Form 10-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
December 31, 2022
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
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| 40 Westminster Street, |
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| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
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| Common Stock — par value $0.125 | TXT | New York Stock Exchange |
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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 | ☐ | |||||||||||||||
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Documents Incorporated by Reference
| Documents Incorporated by Reference | ||
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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,EX and SkyCourier, which is targeted for first flightwas certified in early 2020. The Denali, a high-performance single engine turboprop aircraft under development, is also expected to achieve its first flight in 2021.March 2022. 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, which achieved military type certification from the U.S. Air Force in July 2022, enabling international sales of the aircraft. Textron Aviation also offers piston engine aircraft including the Beechcraft Baron G58 and Bonanza G36, and the Scorpion, a highly affordable, multi-mission aircraft, both of which are not yet in production, pending customer orders.
Cessna Skyhawk, Skylane, Turbo Skylane, and Turbo Stationair HD.
3
alliance with Boeing, Bell produces and supports the V-22 tiltrotor aircraft for the U.S. Department of Defense (DoD), and also for Japan 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-1 helicopters underUnder the U.S. Government-sponsored foreign military sales program.
program, Bell is developing the V-280 Valor, a next generation vertical liftoffers its V-22 tiltrotor aircraft as part of the Joint Multi Role Technology Demonstrator (JMR-TD) initiative. The JMR-TD program is the science and technology precursorH-1 helicopter products for sale 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.
other countries.
Textron Systems Segment
Textron Systems’ product lines consist of Unmanned Systems, Marine and Land systems, and Simulation, Training and Other. Textron Systems is a supplier to the defense, aerospace and general aviation markets, and represents 10%, 10% and 13% of our total revenues in 2019, 2018 and 2017, respectively. This segment sells products to U.S. Government customers and to customers outside the U.S. through foreign military sales sponsoredArmy’s Future Vertical Lift (FVL) initiative. The V-280 achieved its first flight in December 2017, conducted over 200 hours of flight testing, and has demonstrated all key performance objectives established by the U.S. Army, including flying in excess of 300 knots airspeed. After an extended competitive process, in December 2022, Bell was awarded the development contract for the next stage of the FLRAA program. A competitor has filed a protest with the Government Accountability Office (GAO) regarding the award of the FLRAA contract to Bell, and directly througha stop-work order has been issued pending resolution of the protest. We expect the GAO to issue its decision on the protest by April 7, 2023.
Unmanned Systems
Our Unmanned Systems product line includesother customer missions. Product and service offerings of this segment include unmanned aircraft systems, unmanned surfaceelectronic systems mission command hardware and solutions, advanced marine craft, piston aircraft engines, live military air-to-air and worldwide customer supportair-to-ship training, weapons and logistics. Unmanned aircraft systems includesrelated components, and armored and specialty vehicles.
Marine and Land Systems
Our Marine and Land Systems product line includes advanced marine craft, armored vehicles and specialty vehicles supporting fire and rescue applications. These products are in service with U.S. and international militaries, special operations forces, police forces and civilian entities. Marine and Land Systems’ primary U.S. Government program is for the development and production ofoperations; the U.S. Navy’sNavy's next generation Landing Craft Air Cushion, developed as part of the Ship-to-Shore Connector program.
4
Simulation, Trainingthe segment include fee-for-service programs using unmanned aircraft systems and Other
The Simulation, Training and Other product line includes products and services provided by the following businesses: 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. 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 supportpersonnel provided by Airborne Tactical Advantage Company.
Fuel Systems and Functional Components
Kautex has also developed and begun to market the Pentatonic battery system, a customizable, lightweight battery housing with thermal management capabilities, comprised of either thermoplastic composite or composite metal hybrid, for use in electric vehicles, from hybrid to full battery-powered.
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 A significant portion of the products sold by these businesses have aare powered with lithium batteries, greatly reducing the products’ impact on the environment.
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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) | December 31, 2022 | January 1, 2022 | ||||||
| Textron Aviation | $ | 6,387 | $ | 4,120 | ||||
| Bell | 4,781 | 3,871 | ||||||
| Textron Systems | 2,098 | 2,144 | ||||||
| Total backlog | $ | 13,266 | $ | 10,135 | ||||
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.
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| Name | Age | Current Position with Textron Inc. | ||||||||
Scott C. Donnelly |
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| Chairman, President and Chief Executive Officer | ||||||
Frank T. Connor |
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| Executive Vice President and Chief Financial Officer | ||||||
Julie G. Duffy |
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| Executive Vice President and Chief Human Resources Officer | ||||||
E. Robert Lupone |
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| Executive Vice President, General Counsel, Secretary and Chief Compliance Officer | ||||||
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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.
•Interruptions in the U.S. Government’s ability to fund its activities and/or pay its obligations; •Changing priorities or reductions in the U.S. Government defense budget, including those related to military operations in foreign countries; •Our ability to perform as anticipated and to control costs under contracts with the U.S. Government; •The U.S. Government’s ability to unilaterally modify or terminate its contracts with us for the U.S. Government’s convenience or for our failure to perform, to change applicable procurement and accounting policies, or, under certain circumstances, to withhold payment or suspend or debar us as a contractor eligible to receive future contract awards; •Changes in foreign military funding priorities or budget constraints and determinations, or changes in government regulations or policies on the export and import of military and commercial products; •Volatility in the global economy or changes in worldwide political conditions that adversely impact demand for our products; •Volatility in interest rates or foreign exchange rates and inflationary pressures; •Risks related to our international business, including establishing and maintaining facilities in locations around the world and relying on joint venture partners, subcontractors, suppliers, representatives, consultants and other business partners in connection with international business, including in emerging market countries; •Our Finance segment’s ability to maintain portfolio credit quality or to realize full value of receivables; •Performance issues with key suppliers or subcontractors; •Legislative or regulatory actions, both domestic and foreign, impacting our operations or demand for our products; •Our ability to control costs and successfully implement various cost-reduction activities; •The efficacy of research and development investments to develop new products or unanticipated expenses in connection with the launching of significant new products or programs; •The timing of our new product launches or certifications of our new aircraft products; •Our ability to keep pace with our competitors in the introduction of new products and upgrades with features and technologies desired by our customers; •Pension plan assumptions and future contributions; •Demand softness or volatility in the markets in which we do business; •Cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption; •Difficulty or unanticipated expenses in connection with integrating acquired businesses; •The risk that acquisitions do not perform as planned, including, for example, the risk that acquired businesses will not achieve revenues and profit projections; •The impact of changes in tax legislation; •Risks and uncertainties related to the ongoing impact of the COVID-19 pandemic and the war between Russia and Ukraine on our business and operations; •The ability of our businesses to hire and retain the highly skilled personnel necessary for our businesses to succeed; and •Risks related to a competitor's protest of the award of the FLRAA contract to Bell. |
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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.
cost and may result in delayed revenues and profit.
Even if we are successful in obtaining an award, we may encounter bid protests from unsuccessful bidders on new program awards, such as the protest filed by our competitor on the FLRAA program. Bid protests could result in significant expenses associated with justifying the selection or due to potential program delays and could result in contract modifications that alter schedule or scope or even cause the loss of the contract award. Even when a bid protest does not result in the loss of a contract award, the resolution could postpone commencement of contract activity, resulting in additional cost and delay in the recognition of revenue and profit.
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DemandOur defense businesses operate in highly competitive markets in which they participate in rigorous, increasingly competitive bidding processes against other defense companies for our aircraft productsU.S. government business. The competitive bidding process is cyclicalcostly and, lower demand adversely affects our financial results.
Demand for business jets, turbo propsin some instances, may require significant research and commercial helicopters has been cyclical and difficult to forecast. Therefore, future demand for these products could be significantly and unexpectedly less than anticipateddevelopment and/or less than previous period deliveries. Similarly,engineering efforts to participate. Despite our best efforts, the U.S. Government customer may choose competitive offerings over our offerings. The competition from other government contractors, combined with the increasingly competitive nature of the government contract bidding and award process, results in an intensely competitive market environment in which there is uncertainty ascan be no assurance that our businesses will be selected for government programs with significant long-term revenues. If we are unable to whencontinue to compete successfully against our current or whether our existing commercial backlog for aircraft products will convert tofuture competitors, do not win government programs with significant long-term revenues as the conversion depends on production capacity, customer needsor do not prevail in bid protests, we may experience declines in future revenues 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,profitability, which could have a material adverse effect on our cash flows,financial position, results of operations or cash flows.
condition and results of operations. In addition, our investments in equipment or technology that we believe will enable us to obtain future contracts for our U.S. Government or other customers may not result in contracts or revenues sufficient to offset such investment. We cannot be sure that our competitors will not develop competing technologies which gain superior market acceptance compared to our products. A significant failure in our new product development efforts, a substantial change to schedule, a material change in an anticipated market or the failure of our products or services to achieve customer acceptance relative to our competitors’ products or services, could have an adverse effect on our financial condition and results of operations.
Failure to perform by our subcontractors or suppliers
We rely on other companies to provide raw materials, major componentsbusiness, financial condition or operating results.
more of these or other factors could adversely affect our business, financial condition or operating results.
other disruptions.
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While we have experienced cybersecurity attacks, such attacks have not resulted in a material information security breach and we have not suffered any material losses relating to such attacks, and weattacks. 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 timely 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.
To continue
litigation.
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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
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Globalglobal climate change could negatively affect our business.
operating results.
Our failure to adequately comply with such laws and regulations could jeopardize our ability to receive contract awards from the U.S. government and other customers.
Certain
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
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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.
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On
As previously reported in Textron’s Annual Report on Form 10-K fordismiss the fiscal year ended December 31, 2016, on February 7, 2012, a lawsuit was filed in the United States Bankruptcy Court, Northern District of Ohio, Eastern Division (Akron) by Brian A. Bash, Chapter 7 Trustee for Fair Finance Company against TFC, Fortress Credit Corp. and Fair Facility I, LLC. TFC provided a revolving line of credit of up to $17.5 million to Fair Finance Company from 2002 through 2007. The complaint alleges numerous counts against TFC, as Fair Finance Company’s working capital lender, including receipt of fraudulent transfers and assisting in fraud perpetrated on Fair Finance investors. The Trustee sought avoidance and recovery of alleged fraudulent transfers in the amount of $316 million as well as damages of $223 million on the other claims. The Trustee also sought trebled damages on all claims under Ohio law.Second Amended Complaint. On November 9, 2012,July 20, 2020, the Court dismissed all claims against TFC. The trustee appealed,granted Textron’s motion to dismiss and onclosed the case. On August 23, 2016,18, 2020, plaintiffs filed a notice of appeal contesting the 6thdismissal, which Textron opposed. On September 17, 2021, the Second Circuit Court of Appeals reversednarrowed the case, unanimously upholding dismissal in partof most of the Second Amended Complaint, but reversing dismissal of one aspect of the Second Amended Complaint and remanded certain claimsremanding that remaining portion back to the trial court.District Court for further proceedings. On September 27, 2018, after reconsideringJune 23, 2022, as a result of a mediation process overseen by an independent mediator, the remandedParties entered into a settlement agreement to settle plaintiff’s claims which were based upon civil conspiracyfor an amount not material to Textron. On November 21, 2022, the Court entered an order giving final approval of the settlement and intentional fraudulent transfer, the trial court granted partial summaryfinal judgment in favor ofthe case. Neither Textron dismissing the Trustee’s civil conspiracy claim, as well as a portionnor any of the Trustee’s claim for intentional fraudulent transfer, leaving only a portion ofother defendants admitted any wrongdoing with respect to the intentional fraudulent transfer claim to be adjudicated. The trial for this matter began on February 24, 2020. We intend to continue to vigorously defend this lawsuit.
allegations in the case.
