UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October~~April 2, ~~2021~~2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______.

Commission File Number 1-5480

Textron Inc.

(Exact name of registrant as specified in its charter)


Delaware						05-0315468
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

40 Westminster Street, Providence, RI						02903
(Address of principal executive offices)						(Zip code)

(401) 421-2800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol (s)	Name of each exchange on which registered
Common stock, $0.125 par value	TXT	New York Stock Exchange (NYSE)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of ~~October~~April 15, ~~2021,~~2022, there were ~~220,425,217~~215,083,317 shares of common stock outstanding.

Table of Contents

TEXTRON INC.

Index to Form 10-Q

For the Quarterly Period Ended ~~October~~April 2, ~~2021~~2022


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Operations (Unaudited)	3

	Consolidated Statements of Comprehensive Income (Unaudited)	4

	Consolidated Balance Sheets (Unaudited)	5

	Consolidated Statements of Cash Flows (Unaudited)	6

	Notes to the Consolidated Financial Statements (Unaudited)	8

	Note 1. Basis of Presentation	8
	Note 2. Business ~~Disposition~~Acquisition	8
	Note 3.3 . Accounts Receivable and Finance Receivables	9
	Note 4.4 . Inventories	10
	Note 5.5 . Warranty Liability	1110
	Note 6.6 . Leases	1110
	Note 7.7 . Derivative Instruments and Fair Value Measurements	11
	Note 8.8 . Shareholders’ Equity	1312
	Note 9.9 . Segment Information	1614
	Note ~~10.~~ 10 . Revenues	14
	Note 1 1 . Share-Based Compensation	15
	Note 1 2 . Retirement Plans	17
	Note ~~11. Retirement Plans~~1 3. Special Charges	1917
	Note ~~12. Special Charges~~1 4 . Income Taxes	2018
	Note ~~13. Income Taxes~~1	215
	~~Note 14.~~. Commitments and Contingencies	2118

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2219

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3228

Item 4.	Controls and Procedures	3228

PART II.	OTHER INFORMATION

Item 1.	~~Legal Proceedings~~1A	32

~~Item 1A.~~.	Risk Factors	3328

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3328

Item 5 .	Other Information	29

Item 6.	Exhibits	3430

	Signatures	3531

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TEXTRON INC.

Consolidated Statements of Operations (Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended
(In millions, except per share amounts)	(In millions, except per share amounts)	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020		(In millions, except per share amounts)		April 2, 2022		April 3, 2021
Revenues	Revenues									Revenues
Manufacturing revenues		$	2,979	$	2,722	$	9,022	$	7,942
Manufacturing product revenues										Manufacturing product revenues		$	2,448	$	2,403
Manufacturing service revenues										Manufacturing service revenues		537		461
Finance revenues	Finance revenues	11		13		38		42		Finance revenues		16		15
Total revenues	Total revenues	2,990		2,735		9,060		7,984		Total revenues		3,001		2,879
Costs, expenses and other	Costs, expenses and other									Costs, expenses and other
Cost of sales		2,486		2,332		7,546		6,970
Cost of products sold										Cost of products sold		2,069		2,061
Cost of services sold										Cost of services sold		423		339
Selling and administrative expense	Selling and administrative expense	283		258		895		760		Selling and administrative expense		305		298
Interest expense	Interest expense	33		43		109		125		Interest expense		33		40
Non-service components of pension and postretirement income, net										Non-service components of pension and postretirement income, net		(61)		(40)
Special charges	Special charges	10		7		20		124		Special charges		—		6
Non-service components of pension and post-retirement income, net		(40)		(21)		(119)		(62)
Gain on business disposition	Gain on business disposition	—		—		(17)		—		Gain on business disposition		—		(15)
Total costs, expenses and other	Total costs, expenses and other	2,772		2,619		8,434		7,917		Total costs, expenses and other		2,769		2,689
Income from continuing operations before income taxes		218		116		626		67
Income tax expense (benefit)		33		1		86		(6)
Income from continuing operations		$	185	$	115	$	540	$	73
Loss from discontinued operations		—		—		(1)		—
Net income		$	185	$	115	$	539	$	73
Basic Earnings per share
Continuing operations		$	0.83	$	0.50	$	2.39	$	0.32
Income before income taxes										Income before income taxes		232		190
Income tax expense										Income tax expense		39		19

Diluted Earnings per share
Continuing operations		$	0.82	$	0.50	$	2.37	$	0.32
Net income										Net income		$	193	$	171
Earnings per share										Earnings per share
Basic										Basic		$	0.89	$	0.75

Diluted										Diluted		$	0.88	$	0.75

See Notes to the Consolidated Financial Statements.

Table of Contents

TEXTRON INC.

Consolidated Statements of Comprehensive Income (Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended
(In millions)	(In millions)	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020		(In millions)		April 2, 2022		April 3, 2021
Net income	Net income	$	185	$	115	$	539	$	73	Net income		$	193	$	171
Other comprehensive income, net of tax	Other comprehensive income, net of tax									Other comprehensive income, net of tax
Pension and postretirement benefits adjustments, net of reclassifications	Pension and postretirement benefits adjustments, net of reclassifications	30		37		90		110		Pension and postretirement benefits adjustments, net of reclassifications		17		30
Foreign currency translation adjustments, net of reclassifications	Foreign currency translation adjustments, net of reclassifications	(19)		35		(22)		25		Foreign currency translation adjustments, net of reclassifications		(14)		(18)
Deferred gains (losses) on hedge contracts, net of reclassifications		(5)		2		1		(5)
Deferred gains on hedge contracts, net of reclassifications										Deferred gains on hedge contracts, net of reclassifications		7		4
Other comprehensive income	Other comprehensive income	6		74		69		130		Other comprehensive income		10		16
Comprehensive income	Comprehensive income	$	191	$	189	$	608	$	203	Comprehensive income		$	203	$	187

See Notes to the Consolidated Financial Statements.

Table of Contents

TEXTRON INC.

Consolidated Balance Sheets (Unaudited)


(Dollars in millions)	(Dollars in millions)	October 2, 2021		January 2, 2021		(Dollars in millions)	April 2, 2022		January 1, 2022
Assets	Assets					Assets
Manufacturing group	Manufacturing group					Manufacturing group
Cash and equivalents	Cash and equivalents	$	1,969	$	2,146	Cash and equivalents	$	1,978	$	1,922
Accounts receivable, net	Accounts receivable, net	773		787		Accounts receivable, net	800		838
Inventories	Inventories	3,670		3,513		Inventories	3,663		3,468
Other current assets	Other current assets	890		950		Other current assets	1,055		1,018
Total current assets	Total current assets	7,302		7,396		Total current assets	7,496		7,246
Property, plant and equipment, less accumulated depreciation and amortization of $4,855 and $4,696, respectively		2,469		2,516
Property, plant and equipment, less accumulated depreciation and amortization of $4,914 and $4,888, respectively						Property, plant and equipment, less accumulated depreciation and amortization of $4,914 and $4,888, respectively	2,488		2,538
Goodwill	Goodwill	2,152		2,157		Goodwill	2,147		2,149
Other assets	Other assets	2,468		2,436		Other assets	3,025		3,027
Total Manufacturing group assets	Total Manufacturing group assets	14,391		14,505		Total Manufacturing group assets	15,156		14,960
Finance group	Finance group					Finance group
Cash and equivalents	Cash and equivalents	213		108		Cash and equivalents	148		195
Finance receivables, net	Finance receivables, net	596		744		Finance receivables, net	578		605
Other assets	Other assets	69		86		Other assets	29		67
Total Finance group assets	Total Finance group assets	878		938		Total Finance group assets	755		867
Total assets	Total assets	$	15,269	$	15,443	Total assets	$	15,911	$	15,827
Liabilities and shareholders’ equity	Liabilities and shareholders’ equity					Liabilities and shareholders’ equity
Liabilities	Liabilities					Liabilities
Manufacturing group	Manufacturing group					Manufacturing group
Current portion of long-term debt	Current portion of long-term debt	$	7	$	509	Current portion of long-term debt	$	7	$	6
Accounts payable	Accounts payable	775		776		Accounts payable	823		786
Other current liabilities	Other current liabilities	2,270		1,985		Other current liabilities	2,507		2,344
Total current liabilities	Total current liabilities	3,052		3,270		Total current liabilities	3,337		3,136
Other liabilities	Other liabilities	2,292		2,357		Other liabilities	1,912		2,005
Long-term debt	Long-term debt	3,180		3,198		Long-term debt	3,178		3,179
Total Manufacturing group liabilities	Total Manufacturing group liabilities	8,524		8,825		Total Manufacturing group liabilities	8,427		8,320
Finance group	Finance group					Finance group
Other liabilities	Other liabilities	123		111		Other liabilities	97		110
Debt	Debt	585		662		Debt	470		582
Total Finance group liabilities	Total Finance group liabilities	708		773		Total Finance group liabilities	567		692
Total liabilities	Total liabilities	9,232		9,598		Total liabilities	8,994		9,012
Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
Common stock	Common stock	29		29		Common stock	28		28
Capital surplus	Capital surplus	1,969		1,785		Capital surplus	1,924		1,863
Treasury stock	Treasury stock	(789)		(203)		Treasury stock	(314)		(157)
Retained earnings	Retained earnings	6,498		5,973		Retained earnings	6,058		5,870
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1,670)		(1,739)		Accumulated other comprehensive loss	(779)		(789)
Total shareholders’ equity	Total shareholders’ equity	6,037		5,845		Total shareholders’ equity	6,917		6,815
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	15,269	$	15,443	Total liabilities and shareholders’ equity	$	15,911	$	15,827
Common shares outstanding (in thousands)	Common shares outstanding (in thousands)	221,031		226,444		Common shares outstanding (in thousands)	215,751		216,935

See Notes to the Consolidated Financial Statements.

Table of Contents

TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited)

For the ~~Nine~~Three Months Ended ~~October~~April 2, ~~2021~~2022 and ~~October~~April 3, ~~2020,~~2021, respectively


		Consolidated					Consolidated
(In millions)	(In millions)	2021		2020		(In millions)	2022		2021
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Income from continuing operations		$	540	$	73
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Net income						Net income	$	193	$	171
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash items:	Non-cash items:					Non-cash items:
Depreciation and amortization	Depreciation and amortization	285		283		Depreciation and amortization	93		90
Deferred income taxes						Deferred income taxes	(52)		11

Gain on business disposition	Gain on business disposition	(17)		—		Gain on business disposition	—		(15)
Deferred income taxes		7		(31)
Asset impairments and TRU inventory charge		11		111
Other, net	Other, net	74		81		Other, net	36		38
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable, net	Accounts receivable, net	8		59		Accounts receivable, net	37		(103)
Inventories	Inventories	(164)		(258)		Inventories	(176)		(178)
Other assets	Other assets	(11)		114		Other assets	(4)		(17)
Accounts payable	Accounts payable	1		(267)		Accounts payable	38		259
Other liabilities	Other liabilities	323		60		Other liabilities	26		(105)
Income taxes, net	Income taxes, net	26		(4)		Income taxes, net	71		(11)
Pension, net	Pension, net	(62)		(11)		Pension, net	(41)		(23)
Captive finance receivables, net	Captive finance receivables, net	152		(25)		Captive finance receivables, net	18		69
Other operating activities, net	Other operating activities, net	1		15		Other operating activities, net	2		(5)
Net cash provided by operating activities of continuing operations		1,174		200
Net cash used in operating activities of discontinued operations		(1)		(1)

Net cash provided by operating activities	Net cash provided by operating activities	1,173		199		Net cash provided by operating activities	241		181
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Capital expenditures	Capital expenditures	(204)		(151)		Capital expenditures	(48)		(53)
Proceeds from sale of property, plant and equipment						Proceeds from sale of property, plant and equipment	18		—

Net proceeds from business disposition	Net proceeds from business disposition	38		—		Net proceeds from business disposition	—		39
Proceeds from an insurance recovery and sale of property, plant and equipment		3		25
Net proceeds from corporate-owned life insurance policies		—		21
Net cash used in acquisitions		—		(11)
Finance receivables repaid	Finance receivables repaid	19		21		Finance receivables repaid	13		13
Other investing activities, net	Other investing activities, net	17		3		Other investing activities, net	45		6
Net cash used in investing activities		(127)		(92)
Net cash provided by investing activities						Net cash provided by investing activities	28		5
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Decrease in short-term debt		—		(2)
Net proceeds from long-term debt		—		1,137
Proceeds from borrowings against corporate-owned life insurance policies		—		377
Payment on borrowings against corporate-owned life insurance policies		—		(15)

Principal payments on long-term debt and nonrecourse debt	Principal payments on long-term debt and nonrecourse debt	(615)		(235)		Principal payments on long-term debt and nonrecourse debt	(121)		(287)
Purchases of Textron common stock	Purchases of Textron common stock	(586)		(54)		Purchases of Textron common stock	(157)		(91)
Dividends paid	Dividends paid	(14)		(14)		Dividends paid	(5)		(5)
Proceeds from options exercised	Proceeds from options exercised	105		16		Proceeds from options exercised	28		27
Other financing activities, net	Other financing activities, net	(2)		(2)		Other financing activities, net	(3)		(3)
Net cash provided by (used in) financing activities		(1,112)		1,208
Net cash used in financing activities						Net cash used in financing activities	(258)		(359)
Effect of exchange rate changes on cash and equivalents	Effect of exchange rate changes on cash and equivalents	(6)		(2)		Effect of exchange rate changes on cash and equivalents	(2)		(3)
Net increase (decrease) in cash and equivalents	Net increase (decrease) in cash and equivalents	(72)		1,313		Net increase (decrease) in cash and equivalents	9		(176)
Cash and equivalents at beginning of period	Cash and equivalents at beginning of period	2,254		1,357		Cash and equivalents at beginning of period	2,117		2,254
Cash and equivalents at end of period	Cash and equivalents at end of period	$	2,182	$	2,670	Cash and equivalents at end of period	$	2,126	$	2,078

See Notes to the Consolidated Financial Statements.

