TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended April 4, 2020 and March 30, 2019, ~~and March 31, 2018,~~ respectively

Consolidated
(In millions)

2019

2018
Cash flows from operating activities

Net income

$
179
$
189
Adjustments to reconcile net income to net cash

used in operating activities:

Non-cash items:

Depreciation and amortization

102

105
Deferred income taxes

15

2
Other, net

33

32
Changes in assets and liabilities:

Accounts receivable, net

(33)

63
Inventories

(215)

(128)
Other assets

(31)

(119)
Accounts payable

47

15
Other liabilities

(288)

(263)
Income taxes, net

(7)

9
Pension, net

(14)

(2)
Captive finance receivables, net

(1)

15
Other operating activities, net

(3)

(3)
Net cash used in operating activities

(216)

(85)
Cash flows from investing activities

Capital expenditures

(59)

(77)
Net proceeds from corporate-owned life insurance policies

2

58
Finance receivables repaid

12

16
Other investing activities, net

3

9
Net cash provided by (used in) investing activities

(42)

6
Cash flows from financing activities

Increase in short-term debt

100

2
Principal payments on long-term debt and nonrecourse debt

(19)

(19)
Purchases of Textron common stock

(202)

(344)
Dividends paid

(5)

(5)
Other financing activities, net

10

8
Net cash used in financing activities

(116)

(358)
Effect of exchange rate changes on cash and equivalents

9

11
Net decrease in cash and equivalents

(365)

(426)
Cash and equivalents at beginning of period

1,107

1,262
Cash and equivalents at end of period

$
742
$
836


	Consolidated
(In millions)	2020		2019
Cash flows from operating activities
Net income	$	50	$	179
Adjustments to reconcile net income to net cash used in operating activities:
Non-cash items:
Depreciation and amortization		90		102
Deferred income taxes		(10)		15
Asset impairments		39		—
Other, net		33		33
Changes in assets and liabilities:
Accounts receivable, net		47		(33)
Inventories		(368)		(215)
Other assets		(41)		(31)
Accounts payable		(49)		47
Other liabilities		(203)		(288)
Income taxes, net		20		(7)
Pension, net		(5)		(14)
Captive finance receivables, net		—		(1)
Other operating activities, net		3		(3)
Net cash used in operating activities of continuing operations		(394)		(216)
Net cash used in operating activities of discontinued operations		(1)		—
Net cash used in operating activities		(395)		(216)
Cash flows from investing activities
Capital expenditures		(50)		(59)
Finance receivables repaid		13		12
Other investing activities, net		(6)		5
Net cash used in investing activities		(43)		(42)
Cash flows from financing activities
Increase in short-term debt		603		100
Proceeds from long-term debt		643		—
Proceeds from borrowings against corporate-owned life insurance policies		377		—
Principal payments on long-term debt and nonrecourse debt		(24)		(19)
Purchases of Textron common stock		(54)		(202)
Dividends paid		(5)		(5)
Other financing activities, net		3		10
Net cash provided by (used in) financing activities		1,543		(116)
Effect of exchange rate changes on cash and equivalents		(16)		9
Net increase (decrease) in cash and equivalents		1,089		(365)
Cash and equivalents at beginning of period		1,357		1,107
Cash and equivalents at end of period	$	2,446	$	742

See Notes to the Consolidated Financial Statements.

6

Table of Contents

TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited) (Continued)

For the Three Months Ended April 4, 2020 and March 30, 2019, ~~and March 31, 2018,~~ respectively

Manufacturing Group

Finance Group
(In millions)

2019

2018

2019

2018
Cash flows from operating activities

Net income
$
175
$
179
$
4
$
10
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:

Non-cash items:

Depreciation and amortization

100

103

2

2
Deferred income taxes

15

2

—

—
Other, net

33

32

—

—
Changes in assets and liabilities:

Accounts receivable, net

(33)

63

—

—
Inventories

(241)

(128)

—

—
Other assets

(30)

(118)

(1)

(1)
Accounts payable

47

15

—

—
Other liabilities

(286)

(259)

(2)

(4)
Income taxes, net

(9)

13

2

(4)
Pension, net

(14)

(2)

—

—
Dividends received from Finance group

50

50

—

—
Other operating activities, net

(3)