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| | | | | |
| | | | | 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 2, 2022 – November 5, 2022 | 750 | $ | 64.62 | 750 | 14,500 | |||||||||
| November 6, 2022 – December 3, 2022 | 1,635 | 69.67 | 1,635 | 12,865 | ||||||||||
| December 4, 2022 – December 31, 2022 | 940 | 70.12 | 940 | 11,925 | ||||||||||
| Total | 3,325 | $ | 68.66 | 3,325 | ||||||||||
On February 25, 2020, our Board
| | | | | | | | | | | | |
| 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 |
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |||||||||||||||
| Textron Inc. | $ | 100.00 | $ | 80.77 | $ | 79.29 | $ | 85.86 | $ | 137.31 | $ | 126.08 | ||||||||
| S&P 500 | 100.00 | 94.80 | 125.91 | 148.85 | 191.58 | 156.88 | ||||||||||||||
| S&P 500 A&D | 100.00 | 90.72 | 124.44 | 100.56 | 113.86 | 133.64 | ||||||||||||||
| S&P 500 Industrials | 100.00 | 96.09 | 128.30 | 157.60 | 201.56 | 162.45 | ||||||||||||||
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Item 6. Selected Financial Data
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(Dollars in millions, except per share amounts) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||
Revenues (a) | |
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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 |
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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 | |||||
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) 2022 2021 2020 2022 2021 Revenues $ 12,869 $ 12,382 $ 11,651 4% 6% Cost of sales 10,800 10,297 10,094 5% 2% Gross margin as a percentage of Manufacturing revenues 15.7% 16.5% 13.0% Selling and administrative expense 1,186 1,221 1,045 (3)% 17% Interest expense, net 107 142 166 (25)% (14)% Non-service components of pension and postretirement income, net 240 159 83 51% 92% RevenuesRevenues decreased $342increased $487 million, 2%4%, in 2019,2022, compared with 2018.2021. The revenue decreaseincrease primarily 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•Higher Textron Aviation revenues of $507 million, reflecting higher volume and mix of $302 million and higher pricing of $205 million.•Higher Industrial revenues of $335 million due to a favorable impact from pricing of $227 million, principally 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 million, 2%, in 2018, compared with 2017, largely driven by the disposition of the Tools and Test Equipment product line, withinand higher volume and mix of $203 million in both product lines, partially offset by an unfavorable impact from exchange rate fluctuations of $95 million.•Lower Bell revenues of $273 million due to lower military revenues of $333 million, primarily in the Industrial segment. The net revenueH-1 program due to lower aircraft and spares production volume reflecting lower demand, partially offset by higher commercial revenues of $60 million, largely due to higher pricing.•Lower Textron Systems revenues of $101 million, largely due to lower volume of $121 million, which included an $88 million decrease included the following factors:●Lower Textron Systems revenues of $376 million, primarily reflecting lower volume of $159 million in the Marine and Land Systems product line, along with a decrease due to the discontinuance of our sensor-fuzed weapon product in 2017.from our Afghanistan fee-for-service and aircraft support contracts.●Lower Bell revenues of $137 million, 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.●Higher Textron Aviation revenues of $285 million, due to higher volume and mix of $185 million and favorable pricing of $100 million.19
Cost of Sales and Selling and Administrative Expense
Bell segment due to lower volume and mix.
Net
driven by an increase in the discount rate utilized for our domestic qualified pension plans and the impact of actual pension asset returns that exceeded our expected return on plan assets.
Gain on Business Disposition
On July 2, 2018, we completed the sale of the businesses that manufactureStatements in Item 8. Financial Statements and sell the productsSupplementary Data. There were no special charges recorded in the Tools and Test Equipment product line within our Industrial segment. We recorded an after-tax gain of $419 million in 2018.
2022.
| | | | | | |
| 2019 | 2018 | 2017 | |||
Effective tax rate | 13.5 | % | 11.7 | % | 59.8 | % |
| 2022 | 2021 | 2020 | |||||||||
| Effective tax rate | 15.2% | 14.4% | (9.6%) | ||||||||
deductions for foreign-derived intangible income. In 2018, our2021, the effective tax rate of 11.7%14.4% 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 favorable impact from the Tax Act. In the fourth quarter of 2017, we recordedresearch and development credits, which included a provisional estimate of $266$12 million benefit recognized 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.
additional credits related to prior years.
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) | 2022 | 2021 | 2020 | 2022 | 2021 | ||||||||||||
| Revenues: | |||||||||||||||||
| Aircraft | $ | 3,387 | $ | 3,116 | $ | 2,714 | 9% | 15% | |||||||||
| Aftermarket parts and services | 1,686 | 1,450 | 1,260 | 16% | 15% | ||||||||||||
| Total revenues | 5,073 | 4,566 | 3,974 | 11% | 15% | ||||||||||||
| Operating expenses | 4,489 | 4,188 | 3,958 | 7% | 6% | ||||||||||||
| Segment profit | $ | 584 | $ | 378 | $ | 16 | 54% | 2,263% | |||||||||
| Profit margin | 11.5% | 8.3% | 0.4% | ||||||||||||||
| Backlog | $ | 6,387 | $ | 4,120 | $ | 1,603 | 55% | 157% | |||||||||
|
|
| |||
|
2021 | ||||
|
| ||||
Volume and mix | $ |
| |||
Pricing | 205 |
| |||
Total change | $ |
| |||
21
Textron Aviation’s operating expenses increased $212 million, 5%, in 2019, compared with 2018, largely due to higher net volume and mix as described above and an unfavorable impact from inflation partially offset by improved manufacturing performance.
Factors contributing to 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 volume and mix of $185 million and favorable pricing of $100$114 million. We delivered 188 Citation jets and 186 commercial turboprops in 2018, compared with 180 Citation jets and 155 commercial turboprops in 2017.
Textron Aviation’s operating expenses increased $143 million, 3%, in 2018, compared with 2017, largely due to higher net volume as described above.
|
|
| |||
|
2021 | ||||
|
| ||||
|
|
| |||
|
| ||||
Volume and mix | $ |
| |||
Pricing, net of inflation | 91 | ||||
| Performance | 14 | ||||
| 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 2017,2021, primarily due to the impact from higher volume and mix of $65 million as described above and the favorable impact from pricing, net of inflation.
inflation of $91 million.
Backlog at
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) | 2022 | 2021 | 2020 | 2022 | 2021 | ||||||||||||
| Revenues: | |||||||||||||||||
| Military aircraft and support programs | $ | 1,740 | $ | 2,073 | $ | 2,213 | (16)% | (6)% | |||||||||
| Commercial helicopters, parts and services | 1,351 | 1,291 | 1,096 | 5% | 18% | ||||||||||||
| Total revenues | 3,091 | 3,364 | 3,309 | (8)% | 2% | ||||||||||||
| Operating expenses | 2,774 | 2,956 | 2,847 | (6)% | 4% | ||||||||||||
| Segment profit | $ | 317 | $ | 408 | $ | 462 | (22)% | (12)% | |||||||||
| Profit margin | 10.3% | 12.1% | 14.0% | ||||||||||||||
| Backlog | $ | 4,781 | $ | 3,871 | $ | 5,342 | 24% | (28)% | |||||||||
FLRAA program, as discussed in Item 1 Business.
|
|
| |||
|
2021 | ||||
|
| ||||
Volume and mix | $ |
| |||
| 59 |
| |||
Total change | $ |
| |||
Bell’s revenues increased $74 million, 2%, in 2019, compared with 2018, reflecting higher commercial revenues of $116 million, partially offset by lower military volume. We delivered 201 commercial helicopters in 2019, compared with 192 commercial helicopters in 2018.
Bell’s operating expenses increased $64 million, 2%, in 2019, compared with 2018, primarily due to higher volume and mix as described above.
Factors contributing to the 2018 year-over-year revenue change are provided below:
|
|
|
|
| |
|
| |
|
|
|
|
| |
|
|
|
Bell’s revenues decreased $137$273 million, 4%8%, in 2018,2022, compared with 2017,2021, largely 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.$333 million, primarily in the H-1 program due to lower aircraft and spares production volume reflecting lower demand. Commercial revenues increased $60 million, largely due to higher pricing. We delivered 192179 commercial helicopters in 2018,2022, compared with 132156 commercial helicopters in 2017.
2021.
above.
|
|
| |||
|
2021 | ||||
|
| ||||
|
|
| |||
Volume and mix | $ |
| |||
Performance | 45 | ||||
| Inflation, net of pricing | (1) | ||||
| Total change | $ |
| |||
23
Factors contributing to 2018 year-over-year segment profit change are provided below:
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
Bell’s segment profit increased $10 million, 2%, in 2018, compared with 2017, due to a favorable impact of $60 million from performance of $45 million. Performance included lower research and other,development costs, pension costs and selling and administrative expense of $113 million, partially offset by an unfavorable impact from volume and mix,change in net program adjustments.
Bell Backlog
Bell’s backlog increased $1.1awarded a $1.4 billion 18%, in 2019, primarily reflecting new contracts5-year contract with the U.S. Government for spares and logistic support for the V-22 tiltrotor aircraft andin the H-1 helicopter programs, in excessfirst quarter of revenues recognized.
Bell’s backlog increased $1.2 billion, 27%, in 2018. New contracts received in excess2022.
| | | | | | | | | | | | | |
| | | | | | | | | | % 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) | 2022 | 2021 | 2020 | 2022 | 2021 | ||||||||||||
| Revenues | $ | 1,172 | $ | 1,273 | $ | 1,313 | (8)% | (3)% | |||||||||
| Operating expenses | 1,020 | 1,084 | 1,161 | (6)% | (7)% | ||||||||||||
| Segment profit | $ | 152 | $ | 189 | $ | 152 | (20)% | 24% | |||||||||
| Profit margin | 13.0% | 14.8% | 11.6% | ||||||||||||||
| Backlog | $ | 2,098 | $ | 2,144 | $ | 2,556 | (2)% | (16)% | |||||||||
|
|
| |||
|
2021 | ||||
|
| (121) | |||
|
|
| |||
|
| ||||
Total change | $ |
| |||
impact from the U.S. Army’s withdrawal from Afghanistan.
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 lower 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.
Textron Systems Segment Profit
|
|
| |||
|
2021 | ||||
|
| ||||
|
|
| |||
Volume and mix | $ |
| |||
Performance | (20) | ||||
| Pricing, net of inflation | 8 | ||||
| Total change | $ |
| |||
| % Change | |||||||||||||||||
| (Dollars in millions) | 2022 | 2021 | 2020 | 2022 | 2021 | ||||||||||||
| Revenues: | |||||||||||||||||
| Fuel Systems and Functional Components | $ | 1,771 | $ | 1,735 | $ | 1,751 | 2% | (1)% | |||||||||
| Specialized Vehicles | 1,694 | 1,395 | 1,249 | 21% | 12% | ||||||||||||
| Total revenues | 3,465 | 3,130 | 3,000 | 11% | 4% | ||||||||||||
| Operating expenses | 3,300 | 2,990 | 2,889 | 10% | 3% | ||||||||||||
| Segment profit | $ | 165 | $ | 140 | $ | 111 | 18% | 26% | |||||||||
| Profit margin | 4.8% | 4.5% | 3.7% | ||||||||||||||
| (In millions) | 2022 versus 2021 | ||||
| Pricing | $ | 227 | |||
| Volume and mix | 203 | ||||
| Foreign exchange | (95) | ||||
| Total change | $ | 335 | |||
from foreign exchange rate fluctuations.
|
|
| |||
|
2021 | ||||
|
| ||||
|
|
| |||
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:
|
|
|
|
| |
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| |
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
|
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:
|
|
| ||
|
| |||
|
| |||
|
|
| ||
Pricing, net of inflation |
|
| ||
|
| |||
|
| |||
|
| |||
Total change | $ |
| ||
Factors contributing to 2018 year-over-year segment profit change are provided below:
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
| |
|
| |
|
|
|
Segment profit for the Industrial segment decreased $72 million, 25%, in 2018, compared with 2017, resulting from the impact of the disposition of our Tools and Test Equipment product line of $22 million,above, partially offset by an unfavorable impact from foreign exchange rate fluctuations of pricing and inflation of $21$10 million and unfavorable performance of $10 million.
segment loss totaled $26 million.
| | | | | | |
(In millions) | 2019 | 2018 | 2017 | |||
Revenues | $ | 66 | $ | 66 | $ | 69 |
Segment profit |
| 28 |
| 23 |
| 22 |
| (In millions) | 2022 | 2021 | 2020 | ||||||||
| Revenues | $ | 52 | $ | 49 | $ | 55 | |||||
| Segment profit | 31 | 19 | 10 | ||||||||
| | | | | | |
| 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) | December 31, 2022 | January 1, 2022 | ||||||
| Finance receivables | $ | 587 | $ | 630 | ||||
| Allowance for credit losses | 24 | 25 | ||||||
| Ratio of allowance for credit losses to finance receivables | 4.09% | 3.97% | ||||||
| Nonaccrual finance receivables | 46 | 94 | ||||||
| Ratio of nonaccrual finance receivables to finance receivables | 7.84% | 14.92% | ||||||
| 60+ days contractual delinquency | 1 | 1 | ||||||
| 60+ days contractual delinquency as a percentage of finance receivables | 0.17% | 0.16% | ||||||
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 | ||
| (Dollars in millions) | December 31, 2022 | January 1, 2022 | ||||||
| Manufacturing group | ||||||||
| Cash and equivalents | $ | 1,963 | $ | 1,922 | ||||
| Debt | 3,182 | 3,185 | ||||||
| Shareholders’ equity | 7,113 | 6,815 | ||||||
| Capital (debt plus shareholders’ equity) | 10,295 | 10,000 | ||||||
| Net debt (net of cash and equivalents) to capital | 15% | 16% | ||||||
| Debt to capital | 31% | 32% | ||||||
| Finance group | ||||||||
| Cash and equivalents | $ | 72 | $ | 195 | ||||
| Debt | 375 | 582 | ||||||
to price, quantity and delivery dates, as well as property, plant and equipment. Approximately 18% of our purchase obligations represent purchase orders issued for goods and services to be delivered under firm contracts with the U.S. Government for which we have full recourse under customary contract termination clauses.
