235,621 Earnings Per ShareWe calculate basic and diluted earnings per share (EPS) based on net income, which approximates income available to common shareholders for each period. Basic EPS is calculated using the two-class method, which includes the weighted-average number of common shares outstanding during the period and restricted stock units to be paid in stock that are deemed participating securities as they provide nonforfeitable rights to dividends. Diluted EPS considers the dilutive effect of all potential future common stock, including stock options.The weighted-average shares outstanding for basic and diluted EPS are as follows:(In thousands) 2020 2019 2018 Basic weighted-average shares outstanding 228,536 231,315 250,196 Dilutive effect of stock options 443 1,394 3,041 Diluted weighted-average shares outstanding 228,979 232,709 253,237 In 2020, 2019 2018 and 2017,2018, stock options to purchase 7.6 million, 4.3 million 1.3 million and 1.61.3 million shares, respectively, of common stock are excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive.54Accumulated Other Comprehensive LossThe components of Accumulated other comprehensive loss are presented below:In 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated (In millions) Pension and
Postretirement
Benefits
AdjustmentsForeign
Currency
Translation
AdjustmentsDeferred
Gains (Losses)
on Hedge
ContractsAccumulated
Other
Comprehensive
LossBalance at December 29, 2018 $ (1,727) $ (32) $ (3) $ (1,762) Other comprehensive loss before reclassifications (166) (4) 5 (165) Reclassified from Accumulated other comprehensive loss 82 0 (2) 80 Balance at January 4, 2020 $ (1,811) $ (36) $ 0 $ (1,847) Other comprehensive loss before reclassifications (115) 78 3 (34) Reclassified from Accumulated other comprehensive loss 146 0 (4) 142 Balance at January 2, 2021 $ (1,780) $ 42 $ (1) $ (1,739) Other Comprehensive Income, which allows entities to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive loss to retained earnings. The stranded tax effects are comprised of the tax amounts included in accumulated other comprehensive loss at the previous U.S. federal corporate tax rate of 35%, for which the related deferred tax asset or liability was remeasured at the new U.S. federal corporate tax rate of 21% in the fourth quarter of 2017. The adoption of this standard resulted in an increase to accumulated other comprehensive loss of $257 million, with an offsetting increase to retained earnings.57Other Comprehensive Income (Loss)
contracts, net2020 2019 2018 (In millions) Pre-Tax
AmountTax
(Expense)
BenefitAfter-
Tax
AmountPre-Tax
AmountTax
(Expense)
BenefitAfter-
Tax
AmountPre-Tax
AmountTax
(Expense)
BenefitAfter-
Tax
AmountPension and postretirement benefits
adjustments:Unrealized losses $ (144) $ 35 $ (109) $ (218) $ 52 $ (166) $ (248) $ 58 $ (190) Amortization of net actuarial loss* 184 (43) 141 99 (23) 76 152 (35) 117 Amortization of prior service cost* 6 (1) 5 8 (2) 6 9 (2) 7 Recognition of prior service cost (8) 2 (6) 0 0 0 (20) 5 (15) Business disposition 0 0 0 0 0 0 7 0 7 Pension and postretirement benefits
adjustments, net38 (7) 31 (111) 27 (84) (100) 26 (74) Foreign currency translation adjustments: Foreign currency translation adjustments 81 (3) 78 (6) 2 (4) (46) (3) (49) Business disposition 0 0 0 0 0 0 6 0 6 Foreign currency translation adjustments, net 81 (3) 78 (6) 2 (4) (40) (3) (43) Deferred gains (losses) on hedge contracts: Current deferrals 4 (1) 3 8 (3) 5 (8) 0 (8) Reclassification adjustments (6) 2 (4) (2) 0 (2) (7) 2 (5) Deferred gains (losses) on hedge
contracts, net(2) 1 (1) 6 (3) 3 (15) 2 (13) Total $ 117 $ (9) $ 108 $ (111) $ 26 $ (85) $ (155) $ 25 $ (130) * These components of other comprehensive income (loss) are included in the computation of net periodic pension cost. See Note 16 for additional information.Note 13. Segment and Geographic DataWe operate in, and report financial information for, the following 5 business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. The accounting policies of the segments are the same as those described in Note 1.Textron Aviation products include Citation jets, King Air and Caravan turboprop aircraft, piston engine aircraft, military trainer and defense aircraft, piston engine aircraft, and aftermarket part sales and services sold to a diverse base of corporate and individual buyers.Bell products include military and commercial helicopters, tiltrotor aircraft and related spare parts and services. Bell supplies military helicopters and, in association with The Boeing Company, military tiltrotor aircraft, and aftermarket services to the U.S. and non-U.S. governments. Bell also supplies commercial helicopters and aftermarket services to corporate, offshore petroleum exploration and development,private, law enforcement, utility charter, police, fire, rescue and emergency medical helicopter operators, and foreign governments.55Textron Systems products include unmanned aircraft and surface systems, marine craft, armored vehicles and specialty vehicles, advanced flight training devices and other defense and aviation mission support products and services primarily for U.S. and non-U.S. governments.Industrial products and markets include the following:●Kautex products consist of blow-molded plastic fuel systems, including conventional plastic fuel tanks and pressurized fuel tanks for hybrid applications, clear-vision systems and plastic tanks for selective catalytic reduction systems that are marketed primarily to automobile OEMs; and●Specialized Vehicles products include golf cars, off-road utility vehicles, recreational side-by-side and all-terrain vehicles, snowmobiles, light transportation vehicles, aviation ground support equipment, professional turf-maintenance equipment and turf-care vehicles that are marketed primarily to golf courses and resorts, government agencies and municipalities, consumers, outdoor enthusiasts, and commercial and industrial users.On July 2, 2018, we sold our Tools•Fuel Systems and Test Equipment businessesFunctional Components products consist of blow-molded plastic fuel systems, including conventional plastic fuel tanks and pressurized fuel tanks for hybrid applications, clear-vision systems and plastic tanks for selective catalytic reduction systems that were previously included in the Industrial segment as discussed in Note 2.are marketed primarily to automobile OEMs; and•Specialized Vehicles products include golf cars, off-road utility vehicles, recreational side-by-side and all-terrain vehicles, snowmobiles, light transportation vehicles, aviation ground support equipment, professional turf-maintenance equipment and turf-care vehicles that are marketed primarily to golf courses and resorts, government agencies and municipalities, consumers, outdoor enthusiasts, and commercial and industrial users.58Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses, gains/losses on major business dispositions, special charges and special charges.an inventory charge related to the 2020 COVID-19 restructuring plan, as discussed in Note 17. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.Our revenues by segment, along with a reconciliation of segment profit to income from continuing operations before income taxes, are as follows:Revenues Segment Profit (In millions) 2020 2019 2018 2020 2019 2018 Textron Aviation $ 3,974 $ 5,187 $ 4,971 $ 16 $ 449 $ 445 Bell 3,309 3,254 3,180 462 435 425 Textron Systems 1,313 1,325 1,464 152 141 156 Industrial 3,000 3,798 4,291 111 217 218 Finance 55 66 66 10 28 23 Total $ 11,651 $ 13,630 $ 13,972 $ 751 $ 1,270 $ 1,267 Corporate expenses and other, net (122) (110) (119) Interest expense, net for Manufacturing group (145) (146) (135) Special charges* (147) (72) (73) Inventory charge* (55) 0 0 Gain on business disposition 0 0 444 Income before income taxes $ 282 $ 942 $ 1,384 * See Note 17 for additional information.Other information by segment is provided below:Assets Capital Expenditures Depreciation and Amortization (In millions) January 2,
2021January 4,
20202020 2019 2018 2020 2019 2018 Textron Aviation $ 4,380 $ 4,692 $ 94 $ 122 $ 132 $ 138 $ 137 $ 145 Bell 2,984 2,783 117 81 65 91 107 108 Textron Systems 2,054 2,352 42 38 39 43 48 54 Industrial 2,500 2,781 62 97 132 102 108 112 Finance 938 964 0 0 0 5 6 8 Corporate 2,587 1,446 2 1 1 12 10 10 Total $ 15,443 $ 15,018 $ 317 $ 339 $ 369 $ 391 $ 416 $ 437 56Geographic DataPresented below is selected financial information of our continuing operations by geographic area:Revenues* Property, Plant