(3)

—

—
Net cash provided by (used in) operating activities

(196)

(53)

5

3
Cash flows from investing activities

Capital expenditures

(59)

(77)

—

—
Net proceeds from corporate-owned life insurance policies

2

58

—

—
Finance receivables repaid

—

—

40

65
Finance receivables originated

—

—

(29)

(34)
Other investing activities, net

1

9

28

—
Net cash provided by (used in) investing activities

(56)

(10)

39

31
Cash flows from financing activities

Increase in short-term debt

100

2

—

—
Principal payments on long-term debt and nonrecourse debt

—

—

(18)

(19)
Purchases of Textron common stock

(202)

(344)

—

—
Dividends paid

(5)

(5)

(50)

(50)
Other financing activities, net

9

8

—

—
Net cash used in financing activities

(98)

(339)

(68)

(69)
Effect of exchange rate changes on cash and equivalents

9

11

—

—
Net decrease in cash and equivalents

(341)

(391)

(24)

(35)
Cash and equivalents at beginning of period

987

1,079

120

183
Cash and equivalents at end of period
$
646
$
688
$
96
$
148


	Manufacturing Group				Finance Group
(In millions)	2020		2019		2020		2019
Cash flows from operating activities
Net income	$	48	$	175	$	2	$	4
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Non-cash items:
Depreciation and amortization		89		100		1		2
Deferred income taxes		(11)		15		1		—
Asset impairments		39		—		—		—
Other, net		33		33		—		—
Changes in assets and liabilities:
Accounts receivable, net		47		(33)		—		—
Inventories		(368)		(241)		—		—
Other assets		(41)		(30)		—		(1)
Accounts payable		(49)		47		—		—
Other liabilities		(198)		(286)		(5)		(2)
Income taxes, net		20		(9)		—		2
Pension, net		(5)		(14)		—		—
Dividends received from Finance group		—		50		—		—
Other operating activities, net		3		(3)		—		—
Net cash provided by (used in) operating activities of continuing operations		(393)		(196)		(1)		5
Net cash used in operating activities of discontinued operations		(1)		—		—		—
Net cash provided by (used in) operating activities		(394)		(196)		(1)		5
Cash flows from investing activities
Capital expenditures		(50)		(59)		—		—
Finance receivables repaid		—		—		46		40
Finance receivables originated		—		—		(33)		(29)
Other investing activities, net		(6)		3		—		28
Net cash provided by (used in) investing activities		(56)		(56)		13		39
Cash flows from financing activities
Increase in short-term debt		603		100		—		—
Proceeds from long-term debt		643		—		—		—
Proceeds from borrowings against corporate-owned life insurance policies		377		—		—		—
Principal payments on long-term debt and nonrecourse debt		(7)		—		(17)		(18)
Purchases of Textron common stock		(54)		(202)		—		—
Dividends paid		(5)		(5)		—		(50)
Other financing activities, net		(9)		9		12		—
Net cash provided by (used in) financing activities		1,548		(98)		(5)		(68)
Effect of exchange rate changes on cash and equivalents		(16)		9		—		—
Net increase (decrease) in cash and equivalents		1,082		(341)		7		(24)
Cash and equivalents at beginning of period		1,181		987		176		120
Cash and equivalents at end of period	$	2,263	$	646	$	183	$	96

See Notes to the Consolidated Financial Statements.

7

Table of Contents

TEXTRON INC.

~~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 ~~December 29, 2018.~~January 4, 2020. 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 ~~two~~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 first quarter of ~~2019~~2020 and ~~2018,~~2019, our cumulative catch-up adjustments increased ~~revenue~~revenues and segment profit by ~~$31~~$2 million and ~~$40~~$31 million, respectively, and net income by ~~$23~~$1 million and ~~$30~~$23 million, respectively ($~~0.10~~0.01 and ~~$0.12~~$0.10 per diluted share, respectively). In the first quarter of ~~2019~~2020 and ~~2018,~~2019, gross favorable adjustments totaled ~~$53~~$27 million and ~~$56~~$53 million, respectively, and the gross unfavorable adjustments totaled $25 million and $22 million, ~~and $16 million,~~ respectively.