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TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited) (Continued)

For the ~~Nine~~Three Months Ended ~~October~~April 2, ~~2021~~2022 and ~~October~~April 3, ~~2020,~~2021, respectively


		Manufacturing Group				Finance Group					Manufacturing Group				Finance Group
(In millions)	(In millions)	2021		2020		2021		2020		(In millions)	2022		2021		2022		2021
Cash flows from operating activities	Cash flows from operating activities									Cash flows from operating activities
Income from continuing operations		$	537	$	67	$	3	$	6
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Net income (loss)										Net income (loss)	$	185	$	177	$	8	$	(6)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:										Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Non-cash items:	Non-cash items:									Non-cash items:
Depreciation and amortization	Depreciation and amortization	277		279		8		4		Depreciation and amortization	93		88		—		2
Deferred income taxes										Deferred income taxes	(45)		11		(7)		—

Gain on business disposition	Gain on business disposition	(17)		—		—		—		Gain on business disposition	—		(15)		—		—
Deferred income taxes		9		(30)		(2)		(1)
Asset impairments and TRU inventory charge		11		111		—		—
Other, net	Other, net	82		74		(8)		7		Other, net	37		39		(1)		(1)
Changes in assets and liabilities:	Changes in assets and liabilities:									Changes in assets and liabilities:
Accounts receivable, net	Accounts receivable, net	8		59		—		—		Accounts receivable, net	37		(103)		—		—
Inventories	Inventories	(164)		(258)		—		—		Inventories	(176)		(178)		—		—
Other assets	Other assets	(10)		114		(1)		—		Other assets	(4)		(17)		—		—
Accounts payable	Accounts payable	1		(267)		—		—		Accounts payable	38		259		—		—
Other liabilities	Other liabilities	323		66		—		(6)		Other liabilities	37		(103)		(11)		(2)
Income taxes, net	Income taxes, net	16		1		10		(5)		Income taxes, net	62		(23)		9		12
Pension, net	Pension, net	(62)		(11)		—		—		Pension, net	(41)		(23)		—		—

Other operating activities, net	Other operating activities, net	1		15		—		—		Other operating activities, net	2		(5)		—		—
Net cash provided by operating activities of continuing operations		1,012		220		10		5
Net cash used in operating activities of discontinued operations		(1)		(1)		—		—
Net cash provided by operating activities		1,011		219		10		5

Net cash provided by (used in) operating activities										Net cash provided by (used in) operating activities	225		107		(2)		5
Cash flows from investing activities	Cash flows from investing activities									Cash flows from investing activities
Capital expenditures	Capital expenditures	(204)		(151)		—		—		Capital expenditures	(48)		(53)		—		—
Proceeds from sale of property, plant and equipment										Proceeds from sale of property, plant and equipment	18		—		—		—

Net proceeds from business disposition	Net proceeds from business disposition	38		—		—		—		Net proceeds from business disposition	—		39		—		—
Proceeds from an insurance recovery and sale of property, plant and equipment		3		25		—		—
Net proceeds from corporate-owned life insurance policies		—		21		—		—
Net cash used in acquisitions		—		(11)		—		—
Finance receivables repaid	Finance receivables repaid	—		—		205		90		Finance receivables repaid	—		—		40		89
Finance receivables originated	Finance receivables originated	—		—		(34)		(94)		Finance receivables originated	—		—		(9)		(7)
Other investing activities, net	Other investing activities, net	—		—		17		3		Other investing activities, net	2		—		43		6
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	(163)		(116)		188		(1)		Net cash provided by (used in) investing activities	(28)		(14)		74		88
Cash flows from financing activities	Cash flows from financing activities									Cash flows from financing activities
Decrease in short-term debt		—		(2)		—		—
Net proceeds from long-term debt		—		1,137		—		—
Proceeds from borrowings against corporate-owned life insurance policies		—		377		—		—
Payment on borrowings against corporate-owned life insurance policies		—		(15)		—		—

Principal payments on long-term debt and nonrecourse debt	Principal payments on long-term debt and nonrecourse debt	(522)		(195)		(93)		(40)		Principal payments on long-term debt and nonrecourse debt	(2)		(267)		(119)		(20)
Purchases of Textron common stock	Purchases of Textron common stock	(586)		(54)		—		—		Purchases of Textron common stock	(157)		(91)		—		—
Dividends paid	Dividends paid	(14)		(14)		—		—		Dividends paid	(5)		(5)		—		—
Proceeds from options exercised	Proceeds from options exercised	105		16		—		—		Proceeds from options exercised	28		27		—		—
Other financing activities, net	Other financing activities, net	(2)		(14)		—		12		Other financing activities, net	(3)		(3)		—		—
Net cash provided by (used in) financing activities		(1,019)		1,236		(93)		(28)
Net cash used in financing activities										Net cash used in financing activities	(139)		(339)		(119)		(20)
Effect of exchange rate changes on cash and equivalents	Effect of exchange rate changes on cash and equivalents	(6)		(2)		—		—		Effect of exchange rate changes on cash and equivalents	(2)		(3)		—		—
Net increase (decrease) in cash and equivalents	Net increase (decrease) in cash and equivalents	(177)		1,337		105		(24)		Net increase (decrease) in cash and equivalents	56		(249)		(47)		73
Cash and equivalents at beginning of period	Cash and equivalents at beginning of period	2,146		1,181		108		176		Cash and equivalents at beginning of period	1,922		2,146		195		108
Cash and equivalents at end of period	Cash and equivalents at end of period	$	1,969	$	2,518	$	213	$	152	Cash and equivalents at end of period	$	1,978	$	1,897	$	148	$	181

See Notes to the Consolidated Financial Statements.

Table of Contents

TEXTRON INC.

Notes to the Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

Our Consolidated Financial Statements include the accounts of Textron Inc. (Textron) and its majority-owned subsidiaries. We have prepared these unaudited consolidated financial statements in accordance with accounting principles generally accepted in the U.S. for interim financial information. Accordingly, these interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. The consolidated interim financial statements included in this quarterly report should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended January ~~2, 2021.~~1, 2022. In the opinion of management, the interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair presentation of our consolidated financial position, results of operations and cash flows for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

Our financings are conducted through 2 separate borrowing groups. The Manufacturing group consists of Textron consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems and Industrial segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements. All significant intercompany transactions are eliminated from the Consolidated Financial Statements, including retail financing activities for inventory sold by our Manufacturing group and financed by our Finance group.

Use of Estimates

We prepare our financial statements in conformity with generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated Statements of Operations in the period that they are determined.

Contract Estimates

For contracts where revenue is recognized over time, we recognize changes in estimated contract revenues, costs and profits using the cumulative catch-up method of accounting. This method recognizes the cumulative effect of changes on current and prior periods with the impact of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.

In the ~~third~~first quarter of ~~2021~~2022, our cumulative catch-up adjustments decreased segment profit by $17 million and ~~2020,~~net income by $13 million, $0.06 per diluted share. In the first quarter of 2021, our cumulative catch-up adjustments increased segment profit by ~~$25~~$14 million and ~~$22 million, respectively, and increased~~ net income by ~~$19~~$11 million, ~~and $17 million, respectively ($0.08 and $0.07~~$0.05 per diluted ~~share, respectively).~~share. Gross favorable profit adjustments totaled ~~$43~~$16 million and ~~$31~~$36 million in the ~~third~~first quarter of ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~the~~ gross unfavorable profit adjustments totaled ~~$18 million and $9 million, respectively. We recognized revenues of $27~~$33 million and $22 million, ~~in the third quarter of 2021 and 2020, respectively, from performance obligations satisfied in prior periods that related to changes in profit booking rates.~~

~~In the first nine months of 2021 and 2020, our cumulative catch-up adjustments increased segment profit~~respectively. We reduced revenues by ~~$54~~$12 million and $41 million, respectively, and increased net income by $41 million and $31 million, respectively ($0.18 and $0.14 per diluted share, respectively). Gross favorable profit adjustments totaled $119 million and $104recognized revenues of $18 million in the first ~~nine months~~quarter of ~~2021~~2022 and ~~2020, respectively, and the gross unfavorable profit adjustments totaled $65 million and $63 million, respectively. We recognized revenues of $65 million and $48 million in the first nine months of~~ 2021, ~~and 2020,~~ respectively, from performance obligations satisfied in prior periods that related to changes in profit booking rates.

Note 2. Business ~~Disposition~~Acquisition

On ~~January 25, 2021,~~April 15, 2022, we ~~completed~~acquired Pipistrel, a manufacturer of electrically powered aircraft, for a cash purchase price of approximately $240 million. Beginning with the ~~sale~~second quarter of ~~TRU Simulation + Training Canada Inc. within our~~2022, this business will be included in a new reporting segment, Textron ~~Systems segment for net cash proceeds~~eAviation, which will be focused on the development of ~~$38 million and recorded an after-tax gain of $17 million.~~sustainable aircraft.

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Note 3. Accounts Receivable and Finance Receivables

Accounts Receivable

Accounts receivable is composed of the following:


(In millions)	(In millions)	October 2, 2021		January 2, 2021		(In millions)	April 2, 2022		January 1, 2022
Commercial	Commercial	$	671	$	668	Commercial	$	711	$	704
U.S. Government contracts	U.S. Government contracts	131		155		U.S. Government contracts	115		158
		802		823			826		862
Allowance for credit losses	Allowance for credit losses	(29)		(36)		Allowance for credit losses	(26)		(24)
Total accounts receivable, net	Total accounts receivable, net	$	773	$	787	Total accounts receivable, net	$	800	$	838

Finance Receivables

Finance receivables are presented in the following table:


(In millions)	(In millions)	October 2, 2021		January 2, 2021		(In millions)	April 2, 2022		January 1, 2022
Finance receivables	Finance receivables	$	621	$	779	Finance receivables	$	603	$	630
Allowance for credit losses	Allowance for credit losses	(25)		(35)		Allowance for credit losses	(25)		(25)
Total finance receivables, net	Total finance receivables, net	$	596	$	744	Total finance receivables, net	$	578	$	605

Finance Receivable Portfolio Quality

We 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 three 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.

Since the first quarter of 2020, the Finance segment has worked with certain customers impacted by the pandemic to provide payment relief through loan modifications. The types of temporary payment relief we offered to these customers included delays in the timing of required principal payments, deferrals of interest payments and/or interest-only payments. The majority of these modified loans have returned to paying principal and interest. For loan modifications that cover payment-relief periods in excess of six months, even if the loan was previously current, the loan is deemed a troubled debt restructuring and considered impaired. These impaired loans are classified as either nonaccrual or watchlist based on a review of the credit quality indicators as discussed above.

During the first nine months of 2021, we modified finance receivable contracts for 21 customers with an outstanding balance at October 2, 2021 totaling $76 million, which were all categorized as troubled debt restructurings. Of these modifications, $71 million were previously modified in 2020. Due to the nature of these restructurings, the financial effects were not significant. We had no customer defaults during the last twelve months related to finance receivables previously modified as a troubled debt restructuring. We believe our allowance for credit losses adequately covers our exposure on these loans as our estimated collateral values largely exceed the outstanding loan amounts.

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Finance receivables categorized based on the credit quality indicators and by the delinquency aging category are summarized as follows:


(Dollars in millions)	(Dollars in millions)	October 2, 2021		January 2, 2021		(Dollars in millions)	April 2, 2022		January 1, 2022
Performing	Performing	$	511	$	612	Performing	$	526	$	536
Watchlist		—		74

Nonaccrual	Nonaccrual	110		93		Nonaccrual	77		94
Nonaccrual as a percentage of finance receivables	Nonaccrual as a percentage of finance receivables	17.71%		11.94%		Nonaccrual as a percentage of finance receivables	12.77%		14.92%
Current and less than 31 days past due	Current and less than 31 days past due	$	604	$	738	Current and less than 31 days past due	$	599	$	624
31-60 days past due	31-60 days past due	5		12		31-60 days past due	2		5
61-90 days past due	61-90 days past due	3		11		61-90 days past due	2		—
Over 90 days past due	Over 90 days past due	9		18		Over 90 days past due	—		1
60+ days contractual delinquency as a percentage of finance receivables	60+ days contractual delinquency as a percentage of finance receivables	1.93%		3.72%		60+ days contractual delinquency as a percentage of finance receivables	0.33%		0.16%

At ~~October~~April 2, ~~2021, 30%~~2022, 39% of our performing finance receivables were originated since the beginning of 2020 and ~~32%~~27% were originated from 2017 to 2019. For finance receivables categorized as nonaccrual, ~~63%~~71% were originated from 2017 to 2019.

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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 finance receivables and the allowance for credit losses, based on the results of our impairment evaluation, is provided below. The finance receivables included in this table specifically exclude leveraged leases in accordance with U.S. generally accepted accounting principles.


(In millions)	(In millions)	October 2, 2021		January 2, 2021		(In millions)	April 2, 2022		January 1, 2022
Finance receivables evaluated collectively	Finance receivables evaluated collectively	$	416	$	521	Finance receivables evaluated collectively	$	436	$	441
Finance receivables evaluated individually	Finance receivables evaluated individually	110		163		Finance receivables evaluated individually	77		94
Allowance for credit losses based on collective evaluation	Allowance for credit losses based on collective evaluation	21		28		Allowance for credit losses based on collective evaluation	21		21
Allowance for credit losses based on individual evaluation	Allowance for credit losses based on individual evaluation	4		7		Allowance for credit losses based on individual evaluation	4		4
Impaired finance receivables with specific allowance for credit losses	Impaired finance receivables with specific allowance for credit losses	$	34	$	46	Impaired finance receivables with specific allowance for credit losses	$	27	$	33
Impaired finance receivables with no specific allowance for credit losses	Impaired finance receivables with no specific allowance for credit losses	76		117		Impaired finance receivables with no specific allowance for credit losses	50		61
Unpaid principal balance of impaired finance receivables	Unpaid principal balance of impaired finance receivables	124		175		Unpaid principal balance of impaired finance receivables	92		109
Allowance for credit losses on impaired finance receivables	Allowance for credit losses on impaired finance receivables	4		7		Allowance for credit losses on impaired finance receivables	4		4
Average recorded investment of impaired finance receivables	Average recorded investment of impaired finance receivables	123		126		Average recorded investment of impaired finance receivables	85		117

Note 4. Inventories

Inventories are composed of the following:

(In millions) October 2,
2021 January 2,
2021
Finished goods $ 1,085 $ 1,228
Work in process 1,741 1,455
Raw materials and components 844 830
Total inventories $ 3,670 $ 3,513


(In millions)	April 2, 2022		January 1, 2022
Finished goods	$	1,100	$	1,071
Work in process	1,686		1,548
Raw materials and components	877		849
Total inventories	$	3,663	$	3,468

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Note 5. Warranty Liability

Changes in our warranty liability are as follows:


		Nine Months Ended					Three Months Ended
(In millions)	(In millions)	October 2, 2021		October 3, 2020		(In millions)	April 2, 2022		April 3, 2021
Beginning of period	Beginning of period	$	119	$	141	Beginning of period	$	127	$	119
Provision	Provision	49		35		Provision	16		14
Settlements	Settlements	(52)		(46)		Settlements	(19)		(20)
Adjustments*	Adjustments*	5		(13)		Adjustments*	6		3
End of period	End of period	$	121	$	117	End of period	$	130	$	116

* Adjustments include changes to prior year estimates, new issues on prior year sales and currency translation adjustments.