and Equipment, net**(In millions) 2020 2019 2018 January 2,
2021January 4,
2020United States $ 7,943 $ 8,963 $ 8,667 $ 2,068 $ 2,054 Europe 1,336 1,986 2,187 237 244 Asia and Australia 1,106 1,070 1,253 95 97 Other international 1,266 1,611 1,865 116 132 Total $ 11,651 $ 13,630 $ 13,972 $ 2,516 $ 2,527 * Revenues are attributed to countries based on the location of the customer.** Property, plant and equipment, net is based on the location of the asset.59Disaggregation of RevenuesOur revenues disaggregated by major product type are presented below:(In millions) 2020 2019 2018 Aircraft $ 2,714 $ 3,592 $ 3,435 Aftermarket parts and services 1,260 1,595 1,536 Textron Aviation 3,974 5,187 4,971 Military aircraft and support programs 2,213 1,988 2,030 Commercial helicopters, parts and services 1,096 1,266 1,150 Bell 3,309 3,254 3,180 Unmanned systems 621 572 612 Marine and land systems 179 208 311 Simulation, training and other 513 545 541 Textron Systems 1,313 1,325 1,464 Fuel systems and functional components 1,751 2,237 2,352 Specialized vehicles 1,249 1,561 1,691 Tools and test equipment 0 0 248 Industrial 3,000 3,798 4,291 Finance 55 66 66 Total revenues $ 11,651 $ 13,630 $ 13,972 57Our 2019 and 2018 revenues for our segments by customer type and geographic location are presented below:
Aviation
SystemsIn 2017, our revenues included sales to the U.S. Government of approximately $3.1 billion, primarily in the Bell and Textron Systems segments.60(In millions) Textron
AviationBell Textron
SystemsIndustrial Finance Total 2020 Customer type: Commercial $ 3,826 $ 1,079 $ 249 $ 2,993 $ 55 $ 8,202 U.S. Government 148 2,230 1,064 7 0 3,449 Total revenues $ 3,974 $ 3,309 $ 1,313 $ 3,000 $ 55 $ 11,651 Geographic location: United States $ 2,825 $ 2,564 $ 1,129 $ 1,398 $ 27 $ 7,943 Europe 356 148 44 786 2 1,336 Asia and Australia 379 330 67 328 2 1,106 Other international 414 267 73 488 24 1,266 Total revenues $ 3,974 $ 3,309 $ 1,313 $ 3,000 $ 55 $ 11,651 2019 Customer type: Commercial $ 4,956 $ 1,238 $ 359 $ 3,775 $ 66 $ 10,394 U.S. Government 231 2,016 966 23 0 3,236 Total revenues $ 5,187 $ 3,254 $ 1,325 $ 3,798 $ 66 $ 13,630 Geographic location: United States $ 3,708 $ 2,440 $ 1,083 $ 1,698 $ 34 $ 8,963 Europe 678 142 73 1,091 2 1,986 Asia and Australia 244 348 103 374 1 1,070 Other international 557 324 66 635 29 1,611 Total revenues $ 5,187 $ 3,254 $ 1,325 $ 3,798 $ 66 $ 13,630 2018 Customer type: Commercial $ 4,734 $ 1,114 $ 431 $ 4,277 $ 66 $ 10,622 U.S. Government 237 2,066 1,033 14 0 3,350 Total revenues $ 4,971 $ 3,180 $ 1,464 $ 4,291 $ 66 $ 13,972 Geographic location: United States $ 3,379 $ 2,186 $ 1,118 $ 1,957 $ 27 $ 8,667 Europe 612 162 74 1,333 6 2,187 Asia and Australia 336 427 127 357 6 1,253 Other international 644 405 145 644 27 1,865 Total revenues $ 4,971 $ 3,180 $ 1,464 $ 4,291 $ 66 $ 13,972 Our remaining performance obligations, which is the equivalent of our backlog, represent the expected transaction price allocated to our contracts that we expect to recognize as revenue in future periods when we perform under the contracts. These remaining obligations exclude unexercised contract options and potential orders under ordering-type contracts such as Indefinite Delivery, Indefinite Quantity contracts. At January 4, 2020,2, 2021, we had $9.8$9.5 billion in remaining performance obligations of which we expect to recognize revenues of approximately 75%76% through 2021,2022, an additional 20% through 2023,2024, and the balance thereafter. Contract Assets and LiabilitiesAssets and liabilities related to our contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At January 2, 2021 and January 4, 2020, and December 29, 2018, contract assets totaled $567$561 million and $461$567 million, respectively, and contract liabilities totaled $842 million and $830 million, and $974 million, respectively. The changes in these balances in 2019 resulted fromrespectively, reflecting timing differences between revenuerevenues recognized, billings and payments from customers, largely related to the V-22 program in the Bell segment.customers. During 2020, 2019 and 2018, we recognized revenues of $506 million, $590 million and $817 million, respectively, that were included in the contract liability balance at the beginning of each year.Reconciliation of ASC 606 to Prior Accounting StandardsThe amount by which each financial statement line item is affected in 2018 as a result of applying the accounting standard as discussed in Note 1 is presented below:6158Note 15. Share-Based CompensationUnder our 2015 Long-Term Incentive Plan (Plan), which replaced our 2007 Long-Term Incentive Plan in April 2015, we have authorization to provide awards to selected employees and non-employee directors in the form of stock options, restricted stock, restricted stock units, stock appreciation rights, performance stock, performance share units and other awards. A maximum of 17 million shares is authorized for issuance for all purposes under the Plan plus any shares that become available upon cancellation, forfeiture or expiration of awards granted under the 2007 Long-Term Incentive Plan. No more than 17 million shares may be awarded pursuant to incentive stock options, and no more than 4.25 million shares may be issued pursuant to awards of restricted stock, restricted stock units, performance stock or other awards that are payable in shares. For 2020, 2019 2018 and 2017,2018, the awards granted under this Plan primarily included stock options, restricted stock units and performance share units.Through our Deferred Income Plan for Textron Executives, we provide certain executives the opportunity to voluntarily defer up to 80% of their base salary, along with incentive compensation. Elective deferrals may be put into either a stock unit account or an interest-bearing account. Participants cannot move amounts between the two accounts while actively employed by us and cannot receive distributions until termination of employment. The intrinsic value of amounts paid under this deferred income plan was not significant in 2020, 2019 2018 and 2017.Share-based compensation costs are reflected primarily in selling and administrative expense. Compensation expense included in net income for our share-based compensation plans is as follows:(In millions) 2020 2019 2018 Compensation expense $ 57 $ 52 $ 35 Income tax benefit (14) (12) (8) Total compensation expense included in net income $ 43 $ 40 $ 27 Compensation cost for awards subject only to service conditions that vest ratably is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. Our awards include continued vesting provisions for retirement eligible employees. Upon reaching retirement eligibility, the service requirement for these individuals is considered to have been satisfied and compensation expense for future awards is recognized on the date of the grant.As of January 4, 2020,2, 2021, we had not recognized $27$30 million of total compensation costs associated with unvested awards subject only to service conditions. We expect to recognize compensation expense for these awards over a weighted-average period of approximately two years.Stock OptionsStock option compensation expense was $20 million, $22 million and $23 million in 2020, 2019 and $20 million in 2019, 2018, and 2017, respectively. Options to purchase our shares have a maximum term of ten years and generally vest ratably over a three-year period. Stock option compensation cost is calculated under the fair value approach using the Black-Scholes option-pricing model to determine the fair value of options granted on the date of grant. The expected volatility used in this model is based on historical volatilities and implied volatilities from traded options on our common stock, historical volatilities and other factors.stock. The expected term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior.The weighted-average fair valueWe grant options annually on the first day of options granted and theMarch. The assumptions used in our option-pricing model for suchthese grants and the weighted-average fair value for these options are as follows:2020 2019 2018 Fair value of options at grant date $ 10.66 $ 14.62 $ 15.83 Dividend yield 0.2% 0.2% 0.1% Expected volatility 29.3% 26.6% 26.6% Risk-free interest rate 1.1% 2.5% 2.6% Expected term (in years) 4.7 4.7 4.7 625920192020 is provided below:(Options in thousands) Number of