Note 2. Summary of Significant Accounting Policies Update

At the beginning of ~~2019,~~ 2020, we adopted Accounting Standards Update (ASU) No. ~~2016-02,~~2016-13, ~~Leases~~ Financial Instruments - Credit Losses~~(ASC 842),~~ ~~which requires lessees~~ (ASC 326). This standard changed the prior incurred loss model to ~~recognize all leases with~~ a ~~term greater than 12 months on the balance sheet~~forward-looking current expected credit loss model for most financial assets, such as ~~right-of-use~~trade and finance receivables, contract assets and ~~lease~~ ~~liabilities~~. ~~Upon~~ ~~adoption, the most significant impact was the recognition of $307 million in right-of-use assets and lease liabilities for operating leases, while our accounting for finance leases remained unchanged.~~ ~~We applied the provisions of this~~other instruments. This standard ~~to our existing leases at the adoption date using~~required a ~~retrospective transition method and have not adjusted comparative periods. The cumulative transition~~cumulative-effect adjustment to retained earnings upon adoption with no restatement of prior periods. There was ~~not~~no significant ~~and the adoption had no~~ impact on our ~~earnings or cash flows~~. We elected the practical expedients permitted under the transition guidance, which allowed us to carryforward the historical lease classification and to apply hindsight when evaluating options within a contract, resulting in the extensionconsolidated financial statements upon adoption of the ~~lease term for certain of our existing leases.~~standard.

Our significant accounting policies are included in Note 1 of our Annual Report on Form 10-K for the year ended ~~December 29, 2018.~~January 4, 2020. Significant changes to our policies resulting from the adoption of ASC ~~842~~326 are provided below.

~~Leases~~Accounts Receivable, Net

~~We identify leases by evaluating our contracts~~Accounts receivable, net includes amounts billed to ~~determine if the contract conveys~~customers where the right to ~~use~~payment is unconditional. We maintain an allowance for credit losses for our commercial accounts receivable to provide for the estimated amount that will not be collected, even when the risk of loss is remote. The allowance is measured on a collective pool basis when similar risk characteristics exists and is established as a percentage of accounts receivable. We have identified ~~asset for a stated period~~pools with similar risk characteristics, based on

8

Table of ~~time in exchange for consideration.~~ ~~Specifically, we consider whether we can control the underlying asset~~Contents

customer and ~~have the right to obtain substantially~~industry type and geographic location. The percentage is based on all available and relevant information including age of ~~the~~outstanding receivables and collateral value, if any, historical payment experience and loss history, current economic ~~benefits or outputs~~conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For amounts due from the ~~asset. For our contracts that contain both lease components (e.g., fixed payments including rent, real estate taxes~~U.S. Government, we have not established an allowance for credit losses as we have zero loss expectation based on a long history of no credit losses and ~~insurance costs) and non-lease components (e.g., common-area maintenance costs, other goods/services), we allocate~~ the ~~consideration~~explicit guarantee of a sovereign entity.

Finance Receivables, Net

We establish an allowance for credit losses to cover probable but specifically unknown losses existing in the ~~contract to each component~~portfolio. This allowance is established as a percentage of finance receivables categorized by pools with similar risk characteristics, such as collateral or customer type and geographic location. The percentage is based on ~~its standalone price. Leases with terms greater than 12 months are classified~~a combination of factors, including historical loss experience, current delinquency and default trends, collateral values, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions.

For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified as ~~either operating or finance leases~~impaired, a reserve is established based on comparing the expected future cash flows, discounted at the ~~commencement date. For these leases, we capitalize the lesser of a) the present value of the minimum lease payments over the lease term,~~finance receivable's effective interest rate, or b) the fair value of the ~~asset,~~underlying collateral if the finance receivable is collateral dependent, to its carrying amount. The expected future cash flows consider collateral value; financial performance and liquidity of our borrower; existence and financial strength of guarantors; estimated recovery costs, including legal expenses; and costs associated with the repossession and eventual disposal of collateral. When there is a range of potential outcomes, we perform multiple discounted cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our portfolio is inherently subjective, as ~~a right-of-use asset with an offsetting lease liability. The discount rate used~~it requires estimates, including the amount and timing of future cash flows expected to ~~calculate~~be received on impaired finance receivables and the ~~present~~estimated fair value of the ~~minimum lease payments~~underlying collateral, which may differ from actual results. While our analysis is ~~typically our incremental borrowing rate, as the rate implicit~~specific to each individual account, critical factors included in ~~the lease is generally not known or determinable. The lease term includes any noncancelable period for which we have the right to use the asset~~this analysis include industry valuation guides, age and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option. Operating leases are recognized as a single lease cost on a straight-line basis over the lease term, while finance lease cost is recognized separately as amortization and interest expense.