Note 6. Leases

We primarily lease certain manufacturing plants, offices, warehouses, training and service centers at various locations ~~worldwide.~~worldwide through operating leases. Our operating leases have remaining lease terms up to 2827 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. Operating lease cost totaled $17 million and ~~$15 million in the third quarter of 2021 and 2020, respectively, and $49 million and $45~~$16 million in the first ~~nine months~~quarter of 2022 and 2021, respectively. Variable and ~~2020, respectively.~~short-term lease costs were not significant. Cash paid for operating leases totaled ~~$49~~$17 million and ~~$45~~$16 million in the first ~~nine months~~quarter of ~~2021~~2022 and ~~2020,~~2021, respectively, and is classified in cash flows from operating activities. Noncash transactions totaled ~~$81~~$7 million and ~~$33~~$45 million in the first ~~nine months~~quarter of ~~2021~~2022 and ~~2020,~~2021, respectively, reflecting the recognition of operating lease assets and liabilities for new or extended leases. ~~Variable and short-term lease costs were not significant.~~

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Balance sheet and other information related to our operating leases is as follows:


(Dollars in millions)	(Dollars in millions)	October 2, 2021		January 2, 2021		(Dollars in millions)	April 2, 2022		January 1, 2022
Other assets	Other assets	$	388	$	349	Other assets	$	367	$	374
Other current liabilities	Other current liabilities	58		47		Other current liabilities	56		56
Other liabilities	Other liabilities	336		306		Other liabilities	317		325
Weighted-average remaining lease term (in years)	Weighted-average remaining lease term (in years)	10.5		11.6		Weighted-average remaining lease term (in years)	10.3		10.5
Weighted-average discount rate	Weighted-average discount rate	3.34%		4.17%		Weighted-average discount rate	3.18%		3.19%

At ~~October~~April 2, ~~2021,~~2022, maturities of our operating lease liabilities on an undiscounted basis totaled ~~$20~~$52 million for the remainder of ~~2021, $69 million for~~ 2022, ~~$59~~$62 million for 2023, ~~$51~~$53 million for 2024, ~~$45~~$46 million for 2025, $35 million for 2026 and ~~$247~~$216 million thereafter.

Note 7. Derivative Instruments and Fair Value Measurements

We 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 Basis

We 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.

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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 ~~October~~April 2, ~~2021~~2022 and January ~~2, 2021,~~1, 2022, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of ~~$341~~$345 million and ~~$318~~$272 million, respectively. At ~~October~~April 2, ~~2021,~~2022, the fair value amounts of our foreign currency exchange contracts were a $5$7 million asset and a $2 million liability. At January ~~2, 2021,~~1, 2022, the fair value amounts of our foreign currency exchange contracts were a $5$4 million asset and a $2$3 million liability.

Our Finance group enters into interest rate swap agreements to mitigate certain exposures 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 ~~October~~April 2, ~~2021,~~2022, we had a swap agreement for a notional amount of $280 million with a maturity of August 2023 and a fair value of a $5 million asset. At January 1, 2022, we had a swap agreement for a notional amount of $289 million with a maturity of August 2023 and aan insignificant fair ~~value of a $3 million liability. At January 2, 2021, we had a swap agreement for a notional amount of $294 million with a maturity of February 2022 and a fair value of a $4 million liability.~~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 entered into at that date, but are not based on actual transactions, so they are classified as Level 2.

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Assets and Liabilities Not Recorded at Fair Value

The carrying value and estimated fair value of our financial instruments that are not reflected in the financial statements at fair value are as follows:


		October 2, 2021				January 2, 2021					April 2, 2022				January 1, 2022
		Carrying		Estimated		Carrying		Estimated			Carrying		Estimated		Carrying		Estimated
(In millions)	(In millions)	Value		Fair Value		Value		Fair Value		(In millions)	Value		Fair Value		Value		Fair Value
Manufacturing group	Manufacturing group									Manufacturing group
Debt, excluding leases	Debt, excluding leases	$	(3,183)	$	(3,413)	$	(3,690)	$	(3,986)	Debt, excluding leases	$	(3,180)	$	(3,118)	$	(3,181)	$	(3,346)
Finance group	Finance group									Finance group
Finance receivables, excluding leases	Finance receivables, excluding leases	404		438		549		599		Finance receivables, excluding leases	394		400		413		444
Debt	Debt	(585)		(552)		(662)		(587)		Debt	(470)		(414)		(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.

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Note 8. Shareholders’ Equity

A reconciliation of Shareholders’ equity is presented below:


(In millions)	(In millions)	Common Stock		Capital Surplus		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity		(In millions)	Common Stock		Capital Surplus		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
Three months ended October 2, 2021

Three months ended April 2, 2022														Three months ended April 2, 2022
Beginning of period	Beginning of period	$	29	$	1,920	$	(490)	$	6,318	$	(1,676)	$	6,101	Beginning of period	$	28	$	1,863	$	(157)	$	5,870	$	(789)	$	6,815
Net income	Net income	—		—		—		185		—		185		Net income	—		—		—		193		—		193
Other comprehensive income	Other comprehensive income	—		—		—		—		6		6		Other comprehensive income	—		—		—		—		10		10
Share-based compensation activity	Share-based compensation activity	—		49		—		—		—		49		Share-based compensation activity	—		61		—		—		—		61
Dividends declared	Dividends declared	—		—		—		(5)		—		(5)		Dividends declared	—		—		—		(5)		—		(5)
Purchases of common stock	Purchases of common stock	—		—		(299)		—		—		(299)		Purchases of common stock	—		—		(157)		—		—		(157)

End of period	End of period	$	29	$	1,969	$	(789)	$	6,498	$	(1,670)	$	6,037	End of period	$	28	$	1,924	$	(314)	$	6,058	$	(779)	$	6,917
Three months ended October 3, 2020
Beginning of period		$	29	$	1,732	$	(74)	$	5,631	$	(1,791)	$	5,527
Net income		—		—		—		115		—		115
Other comprehensive income		—		—		—		—		74		74
Share-based compensation activity		—		30		—		—		—		30
Dividends declared		—		—		—		(5)		—		(5)

End of period		$	29	$	1,762	$	(74)	$	5,741	$	(1,717)	$	5,741
Nine months ended October 2, 2021
Beginning of period		$	29	$	1,785	$	(203)	$	5,973	$	(1,739)	$	5,845
Net income		—		—		—		539		—		539
Other comprehensive income		—		—		—		—		69		69
Share-based compensation activity		—		184		—		—		—		184
Dividends declared		—		—		—		(14)		—		(14)
Purchases of common stock		—		—		(586)		—		—		(586)

End of period		$	29	$	1,969	$	(789)	$	6,498	$	(1,670)	$	6,037
Nine months ended October 3, 2020
Three months ended April 3, 2021														Three months ended April 3, 2021
Beginning of period	Beginning of period	$	29	$	1,674	$	(20)	$	5,682	$	(1,847)	$	5,518	Beginning of period	$	29	$	1,785	$	(203)	$	5,973	$	(1,739)	$	5,845
Net income	Net income	—		—		—		73		—		73		Net income	—		—		—		171		—		171
Other comprehensive income	Other comprehensive income	—		—		—		—		130		130		Other comprehensive income	—		—		—		—		16		16
Share-based compensation activity	Share-based compensation activity	—		88		—		—		—		88		Share-based compensation activity	—		60		—		—		—		60
Dividends declared	Dividends declared	—		—		—		(14)		—		(14)		Dividends declared	—		—		—		(5)		—		(5)
Purchases of common stock	Purchases of common stock	—		—		(54)		—		—		(54)		Purchases of common stock	—		—		(91)		—		—		(91)
End of period	End of period	$	29	$	1,762	$	(74)	$	5,741	$	(1,717)	$	5,741	End of period	$	29	$	1,845	$	(294)	$	6,139	$	(1,723)	$	5,996

Dividends per share of common stock were $0.02 for both the ~~third~~first quarter of ~~2021~~2022 and ~~2020 and $0.06 for both the first nine months of 2021 and 2020.~~

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2021.

Earnings Per Share

We 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.

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The weighted-average shares outstanding for basic and diluted EPS are as follows:


		Three Months Ended		Nine Months Ended			Three Months Ended
(In thousands)	(In thousands)	October 2, 2021	October 3, 2020	October 2, 2021	October 3, 2020	(In thousands)		April 2, 2022	April 3, 2021
Basic weighted-average shares outstanding	Basic weighted-average shares outstanding	223,663	228,918	225,545	228,492	Basic weighted-average shares outstanding		217,010	227,009
Dilutive effect of stock options	Dilutive effect of stock options	2,827	361	2,250	345	Dilutive effect of stock options		2,597	1,275
Diluted weighted-average shares outstanding	Diluted weighted-average shares outstanding	226,490	229,279	227,795	228,837	Diluted weighted-average shares outstanding		219,607	228,284

For the first nine months of 2021, stock options to purchase 1.4 million shares of common stock were excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive. Stock options to purchase ~~7.5~~1.0 million and ~~7.9~~4.3 million shares of common stock were excluded from the calculation of diluted weighted-average shares outstanding for the ~~third~~first quarter of 2022 and ~~first nine months of 2020,~~2021, respectively, as their effect would have been anti-dilutive.

Accumulated Other Comprehensive Loss and Other Comprehensive Income

The components of Accumulated other comprehensive loss are presented below:

(In millions) Pension and
Postretirement
Benefits
Adjustments Foreign
Currency
Translation
Adjustments Deferred
Gains (Losses)
on Hedge
Contracts Accumulated
Other
Comprehensive
Loss
Balance at January 2, 2021 $ (1,780) $ 42 $ (1) $ (1,739)
Other comprehensive loss before reclassifications — (36) 2 (34)
Reclassified from Accumulated other comprehensive loss 90 14 (1) 103
Balance at October 2, 2021 $ (1,690) $ 20 $ — $ (1,670)
Balance at January 4, 2020 $ (1,811) $ (36) $ — $ (1,847)
Other comprehensive income before reclassifications — 25 (2) 23
Reclassified from Accumulated other comprehensive loss 110 — (3) 107
Balance at October 3, 2020 $ (1,701) $ (11) $ (5) $ (1,717)

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(In millions)	Pension and Postretirement Benefits Adjustments		Foreign Currency Translation Adjustments		Deferred Gains (Losses) on Hedge Contracts		Accumulated Other Comprehensive Loss
Balance at January 1, 2022	$	(799)	$	9	$	1	$	(789)
Other comprehensive loss before reclassifications	—		(14)		7		(7)
Reclassified from Accumulated other comprehensive loss	17		—		—		17
Balance at April 2, 2022	$	(782)	$	(5)	$	8	$	(779)
Balance at January 2, 2021	$	(1,780)	$	42	$	(1)	$	(1,739)
Other comprehensive loss before reclassifications	—		(32)		4		(28)
Reclassified from Accumulated other comprehensive loss	30		14		—		44
Balance at April 3, 2021	$	(1,750)	$	24	$	3	$	(1,723)

The before and after-tax components of Other comprehensive income are presented below:


		October 2, 2021						October 3, 2020							April 2, 2022						April 3, 2021
(In millions)	(In millions)	Pre-Tax Amount		Tax (Expense) Benefit		After-tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-tax Amount		(In millions)	Pre-Tax Amount		Tax (Expense) Benefit		After-tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-tax Amount

Three Months Ended	Three Months Ended													Three Months Ended
Pension and postretirement benefits adjustments:
Amortization of net actuarial loss*		$	38	$	(9)	$	29	$	46	$	(11)	$	35
Amortization of prior service cost*		2		(1)		1		2		—		2
Pension and postretirement benefits adjustments, net		40		(10)		30		48		(11)		37
Foreign currency translation adjustments		(19)		—		(19)		35		—		35
Deferred gains (losses) on hedge contracts:
Current deferrals		(6)		2		(4)		3		—		3
Reclassification adjustments		(1)		—		(1)		(2)		1		(1)
Deferred gains (losses) on hedge contracts, net		(7)		2		(5)		1		1		2
Total		$	14	$	(8)	$	6	$	84	$	(10)	$	74
Nine Months Ended
Pension and postretirement benefits adjustments:	Pension and postretirement benefits adjustments:													Pension and postretirement benefits adjustments:
Amortization of net actuarial loss*	Amortization of net actuarial loss*	$	114	$	(27)	$	87	$	138	$	(32)	$	106	Amortization of net actuarial loss*	$	21	$	(5)	$	16	$	38	$	(9)	$	29
Amortization of prior service cost*	Amortization of prior service cost*	6		(3)		3		5		(1)		4		Amortization of prior service cost*	2		(1)		1		2		(1)		1
Pension and postretirement benefits adjustments, net	Pension and postretirement benefits adjustments, net	120		(30)		90		143		(33)		110		Pension and postretirement benefits adjustments, net	23		(6)		17		40		(10)		30
Foreign currency translation adjustments:	Foreign currency translation adjustments:													Foreign currency translation adjustments:
Foreign currency translation adjustments	Foreign currency translation adjustments	(36)		—		(36)		28		(3)		25		Foreign currency translation adjustments	(14)		—		(14)		(32)		—		(32)
Business disposition	Business disposition	14		—		14		—		—		—		Business disposition	—		—		—		14		—		14
Foreign currency translation adjustments, net	Foreign currency translation adjustments, net	(22)		—		(22)		28		(3)		25		Foreign currency translation adjustments, net	(14)		—		(14)		(18)		—		(18)
Deferred gains (losses) on hedge contracts:
Deferred gains on hedge contracts:														Deferred gains on hedge contracts:
Current deferrals	Current deferrals	1		1		2		(2)		—		(2)		Current deferrals	10		(3)		7		5		(1)		4
Reclassification adjustments		(1)		—		(1)		(5)		2		(3)
Deferred gains (losses) on hedge contracts, net		—		1		1		(7)		2		(5)

Deferred gains on hedge contracts, net														Deferred gains on hedge contracts, net	10		(3)		7		5		(1)		4
Total	Total	$	98	$	(29)	$	69	$	164	$	(34)	$	130	Total	$	19	$	(9)	$	10	$	27	$	(11)	$	16

*These components of other comprehensive income are included in the computation of net periodic pension cost ~~(credit)~~(income). See Note 1615 of our ~~2020~~2021 Annual Report on Form 10-K for additional information.