In June 2019, we amended the Finance Group’s $150 million fixed-rate loan due August 2019, extending the maturity date to June 2022 and modifying the annual interest rate from the prior rate of 2.26% to 2.88%.
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) | 2022 | 2021 | 2020 | ||||||||
| Operating activities | $ | 1,461 | $ | 1,469 | $ | 833 | |||||
| Investing activities | (511) | (335) | (277) | ||||||||
| Financing activities | (875) | (1,349) | 393 | ||||||||
Cash flows provided by operating activities in 2018 were $1,127 million, compared with $930 million in 2017, a 21% increase, primarily reflecting lower pension contributions of $306 million, higher earnings and a dividend of $50 million received from the Finance group in 2018, which were partially offset by a higher use of net working capital in 2018, largely reflecting a $145 million cash outflow from changes in net taxes paid/received.
Net tax payments/(receipts) were $120 million, $129 million and $(16) million in 2019, 2018 and 2017,2021, respectively. Pension contributions were $51$49 million and $52 million in 2022 and $358 million in 2019, 20182021, respectively.
In 2019,2021, investing cash flows primarily included capital expenditures of $339 million.$354 million and $375 million, respectively. Investing cash flows in 20182022 also included $202 million of net cash proceeds of $807 million frompaid for business acquisitions, largely related to the disposition ofPipistrel acquisition discussed in Note 2 to the ToolsConsolidated Financial Statements included in Item 8. Financial Statements 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, cashSupplementary Data.
Cash flows used in financing activities in 2019 primarily2022 included $503$867 million of cash paid to repurchase an aggregate of 10.013.1 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. Financing2022 share repurchase plan described below. In 2021, cash flows in 2017used by financing activities included $582$921 million of cash paid to repurchase an aggregate of 11.913.5 million shares of our outstanding common stock under priora 2020 share repurchase authorizationsplan, and $524 million of payments on long-term debt.
On February 25, 2020, our Board of Directors authorized the repurchase of up to 25 million shares of our common stock. This new plan allows us to opportunistically repurchase shares and to continue our practice of repurchasing shares to offset the impact of dilution from shares issued understock-based compensation and benefit plans.plans and for opportunistic capital management purposes. The 20202022 plan replaceshas no expiration date and replaced the prior 20182020 share repurchase authorization, which was utilized in 2019 and 20182021 for repurchases funded, in part, by the net proceeds of $0.8 billion from the disposition of the Tools and Test product line.
repurchases.
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) | 2022 | 2021 | 2020 | ||||||||
| Operating activities | $ | (7) | $ | (1) | $ | 13 | |||||
| Investing activities | 100 | 185 | (48) | ||||||||
| Financing activities | (216) | (97) | (33) | ||||||||
Cash flows provided by investing activities in 2022 also included $45 million of other investing activities, largely related to proceeds from the sale of operating lease assets. Cash flows used in financing activities included payments on long-term and nonrecourse debt of $51 million, $126$216 million and $137$97 million in 2019, 20182022 and 2017,2021, respectively. Dividend payments to the Manufacturing group totaled $50 million in both 2019 and 2018. In 2017, financing cash flows also included proceeds from long-term debt of $44 million.
| | | | | | |
(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) | 2022 | 2021 | 2020 | ||||||||
| Operating activities | $ | 1,490 | $ | 1,599 | $ | 769 | |||||
| Investing activities | (447) | (281) | (248) | ||||||||
| Financing activities | (1,091) | (1,446) | 360 | ||||||||
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 millionan increase in net income tax payments of $263 million,
working capital and higher earnings. Net income tax payments were $121 million, $146$356 million and $32$93 million in 2019, 20182022 and 2017,2021, respectively. Pension contributions were $51$49 million and $52 million in 2022 and $358 million in 2019, 20182021, respectively.
In 2019,2021, investing cash flows included capital expenditures of $339 million.$354 million and $375 million, respectively. Investing cash flows in 20182022 also included $202 million of net cash proceedspaid for business acquisitions, largely related to the Pipistrel acquisition.
In 2019, 2018 and 2017, cash used in financing activities included $921 million of share repurchases and $621 million 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 included proceeds from the issuance ofpayments on long-term debt of $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) | 2022 | 2021 | 2020 | ||||||||
| Reclassification adjustments from investing activities to operating activities: | |||||||||||
| Cash received from customers | $ | 127 | $ | 231 | $ | 106 | |||||
| Finance receivable originations for Manufacturing group inventory sales | (92) | (100) | (195) | ||||||||
| Other | 1 | — | 12 | ||||||||
| Total reclassification adjustments from investing activities to operating activities | $ | 36 | $ | 131 | $ | (77) | |||||
Contractual Obligations
Manufacturing Group
The following table summarizes the known contractual obligations, as defined by reporting regulations, of our Manufacturing group as of January 4, 2020:
| | | | | | | | | | |
| | | 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 |
Pension and Postretirement Benefits
We maintain defined benefit pension plans and postretirement benefit plans other than pensions as described in Note 16 to the Consolidated Financial Statements. Included in the above table are discounted estimated benefit payments we expect to make related to unfunded pension and other postretirement benefit plans. Actual benefit payments are dependent on a number of factors, including mortality assumptions, expected retirement age, rate of compensation increases and medical trend rates, which are subject to change in future years. Our policy for funding pension plans is to make contributions annually, consistent with applicable laws and regulations; however, future contributions to our pension plans are not included in the above table. In 2020, we expect to make approximately $25 million of contributions to our funded pension plans and the Retirement Account Plan. Based on our current assumptions, which may vary with changes in market conditions, our current contribution for each of the years from 2021 through 2024 is estimated to be approximately $50 million under the plan provisions in place at this time.
31
Other Long-Term Liabilities
Other long-term liabilities consist of undiscounted amounts in the Consolidated Balance Sheets that primarily include obligations under deferred compensation arrangements and estimated environmental remediation costs. Payments under deferred compensation arrangements have been estimated based on management’s assumptions of expected retirement age, mortality, stock price and rates of return on participant deferrals. The timing of cash flows associated with environmental remediation costs is largely based on historical experience. Certain other long-term liabilities, such as deferred taxes, unrecognized tax benefits, and reserves for product liability, warranty, product maintenance and litigation, have been excluded from the table due to the uncertainty of the timing of payments combined with the absence of historical trends to be used as a predictor for such payments.
Purchase Obligations
Purchase obligations include undiscounted amounts committed under legally enforceable contracts or purchase orders for goods and services with defined terms as to price, quantity and delivery dates. Approximately 39% of the purchase obligations we disclose represent purchase orders issued for goods and services to be delivered under firm contracts with the U.S. Government for which we have full recourse under customary contract termination clauses.
Finance Group
The following table summarizes the known contractual obligations, as defined by reporting regulations, of our Finance group as of January 4, 2020:
| | | | | | | | | | |
| | | 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 |
Critical Accounting Estimates
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 judgment and is based on the nature of the products or service to be provided. 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.
Approximately 70% of our 2019 revenues with the U.S. Government were under fixed-price and fixed-price incentive contracts. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit and could potentially incur a loss.
32
The transaction price for our contracts represents our best estimate of the consideration we expect to 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.
Due to the number of years it may take to complete many of ourthese contracts and the scope and nature of the work required to be performed on thosethe contracts, the estimation of total transaction price and costs at completion is complicated and subject to many variables and, accordingly, is subject to change. In estimating total costs at completion, we are required to make numerous assumptions related to the complexity of design and related development work to be performed; engineering requirements; product performance; subcontractor performance; availability and cost of materials; labor productivity, availability and cost; overhead and capital costs; manufacturing efficiencies; the length of time to complete the contract (to estimate increases in wages and prices for materials); and costs of satisfying offset obligations, among other variables. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our cost projections quarterly or more frequently when circumstances significantly change. When estimatesour estimate of the total costs to be incurred on a contract exceed estimates ofexceeds the estimated total sales to be earned,transaction price, a provision for the entire loss on the contract is recorded in the period in which the loss is determined.
| | | | | | |
(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) | 2022 | 2021 | 2020 | ||||||||
| Gross favorable | $ | 101 | $ | 154 | $ | 148 | |||||
| Gross unfavorable | (117) | (73) | (76) | ||||||||
| Net adjustments | $ | (16) | $ | 81 | $ | 72 | |||||
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. The 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.
We calculate the fair value of each reporting unit primarily using discounted cash flows. These cash flows incorporate assumptions for short- and long-term revenue growth rates and operating margins that are based on our strategic plans and discount rates that representlong-range planning forecasts, which include our best estimates of current and forecasted market conditions, cost structure and anticipated net cost reductions, and the implied rate of return that we believe a market participant would require for an investment in a business having similar risks and business characteristics to the reporting unit being assessed.reductions. The long-term revenue growth rates and operating margins used in our discounted cash flow analysis are based on our strategic plans and long-range planning forecasts. The long-term growth rate we use to determine the terminal value of the business is based on our assessment of its minimum expected terminal growth rate, as well as its past historical growth and broader economic considerations such as gross domestic product, inflation and the maturity of the markets we serve. We utilize a weighted-averageThe discount rates utilized in this analysis are based on each reporting unit’s weighted average cost of capital, in our impairment analysis that makes assumptions aboutwhich takes into account the relative weights of each component of capital structure that we believe a market participant would make(equity and include adebt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk premium based on an assessment of risks related to the projectedinherent in future cash flows of eachthe respective reporting unit. We believe this approach yields a discount rate that is consistent with an implied rate of return that an independent investor or market participant would require for an investment in a company having similar risks and business characteristics to the reporting unit being assessed.
If the reporting unit’s estimated fair value exceeds its carrying value, there is no impairment, and no further analysis is performed. Otherwise, an impairment loss is recognized in an amount equal to that excess carrying value over the estimated fair value amount.
The trend in healthcare costs is difficult to estimate and has an important effect on postretirement liabilities. The 2019 medical and prescription drug cost trend rates represent the weighted-average annual projected rate of increase in the per capita cost of covered benefits. In 2019, we assumed a trend rate of 7% for both medical and prescription drug cost and assumed this rate would gradually decline to 5% by 2024 and then remain at that level.