~~Accounting Pronouncements Not Yet Adopted~~

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments – Credit Losses.~~ For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for our company at the beginning of 2020. Entities are required to apply the provisionsphysical condition of the ~~standard through a cumulative-effect adjustment to retained earnings as~~collateral, payment history, existence and financial strength of ~~the effective date. We are currently evaluating the impact of the standard on our consolidated financial statements.~~guarantors.

Note 3. Accounts Receivable and Finance Receivables

Accounts Receivable

Accounts receivable is composed of the following:

(In millions)

March 30,
2019

December 29,
2018
Commercial

$
946
$
885
U.S. Government contracts

142

166

1,088

1,051
Allowance for doubtful accounts

(29)

(27)
Total

$
1,059
$
1,024


	April 4,		January 4,
(In millions)	2020		2020
Commercial	$	720	$	835
U.S. Government contracts		189		115
		909		950
Allowance for credit losses		(39)		(29)
Total accounts receivable, net	$	870	$	921

Finance Receivables

Finance receivables are presented in the following table:

(In millions)

March 30,
2019

December 29,
2018
Finance receivables

$
782
$
789
Allowance for losses

(26)

(29)
Total finance receivables, net

$
756
$
760


	April 4,		January 4,
(In millions)	2020		2020
Finance receivables	$	706	$	707
Allowance for credit losses		(25)		(25)
Total finance receivables, net	$	681	$	682

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~~3 categories based on the key credit quality indicators for the individual loan. These ~~three~~3 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.

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Table of Contents

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.

In March 2020, due to the economic impact of the COVID-19 pandemic and at the request of certain of our customers, we began working with them to provide temporary payment relief through loan modifications. 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. Loan modifications in the first quarter of 2020 were not significant, however, we are working on modifications for approximately 30% of our total finance receivables. We believe our allowance for credit losses adequately covers our exposure on these loans as our estimated collateral values largely exceed the outstanding loan amounts.

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

(Dollars in millions)

March 30,
2019

December 29,
2018
Performing
$
708
$
704
Watchlist

43

45
Nonaccrual

31

40
Nonaccrual as a percentage of finance receivables

3.96%

5.07%
Less than 31 days past due
$
691
$
719
31-60 days past due

70

56
61-90 days past due

17

5
Over 90 days past due

4

9
60+ days contractual delinquency as a percentage of finance receivables

2.69%

1.77%


	April 4,			January 4,
(Dollars in millions)	2020			2020
Performing	$	554		$	664
Watchlist		115			4
Nonaccrual		37			39
Nonaccrual as a percentage of finance receivables		5.24	%		5.52	%
Current and less than 31 days past due	$	622		$	637
31-60 days past due		29			53
61-90 days past due		35			7
Over 90 days past due		20			10
60+ days contractual delinquency as a percentage of finance receivables		7.79	%		2.40	%

At April 4, 2020, 31% of our performing finance receivables were originated since the beginning of 2019 and 35% were originated from 2016 to 2018. For finance receivables categorized as watchlist, 36% were originated since the beginning of 2019 and 23% from 2016 to 2018.