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Note 9. Segment Information

We operate in, and report financial information for, the following 5 business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses, gains/losses on major business dispositions and special charges. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.

Our revenues by segment, along with a reconciliation of segment profit to income ~~from continuing operations~~ before income taxes, are included in the table below:


		Three Months Ended				Nine Months Ended					Three Months Ended
(In millions)	(In millions)	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020		(In millions)		April 2, 2022		April 3, 2021
Revenues	Revenues									Revenues
Textron Aviation	Textron Aviation	$	1,181	$	795	$	3,207	$	2,414	Textron Aviation		$	1,040	$	865
Bell	Bell	769		793		2,506		2,438		Bell		834		846
Textron Systems	Textron Systems	299		302		960		956		Textron Systems		273		328
Industrial	Industrial	730		832		2,349		2,134		Industrial		838		825
Finance	Finance	11		13		38		42		Finance		16		15
Total revenues	Total revenues	$	2,990	$	2,735	$	9,060	$	7,984	Total revenues		$	3,001	$	2,879
Segment Profit	Segment Profit									Segment Profit
Textron Aviation	Textron Aviation	$	98	$	(29)	$	241	$	(92)	Textron Aviation		$	121	$	47
Bell	Bell	105		119		320		352		Bell		98		105
Textron Systems	Textron Systems	45		40		144		103		Textron Systems		33		51
Industrial	Industrial	23		58		102		56		Industrial		43		47
Finance	Finance	8		1		17		8		Finance		9		6
Segment profit	Segment profit	279		189		824		427		Segment profit		304		256
Corporate expenses and other, net	Corporate expenses and other, net	(23)		(28)		(100)		(72)		Corporate expenses and other, net		(44)		(40)
Interest expense, net for Manufacturing group	Interest expense, net for Manufacturing group	(28)		(38)		(95)		(109)		Interest expense, net for Manufacturing group		(28)		(35)
Special charges*		(10)		(7)		(20)		(124)
Special charges										Special charges		—		(6)
Gain on business disposition	Gain on business disposition	—		—		17		—		Gain on business disposition		—		15
Inventory charge*		—		—		—		(55)
Income from continuing operations before income taxes		$	218	$	116	$	626	$	67
Income before income taxes										Income before income taxes		$	232	$	190

* See Note 12 for additional information.

~~Table of~~ ~~Contents~~

Note 10. Revenues

Disaggregation of Revenues

Our revenues disaggregated by major product type are presented below:

Three Months Ended Nine Months Ended
(In millions) October 2,
2021 October 3,
2020 October 2,
2021 October 3,
2020
Aircraft $ 814 $ 486 $ 2,146 $ 1,479
Aftermarket parts and services 367 309 1,061 935
Textron Aviation 1,181 795 3,207 2,414
Military aircraft and support programs 488 515 1,637 1,737
Commercial helicopters, parts and services 281 278 869 701
Bell 769 793 2,506 2,438
Air systems* 99 138 339 423
Land and sea systems* 53 54 174 177
Other* 147 110 447 356
Textron Systems 299 302 960 956
Fuel systems and functional components 382 497 1,319 1,233
Specialized vehicles 348 335 1,030 901
Industrial 730 832 2,349 2,134
Finance 11 13 38 42
Total revenues $ 2,990 $ 2,735 $ 9,060 $ 7,984
* Due to a reorganization of certain products within Textron Systems, prior year amounts have been reclassified to conform to the current year presentation for Air Systems, formerly referred to as “Unmanned Systems”, and Land and Sea Systems, formerly referred to as “Marine and Land Systems”. Other includes the following operating units and businesses: Electronic Systems, Weapons Systems, Lycoming, Airborne Tactical Advantage Company and, prior to its disposition, TRU Simulation + Training Canada Inc.


	Three Months Ended
(In millions)		April 2, 2022		April 3, 2021
Aircraft		$	646	$	535
Aftermarket parts and services		394		330
Textron Aviation		1,040		865
Military aircraft and support programs		597		577
Commercial helicopters, parts and services		237		269
Bell		834		846
Textron Systems		273		328
Fuel systems and functional components		464		497
Specialized vehicles		374		328
Industrial		838		825
Finance		16		15
Total revenues		$	3,001	$	2,879

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Our revenues for our segments by customer type and geographic location are presented below:

(In millions) Textron
Aviation Bell Textron
Systems Industrial Finance Total
Three months ended October 2, 2021
Customer type:
Commercial $ 1,149 $ 278 $ 62 $ 730 $ 11 $ 2,230
U.S. Government 32 491 237 — — 760
Total revenues $ 1,181 $ 769 $ 299 $ 730 $ 11 $ 2,990
Geographic location:
United States $ 915 $ 569 $ 266 $ 377 $ 7 $ 2,134
Europe 97 48 10 160 — 315
Asia and Australia 58 90 16 88 1 253
Other international 111 62 7 105 3 288
Total revenues $ 1,181 $ 769 $ 299 $ 730 $ 11 $ 2,990
Three months ended October 3, 2020
Customer type:
Commercial $ 758 $ 273 $ 54 $ 830 $ 13 $ 1,928
U.S. Government 37 520 248 2 — 807
Total revenues $ 795 $ 793 $ 302 $ 832 $ 13 $ 2,735
Geographic location:
United States $ 562 $ 608 $ 263 $ 401 $ 7 $ 1,841
Europe 65 43 10 203 — 321
Asia and Australia 68 67 15 92 — 242
Other international 100 75 14 136 6 331
Total revenues $ 795 $ 793 $ 302 $ 832 $ 13 $ 2,735
Nine months ended October 2, 2021
Customer type:
Commercial $ 3,122 $ 894 $ 187 $ 2,337 $ 38 $ 6,578
U.S. Government 85 1,612 773 12 — 2,482
Total revenues $ 3,207 $ 2,506 $ 960 $ 2,349 $ 38 $ 9,060
Geographic location:
United States $ 2,409 $ 1,862 $ 852 $ 1,161 $ 21 $ 6,305
Europe 303 131 29 588 1 1,052
Asia and Australia 209 276 52 267 4 808
Other international 286 237 27 333 12 895
Total revenues $ 3,207 $ 2,506 $ 960 $ 2,349 $ 38 $ 9,060
Nine months ended October 3, 2020
Customer type:
Commercial $ 2,322 $ 687 $ 182 $ 2,128 $ 42 $ 5,361
U.S. Government 92 1,751 774 6 — 2,623
Total revenues $ 2,414 $ 2,438 $ 956 $ 2,134 $ 42 $ 7,984
Geographic location:
United States $ 1,677 $ 1,979 $ 825 $ 1,017 $ 21 $ 5,519
Europe 219 88 33 558 1 899
Asia and Australia 241 183 50 221 1 696
Other international 277 188 48 338 19 870
Total revenues $ 2,414 $ 2,438 $ 956 $ 2,134 $ 42 $ 7,984

~~Table of~~ ~~Contents~~


(In millions)	Textron Aviation		Bell		Textron Systems		Industrial		Finance		Total






















Three months ended April 2, 2022
Customer type:
Commercial	$	1,021	$	234	$	19	$	835	$	16	$	2,125
U.S. Government	19		600		254		3		—		876
Total revenues	$	1,040	$	834	$	273	$	838	$	16	$	3,001
Geographic location:
United States	$	732	$	670	$	246	$	426	$	5	$	2,079
Europe	119		28		8		190		1		346

Other international	189		136		19		222		10		576
Total revenues	$	1,040	$	834	$	273	$	838	$	16	$	3,001
Three months ended April 3, 2021
Customer type:
Commercial	$	846	$	266	$	58	$	820	$	15	$	2,005
U.S. Government	19		580		270		5		—		874
Total revenues	$	865	$	846	$	328	$	825	$	15	$	2,879
Geographic location:
United States	$	609	$	616	$	289	$	378	$	8	$	1,900
Europe	84		36		10		236		—		366

Other international	172		194		29		211		7		613
Total revenues	$	865	$	846	$	328	$	825	$	15	$	2,879

Remaining Performance Obligations

Our remaining performance obligations, which is the equivalent of our backlog, represent the expected transaction price allocated to our contracts that we expect to recognize as revenues 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 ~~October~~April 2, ~~2021,~~2022, we had ~~$9.8~~$12.1 billion in remaining performance obligations of which we expect to recognize revenues of approximately ~~70%~~78% through ~~2022,~~2023, an additional ~~25%~~19% through ~~2024,~~2025, and the balance thereafter.

Contract Assets and Liabilities

Assets and liabilities related to our contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At ~~October~~April 2, ~~2021~~2022 and January ~~2, 2021,~~1, 2022, contract assets totaled ~~$624~~$754 million and ~~$561~~$717 million, respectively, and contract liabilities totaled ~~$1.1~~$1.5 billion and ~~$842 million,~~$1.2 billion, respectively, reflecting timing differences between revenues recognized, billings and payments from customers. WeIn the first quarter of 2022 and 2021, we recognized revenues of ~~$51~~$206 million and ~~$499~~$278 million, ~~in the third quarter and first nine months of 2021, respectively, and $44 million and $396 million in the third quarter and first nine months of 2020,~~ respectively, that were included in the contract liability balance at the beginning of each year.

Note 11. Share-Based Compensation

Under our share-based compensation plan, 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. Compensation expense included in net income for our share-based compensation plan is as follows:


	Three Months Ended
(In millions)	April 2, 2022		April 3, 2021
Compensation expense	$	34	$	55
Income tax expense	(8)		(13)
Total compensation expense included in net income	$	26	$	42

Compensation expense included stock option expense of $12 million in both the first quarter of 2022 and 2021.

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Stock Options

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. The expected term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior.

We grant options annually on the first day of March. The assumptions used in our option-pricing model for these grants and the weighted-average fair value for these options are as follows:


	March 1, 2022		March 1, 2021
Fair value of options at grant date	$	19.95	$	15.05
Dividend yield	0.1%		0.2%
Expected volatility	29.2%		33.6%
Risk-free interest rate	1.9%		0.7%
Expected term (in years)	4.8		4.7

The stock option activity during the first quarter of 2022 is provided below:


(Options in thousands)	Number of Options	Weighted- Average Exercise Price
Outstanding at January 1, 2022	8,289	$	46.18
Granted	1,049	71.07
Exercised	(705)	(38.35)
Forfeited or expired	(28)	(45.34)
Outstanding at April 2, 2022	8,605	$	49.86
Exercisable at April 2, 2022	5,902	$	47.13

At April 2, 2022, our outstanding options had an aggregate intrinsic value of $199 million and a weighted-average remaining contractual life of 6.5 years. Our exercisable options had an aggregate intrinsic value of $153 million and a weighted-average remaining contractual life of 5.3 years at April 2, 2022. The total intrinsic value of options exercised during the first quarter of 2022 and 2021 was $23 million and $15 million, respectively.

Restricted Stock Units

We issue restricted stock units that include the right to receive dividend equivalents and are settled in both cash and stock. Beginning in 2020, new grants of restricted stock units will vest in full on the third anniversary of the grant date. Restricted stock units granted prior to 2020 vest one-third each in the third, fourth and fifth year following the year of the grant. 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 activity for restricted stock units payable in both stock and cash during the first quarter of 2022 is provided below:


	Units Payable in Stock			Units Payable in Cash
(Shares/Units in thousands)	Number of Shares	Weighted- Average Grant Date Fair Value		Number of Units	Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2022, nonvested	569	$	50.01	1,158	$	49.92
Granted	84	71.07		223	71.07
Vested	(126)	(53.95)		(246)	(54.02)
Forfeited	—	—		(10)	(49.55)
Outstanding at April 2, 2022, nonvested	527	$	52.44	1,125	$	53.23

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The fair value of the restricted stock unit awards that vested and/or amounts paid under these awards is as follows:


	Three Months Ended
(In millions)	April 2, 2022		April 3, 2021
Fair value of awards vested	$	24	$	19
Cash paid	17		13

Performance Share Units

The activity for our performance share units during the first quarter of 2022 is as follows:


(Units in thousands)	Number of Units	Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2022, nonvested	526	$	45.87
Granted	174	71.07
Outstanding at April 2, 2022, nonvested	700	$	52.14

Cash paid under these awards totaled $15 million and $6 million in the first quarter of 2022 and 2021, respectively.

Note ~~11.~~12. Retirement Plans

We provide defined benefit pension plans and other postretirement benefits to eligible employees. The components of net periodic benefit ~~cost (credit)~~income for these plans are as follows:


		Three Months Ended				Nine Months Ended					Three Months Ended
(In millions)	(In millions)	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020		(In millions)		April 2, 2022		April 3, 2021
Pension Benefits	Pension Benefits									Pension Benefits
Service cost	Service cost	$	29	$	27	$	87	$	79	Service cost		$	27	$	29
Interest cost	Interest cost	62		73		188		220		Interest cost		68		63
Expected return on plan assets	Expected return on plan assets	(143)		(144)		(431)		(431)		Expected return on plan assets		(153)		(144)
Amortization of net actuarial loss	Amortization of net actuarial loss	39		47		116		139		Amortization of net actuarial loss		22		39
Amortization of prior service cost	Amortization of prior service cost	4		3		10		9		Amortization of prior service cost		3		3
Net periodic benefit cost (credit)*		$	(9)	$	6	$	(30)	$	16
Net periodic benefit income*										Net periodic benefit income*		$	(33)	$	(10)
Postretirement Benefits Other Than Pensions	Postretirement Benefits Other Than Pensions									Postretirement Benefits Other Than Pensions
Service cost	Service cost	$	1	$	—	$	2	$	2	Service cost		$	1	$	1
Interest cost	Interest cost	1		2		4		6		Interest cost		1		1
Amortization of net actuarial gain	Amortization of net actuarial gain	(1)		(1)		(2)		(1)		Amortization of net actuarial gain		(1)		(1)
Amortization of prior service credit	Amortization of prior service credit	(2)		(1)		(4)		(4)		Amortization of prior service credit		(1)		(1)
Net periodic benefit cost (credit)		$	(1)	$	—	$	—	$	3
Net periodic benefit income										Net periodic benefit income		$	—	$	—

* Excludes the cost associated with the defined contribution component, included in certain of our U.S.-based defined benefit pension plans, that totaled $2$4 million and $8$3 million for the ~~third~~first quarter of 2022 and ~~first nine months of~~ 2021, ~~respectively, and $2 million and $8 million for the third quarter and first nine months of 2020,~~ respectively.