OptionsWeighted-
Average
Exercise PriceOutstanding at beginning of year 8,744 $ 44.00 Granted 2,003 39.48 Exercised (723) (29.71) Forfeited or expired (214) (48.75) Outstanding at end of year 9,810 $ 44.03 Exercisable at end of year 6,484 $ 43.02 At January 4, 2020,2, 2021, our outstanding options had an aggregate intrinsic value of $45$65 million and a weighted-average remaining contractual life of 5.75.8 years. Our exercisable options had an aggregate intrinsic value of $45$48 million and a weighted-average remaining contractual life of 4.54.4 years at January 4, 2020.2, 2021. The total intrinsic value of options exercised during 2020, 2019 and 2018 and 2017 was $10 million, $22 million and $62 million, and $29 million, respectively.Restricted Stock UnitsWe issue restricted stock units that include the right to receive dividend equivalents and are settled in both cash and stock. Beginning in 2020, new grants of restricted stock (vesting 1-thirdunits will vest in full on the third anniversary of the grant date. Restricted stock units granted prior to 2020 vest one-third each in the third, fourth and fifth year following the year of the grant), which include the right to receive dividend equivalents.grant. The fair value of these units is based on the trading price of our common stock. For units payable in stock, we use the trading price on the grant date, while units payable in cash are remeasured using the price at each reporting period date. The 20192020 activity for restricted stock units is provided below:Units Payable in Stock Units Payable in Cash (Shares/Units in thousands) Number of
SharesWeighted-
Average Grant
Date Fair ValueNumber of
UnitsWeighted-
Average Grant
Date Fair ValueOutstanding at beginning of year, nonvested 543 $ 49.44 1,104 $ 49.61 Granted 179 37.93 360 40.57 Vested (139) (42.34) (276) (42.34) Forfeited 0 0 (43) (49.29) Outstanding at end of year, nonvested 583 $ 47.60 1,145 $ 48.53 The fair value of the restricted stock unit awards that vested and/or amounts paid under these awards is as follows:(In millions) 2020 2019 2018 Fair value of awards vested $ 17 $ 23 $ 25 Cash paid 11 16 18 Performance Share UnitsThe fair value of share-based compensation awards accounted for as liabilities includes performance share units, which are paid in cash in the first quarter of the year following vesting. Payouts underBeginning with grants made in 2020, performance share units vary based on certainare subject to performance criteria generallygoals set at the beginning of the three-year performance period. Performance share units granted prior to 2020 are subject to performance goals set for each year of athe three-year performance period. The performancePerformance share units vest at the end of three years.the three-year performance period. The fair value of these units is based on the trading price of our common stock and is remeasured at each reporting period date.The 20192020 activity for our performance share units is as follows:(Units in thousands) Number of
UnitsWeighted-
Average Grant
Date Fair ValueOutstanding at beginning of year, nonvested 411 $ 56.03 Granted 276 40.60 Vested (173) (58.24) Outstanding at end of year, nonvested 514 $ 47.02 6360(In millions) 2020 2019 2018 Fair value of awards vested $ 8 $ 9 $ 12 Cash paid 7 10 11 Note 16. Retirement PlansOur defined benefitWe provide defined-contribution benefits to eligible employees, as well as some remaining defined-benefit pension and contribution plans cover substantiallyother post-retirement benefits covering certain of our U.S. and Non-U.S. employees. Substantially all of our employees. A significant numberemployees are covered by defined contribution plans. The largest of our U.S.-based employees participate inthese plans, the Textron RetirementSavings Plan, which is designed to be a “floor-offset” arrangement with both a defined benefit component and a defined contribution component. The defined benefit component of the arrangement includes the Textron Master Retirement Plan (TMRP) and the Bell Helicopter Textron Master Retirement Plan (BHTMRP), and the defined contribution component is the Retirement Account Plan (RAP). The defined benefit component provides a minimum guaranteed benefit (or “floor” benefit). Under the RAP, participants are eligible to receive contributions from Textron of 2% of their eligible compensation but may not make contributions to the plan. Upon retirement, participants receive the greater of the floor benefit or the value of the RAP. Both the TMRP and the BHTMRP arequalified 401(k) plan subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Effective on January 1, 2010, the Textron Retirement Plan was closed to new participants, and employees hired after that date receive an additional 4% annual cash contribution to their Textron Savings Plan account based on their eligible compensation.We also have other funded and unfunded defined benefit pension plans that cover certain of our U.S. and Non-U.S. employees. In addition, several defined contribution plans are sponsored by our various businesses, of which the largest plan is the Textron Savings Plan, which is a qualified 401(k) plan subject to ERISA. Our defined contribution plans cost $128 million, $130 million and $125 million in 2020, 2019 and $123 million in 2019, 2018, and 2017, respectively, which included $13 million in contributions to the RAP for each year.respectively. We also provide postretirement benefits other than pensions for certain retired employees in the U.S. that include healthcare, dental care, Medicare Part B reimbursement and life insurance.A portion of our U.S. employees participate in the legacy defined benefit pension plans which were closed to new participants beginning on January 1, 2010. These plans; the Textron Master Retirement Plan, the Bell Helicopter Textron Master Retirement Plan, and the CWC Castings Division of Textron Inc. Hourly-Rated Employees' Pension Plan, are subject to the provisions of ERISA and provide a minimum guaranteed benefit to participants. The primary factors affecting the benefits earned by participants in our pension plans are employees’ years of service and compensation levels. Employees hired subsequent to the closure of these plans receive an additional annual cash contribution to their Textron Savings Plan account based on their eligible compensation of up to 4%.Periodic Benefit Cost (Credit)The components of net periodic benefit cost (credit) and other amounts recognized in OCIother comprehensive income (loss) (OCI) are as follows:In 2018, we adopted ASU No. 2017-07, ImprovingPension Benefits Postretirement Benefits
Other than Pensions(In millions) 2020 2019 2018 2020 2019 2018 Net periodic benefit cost (credit) Service cost $ 106 $ 91 $ 104 $ 2 $ 3 $ 3 Interest cost 293 326 306 8 10 10 Expected return on plan assets (574) (556) (553) 0 0 0 Amortization of prior service cost (credit) 11 14 15 (5) (6) (6) Amortization of net actuarial loss (gain) 185 101 153 (1) (2) (1) Net periodic benefit cost (credit)* $ 21 $ (24) $ 25 $ 4 $ 5 $ 6 Other changes in plan assets and benefit obligations recognized in OCI Current year actuarial loss (gain) $ 146 $ 207 $ 270 $ (2) $ 11 $ (22) Current year prior service cost 8 0 20 0 0 0 Amortization of net actuarial gain (loss) (185) (101) (153) 1 2 1 Amortization of prior service credit (cost) (11) (14) (15) 5 6 6 Business disposition 0 0 (7) 0 0 0 Total recognized in OCI, before taxes $ (42) $ 92 $ 115 $ 4 $ 19 $ (15) Total recognized in net periodic benefit cost (credit) and OCI $ (21) $ 68 $ 140 $ 8 $ 24 $ (9) * Excludes the Presentationcost associated with the defined contribution component, included in certain of Net Periodic Pension Costour U.S.-based defined benefit pension plans, that totaled $11 million in 2020 and Net Periodic Postretirement Benefit Cost. This standard requires companies to present only the service cost component of net periodic benefit cost in operating income in the same line as other compensation costs arising from services rendered by the pertinent employees during the period. The other non-service components of net periodic benefit cost must be presented separately from service cost and excluded from operating income. In addition, only the service cost component is eligible for capitalization into inventory. The change in the amount capitalized into inventory was applied prospectively. Using a practical expedient, the other non-service components of net periodic benefit cost (credit) previously disclosed of $(29)$13 million for 2017 was reclassified from Cost of salesboth 2019 and Selling and administrative expense to Non-service components of pension and postretirement income, net in the Consolidated Statements of Operations.6461All of our plans are measured as of our fiscal year-end. The changes in the projected benefit obligation and in the fair value of plan assets, along with our funded status, are as follows:Pension Benefits Postretirement Benefits