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)

March 30,
2019

December 29,
2018
Finance receivables evaluated collectively
$
650
$
630
Finance receivables evaluated individually

31

58
Allowance for losses based on collective evaluation

24

24
Allowance for losses based on individual evaluation

2

5
Impaired finance receivables with no related allowance for losses
$
21
$
43
Impaired finance receivables with related allowance for losses

10

15
Unpaid principal balance on impaired finance receivables

40

67
Average recorded investment of impaired finance receivables

44

61


	April 4,		January 4,
(In millions)	2020		2020
Finance receivables evaluated collectively	$	489	$	564
Finance receivables evaluated individually		113		39
Allowance for credit losses based on collective evaluation		22		22
Allowance for credit losses based on individual evaluation		3		3
Impaired finance receivables with no related allowance for credit losses	$	96	$	22
Impaired finance receivables with related allowance for credit losses		17		17
Unpaid principal balance of impaired finance receivables		124		50
Allowance for credit losses on impaired loans		3		3
Average recorded investment of impaired finance receivables		76		40

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Table of Contents

Note 4. Inventories

Inventories are composed of the following:

(In millions)

March 30,
2019

December 29,
2018
Finished goods
$
1,739
$
1,662
Work in process

1,518

1,356
Raw materials and components

790

800
Total
$
4,047
$
3,818


	April 4,		January 4,
(In millions)	2020		2020
Finished goods	$	1,611	$	1,557
Work in process		1,762		1,616
Raw materials and components		1,012		896
Total inventories	$	4,385	$	4,069

Note 5. Other Assets

~~On April 1, 2019, Textron Systems’ TRU Simulation + Training Inc. contributed~~Other assets ~~associated with its training business into FlightSafety Textron Aviation Training LLC, a company formed~~includes the cash surrender value of corporate-owned life insurance policies, net of any borrowings against these policies. During the first quarter of 2020, we borrowed $377 million against these policies as we strengthened our cash position in light of disruptions in the capital markets caused by FlightSafety International Inc. and TRU to provide training solutions for Textron Aviation’s business and general aviation aircraft. Our 30% investment in this newly formed company will be accounted for under the ~~equity method of accounting. The assets of the training business met the criteria to be~~COVID-19 pandemic. These proceeds have been classified as ~~held for sale at March 30, 2019 and were reclassified to Other assets~~financing activities in the ~~Consolidated Balance Sheets at their net carrying value~~consolidated statement of ~~$145 million, primarily property, plant and equipment of $64 million and allocated goodwill of $77 million.~~cash flows.

Note 6. Other Current Liabilities

Warranty Liability

Changes in our warranty liability are as follows:

		Three Months Ended

					Three Months Ended
					April 4,		March 30,
(In millions)		March 30, 2019		March 31, 2018	2020		2019
Beginning of period	$	149	$	164	$	141	$	149
Provision		14		16		13		14
Settlements		(22)		(22)		(19)		(22)
Adjustments*		4		10		(2)		4
End of period	$	145	$	168	$	133	$	145

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

Restructuring Reserve

Our restructuring reserve activity related to restructuring plans prior to 2020 is summarized below:


			Contract
	Severance		Terminations
(In millions)	Costs		and Other		Total
Balance at January 4, 2020	$	46	$	19	$	65
Cash paid		(26)		(2)		(28)
Balance at April 4, 2020	$	20	$	17	$	37

The majority of the remaining cash outlays of $37 million is expected to be paid over the remainder of 2020. Severance costs generally are paid on a lump-sum basis and include outplacement costs, which are paid in accordance with normal payment terms.

Note 7. Leases

We primarily lease certain manufacturing plants, offices, warehouses, training and service centers at various locations worldwide that are classified as either operating or finance leases. Our finance leases at April 4, 2020 were not significant. Our operating leases have remaining lease terms up to 3029 years, which include options to extend the lease term for periods up to 25 years when it is reasonably certain the option will be exercised. In the first quarter of 2020 and 2019, both our operating lease cost and cash paid for these leases totaled $15 million and $16 ~~million. Our finance lease cost and our variable~~million, respectively. Variable and short-term lease costs were not significant. ~~In the first quarter of 2019, cash paid for operating lease liabilities totaled $16 million, which is classified in cash flows from operating activities.~~ Balance sheet and other information related to our operating leases is as follows:

(Dollars in millions)

March 30,
2019
Operating leases:

Other assets

$
301
Other current liabilities

54
Other liabilities

250
Finance leases:

Property, plant and equipment, less accumulated amortization of $50 million

$
117
Short-term and current portion of long-term debt

7
Long-term debt

78
Weighted-average remaining lease term (in years)

Finance leases

14.2
Operating leases

10.4
Weighted-average discount rate

Finance leases

2.72%
Operating leases

4.47%

~~Maturities~~


	April 4,			January 4,
(Dollars in millions)	2020			2020
Other assets	$	272		$	277
Other current liabilities		49			48
Other liabilities		225			233
Weighted-average remaining lease term (in years)		10.0			10.2
Weighted-average discount rate		4.42	%		4.42	%

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At April 4, 2020, maturities of our operating lease liabilities on an undiscounted basis totaled $46 million for 2020, $48 million for 2021, $41 million for 2022, $32 million for 2023, $25 million for 2024 and $153 million thereafter.