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. We had interest rate swap agreements with a total notional amount of $297 million at December 31, 2022 and $289 million at January 1, 2022, 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 |
|
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|
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|
|
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|
|
Interest rate risk | | | | | | | | | | | | |
Finance receivables | $ | 493 | $ | 527 | $ | 9 | $ | 582 | $ | 584 | $ | 14 |
Debt |
| (686) |
| (634) |
| 1 |
| (718) |
| (640) |
| 1 |
| December 31, 2022 | January 1, 2022 | |||||||||||||||||||
(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 | $ | (6) | $ | (6) | $ | (1) | $ | (6) | $ | (6) | $ | (1) | ||||||||
| Foreign currency exchange contracts | (11) | (11) | 28 | 1 | 1 | 21 | ||||||||||||||
| $ | (17) | $ | (17) | $ | 27 | $ | (5) | $ | (5) | $ | 20 | |||||||||
| Interest rate risk | ||||||||||||||||||||
| Debt | $ | (3,175) | $ | (2,872) | $ | (51) | $ | (3,181) | $ | (3,346) | $ | (24) | ||||||||
| Finance group | ||||||||||||||||||||
| Interest rate risk | ||||||||||||||||||||
| Finance receivables | $ | 390 | $ | 369 | $ | 10 | $ | 413 | $ | 444 | $ | 7 | ||||||||
| Debt | (375) | (294) | (1) | (582) | (546) | — | ||||||||||||||
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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 |
December 31, 2022
| (In millions, except per share data) | 2022 | 2021 | 2020 | ||||||||
| Revenues | |||||||||||
| Manufacturing product revenues | $ | 10,945 | $ | 10,541 | $ | 9,720 | |||||
| Manufacturing service revenues | 1,872 | 1,792 | 1,876 | ||||||||
| Finance revenues | 52 | 49 | 55 | ||||||||
| Total revenues | 12,869 | 12,382 | 11,651 | ||||||||
| Costs, expenses and other | |||||||||||
| Cost of products sold | 9,380 | 8,955 | 8,715 | ||||||||
| Cost of services sold | 1,420 | 1,342 | 1,379 | ||||||||
| Selling and administrative expense | 1,186 | 1,221 | 1,045 | ||||||||
| Interest expense, net | 107 | 142 | 166 | ||||||||
| Special charges | — | 25 | 147 | ||||||||
| Non-service components of pension and postretirement income, net | (240) | (159) | (83) | ||||||||
| Gain on business disposition | — | (17) | — | ||||||||
| Total costs, expenses and other | 11,853 | 11,509 | 11,369 | ||||||||
| Income from continuing operations before income taxes | 1,016 | 873 | 282 | ||||||||
| Income tax expense (benefit) | 154 | 126 | (27) | ||||||||
| Income from continuing operations | $ | 862 | $ | 747 | $ | 309 | |||||
| Loss from discontinued operations | (1) | (1) | — | ||||||||
| Net income | $ | 861 | $ | 746 | $ | 309 | |||||
| Basic Earnings per share | |||||||||||
| Continuing operations | $ | 4.05 | $ | 3.33 | $ | 1.35 | |||||
| Diluted Earnings per share | |||||||||||
| Continuing operations | $ | 4.01 | $ | 3.30 | $ | 1.35 | |||||
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 |
December 31, 2022
| (In millions) | 2022 | 2021 | 2020 | ||||||||
| Net income | $ | 861 | $ | 746 | $ | 309 | |||||
| Other comprehensive income, net of tax | |||||||||||
| Pension and postretirement benefits adjustments, net of reclassifications | 283 | 981 | 31 | ||||||||
| Foreign currency translation adjustments, net of reclassifications | (103) | (37) | 78 | ||||||||
| Deferred gains (losses) on hedge contracts, net of reclassifications | (3) | 2 | (1) | ||||||||
| Total other comprehensive income, net of tax | 177 | 946 | 108 | ||||||||
| Comprehensive income | $ | 1,038 | $ | 1,692 | $ | 417 | |||||
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) | December 31, 2022 | January 1, 2022 | ||||||
| Assets | ||||||||
| Manufacturing group | ||||||||
| Cash and equivalents | $ | 1,963 | $ | 1,922 | ||||
| Accounts receivable, net | 855 | 838 | ||||||
| Inventories | 3,550 | 3,468 | ||||||
| Other current assets | 1,033 | 1,018 | ||||||
| Total current assets | 7,401 | 7,246 | ||||||
| Property, plant and equipment, net | 2,523 | 2,538 | ||||||
| Goodwill | 2,283 | 2,149 | ||||||
| Other assets | 3,422 | 3,027 | ||||||
| Total Manufacturing group assets | 15,629 | 14,960 | ||||||
| Finance group | ||||||||
| Cash and equivalents | 72 | 195 | ||||||
| Finance receivables, net | 563 | 605 | ||||||
| Other assets | 29 | 67 | ||||||
| Total Finance group assets | 664 | 867 | ||||||
| Total assets | $ | 16,293 | $ | 15,827 | ||||
| Liabilities and shareholders’ equity | ||||||||
| Liabilities | ||||||||
| Manufacturing group | ||||||||
| Current portion of long-term debt | $ | 7 | $ | 6 | ||||
| Accounts payable | 1,018 | 786 | ||||||
| Other current liabilities | 2,645 | 2,344 | ||||||
| Total current liabilities | 3,670 | 3,136 | ||||||
| Other liabilities | 1,879 | 2,005 | ||||||
| Long-term debt | 3,175 | 3,179 | ||||||
| Total Manufacturing group liabilities | 8,724 | 8,320 | ||||||
| Finance group | ||||||||
| Other liabilities | 81 | 110 | ||||||
| Debt | 375 | 582 | ||||||
| Total Finance group liabilities | 456 | 692 | ||||||
| Total liabilities | 9,180 | 9,012 | ||||||
| Shareholders’ equity | ||||||||
Common stock (207.4 million and 219.2 million shares issued, respectively, and 206.2 million and 216.9 million shares outstanding, respectively) | 26 | 28 | ||||||
| Capital surplus | 1,880 | 1,863 | ||||||
| Treasury stock | (84) | (157) | ||||||
| Retained earnings | 5,903 | 5,870 | ||||||
| Accumulated other comprehensive loss | (612) | (789) | ||||||
| Total shareholders’ equity | 7,113 | 6,815 | ||||||
| Total liabilities and shareholders’ equity | $ | 16,293 | $ | 15,827 | ||||
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 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 | ||||||||||||||
| Net income | — | — | — | 746 | — | 746 | ||||||||||||||
| Other comprehensive income | — | — | — | — | 946 | 946 | ||||||||||||||
| Dividends declared ($0.08 per share) | — | — | — | (18) | — | (18) | ||||||||||||||
| Share-based compensation activity | 1 | 212 | — | — | — | 213 | ||||||||||||||
| Purchases of common stock | — | — | (921) | — | — | (921) | ||||||||||||||
| Retirement of treasury stock | (2) | (134) | 967 | (831) | — | — | ||||||||||||||
| Other | — | — | — | — | 4 | 4 | ||||||||||||||
| Balance at January 1, 2022 | 28 | 1,863 | (157) | 5,870 | (789) | 6,815 | ||||||||||||||
| Net income | — | — | — | 861 | — | 861 | ||||||||||||||
| Other comprehensive income | — | — | — | — | 177 | 177 | ||||||||||||||
| Dividends declared ($0.08 per share) | — | — | — | (17) | — | (17) | ||||||||||||||
| Share-based compensation activity | — | 144 | — | — | — | 144 | ||||||||||||||
| Purchases of common stock | — | — | (867) | — | — | (867) | ||||||||||||||
| Retirement of treasury stock | (2) | (127) | 940 | (811) | — | — | ||||||||||||||
| Balance at December 31, 2022 | $ | 26 | $ | 1,880 | $ | (84) | $ | 5,903 | $ | (612) | $ | 7,113 | ||||||||
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 |
December 31, 2022
| Consolidated | |||||||||||
| (In millions) | 2022 | 2021 | 2020 | ||||||||
| Cash flows from operating activities | |||||||||||
| Income from continuing operations | $ | 862 | $ | 747 | $ | 309 | |||||
Adjustments to reconcile income from continuing operations to net cash provided by operating activities of continuing operations: | |||||||||||
| Non-cash items: | |||||||||||
| Depreciation and amortization | 397 | 390 | 391 | ||||||||
| Deferred income taxes | (220) | 23 | (7) | ||||||||
| Asset impairments and TRU inventory charge | 2 | 13 | 116 | ||||||||
| Gain on business disposition | — | (17) | — | ||||||||
| Other, net | 94 | 88 | 79 | ||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable, net | (26) | (58) | 149 | ||||||||
| Inventories | (55) | 45 | 434 | ||||||||
| Other assets | 35 | (112) | 66 | ||||||||
| Accounts payable | 235 | 13 | (613) | ||||||||
| Other liabilities | 270 | 405 | (5) | ||||||||
| Income taxes, net | 18 | 11 | (62) | ||||||||
| Pension, net | (165) | (82) | (15) | ||||||||
| Captive finance receivables, net | 35 | 131 | (89) | ||||||||
| Other operating activities, net | 8 | 2 | 16 | ||||||||
| Net cash provided by operating activities of continuing operations | 1,490 | 1,599 | 769 | ||||||||
| Net cash used in operating activities of discontinued operations | (2) | (1) | (1) | ||||||||
| Net cash provided by operating activities | 1,488 | 1,598 | 768 | ||||||||
| Cash flows from investing activities | |||||||||||
| Capital expenditures | (354) | (375) | (317) | ||||||||
| Net cash used in acquisitions | (202) | — | (15) | ||||||||
| Net proceeds (payments) from corporate-owned life insurance policies | 23 | (2) | 22 | ||||||||
| Proceeds from sale of property, plant and equipment and an insurance recovery | 22 | 3 | 33 | ||||||||
| Net proceeds from business disposition | — | 38 | — | ||||||||
| Finance receivables repaid | 20 | 19 | 22 | ||||||||
| Other investing activities, net | 44 | 36 | 7 | ||||||||
| Net cash used in investing activities | (447) | (281) | (248) | ||||||||
| Cash flows from financing activities | |||||||||||
| Decrease in short-term debt | (14) | (1) | — | ||||||||
| Net proceeds from long-term debt | — | — | 1,137 | ||||||||
| Principal payments on long-term debt and nonrecourse debt | (234) | (621) | (593) | ||||||||
| Proceeds from borrowings against corporate-owned life insurance policies | — | — | 377 | ||||||||
| Payments on borrowings against corporate-owned life insurance policies | — | — | (377) | ||||||||
| Purchases of Textron common stock | (867) | (921) | (183) | ||||||||
| Proceeds from exercise of stock options | 44 | 116 | 22 | ||||||||
| Dividends paid | (17) | (18) | (18) | ||||||||
| Other financing activities, net | (3) | (1) | (5) | ||||||||
| Net cash provided by (used in) financing activities | (1,091) | (1,446) | 360 | ||||||||
| Effect of exchange rate changes on cash and equivalents | (32) | (8) | 17 | ||||||||
| Net increase (decrease) in cash and equivalents | (82) | (137) | 897 | ||||||||
| Cash and equivalents at beginning of year | 2,117 | 2,254 | 1,357 | ||||||||
| Cash and equivalents at end of year | $ | 2,035 | $ | 2,117 | $ | 2,254 | |||||
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 |
December 31, 2022
| Manufacturing Group | Finance Group | |||||||||||||||||||
| (In millions) | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | ||||||||||||||
| Cash flows from operating activities | ||||||||||||||||||||
| Income from continuing operations | $ | 835 | $ | 740 | $ | 301 | $ | 27 | $ | 7 | $ | 8 | ||||||||
| Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities of continuing operations: | ||||||||||||||||||||
| Non-cash items: | ||||||||||||||||||||
| Depreciation and amortization | 396 | 380 | 386 | 1 | 10 | 5 | ||||||||||||||
| Deferred income taxes | (200) | 27 | (2) | (20) | (4) | (5) | ||||||||||||||
| Asset impairments and TRU inventory charge | 2 | 13 | 116 | — | — | — | ||||||||||||||
| Gain on business disposition | — | (17) | — | — | — | — | ||||||||||||||
| Other, net | 103 | 97 | 69 | (9) | (9) | 10 | ||||||||||||||
| Changes in assets and liabilities: | ||||||||||||||||||||
| Accounts receivable, net | (26) | (58) | 149 | — | — | — | ||||||||||||||
| Inventories | (55) | 45 | 434 | — | — | — | ||||||||||||||
| Other assets | 34 | (111) | 68 | 1 | (1) | (2) | ||||||||||||||
| Accounts payable | 235 | 13 | (613) | — | — | — | ||||||||||||||
| Other liabilities | 277 | 404 | (15) | (7) | 1 | (2) | ||||||||||||||
| Income taxes, net | 18 | 16 | (61) | — | (5) | (1) | ||||||||||||||
| Pension, net | (165) | (82) | (15) | — | — | — | ||||||||||||||
| Other operating activities, net | 7 | 2 | 16 | — | — | — | ||||||||||||||
| Net cash provided by (used in) operating activities of continuing operations | 1,461 | 1,469 | 833 | (7) | (1) | 13 | ||||||||||||||
| Net cash used in operating activities of discontinued operations | (2) | (1) | (1) | — | — | — | ||||||||||||||
| Net cash provided by (used in) operating activities | 1,459 | 1,468 | 832 | (7) | (1) | 13 | ||||||||||||||
| Cash flows from investing activities | ||||||||||||||||||||
| Capital expenditures | (354) | (375) | (317) | — | — | — | ||||||||||||||
| Net cash used in acquisitions | (202) | — | (15) | — | — | — | ||||||||||||||
| Net proceeds (payments) from corporate-owned life insurance policies | 23 | (2) | 22 | — | — | — | ||||||||||||||
| Proceeds from sale of property, plant and equipment and an insurance recovery | 22 | 3 | 33 | — | — | — | ||||||||||||||
| Net proceeds from business disposition | — | 38 | — | — | — | — | ||||||||||||||
| Finance receivables repaid | — | — | — | 147 | 250 | 128 | ||||||||||||||
| Finance receivables originated | — | — | — | (92) | (100) | (195) | ||||||||||||||
| Other investing activities, net | — | 1 | — | 45 | 35 | 19 | ||||||||||||||
| Net cash provided by (used in) investing activities | (511) | (335) | (277) | 100 | 185 | (48) | ||||||||||||||
| Cash flows from financing activities | ||||||||||||||||||||
| Decrease in short-term debt | (14) | (1) | — | — | — | — | ||||||||||||||
| Net proceeds from long-term debt | — | — | 1,137 | — | — | — | ||||||||||||||
| Principal payments on long-term debt and nonrecourse debt | (18) | (524) | (548) | (216) | (97) | (45) | ||||||||||||||
| Proceeds from borrowings against corporate-owned life insurance policies | — | — | 377 | — | — | — | ||||||||||||||