Other than Pensions(In millions) January 2, 2021 January 4, 2020 January 2, 2021 January 4, 2020 Change in projected benefit obligation Projected benefit obligation at beginning of year $ 8,938 $ 7,901 $ 246 $ 250 Service cost 106 91 2 3 Interest cost 293 326 8 10 Plan participants’ contributions 0 0 5 5 Actuarial losses (gains) 888 1,001 (2) 11 Benefits paid (429) (421) (29) (33) Plan amendment 8 0 0 0 Foreign exchange rate changes and other 29 40 0 0 Projected benefit obligation at end of year $ 9,833 $ 8,938 $ 230 $ 246 Change in fair value of plan assets Fair value of plan assets at beginning of year $ 8,129 $ 7,122 0 0 Actual return on plan assets 1,312 1,350 0 0 Employer contributions 37 38 0 0 Benefits paid (429) (421) 0 0 Foreign exchange rate changes and other 31 40 0 0 Fair value of plan assets at end of year $ 9,080 $ 8,129 0 0 Funded status at end of year $ (753) $ (809) $ (230) $ (246) Actuarial losses (gains) reflected in the table above for both 20192020 and 20182019 were largely the result of changes in the discount rate utilized.Amounts recognized in our balance sheets are as follows:Pension Benefits Postretirement Benefits
Other than Pensions(In millions) January 2, 2021 January 4, 2020 January 2, 2021 January 4, 2020 Non-current assets $ 216 $ 152 $ 0 $ 0 Current liabilities (28) (27) (23) (26) Non-current liabilities (941) (934) (207) (220) Recognized in Accumulated other comprehensive loss, pre-tax: Net loss (gain) 2,238 2,271 (23) (21) Prior service cost (credit) 52 55 (15) (20) The accumulated benefit obligation for all defined benefit pension plans was $8.5$9.3 billion and $7.5$8.5 billion at January 2, 2021 and January 4, 2020, and December 29, 2018, respectively, which included $404$440 million and $369$404 million, respectively, in accumulated benefit obligations for unfunded plans where funding is not permitted or in foreign environments where funding is not feasible.Pension plans with accumulated benefit obligation exceeding the fair value of plan assets are as follows:(In millions) January 2, 2021 January 4, 2020 Accumulated benefit obligation $ 789 $ 8,050 Fair value of plan assets 282 7,500 62Pension plans with projected benefit obligation exceeding the fair value of plan assets are as follows:65(In millions) January 2, 2021 January 4, 2020 Projected benefit obligation $ 9,333 $ 8,462 Fair value of plan assets 8,363 7,500 AssumptionsAssumptionsPension Benefits Postretirement Benefits
Other than Pensions2020 2019 2018 2020 2019 2018 Net periodic benefit cost Discount rate 3.36% 4.24% 3.67% 3.20% 4.25% 3.50% Expected long-term rate of return on assets 7.55% 7.55% 7.58% Rate of compensation increase 3.50% 3.50% 3.50% Benefit obligations at year-end Discount rate 2.62% 3.36% 4.24% 2.35% 3.20% 4.25% Rate of compensation increase 3.50% 3.50% 3.50% Interest crediting rate for cash balance plans 5.25% 5.25% 5.25% For 2021, the long-term rate of return on assets for our domestic plans will be reduced from 7.75% to 7.25%, principally reflecting the impact of current expectations of long-term market conditions on certain investment returns. As discussed in Note 1, actuarial gains and losses are amortized into net periodic pension cost based on either the remaining service period of the active participants or the remaining life expectancy of the inactive participants. As of January 2, 2021, almost all of the participants for our largest domestic plan, the TMRP, were considered inactive largely due to actions taken in prior years to close the plan to new entrants. Accordingly, the amortization period for this plan will change to the average remaining life expectancy of the participant; this change from 7 years to 20 years will reduce 2021 pension cost by approximately $85 million.Our assumed healthcare cost trend rate for both the medical and prescription drug cost was 7.00% in both 20192020 and 2018.2019. We expect this rate to gradually decline to 5% by 2024 where we assume it will remain.Pension AssetsThe expected long-term rate of return on plan assets is determined based on a variety of considerations, including the established asset allocation targets and expectations for those asset classes, historical returns of the plans’ assets and other market considerations. We invest our pension assets with the objective of achieving a total rate of return over the long term that will be sufficient to fund future pension obligations and to minimize future pension contributions. We are willing to tolerate a commensurate level of risk to achieve this objective based on the funded status of the plans and the long-term nature of our pension liability. Risk is controlled by maintaining a portfolio of assets that is diversified across a variety of asset classes, investment styles and investment managers. Where possible, investment managers are prohibited from owning our securities in the portfolios that they manage on our behalf.For U.S. plan assets, which represent the majority of our plan assets, asset allocation target ranges are established consistent with our investment objectives, and the assets are rebalanced periodically. For Non-U.S. plan assets, allocations are based on expected cash flow needs and assessments of the local practices and markets. Our target allocation ranges are as follows:U.S. Plan Assets Domestic equity securities 17 % to 33% International equity securities 8 % to 19% Global equities 5 % to 17% Debt securities 27 % to 38% Real estate 7 % to 13% Private investment partnerships 5 % to 11% Non-U.S. Plan Assets Equity securities 55 % to 75% Debt securities 25 % to 45% Real estate 0 % to 13% 6663
Subject to
Leveling
Subject to
LevelingJanuary 2, 2021 January 4, 2020 (In millions) Level 1 Level 2 Level 3 Not
Subject to
LevelingLevel 1 Level 2 Level 3 Not
Subject to
LevelingCash and equivalents $ 49 $ 3 $ 0 $ 132 $ 18 $ 12 $ 0 $ 174 Equity securities: Domestic 1,591 0 0 1,241 1,257 0 0 1,160 International 1,221 0 0 735 929 0 0 780 Mutual funds 195 0 0 — 176 0 0 — Debt securities: National, state and local governments 482 306 0 95 414 308 0 56 Corporate debt 69 1,134 0 236 14 1,062 0 240 Asset-backed securities 0 0 0 — 0 0 0 18 Private investment partnerships 0 0 0 819 0 0 0 745 Real estate 0 0 458 314 0 0 473 293 Total $ 3,607 $ 1,443 $ 458 $ 3,572 $ 2,808 $ 1,382 $ 473 $ 3,466 Cash and equivalents, equity securities and debt securities include comingled funds, which represent investments in funds offered to institutional investors that are similar to mutual funds in that they provide diversification by holding various equity and debt securities. Since these comingled funds are not quoted on any active market, they are priced based on the relative value of the underlying equity and debt investments and their individual prices at any given time; these funds are not subject to leveling within the fair value hierarchy. Debt securities are valued based on same day actual trading prices, if available. If such prices are not available, we use a matrix pricing model with historical prices, trends and other factors.Private investment partnerships represents interests in funds which invest in equity, debt and other financial assets. These funds are generally not publicly traded so the interests therein are valued using income and market methods that include cash flow projections and market multiples for various comparable investments. Real estate includes owned properties and limited partnership interests in real estate partnerships. Owned properties are valued using