Note 8. Debt

On April 1, 2020, we entered into a 364-Day Term Loan Credit Agreement in an aggregate principal amount of $500 million and borrowed the full principal amount available under the agreement. At our current credit ratings, the borrowings accrue interest at a rate equal to the London interbank offered rate plus 2.00%, which is an annual interest rate of 3.00% at April 4, 2020. We can pre-pay any amount of the principal balance during the term of the loan; however, we cannot borrow additional principal amounts. The Term Loan Credit Agreement restricts us from incurring additional indebtedness, subject to various exceptions, one of which allows us to borrow under our $1.0 billion revolving credit facility. While this loan is outstanding, we have agreed not to repurchase any of our common stock. The principal amount outstanding, plus accrued and unpaid interest and fees, will be due on March ~~30, 2019 are as follows:~~31, 2021.

(In millions)

Operating
Leases

Finance
Leases
2019

$
48
$
7
2020

55

9
2021

42

9
2022

35

9
2023

30

9
Thereafter

177

69
Total lease payments

387

112
Less: interest

(83)

(27)
Total lease liabilities

$
304
$
85

Under our shelf registration statement, on March 17, 2020, we issued $650 million of fixed-rate notes due June 1, 2030 with an annual interest rate of 3.00%. The net proceeds of the issuance totaled $643 million, after deducting underwriting discounts, commissions and offering expenses.

Note 8.9. 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.

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 ~~March 30, 2019~~April 4, 2020 and ~~December 29, 2018,~~January 4, 2020, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of ~~$489~~$410 million and ~~$379~~$342 million, respectively. At ~~March 30, 2019,~~April 4, 2020, the fair value amounts of our foreign currency exchange contracts were a $4$14 million asset and a $7$18 million liability. At ~~December 29, 2018,~~January 4, 2020, the fair value amounts of our foreign currency exchange contracts were a $2 million asset and a ~~$10~~$2 million liability.

We hedge our net investment position in certain major currencies and generate foreign currency interest payments that offset other transactional exposures in these currencies. To accomplish this, we borrow directly in the foreign currency and designate a portion of the debt as a hedge of the net investment. We record changes in the fair value of these contracts in other comprehensive income to the extent they are effective as cash flow hedges. Currency effects on the effective portion of these hedges, which are reflected in the foreign currency translation adjustments within Accumulated other comprehensive loss, were not significant in the periods presented.

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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:

March 30, 2019

December 29, 2018
(In millions)

Carrying
Value

Estimated
Fair Value

Carrying
Value

Estimated
Fair Value
Manufacturing group

Debt, excluding leases
$
(3,105)
$
(3,135)
$
(2,996)
$
(2,971)
Finance group

Finance receivables, excluding leases

579

610

582

584
Debt

(711)

(645)

(718)

(640)


	April 4, 2020				January 4, 2020
	Carrying		Estimated		Carrying		Estimated
(In millions)	Value		Fair Value		Value		Fair Value
Manufacturing group
Debt, excluding leases	$	(4,335)	$	(4,272)	$	(3,097)	$	(3,249)
Finance group
Finance receivables, excluding leases		494		460		493		527
Debt		(682)		(545)		(686)		(634)

Fair value for the Manufacturing group debt is determined using market observable data for similar transactions (Level 2). The fair value for the Finance group debt was determined primarily based on discounted cash flow analyses using observable market inputs from debt with similar duration, subordination and credit default expectations (Level 2). Fair value estimates for finance receivables were determined based on internally developed discounted cash flow models primarily utilizing significant unobservable inputs (Level 3), which include estimates of the rate of return, financing cost, capital structure and/or discount rate expectations of current market participants combined with estimated loan cash flows based on credit losses, payment rates and expectations of borrowers’ ability to make payments on a timely basis.