| Payments on borrowings against corporate-owned life insurance policies | — | — | (377) | — | — | — | ||||||||||||||
| Purchases of Textron common stock | (867) | (921) | (183) | — | — | — | ||||||||||||||
| Proceeds from exercise of stock options | 44 | 116 | 22 | — | — | — | ||||||||||||||
| Dividends paid | (17) | (18) | (18) | — | — | — | ||||||||||||||
| Other financing activities, net | (3) | (1) | (17) | — | — | 12 | ||||||||||||||
| Net cash provided by (used in) financing activities | (875) | (1,349) | 393 | (216) | (97) | (33) | ||||||||||||||
| Effect of exchange rate changes on cash and equivalents | (32) | (8) | 17 | — | — | — | ||||||||||||||
| Net increase (decrease) in cash and equivalents | 41 | (224) | 965 | (123) | 87 | (68) | ||||||||||||||
| Cash and equivalents at beginning of year | 1,922 | 2,146 | 1,181 | 195 | 108 | 176 | ||||||||||||||
| Cash and equivalents at end of year | $ | 1,963 | $ | 1,922 | $ | 2,146 | $ | 72 | $ | 195 | $ | 108 | ||||||||
42
At the beginning of 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (ASC Topic 842), which requires lessees to recognize all leases with a term greater than 12 months on the balance sheet as right-of-use assets and lease liabilities. Upon adoption, the most significant impact was the recognition of $307 million in right-of-use assets and lease liabilities for operating leases, while our accounting for finance leases remained unchanged. We applied the provisions of this standard to our existing leases at the adoption date using a retrospective transition method and did not adjust comparative periods. The cumulative transition adjustment to retained earnings was not significant and the adoption had no impact on our earnings or cash flows. We elected the practical expedients permitted under the transition guidance, which allowed us to carryforward the historical lease classification and to apply hindsight when evaluating options within a contract, resulting in the extension of the lease term for certain of our existing leases.
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.
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 goodsproducts 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
For 2019, 2018 and 2017, gross favorable adjustments totaled $173 million, $249 million and $92 million, respectively. The 2018 favorable adjustments included $145 million, largely related to overhead rate improvements and risk retirements associated with contractsfor performance obligations satisfied in the Bell segment. In 2019, 2018 and 2017, gross unfavorable adjustments totaled $82 million, $53 million and $87 million, respectively.
prior periods.
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 0no 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
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$17 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) $ 658 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 categorized based on the credit quality indicators and by delinquency aging category are summarized as follows: 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 At December 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 (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 December 31, 2022: Level 2. 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 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. international military, government and commercial customers. manufactures a family of light aircraft and gliders with both electric and combustion engines, and also performs other research and development initiatives related to sustainable aviation solutions. 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 (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 We typically grant stock appreciation rights to selected non-U.S. employees. At December 31, 2022, outstanding stock appreciation rights totaled 574,315 with a weighted-average exercise price of $51.82 and a weighted-average remaining contractual life of 6.2 years; these units had an intrinsic value of $11 million, compared to $18 million at January 1, 2022. 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 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 the number of units, as adjusted based on assumptions with respect to performance on the relevant metrics. 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 (Income) 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 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 In Corporate. King Air trade name intangible assets and recorded an 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 2023. (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 tax-purposes effective on January 1, 2022 as part of the Tax Cuts and Jobs Act of 2017. 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 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 In returns. 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 At December 31, 2022, U.S. operating loss and tax credit carryforward benefits of $218 million expire through 2042 if not utilized and $39 million may be carried forward indefinitely. 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 Revenue Recognition - Estimates at Completion for Select 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 for select long-term contracts 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 for the select long-term contracts 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 for the select long-term contracts, our audit procedures included, among others, evaluating the key assumptions used by management to determine such estimate. 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. Defined Benefit Pension Obligations Description of the As described in Note 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 (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 December 31, 2022. December 31, 2022. 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 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 * Ralph D. Heath Director * Deborah Lee James Director * Thomas A. Kennedy 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 3. Goodwill and Intangible AssetsGoodwillThe changes in the carrying amount of goodwill by segment are as follows:*See Note 7 for additional information.(In millions) Textron
AviationBell Textron
SystemsIndustrial Textron eAviation Total Balance at January 2, 2021 $ 631 $ 35 $ 1,009 $ 482 $ — $ 2,157 Foreign currency translation — — 1 (9) — (8) Balance at January 1, 2022 631 35 1,010 473 — 2,149 Acquisitions 3 2 — — 141 146 Foreign currency translation (1) — — (8) (3) (12) Balance at December 31, 2022 $ 633 $ 37 $ 1,010 $ 465 $ 138 $ 2,283 Intangible AssetsOur intangible assets are summarized below:
contractual agreementsDecember 31, 2022 January 1, 2022 (Dollars in millions) Weighted-Average
Amortization
Period (in years)Gross
Carrying
AmountAccumulated
AmortizationNet Gross
Carrying
AmountAccumulated
AmortizationNet Patents and technology 15 $ 527 $ (319) $ 208 $ 481 $ (289) $ 192 Trade names and trademarks 18 199 (8) 191 181 (8) 173 Customer relationships and
contractual agreements15 392 (330) 62 382 (309) 73 Other — — — — 3 (3) — Total $ 1,118 $ (657) $ 461 $ 1,047 $ (609) $ 438 Trade names and trademarks in the table above include $208$169 million of indefinite-lived intangible assets at both December 31, 2022 and January 4,1, 2022. In 2022, 2021 and 2020, and December 29, 2018. Amortizationamortization expense totaled $59$52 million, $66$51 million and $69$54 million, in 2019, 2018 and 2017, respectively. Amortization expense is estimated to be approximately $55 million, $53 million, $54$39 million, $37 million, $34 million, $31 million and $32$29 million in 2020, 2021, 2022, 2023, 2024, 2025, 2026 and 2024,2027, respectively.5045Note 4. Accounts Receivable and Finance ReceivablesAccounts ReceivableAccounts receivable is composed of the following:(In millions) December 31,
2022January 1,
2022Commercial $ 755 $ 704 U.S. Government contracts 124 158 879 862 Allowance for credit losses (24) (24) Total $ 855 $ 838 Finance ReceivablesFinance receivables are presented in the following table:(In millions) December 31,
2022January 1,
2022Finance receivables $ 587 $ 630 Allowance for credit losses (24) (25) Total finance receivables, net $ 563 $ 605 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 years to twelve years, amortization terms ranging from eight years to fifteen years and an average balance of $1$1.8 million at January 4, 2020.December 31, 2022. 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 4, 2020 and December 29, 2018, 59%31, 2022, 58% of our finance receivables were distributed internationally and 41%42% throughout the U.S., compared with 56% and 44%, respectively, at January 1, 2022. At December 31, 2022 and January 4, 2020 and December 29, 20181, 2022, finance receivables of $148$73 million and $201$93 million, respectively, have been pledged as collateral for TFC’s debt of $87$28 million and $119$43 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.5146(Dollars in millions) December 31,
2022January 1,
2022Performing $ 515 $ 536 Watchlist 26 — Nonaccrual 46 94 Nonaccrual as a percentage of finance receivables 7.84% 14.92% Current and less than 31 days past due $ 579 $ 624 31-60 days past due 7 5 61-90 days past due — — Over 90 days past due 1 1 60+ days contractual delinquency as a percentage of finance receivables 0.17% 0.16% At December 31, 2022, 43% of our performing finance receivables were originated since the beginning of 2020 and 24% were originated from 2017 to 2019. For finance receivables categorized as watchlist, 94% were originated since the beginning of 2020 and for nonaccrual, 82% were originated from 2017 to 2019.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) December 31,
2022January 1,
2022Recorded investment: Impaired finance receivables with specific allowance for credit losses $ 15 $ 33 Impaired finance receivables with no specific allowance for credit losses 31 61 Total $ 46 $ 94 Unpaid principal balance $ 60 $ 109 Allowance for credit losses on impaired finance receivables 3 4 Average recorded investment of impaired finance receivables 67 117 A summary of the allowance for credit 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$91 million and $101$95 million of leveraged leases at December 31, 2022 and January 4, 2020 and December 29, 2018,1, 2022, respectively, in accordance with U.S. generally accepted accounting principles.(In millions) December 31,
2022January 1,
2022Allowance for credit losses based on collective evaluation $ 21 $ 21 Allowance for credit losses based on individual evaluation 3 4 Finance receivables evaluated collectively 450 441 Finance receivables evaluated individually 46 94 47Note 5. InventoriesInventories are composed of the following:(In millions) December 31,
2022January 1,
2022Finished goods $ 991 $ 1,071 Work in process 1,540 1,548 Raw materials and components 1,019 849 Total $ 3,550 $ 3,468 At both December 31, 2022 and January 1, 2022, 71% of inventories were valued using the LIFO method. Inventories valued by theat LIFO method totaled $2.5 billion and $2.2 billion at January 4, 2020 and December 29, 2018, respectively, and the carrying values of these inventoriescost would have been higher by approximately $475$594 million and $457$523 million, at December 31, 2022 and January 1, 2022, respectively, if they had our LIFO inventories been valued at current costs. using the FIFO method.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)December 31,
2022January 1,
2022Land, buildings and improvements 2 - 40 $ 2,140 $ 2,097 Machinery and equipment 1 - 20 5,467 5,329 7,607 7,426 Accumulated depreciation and amortization (5,084) (4,888) Total $ 2,523 $ 2,538 The Manufacturing group’s depreciation expense which included amortization expense on finance leases, totaled $346$340 million, $358$325 million and $362$325 million in 2019, 20182022, 2021 and 2017,2020, respectively.Note 7. Other AssetsOn April 1, 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.Note 8.7. Other Current LiabilitiesThe other current liabilities of our Manufacturing group are summarized below:(In millions) December 31,
2022January 1,
2022Contract liabilities $ 1,416 $ 1,105 Salaries, wages and employer taxes 414 477 Current portion of warranty and product maintenance liabilities 171 142 Other 644 620 Total $ 2,645 $ 2,344 Changes in our warranty liability are as follows:(In millions) 2022 2021 2020 Balance at beginning of year $ 127 $ 119 $ 141 Provision 73 70 54 Settlements (60) (66) (64) Adjustments* 9 4 (12) Balance at end of year $ 149 $ 127 $ 119 * Adjustments include changes to prior year estimates, new issues on prior year sales, business acquisitions and dispositions, and currency translation adjustments.5348We primarily lease certain manufacturing plants, offices, warehouses, training and service centers at various locations worldwide that are classified as eitherthrough operating or finance leases. Our operating leases have remaining lease terms up to 3026 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 $64 million. Our finance lease cost$69 million, $66 million and our variable$61 million in 2022, 2021 and 2020, respectively. Variable and short-term lease costs were not significant. CashIn 2022, 2021 and 2020, cash paid for operating lease liabilities during 2019 totaled $62$68 million, which$66 million and $60 million, respectively, and is classified in cash flows from operating activities. Noncash transactions totaled $58 million, $86 million and $119 million in 2022, 2021 and 2020, reflecting the recognition of operating lease assets and liabilities for new or extended leases.Balance sheet and other information related to our operating leases is as follows:(Dollars in millions) December 31,