certified appraisals at least every three years that are updated at least annually by the real estate investment manager based on current market trends and other available information. These appraisals generally use the standard methods for valuing real estate, including forecasting income and identifying current transactions for comparable real estate to arrive at a fair value. Limited partnership interests in real estate partnerships are valued similarly to private investment partnerships, with the general partner using standard real estate valuation methods to value the real estate properties and securities held within their portfolios. Neither private investment nor real estate partnerships are subject to leveling within the fair value hierarchy.The table below presents a reconciliation of the fair value measurements for owned real estate properties, which use significant unobservable inputs (Level 3):(In millions) 2020 2019 Balance at beginning of year $ 473 $ 460 Unrealized gains (losses), net (18) 7 Realized gains, net 6 5 Purchases, sales and settlements, net (3) 1 Balance at end of year $ 458 $ 473 6764Defined benefits under salaried plans are based on salary and years of service. Hourly plans generally provide benefits based on stated amounts for each year of service. Our funding policy is consistent with applicable laws and regulations. In 2020,2021, we expect to contribute approximately $50$51 million to our pension plans and the RAP.plans. Benefit payments provided below reflect expected future employee service, as appropriate, and are expected to be paid, net of estimated participant contributions. These payments are based on the same assumptions used to measure our benefit obligation at the end of 2019.2020. While pension benefit payments primarily will be paid out of qualified pension trusts, we will pay postretirement benefits other than pensions out of our general corporate assets. Benefit payments that we expect to pay on an undiscounted basis are as follows:(In millions) 2021 2022 2023 2024 2025 2026-2030 Pension benefits $ 434 $ 441 $ 450 $ 459 $ 470 $ 2,460 Postretirement benefits other than pensions 24 23 22 20 19 77 Note 17. Special ChargesSpecial charges recorded by segment and type of cost are as follows:(In millions) Severance
CostsContract
Terminations
and OtherAsset
ImpairmentsTotal Restructuring Charges Other
ChargesTotal 2020 Textron Aviation $ 31 $ 0 $ 2 $ 33 $ 32 $ 65 Industrial 27 1 6 34 7 41 Textron Systems 11 12 14 37 0 37 Corporate 4 0 0 4 0 4 Total special charges $ 73 $ 13 $ 22 $ 108 $ 39 $ 147 2019 Industrial $ 21 $ 11 $ 6 $ 38 $ 0 $ 38 Textron Aviation 25 0 4 29 0 29 Corporate 0 0 0 0 5 5 Total special charges $ 46 $ 11 $ 10 $ 67 $ 5 $ 72 2018 Industrial $ 8 $ 18 $ 47 $ 73 $ 0 $ 73 Total special charges $ 8 $ 18 $ 47 $ 73 $ 0 $ 73 2020 COVID-19 Restructuring PlanIn Decemberthe second quarter of 2020, we initiated a restructuring plan to reduce operating expenses through headcount reductions, facility consolidations and other actions in response to the economic challenges and uncertainty resulting from the COVID-19 pandemic. As a result of ongoing evaluations, this plan was expanded in the third quarter of 2020 to include additional headcount reductions and facility consolidations in the Industrial segment. The plan primarily impacts the TRU business within the Textron Systems segment, and the Industrial and Textron Aviation segments. At TRU, there has been a substantial decline in demand and order cancellations for flight simulators in light of the expected long-term impact of the pandemic on the commercial air transportation business. Accordingly, we ceased manufacturing at TRU’s facility in Montreal, Canada, resulting in a production suspension of its commercial air transport simulators, along with workforce reductions, contract terminations, facility closures and asset impairments. As a result of market conditions and the cessation of manufacturing at this facility, we incurred an inventory valuation charge of $55 million in the second quarter of 2020, which was recorded in Cost of Sales, to write-down TRU’s inventory to its net realizable value. In the fourth quarter of 2020, we reached a definitive agreement to sell TRU Simulation + Training Canada Inc. as described in Note 2.Through the end of 2020, we recorded pre-tax charges of $108 million since the inception of the plan. In 2021, we expect to incur additional contract termination costs and other charges in the range of $20 million to $30 million, primarily in the Industrial segment. We estimate a total reduction of 2,700 positions, representing 8% of our workforce, and expect the plan to be substantially completed in the first half of 2021.652020 Other ChargesIn the first quarter of 2020, we recognized $39 million of intangible asset impairment charges at the Textron Aviation and Industrial segments. Due to the impact of the COVID-19 pandemic, we experienced decreased demand for our products and services as our customers delayed or ceased orders due to the environment of economic uncertainty. In light of these conditions, Textron Aviation had temporarily shut down most aircraft production, including the King Air turboprop and Beechcraft piston product lines, and had instituted employee furloughs. Based on these events, we performed an interim impairment test of the indefinite-lived Beechcraft and King Air trade name intangible assets at April 4, 2020. Fair value of these assets was determined utilizing the relief of royalty method assuming an increase in the discount rate based on market data to 9.7% and revised expectations of future revenues for the products and services associated with the tradenames. This analysis resulted in an impairment charge of $32 million. At January 2, 2021, these intangible assets totaled $169 million. In the Industrial segment, we fully impaired the Arctic Cat trade name intangible asset within the Specialized Vehicles product line and recorded a $7 million impairment charge.Other Restructuring PlansIn 2019, we recorded $72$67 million inof special charges primarily in connection with a restructuring plan that was designed to reduce costs and improve overall operating efficiency through headcount reductions, facility consolidations and other actions in the Industrial and Textron Aviation segments. In the Industrial segment, in connection with the strategic review of our Kautex business, cost reduction and other measures were initiated to maximize its operating margin, and we took further cost cutting actions in our Textron Specialized Vehicles business.businesses. In the Textron Aviation segment, we conducted a review of our ongoing workforce requirements, resulting in targeted headcount reductions and other actions to realign our cost structure. Headcount reductions totaledtotaling approximately 1,000 positions, andwhich included business support and administrative functions within both segments.segments, were completed in 2020. The headcount reductions at Textron Aviation were primarily related to engineering positions, reflecting completion of the Longitude certification activities and reduced requirements for ongoing development programs. This plan was substantially completed at the end of 2019.In the fourth quarter of 2018, we recorded $73 million inof special charges in connection with a plan to restructure the Textron Specialized Vehicles businesses within our Industrial segment. Under this plan, we recordedsegment, which included asset impairment charges of $47 million, primarily intangible assets related to product rationalization, contract termination and other costs of $18 million and severance costs of $8 million. Headcount reductions totaled approximately 400 positions, representing 10% of Textron Specialized Vehicles’ workforce. This plan was substantially completed at the end of 2018.In 2017, special charges totaled $130 million, largely reflecting $90 million related to an enterprise-wide restructuring plan initiated in 2016 and $28 million for a restructuring plan initiated in the first quarter of 2017 in connection with the acquisition of Arctic Cat discussed in Note 2. Both of these plans were completed in 2017.Acquisition integration and transaction costs include $5 million in 2019 related to the strategic review of the Kautex business and $12 million in 2017 related to the Arctic Cat acquisition.68Our restructuring reserve activity is summarized below:(In millions) Severance