Note 9.10. Shareholders’ Equity

A reconciliation of Shareholder’s equity is presented below:


																					Accumulated
																					Other		Total
													Common		Capital		Treasury		Retained		Comprehensive		Shareholders’
(In millions)		Common Stock		Capital Surplus		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity	Stock		Surplus		Stock		Earnings		Loss		Equity
Balance at January 4, 2020													$	29	$	1,674	$	(20)	$	5,682	$	(1,847)	$	5,518
Net income														—		—		—		50		—		50
Other comprehensive loss														—		—		—		—		(12)		(12)
Share-based compensation activity														—		37		—		—		—		37
Dividends declared														—		—		—		(5)		—		(5)
Purchases of common stock														—		—		(54)		—		—		(54)
Balance at April 4, 2020													$	29	$	1,711	$	(74)	$	5,727	$	(1,859)	$	5,534
Balance at December 29, 2018	$	30	$	1,646	$	(129)	$	5,407	$	(1,762)	$	5,192	$	30	$	1,646	$	(129)	$	5,407	$	(1,762)	$	5,192
Net income		—		—		—		179		—		179		—		—		—		179		—		179
Other comprehensive income		—		—		—		—		26		26		—		—		—		—		26		26
Share-based compensation activity		—		43		—		—		—		43		—		43		—		—		—		43
Dividends declared		—		—		—		(5)		—		(5)		—		—		—		(5)		—		(5)
Purchases of common stock		—		—		(202)		—		—		(202)		—		—		(202)		—		—		(202)
Balance at March 30, 2019	$	30	$	1,689	$	(331)	$	5,581	$	(1,736)	$	5,233	$	30	$	1,689	$	(331)	$	5,581	$	(1,736)	$	5,233
Balance at December 30, 2017	$	33	$	1,669	$	(48)	$	5,368	$	(1,375)	$	5,647
Adoption of ASC 606		—		—		—		90		—		90
Net income		—		—		—		189		—		189
Other comprehensive income		—		—		—		—		74		74
Share-based compensation activity		—		41		—		—		—		41
Dividends declared		—		—		—		(5)		—		(5)
Purchases of common stock		—		—		(344)		—		—		(344)
Balance at March 31, 2018	$	33	$	1,710	$	(392)	$	5,642	$	(1,301)	$	5,692

Dividends per share of common stock were $0.02 for both the ~~three months ended March 30, 2019~~first quarter of 2020 and ~~March 31, 2018.~~2019.

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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.

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

	Three Months Ended

			Three Months Ended
			April 4,		March 30,
(In thousands)	March 30, 2019	March 31, 2018	2020		2019
Basic weighted-average shares outstanding	234,839	260,497		228,311		234,839
Dilutive effect of stock options	1,598	3,175		616		1,598
Diluted weighted-average shares outstanding	236,437	263,672		228,927		236,437

Stock options to purchase ~~3.1~~7.5 million and ~~1.3~~3.1 million shares of common stock are excluded from the calculation of diluted weighted-average shares outstanding for the first quarter of ~~2019~~2020 and ~~2018,~~2019, respectively, as their effect would have been anti-dilutive.

Accumulated Other Comprehensive Loss and Other Comprehensive Income (Loss)

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 December 29, 2018
$
(1,727)
$
(32)
$
(3)
$
(1,762)
Other comprehensive income before reclassifications

—

3

3

6
Reclassified from Accumulated other comprehensive loss

21

—

(1)

20
Balance at March 30, 2019
$
(1,706)
$
(29)
$
(1)
$
(1,736)
Balance at December 30, 2017
$
(1,396)
$
11
$
10
$
(1,375)
Other comprehensive income before reclassifications