~~Table of~~ ~~Contents~~

Note ~~12.~~13. Special Charges

~~Special charges recorded in the third quarter and first nine months of 2021 and 2020 by segment and type of cost are presented in the table below.~~

(In millions) Severance
Costs Contract
Termination
and Other Asset
Impairments Total 2020
COVID-19
Restructuring
Plan Other Asset
Impairments Total
Three months ended October 2, 2021
Industrial $ 3 $ 1 $ 6 $ 10 $ — $ 10
Total special charges $ 3 $ 1 $ 6 $ 10 $ — $ 10
Three months ended October 3, 2020
Industrial $ 3 $ — $ 2 $ 5 $ — $ 5
Corporate 2 — — 2 — 2
Total special charges $ 5 $ — $ 2 $ 7 $ — $ 7
Nine months ended October 2, 2021
Industrial $ 3 $ 6 $ 11 $ 20 $ — $ 20
Total special charges $ 3 $ 6 $ 11 $ 20 $ — $ 20
Nine months ended October 3, 2020
Textron Aviation $ 27 $ — $ 1 $ 28 $ 32 $ 60
Textron Systems 14 12 14 40 — 40
Industrial 11 — 2 13 7 20
Corporate 4 — — 4 — 4
Total special charges $ 56 $ 12 $ 17 $ 85 $ 39 $ 124

~~2020 COVID-19 Restructuring Plan~~

In the ~~second~~first quarter of ~~2020,~~2021, we ~~initiated~~recognized special charges of $6 million related to a restructuring plan ~~to reduce operating expenses through headcount reductions, facility consolidations and other actions~~initiated in 2020 in response to the economic challenges and uncertainty resulting from the COVID-19 pandemic. ~~This plan was expanded in the third quarter of 2020 to include additional headcount reductions and facility consolidations. Since inception of the plan, we have incurred total~~There were no special charges of $128 million, which included severance costs of $76 million for the termination of approximately 2,800 employees, asset impairment charges of $33 million and contract terminations and other costs of $19 million. Of these amounts, $54 million was incurred at Industrial, $37 million at Textron Systems, $33 million at Textron Aviation, and $4 million at Corporate. We expect to incur additional contract termination costs and other charges in the range of $5 million to $10 million, primarily in the Industrial segment, and expect the plan to be substantially completed in the fourth quarter of 2021.

In the second quarter of 2020 and in connection with the restructuring plan, we ceased manufacturing at TRU Simulation + Training Canada Inc.’s facility in Montreal, Canada, resulting in a production suspension of our commercial air transport simulators. As a result of this action and market conditions, we incurred an inventory charge of $55 million, which was recorded in ~~Cost of Sales, to write-down the related inventory to its net realizable value.~~

~~Other Asset Impairments~~

In the first quarter of 2020, we recognized $39 million of intangible asset impairment charges at the Textron Aviation and Industrial segments. Due to the impact of the COVID-19 pandemic, we experienced decreased demand for our products and services as our customers delayed or ceased orders due to the environment of economic uncertainty. In light of these conditions, Textron Aviation had temporarily shut down most aircraft production, including the King Air turboprop and Beechcraft piston product lines, and had instituted employee furloughs. Based on these events, we performed an interim impairment test of the indefinite-lived Beechcraft and King Air trade name intangible assets and recorded an impairment charge of $32 million.

~~Table of~~ ~~Contents~~

~~Restructuring Reserve~~2022.

Our restructuring reserve activity is summarized below:

(In millions) Severance
Costs Contract
Terminations
and Other Total
Balance at January 2, 2021 $ 43 $ 9 $ 52
Provision for 2020 COVID-19 restructuring plan 8 7 15
Cash paid (21) (7) (28)
Reversals (5) (1) (6)
Foreign currency translation (1) — (1)
Balance at October 2, 2021 $ 24 $ 8 $ 32


(In millions)	Severance Costs		Contract Terminations and Other		Total
Balance at January 1, 2022	$	19	$	9	$	28

Cash paid	(6)		—		(6)


Balance at April 2, 2022	$	13	$	9	$	22

The majority of the remaining cash outlays of ~~$32~~$22 million is expected to be paid ~~by the first quarter~~in 2022.

Table of ~~2022. Severance costs generally are paid on a lump-sum basis and include outplacement costs, which are paid in accordance with normal payment terms.~~Contents

Note ~~13.~~14. Income Taxes

Our effective tax rate for the ~~third~~first quarter of 2022 and ~~first nine months of~~ 2021 was ~~15.1%~~16.8% and ~~13.7%~~10.0%, respectively. In the ~~third~~first quarter ~~and first nine months~~ of ~~2021,~~2022, the effective tax rate was lower than the U.S. federal statutory rate of 21%, largely due to the favorable impact of research and development credits. In the first ~~nine months~~quarter of 2021, the effective tax rate ~~also included~~was lower than the U.S. federal statutory rate of 21%, largely due to a $12 million benefit recognized for additional research and development credits related to prior years.

Our effective tax rate for the third quarter and first nine months of 2020 was 0.9% and (9.0)%, respectively, compared with the statutory rate of 21%, largely due to the favorable impact of research and development credits. In the first nine months of 2020, we incurred special charges and an inventory charge in a non-U.S. jurisdiction where tax benefits cannot be realized, which were partially offset by a $14 million benefit recognized upon the release of a valuation allowance in a non-U.S. jurisdiction. These items had a more significant impact on the effective tax rate due to the lower income from continuing operations before income taxes for the period.

Note ~~14.~~15. Commitments and Contingencies

We are subject to legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims relating to commercial and financial transactions; government contracts; alleged lack of compliance with applicable laws and regulations; production partners; product liability; patent and trademark infringement; employment disputes; and environmental, safety and health matters. Some of these legal proceedings and claims seek damages, fines or penalties in substantial amounts or remediation of environmental contamination. As a government contractor, we are subject to audits, reviews and investigations to determine whether our operations are being conducted in accordance with applicable regulatory requirements. Under federal government procurement regulations, certain claims brought by the U.S. Government could result in our suspension or debarment from U.S. Government contracting for a period of time. On the basis of information presently available, we do not believe that existing proceedings and claims will have a material effect on our financial position or results of operations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Consolidated Results of Operations

Three Months Ended Nine Months Ended
(Dollars in millions) October 2,
2021 October 3,
2020 % Change October 2,
2021 October 3,
2020 % Change
Revenues $ 2,990 $ 2,735 9% $ 9,060 $ 7,984 13%
Cost of sales 2,486 2,332 7% 7,546 6,970 8%
Selling and administrative expense 283 258 10% 895 760 18%
Gross margin as a % of Manufacturing revenues 16.5% 14.3% 16.4% 12.2%

In the first nine months of 2021, operations at our commercial businesses began to return to more normalized pre-pandemic levels; however, we continue to manage through the impacts of global supply chain shortages, primarily in the Industrial segment. The commercial businesses, which were adversely impacted by the pandemic, experienced increased customer demand resulting in higher revenues in 2021.


	Three Months Ended
(Dollars in millions)		April 2, 2022		April 3, 2021		% Change
Revenues		$	3,001	$	2,879	4%
Cost of sales		2,492		2,400		4%
Gross margin as a % of Manufacturing revenues		16.5%		16.2%
Selling and administrative expense		305		298		2%

An analysis of our consolidated operating results is set forth below. A more detailed analysis of our segments’ operating results is provided in the Segment Analysis section on pages 2319 to ~~28.~~23.

Revenues

Revenues increased ~~$255~~$122 million, 9%4%, in the ~~third~~first quarter of ~~2021,~~2022, compared with the ~~third~~first quarter of ~~2020.~~2021. The revenue increase ~~primarily~~ included the following factors:

•Higher Textron Aviation revenues of ~~$386~~$175 million, reflecting higher volume and mix of $142 million and higher pricing of $33 million.

•Higher Industrial revenues of $13 million, largely due to ~~higher Citation jet volume~~a favorable impact of ~~$290~~$46 million ~~higher aftermarket volume of $62 million and higher commercial turboprop volume of $48 million.~~

•~~Lower Industrial revenues of $102 million, reflecting~~from pricing, principally in the Specialized Vehicles product line, partially offset by lower volume and mix ~~of $156 million, largely~~ in the Fuel Systems and Functional Components product ~~line due to the impact of global supply chain shortages on our original equipment manufacturer customers.~~

~~Revenues increased $1.1 billion, 13%, in the first nine months of 2021, compared with the first nine months of 2020. The revenue increase primarily included the following factors:~~

•Higher Textron Aviation revenues of $793 million, largely due to higher Citation jet volume of $468 million, higher aftermarket volume of $136 million and higher commercial turboprop volume of $111 million.line.

•~~Higher Industrial~~Lower Textron Systems revenues of ~~$215~~$55 million, primarily due to lower volume of $59 million, which included a $39 million decrease from our Afghanistan fee-for-service and aircraft support contracts.

•Lower Bell revenues of $12 million, due to ~~a favorable impact of $92 million from pricing, primarily in the Specialized Vehicles product line, higher volume and mix of $71 million and $52 million from foreign exchange rate fluctuations.~~

•~~Higher Bell revenues of $68 million, reflecting higher~~lower commercial revenues of ~~$168~~$32 million, largely reflecting the mix of aircraft sold during the periods, partially offset by ~~lower~~higher military ~~revenues.~~revenues of $20 million.

Cost of Sales ~~and Selling and Administrative Expense~~

Cost of sales increased ~~$154~~$92 million, ~~7%, and $576 million, 8%~~4%, in the ~~third~~first quarter ~~and first nine months~~ of ~~2021, respectively,~~2022, compared with the ~~corresponding periods~~first quarter of ~~2020,~~2021, largely due to inflation of $73 million, principally reflecting higher ~~net volume~~material cost in the Industrial and ~~mix described above. In the first nine months of 2020, cost of sales included the impact of idle facility costs of $100 million, primarily at the~~ Textron Aviation ~~segment, along with a $55 million inventory charge related to the TRU business recognized in the second quarter of 2020.~~segments. Gross margin as a percentage of Manufacturing revenues increased ~~220 basis points and 420~~30 basis points in the ~~third~~first quarter ~~and first nine months~~ of ~~2021, respectively,~~2022, primarily due to higher margin at the Textron Aviation ~~segment.~~

~~Selling~~segment, reflecting higher volume and ~~administrative expense increased $25 million, 10%,~~mix and ~~$135 million, 18%, in the third quarter and first nine months of 2021, respectively, compared with the corresponding periods of 2020, largely~~pricing, partially offset by lower margins at the Industrial and Textron Aviation segments as more normalized operating activities resumed during 2021 compared to 2020, which included temporary cost reduction activities related to the pandemic. The increase in the first nine months of 2021 was also largely impacted by higher share-based compensation expense due to stock appreciation.

~~Special Charges~~

In the third quarter and first nine months of 2021, we recorded special charges of $10 million and $20 million, respectively, compared with $7 million and $124 million in the third quarter and first nine months of 2020, respectively. These charges included restructuring activities and impairment charges as described in Note 12 to the Consolidated Financial Statements.

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other manufacturing segments.

Income Taxes

Backlog

Our backlog is summarized below:


(In millions)	(In millions)	October 2, 2021		January 2, 2021		(In millions)	April 2, 2022		January 1, 2022
Textron Aviation						Textron Aviation	$	5,122	$	4,120
Bell	Bell	$	4,132	$	5,342	Bell	4,817		3,871
Textron Aviation		3,465		1,603
Textron Systems	Textron Systems	2,212		2,556		Textron Systems	2,135		2,144
Total backlog	Total backlog	$	9,809	$	9,501	Total backlog	$	12,074	$	10,135

~~Backlog at~~ Textron ~~Aviation~~Aviation's backlog increased ~~$1.9~~$1.0 billion, 24%, in the first quarter of 2022, reflecting orders in excess of deliveries. ~~Bell's backlog decreased $1.2~~Backlog at Bell increased $946 million, 24%, primarily reflecting a new $1.4 billion ~~primarily as a result of revenues recognized on our~~5-year contract with the U.S. Government ~~contracts in excess of new contracts received.~~for spares and logistic support for the V-22 tiltrotor aircraft.

Segment Analysis

We operate in, and report financial information for, the following five business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses, gains/losses on

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major business dispositions and special charges. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense. Operating expenses for the Manufacturing segments include cost of sales, selling and administrative expense and other non-service components of net periodic benefit cost/~~(credit)~~(income), and exclude certain corporate expenses and special charges.

In our discussion of comparative results for the Manufacturing group, changes in revenues and segment profit for our commercial businesses typically are expressed in terms of volume and mix, pricing, foreign exchange, acquisitions and dispositions, inflation and performance. For revenues, volume and mix represents changes in revenues from increases or decreases in the number of units delivered or services provided and the composition of products and/or services sold. For segment profit, volume and mix represents a change due to the number of units delivered or services provided and the composition of products and/or services sold at different profit margins. Pricing represents changes in unit pricing. Foreign exchange is the change resulting from translating foreign-denominated amounts into U.S. dollars at exchange rates that are different from the prior period. Revenues generated by acquired businesses are reflected in Acquisitions for a twelve-month period, while reductions in revenues and segment profit from the sale of businesses are reflected as Dispositions. Inflation represents higher material, wages, benefits, pension service cost or other costs. Performance reflects an increase or decrease in research and development, depreciation, selling and administrative costs, warranty, product liability, quality/scrap, labor efficiency, overhead, non-service pension cost/~~(credit)~~(income), product line profitability, start-up, ramp up and cost-reduction initiatives or other manufacturing inputs.

Approximately ~~30%~~26% of our ~~2020~~2021 revenues were derived from contracts with the U.S. Government, including those under the U.S. Government-sponsored foreign military sales program. For our segments that contract with the U.S. Government, changes in revenues related to these contracts are expressed in terms of volume. Changes in segment profit for these contracts are typically expressed in terms of volume and mix and performance; these include cumulative catch-up adjustments associated with a) revisions to the transaction price that may reflect contract modifications or changes in assumptions related to award fees and other variable consideration or b) changes in the total estimated costs at completion due to improved or deteriorated operating performance.