CostsContract
Terminations
and OtherTotal Balance at December 29, 2018 $ 8 $ 32 $ 40 Provision for 2019 plan 46 11 57 Cash paid (8) (23) (31) Foreign currency translation 0 (1) (1) Balance at January 4, 2020 $ 46 $ 19 $ 65 Provision for 2020 COVID-19 restructuring plan 73 13 86 Cash paid (77) (11) (88) Reclassifications* (1) (12) (13) Foreign currency translation 2 0 2 Balance at January 2, 2021 $ 43 $ 9 $ 52 * Reclassifications include amounts classified as held for sale in connection with a business disposition described in Note 2.The majority of the remaining cash outlays of $65$52 million is expected to be paid in the first half of 2020.2021. Severance costs generally are paid on a lump-sum basis and include outplacement costs, which are paid in accordance with normal payment terms.Note 18. Income TaxesWe conduct business globally and, as a result, file numerous consolidated and separate income tax returns within and outside the U.S. For all of our U.S. subsidiaries, we file a consolidated federal income tax return. Income from continuing operations before income taxes is as follows:(In millions) 2020 2019 2018 U.S. $ 202 $ 668 $ 557 Non-U.S. 80 274 827 Income before income taxes $ 282 $ 942 $ 1,384 66Income tax expense for continuing operations(benefit) is summarized as follows:69(In millions) 2020 2019 2018 Current expense (benefit): Federal $ (1) $ (48) $ 3 State (76) 16 9 Non-U.S. 57 70 101 (20) 38 113 Deferred expense (benefit): Federal 3 112 60 State 5 (20) (5) Non-U.S. (15) (3) (6) (7) 89 49 Income tax expense (benefit) $ (27) $ 127 $ 162 rate for continuing operations:2020 2019 2018 U.S. Federal statutory income tax rate 21.0% 21.0% 21.0% Increase (decrease) resulting from: State income tax audit settlement (net of federal impact) (18.6) 0 0 Research and development tax credits (a) (18.2) (7.6) (2.9) Outside basis difference in assets held for sale (2.7) 0 0 State income taxes (net of federal impact) (1.2) 0.3 (0.1) Non-U.S. tax rate differential and foreign tax credits (b) 10.8 1.4 1.3 U.S. tax reform enactment impact 0 0 (1.0) U.S. amended returns tax rate differential 0 (1.2) 0 Gain on business disposition, primarily in non-U.S. jurisdictions 0 0 (5.0) Other, net (0.7) (0.4) (1.6) Effective income tax rate (9.6)% 13.5% 11.7% (a) the effective tax rate was favorably impacted by $61 million in benefits were recognized for additional tax credits related to prior years as a result of the completion of a research and development tax credit analysis.(b)In 2018,2020, the effective tax rate was favorablyunfavorably impacted by a $25$55 million upon the reassessment of reserves for uncertaininventory charge and special charges in a non-U.S. jurisdiction where tax positionsbenefits cannot be realized, along with a $10 million tax expense related to research and development tax credits.The Tax Cuts and Jobs Act (the Tax Act) was enacted on December 22, 2017. Among other things,a decision to dividend cash back from select non-U.S. jurisdictions to the Tax Act reduced the U.S. federal corporate tax rate from 35% to 21% and required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. We reasonably estimated the effects of the Tax Act and recorded provisional amounts in the fourth quarter of 2017 totaling $266 million. Our provisional estimate included a $154 million charge to remeasure our U.S. federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. In addition, the provisional estimate included $112 million in expense for the one-time transition tax. This tax was based on approximately $1.6 billion of our post-1986 earnings and profits that were previously deferred from U.S. income taxes, and on the amount of those earnings held in cash and other specified net assets. In 2018, we finalized the 2017 impacts of the Tax Act, specifically the remeasurement of our U.S. Federal deferred tax assets and liabilities and the post-1986 earnings and profits transition tax, which resulted in, partially offset by a $14 million benefit.Unrecognized Tax BenefitsOur unrecognized tax benefits represent tax positions for which reserves have been established, with unrecognized state tax benefits reflected net of applicable federal tax benefits. At the end of 2020, 2019 2018 and 2017,2018, if our unrecognized tax benefits were recognized in future periods, they would favorably impact our effective tax rate. A reconciliation of these unrecognized tax benefits is as follows:(In millions) 2020 2019 2018 Balance at beginning of year $ 221 $ 141 $ 182 Additions for tax positions related to current year 11 9 5 Additions for tax positions of prior years 21 74 13 Reductions for settlements and expiration of statute of limitations (69) (1) (22) Reductions for tax positions of prior years (1) (2) (37) Balance at end of year $ 183 $ 221 $ 141 In 2020, certain tax positions related to state tax attributes were reduced by $68 million based on an audit settlement with respect to certain state income tax returns. In 2019, additional tax positions primarily reflect the completion of a research and development tax credit analysis for tax credits related to prior years. In 2018, certain tax positions related to research and development tax credits were reduced by $25 million based on new information, including interactions with the tax authorities and recent audit settlements.67In the normal course of business, we are subject to examination by tax authorities throughout the world. We are generally no longer subject to U.S. federal tax examinations for years before 2014, state and local income tax examinations for years before 2012,2015, and non-U.S. income tax examinations for years before 2011. In 2019, we filed U.S. federal amended returns for 2012 and 2013 for additional research and development tax credits that are subject to examination.70The significant components of our net deferred tax assets/(liabilities) are provided below:(In millions) January 2,
2021January 4,
2020U.S. operating loss and tax credit carryforwards (a) $ 320 $ 235 Obligation for pension and postretirement benefits 287 289 Accrued liabilities (b) 202 214 Deferred compensation 100 95 Operating lease liabilities 97 70 Non-U.S. operating loss and tax credit carryforwards (c) 65 52 Property, plant and equipment, principally depreciation (199) (153) Amortization of goodwill and other intangibles (171) (160) Valuation allowance on deferred tax assets (157) (145) Operating lease right-of-use assets (95) (68) Other leasing transactions, principally leveraged leases (79) (80) Prepaid pension benefits (44) (29) Other, net 16 (51) Deferred taxes, net $ 342 $ 269 (a)At January 2, 2021, U.S. operating loss and tax credit carryforward benefits of $283 million expire through 2040 if not utilized and $37 million may be carried forward indefinitely.(a)At January 4, 2020, U.S. operating loss and tax credit carryforward benefits of $206 million expire through 2039 if not utilized and $29 million may be carried forward indefinitely.(b)Accrued liabilities include warranty reserves, self-insured liabilities and interest.(c)With the adoption of ASC 842 in 2019, as discussed in Note 1, we established a deferred tax asset for the operating lease liabilities and a deferred tax liability for the right-of-use assets.(d)At January 4, 2020, non-U.S. operating loss and tax credit carryforward benefits of $20 million expire through 2039 if not utilized and $32 million may be carried forward indefinitely.(b)(c)At January 2, 2021, non-U.S. operating loss and tax credit carryforward benefits of $29 million expire through 2040 if not utilized and $36 million may be carried forward indefinitely.We believe earnings during the period when the temporary differences become deductible will be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not more than likely, a valuation allowance is provided.The following table presents the breakdown of our deferred taxes:(In millions) January 2,
2021January 4,