2022January 1,
2022Other assets $ 372 $ 374 Other current liabilities 54 56 Other liabilities 326 325 Weighted-average remaining lease term (in years) 10.4 10.5 Weighted-average discount rate 4.14% 3.19% 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%29, 2018, assets under finance leases totaled $168 million and had accumulated amortization of $47 million.Maturities31, 2022, maturities of our operating lease liabilities at January 4, 2020 are as follows:on an undiscounted basis totaled $68 million for 2023, $61 million for 2024, $54 million for 2025, $40 million for 2026, $35 million for 2027 and $230 million thereafter.54Note 10. 9. Debt and Credit FacilitiesOur debt is summarized in the table below:(In millions) December 31,
2022January 1,
2022Manufacturing group 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 650 650 2.45% due 2031 500 500 Other (weighted-average rate of 2.20% and 2.04%, respectively) 32 35 Total Manufacturing group debt $ 3,182 $ 3,185 Less: Current portion of long-term debt (7) (6) Total Long-term debt $ 3,175 $ 3,179 Finance group Variable-rate note due 2025 (5.86%) and 2022 (1.65%) $ 25 $ 100 Fixed-rate note due 2027 (4.40%) and 2022 (2.88%) 50 150 Variable-rate notes due 2022-2027 (weighted-average rate of 5.81% and 1.57%, respectively)* 5 7 Fixed-rate notes due 2022-2028 (weighted-average rate of 3.39% and 3.29%, respectively)* 23 36 Floating Rate Junior Subordinated Notes due 2067 (6.34% and 1.89%, respectively) 272 289 Total Finance group debt $ 375 $ 582 * Notes amortize on a monthly basis and are secured by finance receivables as described in Note 4.49Table of Contents(a)Notes amortize on a quarterly or semi-annual basis.(b)Notes 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) 2023 2024 2025 2026 2027 Manufacturing group $ 7 $ 357 $ 356 $ 355 $ 355 Finance group 13 10 28 1 51 Total $ 20 $ 367 $ 384 $ 356 $ 406 On October 18, 2019,21, 2022, Textron entered into 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 22027 and provides for two one-year extensions at Textron'sour option with the consent of lenders representing a majority of the commitments under the facility. This new facility replacedreplaces the prior 5-yearexisting five-year facility, which was scheduled to expire in September 2021.October 2024. At December 31, 2022 and January 4, 2020 and December 29, 2018,1, 2022, there were 0no amounts borrowed against either facility. At January 4, 2020,December 31, 2022, there were $10$9 million of outstanding letters of credit issued under the new facility, and at December 29, 2018,January 1, 2022, there were $10$9 million of outstanding letters of credit issued under the prior facility.Fixed-to-FloatingFloating Rate Junior Subordinated NotesThe Finance group’s $299$272 million of Fixed-to-FloatingFloating 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. In 2022 and 2021, TFC repurchased $17 million and $5 million, respectively, 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 0no cash contributions required to be paid to TFC in 2019, 20182022, 2021 and 20172020 to maintain compliance with the support agreement.55Note 11.10. 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 December 31, 2022 and January 4, 2020 and December 29, 2018,1, 2022, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $342$354 million and $379$272 million, respectively. At December 31, 2022, the fair value amount of our foreign currency exchange contracts was an $11 million liability. At January 4, 2020,1, 2022, the fair value amounts of our foreign currency exchange contracts were a $2$4 million asset and a $2$3 million liability.50Our Finance group enters into interest rate swap agreements to mitigate exposure to fluctuations in interest rates. By using these contracts, we are able to convert floating-rate cash flows to fixed-rate cash flows. These agreements are designated as cash flow hedges. At December 29, 2018, the31, 2022, we had a swap agreement for a notional amount of $272 million with a maturity of August 2023 and a swap agreement for a notional amount of $25 million, maturing in June 2025, with a combined fair value amounts of our foreign currency exchange contracts werean $8 million asset. At January 1, 2022, we had a $2swap agreement for a notional amount of $289 million assetwith a maturity of August 2023 and a $10 million liability.We hedge our net investment position 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 thean insignificant fair value. The fair value of these swap agreements is determined using values published by third-party leading financial news and data providers. These values are observable data that represent the value that financial institutions use for contracts in other comprehensive income to the extententered into at that date, but are not based on actual transactions, so they are effectiveclassified as cash flow hedges. Currency effects on the effective portion of these hedges, which are reflected in the foreign currency translation adjustments within Accumulated other comprehensive loss, were not significant in the periods presented.Assets 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:December 31, 2022 January 1, 2022 (In millions) Carrying
ValueEstimated
Fair ValueCarrying
ValueEstimated
Fair ValueManufacturing group Debt, excluding leases $ (3,175) $ (2,872) $ (3,181) $ (3,346) Finance group Finance receivables, excluding leases 390 369 413 444 Debt (375) (294) (582) (546) 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 12.11. 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) 2022 2021 2020 Balance at beginning of year 216,935 226,444 227,956 Share repurchases (13,075) (13,533) (4,145) Share-based compensation activity 2,301 4,024 2,633 Balance at end of year 206,161 216,935 226,444 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) 2022 2021 2020 Basic weighted-average shares outstanding 212,809 224,106 228,536 Dilutive effect of stock options 2,164 2,414 443 Diluted weighted-average shares outstanding 214,973 226,520 228,979 In 2019, 20182022, 2021 and 2017,2020, stock options to purchase 4.31.0 million, 1.31.1 million and 1.67.6 million shares, respectively, of common stock arewere excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive.51Accumulated 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 January 2, 2021 $ (1,780) $ 42 $ (1) $ (1,739) Other comprehensive income before reclassifications 861 (51) 3 813 Reclassified from Accumulated other comprehensive loss 120 14 (1) 133 Other — 4 — 4 Balance at January 1, 2022 $ (799) $ 9 $ 1 $ (789) Other comprehensive income before reclassifications 214 (103) (3) 108 Reclassified from Accumulated other comprehensive loss 69 — — 69 Balance at December 31, 2022 $ (516) $ (94) $ (2) $ (612) 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)(loss) are presented below:
contracts, net2022 2021 2020 (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 gains (losses) $ 285 $ (67) $ 218 $ 1,148 $ (271) $ 877 $ (144) $ 35 $ (109) Amortization of net actuarial loss* 83 (20) 63 150 (34) 116 184 (43) 141 Amortization of prior service cost* 8 (2) 6 7 (3) 4 6 (1) 5 Recognition of prior service cost (4) — (4) (20) 4 (16) (8) 2 (6) Pension and postretirement benefits
adjustments, net372 (89) 283 1,285 (304) 981 38 (7) 31 Foreign currency translation adjustments: Foreign currency translation adjustments (103) — (103) (51) — (51) 81 (3) 78 Business disposition — — — 14 — 14 — — — Foreign currency translation adjustments, net (103) — (103) (37) — (37) 81 (3) 78 Deferred gains (losses) on hedge contracts: Current deferrals (7) 4 (3) 3 — 3 4 (1) 3 Reclassification adjustments — — — (1) — (1) (6) 2 (4) Deferred gains (losses) on hedge
contracts, net(7) 4 (3) 2 — 2 (2) 1 (1) Total $ 262 $ (85) $ 177 $ 1,250 $ (304) $ 946 $ 117 $ (9) $ 108 * These components of other comprehensive income (loss) are included in the computation of net periodic pension cost. See Note 1615 for additional information.52Note 13.12. Segment and Geographic DataWe operate in, and report financial information for, the following 5 businesssix operating segments: Textron Aviation, Bell, Textron Systems, Industrial, Textron eAviation 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, rescuepublic safety and emergency medical helicopter operators, and U.S. and foreign governments.Textron Systems products and services include unmanned aircraft systems, electronic systems and surface systems,solutions, advanced marine craft, piston aircraft engines, live military air-to-air and air-to-ship training, weapons and related components, and 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, plastic tanks for selective catalytic reduction systems and battery housing systems for use in electric vehicles that were previously included in the Industrialare 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.The Textron eAviation segment as discussed in Note 2.58Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments includes non-service components of net periodic benefit cost/(income) and excludes interest expense, net; certain corporate expenses,expenses; gains/losses on major business dispositionsdispositions; special charges; and special charges.an inventory charge related to the 2020 COVID-19 restructuring plan, as discussed in Note 16. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.53Our revenues by segment, along with a reconciliation of segment profit to income from continuing operations before income taxes, are as follows:Revenues Segment Profit (Loss) (In millions) 2022 2021 2020 2022 2021 2020 Textron Aviation $ 5,073 $ 4,566 $ 3,974 $ 584 $ 378 $ 16 Bell 3,091 3,364 3,309 317 408 462 Textron Systems 1,172 1,273 1,313 152 189 152 Industrial 3,465 3,130 3,000 165 140 111 Textron eAviation 16 — — (26) — — Finance 52 49 55 31 19 10 Total $ 12,869 $ 12,382 $ 11,651 $ 1,223 $ 1,134 $ 751 Corporate expenses and other, net (113) (129) (122) Interest expense, net for Manufacturing group (94) (124) (145) Special charges* — (25) (147) Inventory charge* — — (55) Gain on business disposition — 17 — Income from continuing operations before income taxes $ 1,016 $ 873 $ 282 * See Note 16 for additional information.Other information by segment is provided below:Assets Capital Expenditures Depreciation and Amortization (In millions) December 31,
2022January 1,
20222022 2021 2020 2022 2021 2020 Textron Aviation $ 4,496 $ 4,390 $ 138 $ 115 $ 94 $ 152 $ 139 $ 138 Bell 2,857 3,382 80 92 117 90 87 91 Textron Systems 1,989 1,980 57 80 42 49 45 43 Industrial 2,555 2,529 78 82 62 93 99 102 Textron eAviation 278 — 1 — — 2 — — Finance 664 867 — — — 1 10 5 Corporate 3,454 2,679 — 6 2 10 10 12 Total $ 16,293 $ 15,827 $ 354 $ 375 $ 317 $ 397 $ 390 $ 391 Geographic DataPresented below is selected financial information of our continuing operations by geographic area:Revenues* Property, Plant
and Equipment, net**(In millions) 2022 2021 2020 December 31,
2022January 1,
2022United States $ 8,702 $ 8,572 $ 7,943 $ 2,137 $ 2,121 Europe 1,468 1,369 1,336 188 201 Other international 2,699 2,441 2,372 198 216 Total $ 12,869 $ 12,382 $ 11,651 $ 2,523 $ 2,538 * 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.5954Disaggregation of RevenuesOur revenues disaggregated by major product type are presented below:(In millions) 2022 2021 2020 Aircraft $ 3,387 $ 3,116 $ 2,714 Aftermarket parts and services 1,686 1,450 1,260 Textron Aviation 5,073 4,566 3,974 Military aircraft and support programs 1,740 2,073 2,213 Commercial helicopters, parts and services 1,351 1,291 1,096 Bell 3,091 3,364 3,309 Textron Systems 1,172 1,273 1,313 Fuel systems and functional components 1,771 1,735 1,751 Specialized vehicles 1,694 1,395 1,249 Industrial 3,465 3,130 3,000 Textron eAviation 16 — — Finance 52 49 55 Total revenues $ 12,869 $ 12,382 $ 11,651 Our 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.(In millions) Textron
AviationBell Textron