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Textron Aviation


		Three Months Ended					Nine Months Ended						Three Months Ended
(Dollars in millions)	(Dollars in millions)	October 2, 2021		October 3, 2020		% Change	October 2, 2021		October 3, 2020		% Change	(Dollars in millions)		April 2, 2022		April 3, 2021		% Change
Revenues:	Revenues:											Revenues:
Aircraft	Aircraft	$	814	$	486	67%	$	2,146	$	1,479	45%	Aircraft		$	646	$	535	21%
Aftermarket parts and services	Aftermarket parts and services	367		309		19%	1,061		935		13%	Aftermarket parts and services		394		330		19%
Total revenues	Total revenues	1,181		795		49%	3,207		2,414		33%	Total revenues		1,040		865		20%
Operating expenses	Operating expenses	1,083		824		31%	2,966		2,506		18%	Operating expenses		919		818		12%
Segment profit (loss)		98		(29)		438%	241		(92)		362%
Segment profit												Segment profit		121		47		157%
Profit margin	Profit margin	8.3%		(3.6)%			7.5%		(3.8)%			Profit margin		11.6%		5.4%

Textron Aviation Revenues and Operating Expenses

The following factors contributed to the change in Textron Aviation’s revenues ~~for~~from the ~~periods:~~prior year quarter:

(In millions) Q3 2021
versus
Q3 2020 YTD 2021
versus
YTD 2020
Volume and mix $ 365 $ 749
Pricing 21 44
Total change $ 386 $ 793


(In millions)	Q1 2022 versus Q1 2021
Volume and mix	$	142
Pricing	33
Total change	$	175

Textron Aviation’s revenues increased ~~$386~~$175 million, ~~49%~~20%, in the ~~third~~first quarter of 2022, compared with the first quarter of 2021, ~~compared with the third quarter of 2020, largely~~primarily due to higher Citation jet volume of ~~$290~~$93 million, ~~higher~~ aftermarket volume of ~~$62~~$61 million and ~~higher~~ commercial turboprop volume of ~~$48 million.~~$59 million, partially offset by lower pre-owned volume. The higher aftermarket volume reflected increased aircraft utilization. We delivered 4939 Citation jets and ~~35 commercial turboprops in the third quarter of 2021, compared with 25 Citation jets and 21 commercial turboprops in the third quarter of 2020.~~

Textron Aviation’s revenues increased $793 million, 33%, in the first nine months of 2021, compared with the first nine months of 2020, largely due to higher Citation jet volume of $468 million, higher aftermarket volume of $136 million and higher commercial turboprop volume of $111 million. We delivered 121 Citation jets and 8231 commercial turboprops in the first ~~nine months~~quarter of ~~2021,~~2022, compared with 7128 Citation jets and 5214 commercial turboprops in the first ~~nine months~~quarter of ~~2020.~~2021.

Textron Aviation’s operating expenses increased ~~$259~~$101 million, ~~31%, and $460 million, 18%~~12%, in the ~~third~~first quarter ~~and first nine months~~ of ~~2021, respectively,~~2022, compared with the ~~corresponding periods~~first quarter of ~~2020,~~2021, largely due to higher volume and mix described ~~above. Operating expenses in the first nine months~~above and inflation of ~~2020 were also negatively impacted by idle facility costs~~$17 million.

Table of ~~$76 million and inventory valuation charges, partially offset by cost reduction activities, including employee furloughs instituted during the first half of 2020.~~Contents

Textron Aviation Segment Profit ~~(Loss)~~

The following factors contributed to the change in Textron Aviation’s segment profit ~~(loss) for~~from the ~~periods:~~prior year quarter:

(In millions) Q3 2021
versus
Q3 2020 YTD 2021
versus
YTD 2020
Volume and mix $ 96 $ 229
Performance 9 68
Pricing, net of inflation 22 36
Total change $ 127 $ 333


(In millions)	Q1 2022 versus Q1 2021
Volume and mix	$	55
Pricing, net of inflation	16
Performance	3
Total change	$	74

Segment profit at Textron Aviation increased ~~$127~~$74 million, in the ~~third~~first quarter of 2022, compared with the first quarter of 2021, ~~compared with~~largely due to the ~~third quarter of 2020, primarily due to~~impact from higher volume and mix ~~of $96 million~~ described above and favorable pricing, net of inflation of ~~$22~~$16 million.

Segment profit at Textron Aviation increased $333 million in the first nine months of 2021, compared with the first nine months of 2020, primarily due to higher volume and mix of $229 million described above, a favorable impact from performance of $68 million and favorable pricing, net of inflation of $36 million. Performance included idle facility costs of $76 million recognized in the first nine months of 2020 and lower inventory valuation charges, partially offset by cost reduction activities described above.

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Bell


		Three Months Ended					Nine Months Ended						Three Months Ended
(Dollars in millions)	(Dollars in millions)	October 2, 2021		October 3, 2020		% Change	October 2, 2021		October 3, 2020		% Change	(Dollars in millions)		April 2, 2022		April 3, 2021		% Change
Revenues:	Revenues:											Revenues:
Military aircraft and support programs	Military aircraft and support programs	$	488	$	515	(5)%	$	1,637	$	1,737	(6)%	Military aircraft and support programs		$	597	$	577	3%
Commercial helicopters, parts and services	Commercial helicopters, parts and services	281		278		1%	869		701		24%	Commercial helicopters, parts and services		237		269		(12)%
Total revenues	Total revenues	769		793		(3)%	2,506		2,438		3%	Total revenues		834		846		(1)%
Operating expenses	Operating expenses	664		674		(1)%	2,186		2,086		5%	Operating expenses		736		741		(1)%
Segment profit	Segment profit	105		119		(12)%	320		352		(9)%	Segment profit		98		105		(7)%
Profit margin	Profit margin	13.7%		15.0%			12.8%		14.4%			Profit margin		11.8%		12.4%

Bell’s major U.S. Government programs at this time are the V-22 tiltrotor aircraft and the H-1 helicopter platforms, which are both in the production and support stage and represent a significant portion of Bell’s revenues from the U.S. Government. Over the next several years, the H-1 helicopter program with the U.S. Government will be transitioning from the production stage to the support stage.

Bell Revenues and Operating Expenses

The following factors contributed to the change in Bell’s revenues ~~for~~from the ~~periods:~~prior year quarter:

(In millions) Q3 2021
versus
Q3 2020 YTD 2021
versus
YTD 2020
Volume and mix $ (31) $ 49
Pricing 7 19
Total change $ (24) $ 68


(In millions)	Q1 2022 versus Q1 2021
Volume and mix	$	(23)
Pricing	11

Total change	$	(12)

Bell’s revenues decreased ~~$24~~$12 million, 3%, in the third quarter of 2021, compared with the third quarter of 2020, largely reflecting lower military revenues of $27 million. We delivered 33 commercial helicopters in the third quarter of 2021, compared with 41 commercial helicopters in the third quarter of 2020.

~~Bell’s revenues increased $68 million, 3%,~~ in the first ~~nine months~~quarter of ~~2021,~~2022, compared with the first ~~nine months~~quarter of ~~2020, reflecting higher~~2021, due to lower commercial revenues of ~~$168~~$32 million, largely reflecting the mix of aircraft sold during the periods, partially offset by ~~lower~~higher military ~~revenues.~~revenues of $20 million. We delivered 9725 commercial helicopters in the first ~~nine months~~quarter of ~~2021,~~2022, compared with 8317 commercial helicopters in the first ~~nine months of 2020.~~

~~Bell’s operating expenses decreased $10 million, 1%, in the third~~ quarter of ~~2021, compared with the third quarter of 2020, primarily due to lower net volume and mix described above.~~

Bell's operating expenses increased $100 million, 5%, in the first nine months of 2021, compared with the first nine months of 2020, primarily due to higher net volume and mix described above and higher research and development costs, largely related to the future vertical lift programs.2021.

Bell Segment Profit

The following factors contributed to the change in Bell’s segment profit ~~for~~from the ~~periods:~~prior year quarter:

(In millions) Q3 2021
versus
Q3 2020 YTD 2021
versus
YTD 2020
Performance $ (3) $ (25)
Volume and mix (11) (14)
Pricing, net of inflation — 7
Total change $ (14) $ (32)


(In millions)	Q1 2022 versus Q1 2021
Volume and mix	$	(10)
Inflation, net of pricing	(3)
Performance	6
Total change	$	(7)

Bell’s segment profit decreased ~~$14~~$7 million, ~~12%~~7%, in the ~~third~~first quarter of 2022, compared with the first quarter of 2021, ~~compared with the third quarter 2020,~~ primarily ~~due to the impact of~~reflecting lower volume and mix as described ~~above.~~

~~Bell’s segment profit decreased $32 million, 9%, in the first nine months of 2021, compared with the first nine months 2020, largely reflecting an unfavorable~~above, partially offset by a favorable impact ~~of $25 million~~ from performance ~~which included higher research and development costs discussed above. The increase in revenues attributed to volume and mix above had an unfavorable impact on segment profit due to the mix~~ of ~~military and commercial products sold.~~$6 million.

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Performance included lower research and development costs of $21 million as well as an unfavorable change of $23 million in net program adjustments.

Textron Systems


		Three Months Ended					Nine Months Ended						Three Months Ended
(Dollars in millions)	(Dollars in millions)	October 2, 2021		October 3, 2020		% Change	October 2, 2021		October 3, 2020		% Change	(Dollars in millions)		April 2, 2022		April 3, 2021		% Change
Revenues	Revenues	$	299	$	302	(1)%	$	960	$	956	—%	Revenues		$	273	$	328	(17)%
Operating expenses	Operating expenses	254		262		(3)%	816		853		(4)%	Operating expenses		240		277		(13)%
Segment profit	Segment profit	45		40		13%	144		103		40%	Segment profit		33		51		(35)%
Profit margin	Profit margin	15.1%		13.2%			15.0%		10.8%			Profit margin		12.1%		15.5%

Textron Systems Revenues and Operating Expenses

The following factors contributed to the change in Textron Systems’ revenues ~~for~~from the ~~periods:~~prior year quarter:

(In millions) Q3 2021
versus
Q3 2020 YTD 2021
versus
YTD 2020
Volume $ (2) $ 21
Other (1) (17)
Total change $ (3) $ 4


(In millions)	Q1 2022 versus Q1 2021

Volume	$	(59)
Other	4
Total change	$	(55)

Textron Systems' revenues decreased $3$55 million, 17%, in the ~~third~~first quarter of ~~2021,~~2022, compared with the ~~third~~first quarter of ~~2020.~~2021. Lower volume of $59 million included a $39 million ~~in the Air Systems product line, formerly referred to as the Unmanned Systems product line,~~decrease from our Afghanistan fee-for-service and aircraft support contracts, primarily ~~reflected~~reflecting the impact from the U.S. Army’s withdrawal from ~~Afghanistan on the product line’s fee-for-service contracts and was largely offset by higher volume in the Other product line.~~Afghanistan.

Textron Systems' revenues increased $4 million, in the first nine months of 2021, compared with the first nine months of 2020, primarily due to higher volume in the Other product line, partially offset by lower volume of $84 million in the Air Systems product line as discussed above. Other in the table above included the impact of a $20 million reduction in revenues as a result of the cessation of manufacturing at the TRU Simulation + Training Canada Inc. (TRU Canada) facility which occurred in the second quarter of 2020 related to the impact of the pandemic on that business. In January 2021, we sold TRU Canada as discussed in Note 2 to the Consolidated Financial Statements.

~~Textron Systems’ operating expenses decreased $8 million, 3%, in the third quarter of 2021, compared with the third quarter of 2020.~~ Textron Systems' operating expenses decreased $37 million, 4%13%, in the first ~~nine months~~quarter of ~~2021,~~2022, compared with the first ~~nine months~~quarter of ~~2020,~~2021, primarily related to ~~the cessation of manufacturing at TRU Canada, partially offset by higher~~lower net volume described above.

Textron Systems Segment Profit

The following factors contributed to the change in Textron Systems’ segment profit ~~for~~from the ~~periods:~~prior year quarter:

(In millions) Q3 2021
versus
Q3 2020 YTD 2021
versus
YTD 2020
Performance and other $ 5 $ 41
Volume and mix — —
Total change $ 5 $ 41


(In millions)	Q1 2022 versus Q1 2021
Volume and mix	$	(11)
Performance and other	(7)

Total change	$	(18)

Textron Systems’ segment profit ~~increased $5~~decreased $18 million, ~~13%, in the third quarter of 2021, compared with the third quarter of 2020, due to a favorable impact from performance and other.~~

~~Textron Systems’ segment profit increased $41 million, 40%~~35%, in the first ~~nine months~~quarter of ~~2021,~~2022, compared with the first ~~nine months~~quarter of ~~2020,~~2021, due to ~~a favorable~~lower volume and mix of $11 million described above and an unfavorable impact from performance and other ~~which included a $20~~of $7 million, ~~impact from TRU Canada~~primarily related to ~~unfavorable performance and other in 2020.~~lower net favorable program adjustments on the Afghanistan fee-for-service contracts.

Industrial


	Three Months Ended
(Dollars in millions)		April 2, 2022		April 3, 2021		% Change
Revenues:
Fuel systems and functional components		$	464	$	497	(7)%
Specialized vehicles		374		328		14%
Total revenues		838		825		2%
Operating expenses		795		778		2%
Segment profit		43		47		(9)%
Profit margin		5.1%		5.7%

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~~Industrial~~

Three Months Ended Nine Months Ended
(Dollars in millions) October 2,
2021 October 3,
2020 % Change October 2,
2021 October 3,
2020 % Change
Revenues:
Fuel systems and functional components $ 382 $ 497 (23)% $ 1,319 $ 1,233 7%
Specialized vehicles 348 335 4% 1,030 901 14%
Total revenues 730 832 (12)% 2,349 2,134 10%
Operating expenses 707 774 (9)% 2,247 2,078 8%
Segment profit 23 58 (60)% 102 56 82%
Profit margin 3.2% 7.0% 4.3% 2.6%

Industrial Revenues and Operating Expenses

The following factors contributed to the change in Industrial’s revenues ~~for~~from the ~~periods:~~prior year quarter:

(In millions) Q3 2021
versus
Q3 2020 YTD 2021
versus
YTD 2020
Pricing $ 44 $ 92
Volume and mix (156) 71
Foreign exchange 10 52
Total change $ (102) $ 215


(In millions)	Q1 2022 versus Q1 2021
Pricing	$	46
Volume and mix	(24)
Foreign exchange	(9)
Total change	$	13

Industrial segment revenues ~~decreased $102~~increased $13 million, ~~12%~~2%, in the ~~third~~first quarter of 2022, compared with the first quarter of 2021, ~~compared with~~primarily due to a favorable impact of $46 million from pricing, principally in the ~~third quarter of 2020, reflecting~~Specialized Vehicles product line, partially offset by lower volume and mix ~~of $156 million, largely~~ in the Fuel Systems and Functional Components product line due to the impact of global supply chain shortages on our original equipment manufacturer customers. ~~The lower volume was partially offset by a favorable impact of $44~~

Operating expenses increased $17 million, ~~from pricing, principally in the Specialized Vehicles product line, and $10 million from foreign exchange rate fluctuations, primarily related to the Euro.~~

~~Industrial segment revenues increased $215 million, 10%~~2%, in the first ~~nine months~~quarter of ~~2021,~~2022, compared with the first nine months of 2020, due to a favorable impact of $92 million from pricing, principally in the Specialized Vehicles product line, higher volume and mix of $71 million and $52 million from foreign exchange rate fluctuations, primarily related to the Euro.