2020Manufacturing group: Deferred tax assets, net of valuation allowance $ 423 $ 341 Deferred tax liabilities (19) (4) Finance group – Deferred tax liabilities (62) (68) Net deferred tax asset $ 342 $ 269 Non-U.S. and U.S. state income taxes have not been provided for on basis differences in certain investments, primarily as a result of unremitted earnings in foreign subsidiaries totalingthat are indefinitely reinvested, totaled $1.7 billion at January 2, 2021 and January 4, 2020 and $1.6 billion at December 29, 2018, which are indefinitely reinvested.2020. Should these earnings be distributed in the future in the form of dividends or otherwise, we would be subject to withholding and income taxes payable to various non-U.S. jurisdictions and U.S. states. Determination of the deferred tax liability associated with indefinitely reinvested earnings is not practicable due to multiple factors, including the complexity of non-U.S. tax laws and tax treaty interpretations, exchange rate fluctuations, and the uncertainty of available credits or exemptions under U.S. federal and state tax laws.7168Note 19. Commitments and ContingenciesWe are subject to legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims relating to commercial and financial transactions; government contracts; alleged lack of compliance with applicable laws and regulations; production partners; product liability; patent and trademark infringement; employment disputes; and environmental, safety and health matters. Some of these legal proceedings and claims seek damages, fines or penalties in substantial amounts or remediation of environmental contamination. As a government contractor, we are subject to audits, reviews and investigations to determine whether our operations are being conducted in accordance with applicable regulatory requirements. Under federal government procurement regulations, certain claims brought by the U.S. Government could result in our suspension or debarment from U.S. Government contracting for a period of time. On the basis of information presently available, we do not believe that existing proceedings and claims will have a material effect on our financial position or results of operations.In the ordinary course of business, we enter into standby letter of credit agreements and surety bonds with financial institutions to meet various performance and other obligations. These outstanding letter of credit arrangements and surety bonds aggregated to approximately $247$216 million and $333$247 million at January 2, 2021 and January 4, 2020, and December 29, 2018, respectively.Environmental RemediationAs with other industrial enterprises engaged in similar businesses, we are involved in a number of remedial actions under various federal and state laws and regulations relating to the environment that impose liability on companies to clean up, or contribute to the cost of cleaning up, sites on which hazardous wastes or materials were disposed or released. Our accrued environmental liabilities relate to installation of remediation systems, disposal costs, U.S. Environmental Protection Agency oversight costs, legal fees, and operating and maintenance costs for both currently and formerly owned or operated facilities. Circumstances that can affect the reliability and precision of the accruals include the identification of additional sites, environmental regulations, level of cleanup required, technologies available, number and financial condition of other contributors to remediation and the time period over which remediation may occur. We believe that any changes to the accruals that may result from these factors and uncertainties will not have a material effect on our financial position or results of operations.Based upon information currently available, we estimate that our potential environmental liabilities are within the range of $40 million to $150 million. At January 4, 2020,2, 2021, environmental reserves of approximately $76 million have been established to address these specific estimated liabilities. We estimate that we will likely pay our accrued environmental remediation liabilities over the next ten years and have classified $14$15 million as current liabilities. Expenditures to evaluate and remediate contaminated sites were $13$7 million, $13 million and $18$13 million in 2020, 2019 and 2018, and 2017, respectively.Note 20. Supplemental Cash Flow InformationOur cash payments and receipts are as follows:(In millions) 2020 2019 2018 Interest paid: Manufacturing group $ 139 $ 138 $ 132 Finance group 20 23 25 Net taxes paid: Manufacturing group 34 120 129 Finance group 8 1 17 7269To the Shareholders and the Board of Directors of Textron Inc.Opinion on the Financial StatementsWe have audited the accompanying Consolidated Balance Sheets of Textron Inc. (the Company) as of January 2, 2021 and January 4, 2020, and December 29, 2018, the related Consolidated Statements of Operations, Comprehensive Income, Shareholders’ Equity and Cash Flows for each of the three years in the period ended January 4, 2020,2, 2021, and the related notes and the financial statement schedule contained on page 7773 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 2, 2021 and January 4, 2020 and December 29, 2018 and the results of its operations and its cash flows for each of the three years in the period ended January 4, 2020,2, 2021, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 4, 2020,2, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 25, 202019, 2021 expressed an unqualified opinion thereon.Adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606)As discussed in Note 1 to the consolidated financial statements, the Company changed its method for recognizing revenue as a result of the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and its related amendments effective December 31, 2017.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.Critical Audit MattersThe critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.7370judgementjudgment involved in evaluating management’s assumptions and key estimates over the duration of long-term contracts. The estimated costs at completion consider risks surrounding the Company’s ability to achieve the technical requirements and specifications of the contract, schedule, and other cost elements of the contract, and depend on whether the Company is able to successfully retire risks surrounding such aspects of the contract.estimate.estimates. This included evaluating the historical accuracy of management’s estimates by comparing planned costs to actual costs incurred to date. We also tested the completeness and accuracy of the underlying data back to source documents and contracts.4, 2020,2, 2021, the aggregate qualified defined benefit pension obligation was $8.9$9.8 billion and exceeded the fair value of pension plan assets of $8.1$9.1 billion, resulting in an unfunded defined benefit pension obligation of $809$753 million. As explained in Note 1 to the consolidated financial statements, the Company updates the estimates used to measure the defined benefit pension obligation and plan assets annually in the fourth quarter or upon a remeasurement event to reflect the actual return on plan assets and updated actuarial assumptions.longevity, expected return on plan assets) used in the measurement process. These assumptions have a significant effect on the projected benefit obligation.74and the longevity, we assessed whether the information is consistent with publicly available information and entity-specific data. We also tested the completeness and accuracy of the underlying data, including the participant data provided to the Company’s actuaries. Lastly, to evaluate the expected return on plan assets, we assessed whether management’s assumption is consistent with a range of returns for a portfolio of comparative investments./s/ Ernst & Young LLPWe have served as the Company’s auditor since 1957.Boston, MassachusettsFebruary 25, 20207571(Unaudited) 2020 2019 (Dollars in millions, except per share amounts) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenues Textron Aviation $ 872 $ 747 $ 795 $ 1,560 $ 1,134 $ 1,123 $ 1,201 $ 1,729 Bell 823 822 793 871 739 771 783 961 Textron Systems 328 326 302 357 307 308 311 399 Industrial 740 562 832 866 912 1,009 950 927 Finance 14 15 13 13 17 16 14 19 Total revenues $ 2,777 $ 2,472 $ 2,735 $ 3,667 $ 3,109 $ 3,227 $ 3,259 $ 4,035 Segment profit (loss) Textron Aviation $ 3 $ (66) $ (29) $ 108 $ 106 $ 105 $ 104 $ 134 Bell 115 118 119 110 104 103 110 118 Textron Systems 26 37 40 49 28 49 31 33 Industrial 9 (11) 58 55 50 76 47 44 Finance 3 4 1 2 6 6 5 11 Total segment profit 156 82 189 324 294 339 297 340 