SystemsIndustrial Textron eAviation Finance Total 2022 Customer type: Commercial $ 4,959 $ 1,284 $ 274 $ 3,450 $ 16 $ 52 $ 10,035 U.S. Government 114 1,807 898 15 — — 2,834 Total revenues $ 5,073 $ 3,091 $ 1,172 $ 3,465 $ 16 $ 52 $ 12,869 Geographic location: United States $ 3,520 $ 2,242 $ 1,054 $ 1,862 $ 7 $ 17 $ 8,702 Europe 579 139 42 699 6 3 1,468 Other international 974 710 76 904 3 32 2,699 Total revenues $ 5,073 $ 3,091 $ 1,172 $ 3,465 $ 16 $ 52 $ 12,869 2021 Customer type: Commercial $ 4,435 $ 1,328 $ 257 $ 3,113 $ — $ 49 $ 9,182 U.S. Government 131 2,036 1,016 17 — — 3,200 Total revenues $ 4,566 $ 3,364 $ 1,273 $ 3,130 $ — $ 49 $ 12,382 Geographic location: United States $ 3,424 $ 2,425 $ 1,126 $ 1,570 $ — $ 27 $ 8,572 Europe 396 171 44 757 — 1 1,369 Other international 746 768 103 803 — 21 2,441 Total revenues $ 4,566 $ 3,364 $ 1,273 $ 3,130 $ — $ 49 $ 12,382 2020 Customer type: Commercial $ 3,826 $ 1,079 $ 249 $ 2,993 $ — $ 55 $ 8,202 U.S. Government 148 2,230 1,064 7 — — 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 Other international 793 597 140 816 — 26 2,372 Total revenues $ 3,974 $ 3,309 $ 1,313 $ 3,000 $ — $ 55 $ 11,651 6055Our 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,December 31, 2022, we had $9.8$13.3 billion in remaining performance obligations of which we expect to recognize revenues of approximately 75%86% through 2021,2024, an additional 20%11% through 2023,2026, 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 December 31, 2022 and January 4, 2020 and December 29, 2018,1, 2022, contract assets totaled $567$680 million and $461$717 million, respectively, and contract liabilities totaled $830 million$1.5 billion and $974 million, respectively. The changes in these balances in 2019 resulted from$1.2 billion, respectively, reflecting timing differences between revenuerevenues recognized, billings and payments from customers, largely related to the V-22 program in the Bell segment.customers. During 20192022, 2021 and 2018,2020, we recognized revenues of $590$873 million, $600 million and $817$506 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:61Note 15.14. 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, performance share units or other awards that are payable in shares. For 2019, 20182022, 2021 and 2017,2020, 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 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) 2022 2021 2020 Compensation expense $ 66 $ 138 $ 57 Income tax benefit (16) (33) (14) Total compensation expense included in net income $ 50 $ 105 $ 43 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.award utilizing an estimated forfeiture rate. 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,December 31, 2022, we had not recognized $27 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 $22 million, $23$21 million and $20 million in 2019, 20182022, 2021 and 2017,2020, 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:62562022 2021 2020 Fair value of options at grant date $ 19.95 $ 15.05 $ 10.66 Dividend yield 0.1% 0.2% 0.2% Expected volatility 29.2% 33.6% 29.3% Risk-free interest rate 1.9% 0.7% 1.1% Expected term (in years) 4.8 4.7 4.7 The stock option activity during 20192022 is provided below:(Options in thousands) Number of
OptionsWeighted-
Average
Exercise PriceOutstanding at beginning of year 8,289 $ 46.18 Granted 1,232 69.55 Exercised (1,102) (41.00) Forfeited or expired (109) (52.66) Outstanding at end of year 8,310 $ 50.25 Exercisable at end of year 5,596 $ 47.03 At January 4, 2020,December 31, 2022, our outstanding options had an aggregate intrinsic value of $45$171 million and a weighted-average remaining contractual life of 5.75.8 years. Our exercisable options had an aggregate intrinsic value of $45$133 million and a weighted-average remaining contractual life of 4.54.6 years at January 4, 2020.December 31, 2022. The total intrinsic value of options exercised during 2019, 20182022, 2021 and 20172020 was $22$32 million, $62$63 million and $29$10 million, respectively.Restricted Stock UnitsWe issue restricted stock units that include the right to receive dividend equivalents and are settled in botheither cash andor stock. Beginning in 2020, new grants of restricted stock (vesting 1-thirdunits 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 includegrant. Compensation cost is determined using the right to receive dividend equivalents. 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 20192022 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 569 $ 50.01 1,158 $ 49.92 Granted 104 70.25 226 71.05 Vested (148) (53.68) (248) (53.98) Forfeited — — (50) (52.48) Outstanding at end of year, nonvested 525 $ 52.99 1,086 $ 53.26 The fair value of the restricted stock unit awards that vested and/or amounts paid under these awards is as follows:(In millions) 2022 2021 2020 Fair value of awards vested $ 25 $ 20 $ 17 Cash paid 17 13 11 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 under performancePerformance share units vary based on certainare subject to performance criteria generallygoals set for each yearat the beginning of athe three-year performance period. The performance share unitsperiod and vest at the end of three years. Thethe performance period. These units are remeasured to fair value at the end of these units iseach reporting period based on the trading price of our common stock and is remeasured at each reporting period date.57The 20192022 activity for our performance share units is as follows:63(Units in thousands) Number of
UnitsWeighted-
Average Grant
Date Fair ValueOutstanding at beginning of year, nonvested 526 $ 45.87 Granted 174 71.07 Vested (273) (40.60) Outstanding at end of year, nonvested 427 $ 59.51 (In millions) 2022 2021 2020 Fair value of awards vested $ 19 $ 18 $ 8 Cash paid 15 6 7 Note 16.15. 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 $130$140 million, $125$131 million and $123$128 million in 2019, 20182022, 2021 and 2017, respectively, which included $13 million in contributions to the RAP for each year.2020, 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 legacy plans include the Textron Master Retirement Plan (TMRP), the Bell Helicopter Textron Master Retirement Plan, and the CWC Castings Division of Textron Inc. Hourly-Rated Employees' Pension Plan, which are each 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)(income) 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) 2022 2021 2020 2022 2021 2020 Net periodic benefit cost (income) Service cost $ 108 $ 116 $ 106 $ 2 $ 3 $ 2 Interest cost 272 252 293 6 5 8 Expected return on plan assets (609) (573) (574) — — — Amortization of prior service cost (credit) 13 12 11 (5) (5) (5) Amortization of net actuarial loss (gain) 87 152 185 (4) (2) (1) Net periodic benefit cost (income)* $ (129) $ (41) $ 21 $ (1) $ 1 $ 4 Other changes in plan assets and benefit obligations recognized in OCI Current year actuarial loss (gain) $ (246) $ (1,135) $ 146 $ (39) $ (13) $ (2) Current year prior service cost 4 20 8 — — — Amortization of net actuarial gain (loss) (87) (152) (185) 4 2 1 Amortization of prior service credit (cost) (13) (12) (11) 5 5 5 Total recognized in OCI, before taxes $ (342) $ (1,279) $ (42) $ (30) $ (6) $ 4 Total recognized in net periodic benefit cost (income) and OCI $ (471) $ (1,320) $ (21) $ (31) $ (5) $ 8 * Excludes the Presentationcost associated with the defined contribution component that is included in certain of Net Periodic Pension Costour U.S.-based defined benefit pension plans, of $11 million in 2022, 2021 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) million for 2017 was reclassified from Cost of sales and Selling and administrative expense to Non-service components of pension and postretirement income, net in the Consolidated Statements of Operations.6458All 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) December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022 Change in projected benefit obligation Projected benefit obligation at beginning of year $ 9,339 $ 9,833 $ 202 $ 230 Service cost 108 116 2 3 Interest cost 272 252 6 5 Plan participants’ contributions — — 4 4 Actuarial gains (2,373) (436) (40) (13) Benefits paid (448) (446) (24) (27) Plan amendment 1 18 — — Foreign exchange rate changes and other (51) 2 — — Projected benefit obligation at end of year $ 6,848 $ 9,339 $ 150 $ 202 Change in fair value of plan assets Fair value of plan assets at beginning of year $ 9,947 $ 9,080 Actual return on plan assets (1,520) 1,273 Employer contributions 37 42 Benefits paid (448) (446) Foreign exchange rate changes and other (73) (2) Fair value of plan assets at end of year $ 7,943 $ 9,947 Funded status at end of year $ 1,095 $ 608 $ (150) $ (202) Actuarial losses (gains) reflected in the table abovegains for both 20192022 and 20182021 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) December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022 Non-current assets $ 1,440 $ 1,129 $ — $ — Current liabilities (28) (29) (19) (21) Non-current liabilities (317) (492) (131) (181) Recognized in Accumulated other comprehensive loss, pre-tax: Net loss (gain) 623 953 (70) (34) Prior service cost (credit) 46 58 (6) (10) The accumulated benefit obligation for all defined benefit pension plans was $8.5$6.6 billion and $7.5$8.8 billion at December 31, 2022 and January 4, 2020 and December 29, 2018,1, 2022, respectively, which included $404$326 million and $369$418 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) December 31, 2022 January 1, 2022 Accumulated benefit obligation $ 326 $ 741 Fair value of plan assets — 298 Pension plans with projected benefit obligation exceeding the fair value of plan assets are as follows:(In millions) December 31, 2022 January 1, 2022 Projected benefit obligation $ 597 $ 819 Fair value of plan assets 252 298 6559The weighted-average assumptions we use for our pension and postretirement plans are as follows:Pension Benefits Postretirement Benefits
Other than Pensions2022 2021 2020 2022 2021 2020 Net periodic benefit cost Discount rate 2.99% 2.62% 3.36% 2.80% 2.35% 3.20% Expected long-term rate of return on assets 7.10% 7.10% 7.55% Rate of compensation increase 3.95% 3.49% 3.50% Benefit obligations at year-end Discount rate 5.51% 2.99% 2.62% 5.70% 2.80% 2.35% Rate of compensation increase 3.97% 3.95% 3.50% Interest crediting rate for cash balance plans 5.25% 5.25% 5.25% 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 changed to the average remaining life expectancy of the participant; this change reduced 2021 pension cost by approximately $85 million.Our assumed healthcare cost trend rate for both the medical and prescription drug cost was 7.00%6.5% and 7.0% in both 20192022 and 2018.2021, respectively. We expect this rate to gradually decline to 5%4.75% by 20242029 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 6 % to 17% Global equities 5 % to 17% Debt securities 27 % to 38% Real estate 7 % to 13% Private investment partnerships 7 % to 13% Non-U.S. Plan Assets Equity securities 55 % to 75% Debt securities 25 % to 45% Real estate 0 % to 13% 6660
Subject to
Leveling
Subject to
LevelingDecember 31, 2022 January 1, 2022 (In millions) Level 1 Level 2 Level 3 Not
Subject to
LevelingLevel 1 Level 2 Level 3 Not
Subject to
LevelingCash and equivalents $ 378 $ 3 $ — $ — $ 200 $ 6 $ — $ — Equity securities: Domestic 2,304 — — 225 2,774 — — 271 International 1,171 — — 230 1,772 — — 305 Mutual funds 150 — — — 123 — — — Debt securities: National, state and local governments 332 239 — 27 677 274 — 98 Corporate debt 58 663 — 129 150 1,055 — 170 Private investment partnerships — — — 1,070 — — — 1,098 Real estate — — 569 395 — — 599 375 Total $ 4,393 $ 905 $ 569 $ 2,076 $ 5,696 $ 1,335 $ 599 $ 2,317 Cash and equivalents, equity securities and debt securities include comingledcommingled 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 relativeThe fair value of the underlying equitycommingled funds is determined and debt investmentspublished by the fund's investment managers and their individual prices at any given time;is the basis for current transactions, therefore, they are categorized as Level 1 in the table above; certain of these funds arewere previously categorized as not subject to leveling withinand the fair value hierarchy.prior year amounts have been reclassified to conform to the current presentation. 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) 2022 2021 Balance at beginning of year $ 599 $ 458 Unrealized gains (losses), net (10) 90 Realized gains, net 11 9 Purchases, sales and settlements, net (31) 42 Balance at end of year $ 569 $ 599 6761Defined 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 2020,2023, we expect to contribute approximately $50 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 2019.2022. 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) 2023 2024 2025 2026 2027 2028-2032 Pension benefits $ 442 $ 450 $ 458 $ 466 $ 474 $ 2,451 Postretirement benefits other than pensions 19 19 18 17 16 63 Note 17.16. Special ChargesThere were no special charges recorded in 2022. Special charges recorded in 2021 and 2020 by segment and type of cost are as follows:(In millions) Severance
CostsContract
Terminations
and OtherAsset
ImpairmentsTotal Restructuring Charges Other