~~Operating expenses for the Industrial segment decreased $67 million, 9%, in the third~~ quarter of 2021, ~~compared with the third quarter~~primarily reflecting inflation of ~~2020, primarily due to lower volume and mix as described above,~~$45 million, largely in material costs, partially offset by material and labor inflation of $29 million. For the first nine months of 2021, operating expenses increased $169 million, 8%, compared with the first nine months of 2020, primarily due to an unfavorable impact of $57 million from foreign exchange rate fluctuations, material and labor inflation of $56 million, and the impact of ~~higher~~lower volume and mix described above.

Industrial Segment Profit

The following factors contributed to the change in Industrial’s segment profit ~~for~~from the ~~periods:~~prior year quarter:

(In millions) Q3 2021
versus
Q3 2020 YTD 2021
versus
YTD 2020
Pricing, net of inflation $ 15 $ 36
Volume and mix (44) 20
Performance (5) (5)
Foreign exchange (1) (5)
Total change $ (35) $ 46


(In millions)	Q1 2022 versus Q1 2021
Volume and mix	$	(6)

Performance and other	2

Total change	$	(4)

Segment profit for the Industrial segment decreased ~~$35~~$4 million, 9%, in the ~~third~~first quarter of ~~2021,~~2022, compared with the ~~third~~first quarter of ~~2020,~~2021, primarily due to lower volume and mix described ~~above, partially offset by a favorable impact from pricing, net of inflation of $15 million, largely in the Specialized Vehicles product line.~~above.

~~Segment profit for the Industrial~~Finance


	Three Months Ended
(In millions)		April 2, 2022		April 3, 2021
Revenues		$	16	$	15
Segment profit		9		6

Finance segment revenues increased ~~$46~~$1 million in the first ~~nine months~~quarter of ~~2021,~~2022, compared with the first ~~nine months~~quarter of ~~2020, primarily due to a favorable impact of $36 million from pricing, net of inflation, largely in the Specialized Vehicles product line, and higher volume and mix described above.~~

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~~Finance~~

Three Months Ended Nine Months Ended
(In millions) October 2,
2021 October 3,
2020 October 2,
2021 October 3,
2020
Revenues $ 11 $ 13 $ 38 $ 42
Segment profit 8 1 17 8

~~Finance segment revenues decreased $2 million and $4 million in the third quarter and first nine months of~~ 2021, ~~respectively, compared with the corresponding periods of 2020,~~ and segment profit increased ~~$7 million and $9 million, respectively. The increase in segment profit for both periods is primarily due to lower provision for loan losses.~~$3 million. The following table reflects information about the Finance segment’s credit performance related to finance receivables.


(Dollars in millions)	(Dollars in millions)	October 2, 2021		January 2, 2021		(Dollars in millions)	April 2, 2022		January 1, 2022
Finance receivables	Finance receivables	$	621	$	779	Finance receivables	$	603	$	630
Allowance for credit losses	Allowance for credit losses	25		35		Allowance for credit losses	25		25
Ratio of allowance for credit losses to finance receivables	Ratio of allowance for credit losses to finance receivables	4.03%		4.49%		Ratio of allowance for credit losses to finance receivables	4.15%		3.97%
Nonaccrual finance receivables	Nonaccrual finance receivables	110		93		Nonaccrual finance receivables	77		94
Ratio of nonaccrual finance receivables to finance receivables	Ratio of nonaccrual finance receivables to finance receivables	17.71%		11.94%		Ratio of nonaccrual finance receivables to finance receivables	12.77%		14.92%
60+ days contractual delinquency	60+ days contractual delinquency	12		29		60+ days contractual delinquency	2		1
60+ days contractual delinquency as a percentage of finance receivables	60+ days contractual delinquency as a percentage of finance receivables	1.93%		3.72%		60+ days contractual delinquency as a percentage of finance receivables	0.33%		0.16%

Since the first quarter of 2020, the Finance segment has worked with certain customers impacted by the pandemic to provide payment relief through loan modifications. The majority of loans modified have returned to paying principal and interest. We believe our allowance for credit losses adequately covers our exposure on these loans as our estimated collateral values largely exceed the outstanding loan amounts. ~~Loan modifications and key~~Key portfolio quality indicators are discussed in Note 3 to the Consolidated Financial Statements.

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Liquidity and Capital Resources

Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems and Industrial segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements.

Key information that is utilized in assessing our liquidity is summarized below:


(Dollars in millions)	(Dollars in millions)	October 2, 2021		January 2, 2021		(Dollars in millions)	April 2, 2022		January 1, 2022
Manufacturing group	Manufacturing group					Manufacturing group
Cash and equivalents	Cash and equivalents	$	1,969	$	2,146	Cash and equivalents	$	1,978	$	1,922
Debt	Debt	3,187		3,707		Debt	3,185		3,185
Shareholders’ equity	Shareholders’ equity	6,037		5,845		Shareholders’ equity	6,917		6,815
Capital (debt plus shareholders’ equity)	Capital (debt plus shareholders’ equity)	9,224		9,552		Capital (debt plus shareholders’ equity)	10,102		10,000
Net debt (net of cash and equivalents) to capital	Net debt (net of cash and equivalents) to capital	17%		21%		Net debt (net of cash and equivalents) to capital	15%		16%
Debt to capital	Debt to capital	35%		39%		Debt to capital	32%		32%
Finance group	Finance group					Finance group
Cash and equivalents	Cash and equivalents	$	213	$	108	Cash and equivalents	$	148	$	195
Debt	Debt	585		662		Debt	470		582

We believe that our calculations of debt to capital and net debt to capital are useful measures as they provide a summary indication of the level of debt financing (i.e., leverage) that is in place to support our capital structure, as well as to provide an indication of the capacity to add further leverage. We ~~believe that we will~~expect to have sufficient cash to meet our ~~future~~ needs based on our existing cash balances, the cash we expect to generate from our manufacturing operations and ~~other available funding alternatives, as appropriate.~~

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our existing credit facility.

Credit Facilities and Other Sources of Capital

Textron has 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. We 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 two one-year extensions at our option with the consent of lenders representing a majority of the commitments under the facility. There were no amounts borrowed against the facility and there were $9 million of outstanding letters of credit issued under the facility at both ~~October~~April 2, ~~2021~~2022 and January ~~2, 2021.~~1, 2022.

We also maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to issue an unlimited amount of public debt and other securities.

On August 11, 2021, we repaid $50 million of the Finance Group’s $150 million variable-rate loan due September 2021. On September 20, 2021, the loan was amended to extend the maturity date to September 2022 for the remaining $100 million principal amount. The annual interest rate was unchanged at LIBOR plus 1.55%, which is an annual interest rate of 1.63% at October 2, 2021.

Manufacturing Group Cash Flows

Cash flows ~~from continuing operations~~ for the Manufacturing group as presented in our Consolidated Statements of Cash Flows are summarized below:


		Nine Months Ended					Three Months Ended
(In millions)	(In millions)	October 2, 2021		October 3, 2020		(In millions)	April 2, 2022		April 3, 2021
Operating activities	Operating activities	$	1,012	$	220	Operating activities	$	225	$	107
Investing activities	Investing activities	(163)		(116)		Investing activities	(28)		(14)
Financing activities	Financing activities	(1,019)		1,236		Financing activities	(139)		(339)

In the first ~~nine months~~quarter of ~~2021, net~~2022, cash ~~inflow~~flows from operating activities ~~was $1.0 billion,~~were $225 million, compared with ~~a net cash inflow of $220~~$107 million in the first ~~nine months~~quarter of ~~2020.~~2021. The ~~$792~~$118 million year-over-year increase in ~~net~~ cash ~~inflow~~flows was primarily due to ~~higher earnings and working capital improvements. The~~ working capital improvements, which included $244 million from contract liabilities, largely ~~reflected~~reflecting higher customer deposits at the ~~impact of a $267~~Textron Aviation segment, and $140 million ~~cash outflow~~ from accounts ~~payable~~receivable, partially offset by a $221 million change in ~~the first nine months of 2020.~~accounts payable.

~~In the first nine months of 2021 and 2020, cash~~Cash flows used in investing activities in the first quarter of 2022 included capital expenditures of ~~$204~~$48 million, partially offset by $18 million of proceeds from the sale of property, plant and ~~$151 million, respectively.~~equipment. Investing activities in the first ~~nine months~~quarter of 2021 ~~also~~ included ~~$38~~capital expenditures of $53 million, partially offset by $39 million of net proceeds from the disposition of TRU ~~Canada.~~Simulation + Training Canada Inc.

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Cash flows used byin financing activities in the first ~~nine months~~quarter of ~~2021~~2022 included ~~$586~~$157 million of cash paid to repurchase an aggregate of ~~9.0~~2.2 million shares of our common ~~stock and $522 million of payments on long-term debt.~~stock. In the first ~~nine months~~quarter of ~~2020,~~2021, cash flows ~~provided by~~used in financing activities included ~~$1.1 billion of net proceeds from the issuance of long-term debt and $377 million of proceeds from borrowings against corporate-owned life insurance policies, partially offset by $195~~$267 million of payments on long-term debt and ~~$54~~$91 million of cash paid to repurchase an aggregate of ~~1.3~~1.8 million shares of our ~~outstanding~~ common stock.

On January 25, 2022, we announced the authorization of the repurchase of up to 25 million shares of our common stock. This new plan allows us to continue our practice of repurchasing shares to offset the impact of dilution from stock-based compensation and benefit plans and for opportunistic capital management purposes. The 2022 plan has no expiration date and replaced the prior 2020 share repurchase authorization.

Finance Group Cash Flows

Cash flows for the Finance group as presented in our Consolidated Statements of Cash Flows are summarized below:


		Nine Months Ended					Three Months Ended
(In millions)	(In millions)	October 2, 2021		October 3, 2020		(In millions)	April 2, 2022		April 3, 2021
Operating activities	Operating activities	$	10	$	5	Operating activities	$	(2)	$	5
Investing activities	Investing activities	188		(1)		Investing activities	74		88
Financing activities	Financing activities	(93)		(28)		Financing activities	(119)		(20)

The Finance group’s cash flows from investing activities included collections on finance receivables totaling ~~$205~~$40 million and ~~$90~~$89 million in the first ~~nine months~~quarter of ~~2021~~2022 and ~~2020,~~2021, respectively, and finance receivable originations of ~~$34~~$9 million and ~~$94~~$7 million, respectively. Cash flows provided by investing activities in the first quarter of 2022 also included $43 million of other investing activities, largely related to proceeds from the sale of operating lease assets. In the first ~~nine months~~quarter of ~~2021~~2022 and ~~2020,~~2021, financing activities included payments on long-term and nonrecourse debt of ~~$93~~$119 million and ~~$40~~$20 million, respectively.

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Consolidated Cash Flows

The consolidated cash flows ~~from continuing operations,~~ after elimination of activity between the borrowing groups, are summarized below:


		Nine Months Ended					Three Months Ended
(In millions)	(In millions)	October 2, 2021		October 3, 2020		(In millions)	April 2, 2022		April 3, 2021
Operating activities	Operating activities	$	1,174	$	200	Operating activities	$	241	$	181
Investing activities	Investing activities	(127)		(92)		Investing activities	28		5
Financing activities	Financing activities	(1,112)		1,208		Financing activities	(258)		(359)

In the first ~~nine months~~quarter of ~~2021, net~~2022, cash ~~inflow~~flows from operating activities ~~was $1.2 billion,~~were $241 million, compared with ~~a net cash inflow of $200~~$181 million in the first ~~nine months~~quarter of ~~2020.~~2021. The ~~$974~~$60 million year-over-year increase in ~~net~~ cash ~~inflow~~flows was primarily due to ~~higher earnings and~~ working capital ~~improvements.~~improvements, partially offset by a $51 million decrease in cash flows from captive financing activities. The working capital improvements primarily included $244 million from contract liabilities, largely ~~reflected~~reflecting higher customer deposits at the ~~impact of a $267~~Textron Aviation segment, and $140 million ~~cash outflow~~ from accounts ~~payable~~receivable, partially offset by a $221 million change in accounts payable.

Cash flows provided by investing activities in the first ~~nine months~~quarter of ~~2020 and a year-over-year cash inflow~~2022 included $45 million of ~~$177 million from captive finance receivables.~~

~~In the first nine months of 2021 and 2020, cash flows used in~~other investing activities, ~~primarily included~~largely related to proceeds from the sale of operating lease assets, and $18 million of proceeds from the sale of property, plant and equipment, partially offset by capital expenditures of ~~$204 million and $151 million, respectively.~~$48 million. Investing activities in the first ~~nine months~~quarter of 2021 ~~also~~ included ~~$38~~capital expenditures of $53 million, partially offset by $39 million of net proceeds from the disposition of TRU ~~Canada.~~Simulation + Training Canada Inc.

Cash flows used byin financing activities in the first ~~nine months~~quarter of ~~2021~~2022 included ~~$615 million of payments on long-term debt and $586~~$157 million of cash paid to repurchase shares of our outstanding common ~~stock.~~stock and $121 million of payments on long-term debt. In the first ~~nine months~~quarter of ~~2020,~~2021, cash flows ~~provided by~~used in financing activities included ~~$1.1 billion of net proceeds from the issuance of long-term debt and $377 million of proceeds from borrowings against corporate-owned life insurance policies, partially offset by $235~~$287 million of payments on long-term debt and ~~$54~~$91 million of cash paid to repurchase shares of our outstanding common stock.

Captive Financing and Other Intercompany Transactions

The Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of Cash Flows, cash received from customers is reflected as operating activities when received from third parties. However, in the cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is transferred

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between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or eliminated from the Consolidated Statements of Cash Flows.

Reclassification adjustments included in the Consolidated Statements of Cash Flows are summarized below:


		Nine Months Ended					Three Months Ended
(In millions)	(In millions)	October 2, 2021		October 3, 2020		(In millions)	April 2, 2022		April 3, 2021
Reclassification adjustments from investing activities to operating activities:	Reclassification adjustments from investing activities to operating activities:					Reclassification adjustments from investing activities to operating activities:
Cash received from customers	Cash received from customers	$	186	$	69	Cash received from customers	$	27	$	76
Finance receivable originations for Manufacturing group inventory sales	Finance receivable originations for Manufacturing group inventory sales	(34)		(94)		Finance receivable originations for Manufacturing group inventory sales	(9)		(7)

Total reclassification adjustments from investing activities to operating activities	Total reclassification adjustments from investing activities to operating activities	$	152	$	(25)	Total reclassification adjustments from investing activities to operating activities	$	18	$	69

Critical Accounting Estimates Update

Our Consolidated Financial Statements are prepared in conformity with U.S. generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements. The accounting estimates that we believe are most critical to the portrayal of our financial condition and results of operations are reported in Item 7 of our Annual Report on Form 10-K for the year ended January ~~2, 2021.~~1, 2022. The following section provides an update of the year-end disclosure.