Corporate expenses and other, net (14) (30) (28) (50) (47) (24) (17) (22) Interest expense, net for Manufacturing group (34) (37) (38) (36) (35) (36) (39) (36) Special charges * (39) (78) (7) (23) 0 0 0 (72) Inventory charge * 0 (55) 0 0 0 0 0 0 Income tax (expense) benefit (19) 26 (1) 21 (33) (62) (21) (11) Net income (loss) $ 50 $ (92) $ 115 $ 236 $ 179 $ 217 $ 220 $ 199 Earnings per share Basic $ 0.22 $ (0.40) $ 0.50 $ 1.03 $ 0.76 $ 0.94 $ 0.96 $ 0.87 Diluted 0.22 (0.40) 0.50 1.03 0.76 0.93 0.95 0.87 Basic average shares outstanding (in thousands) 228,311 228,247 228,918 228,666 234,839 232,013 229,755 228,653 Diluted average shares outstanding (in thousands) 228,927 228,247 229,279 229,365 236,437 233,545 231,097 229,790 Segment profit (loss) margins Textron Aviation 0.3% (8.8%) (3.6%) 6.9% 9.3% 9.4% 8.7% 7.8% Bell 14.0 14.4 15.0 12.6 14.1 13.4 14.0 12.3 Textron Systems 7.9 11.3 13.2 13.7 9.1 15.9 10.0 8.3 Industrial 1.2 (2.0) 7.0 6.4 5.5 7.5 4.9 4.7 Finance 21.4 26.7 7.7 15.4 35.3 37.5 35.7 57.9 Segment profit margin 5.6% 3.3% 6.9% 8.8% 9.5% 10.5% 9.1% 8.4% (a)In the fourth quarter of 2019, special charges of $72 million were recorded under a restructuring plan, principally impacting the Industrial and Textron Aviation segments. Special charges of $73 million were recorded in the fourth quarter of 2018 under a restructuring plan for the Textron Specialized Vehicles businesses within our Industrial segment that was initiated in December 2018.(b)On July 2, 2018, we completed the sale of the Tools & Test Equipment product line which resulted in an after-tax gain of $419 million.* See Note 17 for additional information.7672(In millions) 2020 2019 2018 Allowance for doubtful accounts Balance at beginning of year $ 29 $ 27 $ 27 Charged to costs and expenses 25 7 5 Deductions from reserves* (18) (5) (5) Balance at end of year $ 36 $ 29 $ 27 Allowance for losses on finance receivables Balance at beginning of year $ 25 $ 29 $ 31 Provision (reversal) for losses 7 (6) (3) Charge-offs 0 (4) (4) Recoveries 3 6 5 Balance at end of year $ 35 $ 25 $ 29 Inventory FIFO reserves Balance at beginning of year $ 309 $ 280 $ 262 Charged to costs and expenses 105 58 56 Deductions from reserves* (57) (29) (38) Balance at end of year $ 357 $ 309 $ 280 ** Deductions primarily include amounts written off on uncollectableuncollectible accounts (less recoveries), inventory disposals, changes to prior year estimates, reclassifications to held for sale, business dispositions and currency translation adjustments.Item 9. Changes In and Disagreements With Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresDisclosure Controls and ProceduresWe performed an evaluation of the effectiveness of our disclosure controls and procedures as of January 4, 2020.2, 2021. The evaluation was performed with the participation of senior management of each business segment and key Corporate functions, under the supervision of our Chairman, President and Chief Executive Officer (CEO) and our Executive Vice President and Chief Financial Officer (CFO). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were operating and effective as of January 4, 2020.Changes in Internal Controls Over Financial ReportingThere were no changes in our internal control over financial reporting during the fourth quarter of the fiscal year covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Management’s Report on Internal Control Over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting for Textron Inc. as such term is defined in Exchange Act Rules 13a-15(f). Our internal control structure is designed to provide reasonable assurance, at appropriate cost, that assets are safeguarded and that transactions are properly executed and recorded. The internal control structure includes, among other things, established policies and procedures, an internal audit function, the selection and training of qualified personnel as well as management oversight.With the participation of our management, we performed an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation under the 2013 Framework, we have concluded that Textron Inc. maintained, in all material respects, effective internal control over financial reporting as of January 4, 2020.The independent registered public accounting firm, Ernst & Young LLP, has audited the Consolidated Financial Statements of Textron Inc. and has issued an attestation report on Textron’s internal controls over financial reporting as of January 4, 2020,2, 2021, as stated in its report, which is included herein.7773To the Shareholders and the Board of Directors of Textron Inc.Opinion on Internal Control over Financial ReportingWe have audited Textron Inc.’s internal control over financial reporting as of January 4, 2020,2, 2021, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), (the COSO criteria). In our opinion, Textron, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 4, 2020,2, 2021, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Consolidated Balance Sheets of the Company as of January 2, 2021 and January 4, 2020, and December 29, 2018, and the related Consolidated Statements of Operations, Comprehensive Income, Shareholder’s Equity and Cash Flows for each of the three years in the period ended January 4, 2020,2, 2021, and the related notes and the financial statement schedule contained on page 77,73, of the Company and our report dated February 25, 202019, 2021 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate./s/ Ernst & Young LLPBoston, Massachusetts7874Item 10. Directors, Executive Officers and Corporate GovernanceThe information appearing under “ELECTION OF DIRECTORS — Nominees for Director,” “CORPORATE GOVERNANCE — Corporate Governance Guidelines and Policies,” “— Code of Ethics,” and “— Board Committees — Audit Committee,” in the Proxy Statement for our 2021 Annual Meeting of Shareholders to be held on April 29, 2020 is incorporated by reference into this Annual Report on Form 10-K.Information regarding our executive officers is contained in Part I of this Annual Report on Form 10-K.Item 11. Executive CompensationThe information appearing under “CORPORATE GOVERNANCE — Compensation of Directors,” “COMPENSATION COMMITTEE REPORT,” “COMPENSATION DISCUSSION AND ANALYSIS” and “EXECUTIVE COMPENSATION” in the Proxy Statement for our 2021 Annual Meeting of Shareholders to be held on April 29, 2020 is incorporated by reference into this Annual Report on Form 10-K.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information appearing under “SECURITY OWNERSHIP” and “EXECUTIVE COMPENSATION – Equity Compensation Plan Information” in the Proxy Statement for our 2021 Annual Meeting of Shareholders to be held on April 29, 2020 is incorporated by reference into this Annual Report on Form 10-K.Item 13. Certain Relationships and Related Transactions and Director IndependenceThe information appearing under “CORPORATE GOVERNANCE — Director Independence” and “EXECUTIVE COMPENSATION — Transactions with Related Persons” in the Proxy Statement for our 2021 Annual Meeting of Shareholders to be held on April 29, 2020 is incorporated by reference into this Annual Report on Form 10-K.Item 14. Principal Accountant Fees and ServicesThe information appearing under “RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM — Fees to Independent Auditors” in the Proxy Statement for our 2021 Annual Meeting of Shareholders to be held on April 29, 2020 is incorporated by reference into this Annual Report on Form 10-K.7975Item 15. Exhibits and Financial Statement SchedulesFinancial Statements and Schedules — See Index on Page 36.34.4.610.1D10.1E10.1F8010.1G(SEC(SEC File No. 1-5480)10.1H10.1I10.210.3A10.3A 7610.410.3F 10.4 817782784, 2020,2, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, (vi) the Notes to the Consolidated Financial Statements, and (vii) Schedule II – Valuation and Qualifying Accounts.Item 16. Form 10-K Summary8379Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 25th19th day of February 2020.2021.
Executive Vice President and Chief Financial Officer848025th19th day of February 20202021 by the following persons on behalf of the registrant and in the capacities indicated:
(principal executive officer)*Kathleen M. Bader Lawrence K. FishDirector*Lloyd G. TrotterDirector*
(principal financial officer)
(principal accounting officer) /s//s/ Jayne M. Donegan8581