ChargesTotal 2021 Industrial $ 4 $ 9 $ 12 $ 25 $ — $ 25 Total special charges $ 4 $ 9 $ 12 $ 25 $ — $ 25 2020 Textron Aviation $ 31 $ — $ 2 $ 33 $ 32 $ 65 Industrial 27 1 6 34 7 41 Textron Systems 11 12 14 37 — 37 Corporate 4 — — 4 — 4 Total special charges $ 73 $ 13 $ 22 $ 108 $ 39 $ 147 2020 COVID-19 Restructuring PlanDecember 2019,2020, we recorded $72 million in special charges, primarily in connection withinitiated a restructuring plan that was designed to reduce costs and improve overall operating efficiencyexpenses through headcount reductions, facility consolidations and other actions in response to the Industrialeconomic challenges and Textron Aviation segments. Inuncertainty resulting from 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. 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 totaled approximately 1,000 positions and included business support and administrative functions within both segments. The headcount reductions at Textron Aviation were primarily related to engineering positions, reflectingCOVID-19 pandemic. Upon 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 in special charges in connection with a plan to restructure the Textron Specialized Vehicles businesses within our Industrial segment. Under this plan, we recordedhad incurred total charges of $133 million, which included severance costs of $77 million, asset impairment charges of $47$34 million primarily intangible assets related to product rationalization,and contract terminationterminations and other costs of $18$22 million. Of these amounts, $59 million was incurred at Industrial, $37 million at Textron Systems, $33 million at Textron Aviation, and severance costs of $8 million. Headcount reductions totaled approximately 400 positions, representing 10% of Textron Specialized Vehicles’ workforce. This plan was substantially completed$4 million 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 this plan, we ceased manufacturing at TRU Canada's facility in Montreal, resulting in a production suspension of our commercial air transport simulators. As a result of this action and market conditions, we incurred an inventory valuation charge of $55 million in 2020 to write-down TRU Canada’s inventory to its net realizable value and recorded the acquisitioncharge in cost of Arctic Cat discussed in Note 2. Bothsales.2020 Other ChargesIn 2020, 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 plans were completed in 2017.Acquisition integration and transaction costs include $5 million in 2019 related to the strategic reviewconditions, Textron Aviation had temporarily shut down most aircraft production. Based on these events, we performed an interim impairment test of the Kautex businessindefinite-lived Beechcraft and $12 million in 2017 related to the Arctic Cat acquisition.impairment charge6862Our restructuring reserve activity is summarized below:(In millions) Severance
CostsContract
Terminations
and OtherTotal Balance at January 2, 2021 $ 43 $ 9 $ 52 Provision for 2020 COVID-19 restructuring plan 9 10 19 Cash paid (27) (9) (36) Reversals (5) (1) (6) Foreign currency translation (1) — (1) Balance at January 1, 2022 $ 19 $ 9 $ 28 Cash paid (13) (2) (15) Foreign currency translation (1) — (1) Balance at December 31, 2022 $ 5 $ 7 $ 12 The majority of the remaining cash outlays of $65$12 million is expected to be paid in the first halfquarter of 2020. Severance costs generally are paid on a lump-sum basis and include outplacement costs, which are paid in accordance with normal payment terms. Note 18.17. 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) 2022 2021 2020 U.S. $ 810 $ 699 $ 202 Non-U.S. 206 174 80 Income from continuing operations before income taxes $ 1,016 $ 873 $ 282 Income tax expense for continuing operations(benefit) is summarized as follows:(In millions) 2022 2021 2020 Current expense (benefit): Federal $ 272 $ 41 $ (1) State 33 15 (76) Non-U.S. 69 47 57 374 103 (20) Deferred expense (benefit): Federal (182) 35 3 State (29) (10) 5 Non-U.S. (9) (2) (15) (220) 23 (7) Income tax expense (benefit) $ 154 $ 126 $ (27) 6963raterate:2022 2021 2020 U.S. Federal statutory income tax rate 21.0% 21.0% 21.0% Increase (decrease) resulting from: Research and development tax credits (a) (5.0) (7.0) (18.2) Foreign-derived intangible income deduction (b) (2.5) — — State income taxes (net of federal impact) 0.3 0.5 (1.2) Non-U.S. tax rate differential and foreign tax credits (c) 1.8 1.3 10.8 State income tax audit settlement (net of federal impact) — — (18.6) Outside basis difference in assets held for sale — — (2.7) Other, net (0.4) (1.4) (0.7) Effective income tax rate 15.2% 14.4% (9.6)% (a)In 2020, the benefit of research and development tax credits as a percentage of pre-tax income was higher than other periods primarily due to lower pre-tax income.(b)In 2022, the foreign-derived intangible income deduction is primarily due to the impact of capitalizing research and development expenditures for continuing operations:(c)2019,2020, the effective tax rate was favorably impacted by $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, 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 back cash 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 2019, 20182022, 2021 and 2017,2020, 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) 2022 2021 2020 Balance at beginning of year $ 207 $ 183 $ 221 Additions for tax positions related to current year 24 21 11 Additions for tax positions of prior years — 10 21 Reductions for settlements and expiration of statute of limitations (a) — (3) (69) Reductions for tax positions of prior years — (4) (1) Balance at end of year $ 231 $ 207 $ 183 (a)2019, additional tax positions primarily reflect the completion of a research and development tax credit analysis for tax credits related to prior years. In 2018,2020, certain tax positions related to research and developmentstate tax creditsattributes were reduced by $25$68 million based on new information, including interactionsan audit settlement with therespect to certain state income tax authorities and recent audit settlements.In 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 2012,2017, 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.7064The significant components of our net deferred tax assets/(liabilities) are provided below:(In millions) December 31,
2022January 1,
2022Capitalized research and development expenditures (a) $ 319 $ — U.S. operating loss and tax credit carryforwards (b) 257 313 Accrued liabilities (c) 209 191 Obligation for pension and postretirement benefits 117 175 Deferred compensation 108 108 Operating lease liabilities 102 103 Non-U.S. operating loss and tax credit carryforwards (d) 53 48 Prepaid pension benefits (e) (348) (269) Property, plant and equipment, principally depreciation (222) (204) Amortization of goodwill and other intangibles (194) (183) Valuation allowance on deferred tax assets (99) (109) Operating lease right-of-use assets (99) (101) Other leasing transactions, principally leveraged leases (53) (73) Other, net (22) 20 Deferred taxes, net $ 128 $ 19 (a)Effective for tax years beginning after December 31, 2021, research and development expenditures must be capitalized and amortized for tax-purposes as part of the Tax Cuts and Jobs Act of 2017.(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)Accrued liabilities include warranty reserves, self-insured liabilities and interest.(d)At December 31, 2022, non-U.S. operating loss and tax credit carryforward benefits of $50 million may be carried forward indefinitely.(e)Prepaid pension benefits increased due to the annual valuation adjustment.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) December 31,
2022January 1,
2022Manufacturing group: Deferred tax assets, net of valuation allowance $ 223 $ 129 Deferred tax liabilities (52) (49) Finance group – Deferred tax liabilities (43) (61) Net deferred tax asset $ 128 $ 19 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 that are indefinitely reinvested, totaling $1.7 billion at January 4, 2020 and $1.6 billion at December 29, 2018, which are indefinitely reinvested.31, 2022 and $1.8 billion at January 1, 2022. Should these earnings be distributed in the future in the form of dividends or otherwise, we would be subject to withholding and incomelocal 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.7165Note 19.18. Commitments and ContingenciesWe are subject to actual and threatened 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; disputes with suppliers, production partners;partners or other third parties; product liability; patent and trademark infringement; employment disputes; and environmental, safetyhealth and healthsafety 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$285 million and $333$213 million at December 31, 2022 and January 4, 2020 and December 29, 2018,1, 2022, 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$145 million. At January 4, 2020,December 31, 2022, environmental reserves of approximately $76$74 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$13 million as current liabilities. ExpendituresIn 2022, 2021 and 2020, to evaluate and remediate contaminated sites, were $13we incurred expense, net of recoveries received, of $9 million, $13$6 million and $18$7 million, in 2019, 2018 and 2017, respectively.Note 20.19. Supplemental Cash Flow InformationOur cash payments and receipts are as follows:(In millions) 2022 2021 2020 Interest paid: Manufacturing group $ 110 $ 128 $ 139 Finance group 13 17 20 Net taxes paid: Manufacturing group 332 72 34 Finance group 24 21 8 7266To 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 December 31, 2022 and January 4, 2020 and December 29, 2018,1, 2022, 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,December 31, 2022, and the related notes and the financial statement schedule contained on page 7770 (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 December 31, 2022 and January 4, 2020 and December 29, 20181, 2022 and the results of its operations and its cash flows for each of the three years in the period ended January 4, 2020,December 31, 2022, 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,December 31, 2022, 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, 202016, 2023 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.7367judgementjudgment involved in evaluating management’s assumptions and key estimates over the duration of these long-term contracts. The estimated costs at completion for the select long-term contracts 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.1615 to the consolidated financial statements, at January 4, 2020,December 31, 2022, the aggregate qualified defined benefit pension obligation was $8.9$6.8 billion and exceeded the fair value of pension plan assets of $8.1was $7.9 billion, resulting in an unfunded defined benefita net pension obligationasset of $809 million.$1.1 billion. 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.74longevitymortality 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, and 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, 20207568Quarterly Data(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.76(In millions) 2022 2021 2020 Allowance for credit losses on accounts receivable Balance at beginning of year $ 24 $ 36 $ 29 Provision (reversal) for credit losses 2 (1) 25 Deductions from reserves* (2) (11) (18) Balance at end of year $ 24 $ 24 $ 36 Allowance for credit losses on finance receivables Balance at beginning of year $ 25 $ 35 $ 25 Provision (reversal) for credit losses (4) (9) 7 Charge-offs — (3) — Recoveries 3 2 3 Balance at end of year $ 24 $ 25 $ 35 Inventory FIFO reserves Balance at beginning of year $ 370 $ 357 $ 309 Charged to costs and expenses 21 40 105 Deductions from reserves* (41) (27) (57) Balance at end of year $ 350 $ 370 $ 357 ** Deductions primarily include amounts written off on uncollectableuncollectible accounts (less recoveries), inventory disposals, changes to prior year estimates, 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.December 31, 2022. 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 (PCAOB ID: 42), 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,December 31, 2022, as stated in its report, which is included herein.7769To 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,December 31, 2022, 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,December 31, 2022, 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 December 31, 2022 and January 4, 2020 and December 29, 2018,1, 2022, and the related Consolidated Statements of Operations, Comprehensive Income, Shareholder’sShareholders' Equity and Cash Flows for each of the three years in the period ended January 4, 2020,December 31, 2022, and the related notes and the financial statement schedule contained on page 77,70, of the Company and our report dated February 25, 202016, 2023 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, Massachusetts7870Not applicable.Item 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 2023 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 2023 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 2023 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 2023 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 2023 Annual Meeting of Shareholders to be held on April 29, 2020 is incorporated by reference into this Annual Report on Form 10-K.7971Item 15. Exhibits and Financial Statement SchedulesFinancial Statements and Schedules — See Index on Page 36.32.4.610.1D10.1E10.1F8010.1G(SEC(SEC File No. 1-5480)10.1H10.1I10.210.3A7210.410.3F 10.4 81738274Credit Agreement, dated as of October 18, 2019,21, 2022, among Textron, the Lenders listed therein, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citibank, N.A., as Syndication Agents, and MUFG Bank, Ltd., as Documentation Agent. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2019.October1, 2022.January 4, 2020,December 31, 2022, 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 Summary8375Pursuant 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 25th16th day of February 2020.2023.
Executive Vice President and Chief Financial Officer847625th16th day of February 20202023 by the following persons on behalf of the registrant and in the capacities indicated:
(principal executive officer)*Richard F. Ambrose Director * Kathleen M. Bader Lawrence K. FishDirector*Paul E. GagnéDirector*Director * Lionel L. Nowell III Lloyd G. TrotterDirector*
(principal financial officer)
(principal accounting officer) /s//s/ Jayne M. Donegan8577