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Revenue Recognition

A substantial portion of our revenues is related to long-term contracts with the U.S. Government, including those under the U.S. Government-sponsored foreign military sales program, for the design, development, manufacture or modification of aerospace and defense products as well as related services. We generally use the cost-to-cost method to measure progress for ~~our~~these 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.

Changes in our estimate of the total expected cost or in the transaction price for a contract typically impact our profit booking rate. We utilize the cumulative catch-up method of accounting to recognize the impact of these changes on our profit booking rate for a contract. Under this method, the inception-to-date impact of a profit adjustment on a contract is recognized in the period the adjustment is identified. The impact of our cumulative catch-up adjustments on segment profit recognized in prior periods is presented below:


		Three Months Ended				Nine Months Ended					Three Months Ended
(In millions)	(In millions)	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020		(In millions)		April 2, 2022		April 3, 2021
Gross favorable	Gross favorable	$	43	$	31	$	119	$	104	Gross favorable		$	16	$	36
Gross unfavorable	Gross unfavorable	(18)		(9)		(65)		(63)		Gross unfavorable		(33)		(22)
Net adjustments	Net adjustments	$	25	$	22	$	54	$	41	Net adjustments		$	(17)	$	14

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Forward-Looking Information

Certain statements in this Quarterly Report on Form 10-Q and other oral and written statements made by us from time to time are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which may describe strategies, goals, outlook or other non-historical matters, or project revenues, income, returns or other financial measures, often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “guidance,” “project,” “target,” “potential,” “will,” “should,” “could,” “likely” or “may” and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update or revise any forward-looking statements. In addition to those factors described in our ~~2020~~2021 Annual Report on Form 10-K under “Risk Factors,” among the factors that could cause actual results to differ materially from past and projected future results are the following:

•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;~~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;

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•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 potential impact of Russia’s invasion of, and continued military attacks on, Ukraine, on our business and operations; and

•The ability of our businesses to hire and retain the highly skilled personnel necessary for our businesses to succeed.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no significant change in our exposure to market risk during the fiscal quarter ended ~~October~~April 2, ~~2021.~~2022. For discussion of our exposure to market risk, refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk contained in Textron’s ~~2020~~2021 Annual Report on Form 10-K.

Item 4. Controls and Procedures

We performed an evaluation of the effectiveness of our disclosure controls and procedures as of ~~October~~April 2, ~~2021.~~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 ~~October~~April 2, ~~2021.~~2022.

There were no changes in our internal control over financial reporting during the fiscal quarter ended ~~October~~April 2, ~~2021~~2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

~~Item 1. Legal Proceedings~~

As previously reported in Textron’s Annual Report on Form 10-K for the fiscal year ended January 4, 2020, on August 22, 2019, a purported shareholder class action lawsuit was filed in the United States District Court in the Southern District of New York against Textron, its Chairman and Chief Executive Officer and its Chief Financial Officer. The suit, filed by Building Trades Pension Fund of Western Pennsylvania, alleges that the defendants violated the federal securities laws by making materially false and misleading statements and concealing material adverse facts related to the Arctic Cat acquisition and integration. The complaint seeks unspecified compensatory damages. On November 12, 2019, the Court appointed IWA Forest Industry Pension Fund (IWA) as the sole lead plaintiff in the case. On December 24, 2019, IWA filed an Amended Complaint in the now entitled In re Textron Inc. Securities Litigation. On February 14, 2020, IWA filed a Second Amended Complaint, and on March 6, 2020, Textron filed a motion to dismiss the Second Amended Complaint. On July 20, 2020, the Court granted Textron’s motion to dismiss and closed the case. On August 18, 2020, plaintiffs filed a notice of appeal contesting the dismissal, which Textron opposed. On September 17, 2021, the Second Circuit Court of Appeals narrowed the case, unanimously upholding dismissal of most of the Second Amended Complaint, but reversing dismissal of one aspect of the Second Amended Complaint and remanding that remaining portion back to the District Court for further proceedings. We intend to continue to vigorously defend this lawsuit.

As previously reported in Textron’s Annual Report on Form 10-K for 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 Textron Financial Corporation (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 seeks avoidance and recovery of alleged fraudulent transfers in the amount of $316 million as well as damages of $223 million on the other claims. On November 9, 2012, the Court dismissed all claims against TFC. The trustee appealed, and on August 23, 2016, the 6th Circuit Court of Appeals reversed the dismissal in part and remanded certain claims back to the trial court. On September 27, 2018, after reconsidering the remanded claims which were based upon civil conspiracy and intentional fraudulent transfer, the trial court granted partial summary judgment in favor of TFC, dismissing the Trustee’s civil conspiracy claim, as well as a portion of the Trustee’s claim for intentional fraudulent transfer, leaving only a portion of the intentional fraudulent transfer claim to be adjudicated. A trial for this matter was held in February 2020, and on March 10, 2020, the jury returned a verdict in favor of TFC and against the Trustee. On the same day, the Court entered judgment in TFC's favor. On March 23, 2020, the Trustee filed a notice of appeal, which Textron opposed. On September 10, 2021, the Sixth Circuit Court of Appeals unanimously affirmed the judgment in favor of TFC and

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~~denied the Trustee’s appeal in its entirety. On September 24, 2021, the Trustee filed a motion for rehearing with the Sixth Circuit, which was denied by the Sixth Circuit on October 5, 2021.~~

Item 1A. Risk Factors

~~Risks related~~The global economic impacts of Russia’s invasion of Ukraine could adversely affect our business, financial condition or operating results.

Russia’s invasion of, and continued military attacks on, Ukraine and the resulting economic sanctions imposed by the international community have impacted the global economy and given rise to potential global security issues that may adversely affect international business and economic conditions. Certain of our direct or indirect suppliers have been negatively impacted by these events, resulting in increased costs to us for certain materials and components as well as potential shortages of critical components for certain of our products. These cost increases, along with increased energy and shipping costs, may negatively impact our profitability. Moreover, if we or our suppliers are unable to source critical components from alternative suppliers, our ability to meet our obligations to our customers could be adversely affected. In addition, these events have caused additional disruption in the supply chains of our automotive OEM customers, already experiencing disruption due to the ~~U.S. Government’s failure to raise~~impacts of the ~~debt ceiling.~~

AsCOVID-19 pandemic, which has ~~been widely reported, the U.S. Government is reportedly approaching its existing statutory limit on the amount of permissible federal debt,~~caused, and ~~this limit must be raised in order for the U.S. Government to~~may continue to ~~pay its obligations on a timely basis. If the debt ceiling is not raised, it is unclear how the U.S. Government would prioritize its payments towards its various programs and where~~cause, reduced demand for our payments would fall in that priority list. In addition, all forms of U.S. Government financing, such as performance-based payments and milestone payments may be delayed until the debt crisis is resolved. As described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, a significant portion of our products and services are provided under U.S. Government contracts. U.S. Government contracts generally require the contractor to continue to perform on the contract even if the U.S. Government is unable to make timely payments; failure to continue contract performance places the contractor at risk of termination for default. Should conditions occur such that the U.S. Government does not pay us on a timely basis, we would need to finance our continued performanceautomotive products. The continuation of the ~~impacted contracts~~invasion of Ukraine by Russia could lead to other supply chain disruptions, increased inflationary pressures, and volatility in global markets and industries that could negatively impact our operations. Furthermore, the potential for retaliatory acts of cyberwarfare from ~~our available cash resources, credit facilities and/or access~~Russia against U.S. companies in response to ~~the capital markets, if available. An extended delay in the timely payment by the U.S. Government~~increasing sanctions on Russia could result in ~~a material adverse effect on our cash flows, results~~increased cyber-attacks against us. The impact of ~~operations and financial condition.~~

~~Our success is highly dependent on our ability to hire and retain a qualified workforce.~~

Our success is highly dependent upon our ability to hire and retain a workforce with the skills necessary for our businesses to develop and manufacture the products desired by our customers. We need highly skilled personnel in multiple areas including, among others, engineering, manufacturing, information technology, cybersecurity, flight operations, business development and strategy and management. Because manyany one or more of our businesses experience cyclical demand, they face challenges in maintaining their workforce at levels appropriate to market demand which in the past has necessitated workforce reductions at some of our businesses as demand decreased. Conversely, our businesses sometimes need to increase the size of their workforce in order to keep pace with production needs due to increased customer demand. In addition, from time to time we face challenges that may impact employee retention, such as workforce reductions and facility consolidations and closures, and some of our most experienced employees are retirement-eligible which may adversely impact retention. To the extent that we lose experienced personnel through retirementthese or ~~otherwise, it is critical for us to develop~~ other employees, hire new qualified employees and successfully manage the transfer of critical knowledge. Competition for skilled employees is intense, and we may incur higher labor, recruiting and/or training costs in order to attract and retain employees with the requisite skills. We may not be successful in hiring or retaining such employees whichfactors could adversely ~~impact~~affect our business, ~~and results of operations.~~

Moreover, consistent with President Biden’s Executive Order regarding mandatory COVID-19 vaccinations for employees of U.S. government contractors, we recently notified substantially all of our U.S. employees that they would be required to obtain the COVID-19 vaccination prior to December 8, 2021, unless they request and receive a medicalfinancial condition or ~~religious accommodation. There is a risk that some of our employees may choose to leave our employment rather than be vaccinated.~~operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following provides information about our ~~third~~first quarter ~~2021~~of 2022 repurchases of equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:

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
July 4, 2021 – August 7, 2021 1,045 $ 69.34 1,045 15,475
August 8, 2021 – September 4, 2021 1,400 72.60 1,400 14,075
September 5, 2021 – October 2, 2021 1,780 70.09 1,780 12,295
Total 4,225 $ 70.74 4,225


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
January 2, 2022 – February 5, 2022	425	$	67.85	425	24,575
February 6, 2022 – March 5, 2022	1,175	69.72		1,175	23,400
March 6, 2022 – April 2, 2022	645	72.36		645	22,755
Total	2,245	$	70.13	2,245

* ~~These shares were purchased pursuant to a plan authorizing~~On January 25, 2022, our Board of Directors authorized the repurchase of up to 25 million shares of ~~Textron~~our common ~~stock that was announced on February 25, 2020, which had~~stock. This new plan has no expiration ~~date.~~date and replaced the existing plan adopted in 2020. There were no shares repurchased under the 2020 plan during the period January 2, 2022 through January 24, 2022.

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Item 5. Other Information

Because this Quarterly Report on Form 10-Q is being filed within four business days from the date of the reportable event, we have elected to make the following disclosure in this Quarterly Report on Form 10-Q instead of in a Current Report on Form 8-K under Item 5.07.

Item 5.07

a.The 2022 Annual Meeting of Shareholders of Textron was held on April 27, 2022.

b.The results of the voting on the matters submitted to our shareholders are as follows:

1.The following persons were elected to serve as directors until the next annual shareholders’ meeting and received the following votes:


	For	Against	Abstain	Broker Non-Vote
Scott C. Donnelly	185,085,248	6,171,993	496,753	9,891,438
Richard F. Ambrose	188,895,041	1,974,593	884,360	9,891,438
Kathleen M. Bader	184,404,855	6,605,989	743,150	9,891,438
R. Kerry Clark	183,783,954	7,091,746	878,294	9,891,438
James T. Conway	184,508,301	5,609,676	1,636,017	9,891,438
Ralph D. Heath	187,719,466	3,109,784	924,744	9,891,438
Deborah Lee James	186,972,233	3,910,413	871,348	9,891,438
Lionel L. Nowell III	188,210,654	2,611,730	931,610	9,891,438
James L. Ziemer	184,592,336	6,200,981	960,677	9,891,438
Maria T. Zuber	186,876,029	3,957,136	920,829	9,891,438

2.The advisory (non-binding) resolution to approve the compensation of our named executive officers, as disclosed in our proxy statement, was approved by the following vote:


For	Against	Abstain	Broker Non-Vote
179,327,209	11,237,801	1,188,984	9,891,438

3.The appointment of Ernst & Young LLP by the Audit Committee as Textron's independent registered public accounting firm for 2022 was ratified by the following vote:


For	Against	Abstain
196,026,073	5,123,659	495,700

4.The shareholder proposal regarding special meetings was rejected by the following vote:


For	Against	Abstain	Broker Non-Vote
64,054,217	125,508,964	2,190,813	9,891,438

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Item 6. Exhibits


31.1			Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2			Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1			Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2			Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101			The following materials from Textron Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended ~~October~~April 2, ~~2021,~~2022, formatted in 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 Cash Flows and (v) the Notes to the Consolidated Financial Statements.

104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

3430

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		TEXTRON INC.

Date:	~~October~~April 28, ~~2021~~2022	/s/ Mark S. Bamford
		Mark S. Bamford Vice President and Corporate Controller (principal accounting officer)

3531


(In millions)	Severance Costs		Contract Termination and Other		Asset Impairments		Total 2020 COVID-19 Restructuring Plan		Other Asset Impairments		Total
Three months ended October 2, 2021
Industrial	$	3	$	1	$	6	$	10	$	—	$	10
Total special charges	$	3	$	1	$	6	$	10	$	—	$	10
Three months ended October 3, 2020


Industrial	$	3	$	—	$	2	$	5	$	—	$	5
Corporate	2		—		—		2		—		2
Total special charges	$	5	$	—	$	2	$	7	$	—	$	7
Nine months ended October 2, 2021
Industrial	$	3	$	6	$	11	$	20	$	—	$	20
Total special charges	$	3	$	6	$	11	$	20	$	—	$	20
Nine months ended October 3, 2020
Textron Aviation	$	27	$	—	$	1	$	28	$	32	$	60
Textron Systems	14		12		14		40		—		40
Industrial	11		—		2		13		7		20
Corporate	4		—		—		4		—		4
Total special charges	$	56	$	12	$	17	$	85	$	39	$	124


(In millions)	Q3 2021 versus Q3 2020		YTD 2021 versus YTD 2020
Volume and mix	$	365	$	749
Pricing	21		44
Total change	$	386	$	793