—

42

1

43
Reclassified from Accumulated other comprehensive loss

31

—

—

31
Balance at March 31, 2018
$
(1,365)
$
53
$
11
$
(1,301)


	Pension and		Foreign		Deferred		Accumulated
	Postretirement		Currency		Gains (Losses)		Other
	Benefits		Translation		on Hedge		Comprehensive
(In millions)	Adjustments		Adjustments		Contracts		Loss
Balance at January 4, 2020	$	(1,811)	$	(36)	$	—	$	(1,847)
Other comprehensive loss before reclassifications		—		(40)		(8)		(48)
Reclassified from Accumulated other comprehensive loss		37		—		(1)		36
Balance at April 4, 2020	$	(1,774)	$	(76)	$	(9)	$	(1,859)
Balance at December 29, 2018	$	(1,727)	$	(32)	$	(3)	$	(1,762)
Other comprehensive income before reclassifications		—		3		3		6
Reclassified from Accumulated other comprehensive loss		21		—		(1)		20
Balance at March 30, 2019	$	(1,706)	$	(29)	$	(1)	$	(1,736)

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

March 30, 2019

March 31, 2018
(In millions)

Pre-Tax
Amount

Tax
(Expense)
Benefit

After-Tax
Amount

Pre-Tax
Amount

Tax
(Expense)
Benefit

After-Tax
Amount
Three Months Ended

Pension and postretirement benefits adjustments:

Amortization of net actuarial loss*
$
25
$
(5)
$
20
$
38
$
(9)
$
29
Amortization of prior service cost*

1

—

1

2

—

2
Pension and postretirement benefits adjustments, net

26

(5)

21

40

(9)

31
Deferred gains on hedge contracts:

Current deferrals

4

(1)

3

2

(1)

1
Reclassification adjustments

(1)

—

(1)

—

—

—
Deferred gains on hedge contracts, net

3

(1)

2

2

(1)

1
Foreign currency translation adjustments

1

2

3

40

2

42
Total
$
30
$
(4)
$
26
$
82
$
(8)
$
74


	April 4, 2020						March 30, 2019
			Tax						Tax
	Pre-Tax		(Expense)		After-Tax		Pre-Tax		(Expense)		After-Tax
(In millions)	Amount		Benefit		Amount		Amount		Benefit		Amount
Three Months Ended
Pension and postretirement benefits adjustments:
Amortization of net actuarial loss*	$	46	$	(10)	$	36	$	25	$	(5)	$	20
Amortization of prior service cost*		2		(1)		1		1		—		1
Pension and postretirement benefits adjustments, net		48		(11)		37		26		(5)		21
Deferred gains (losses) on hedge contracts:
Current deferrals		(9)		1		(8)		4		(1)		3
Reclassification adjustments		(1)		—		(1)		(1)		—		(1)
Deferred gains (losses) on hedge contracts, net		(10)		1		(9)		3		(1)		2
Foreign currency translation adjustments		(37)		(3)		(40)		1		2		3
Total	$	1	$	(13)	$	(12)	$	30	$	(4)	$	26

*These components of other comprehensive income (loss) are included in the computation of net periodic pension ~~cost.~~cost (credit). See Note 1416 of our ~~2018~~2019 Annual Report on Form 10-K for additional information.

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Note ~~10.~~11. Segment Information

We operate in, and report financial information for, the following ~~five~~5 business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance.~~On July 2, 2018, we sold our Tools and Test Equipment businesses that were previously included in the Industrial segment as discussed in Note 2 of our 2018 Annual Report on Form 10-K.~~ 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 before income taxes, are included in the table below:

Three Months Ended
(In millions)

March 30,
2019

March 31,
2018
Revenues

Textron Aviation
$
1,134
$
1,010
Bell

739

752
Textron Systems

307

387
Industrial

912

1,131
Finance

17

16
Total revenues
$
3,109
$
3,296
Segment Profit

Textron Aviation
$
106
$
72
Bell

104

87
Textron Systems

28

50
Industrial

50

64
Finance

6

6
Segment profit

294

279
Corporate expenses and other, net

(47)

(27)
Interest expense, net for Manufacturing group

(35)

(34)
Income before income taxes
$
212
$
218

��


	Three Months Ended
	April 4,		March 30,
(In millions)	2020		2019
Revenues
Textron Aviation	$	872	$	1,134
Bell		823		739
Textron Systems		328		307
Industrial		740		912
Finance		14		17
Total revenues	$	2,777	$	3,109
Segment Profit
Textron Aviation	$	3	$	106
Bell		115		104
Textron Systems		26		28
Industrial		9		50
Finance		3		6
Segment profit		156		294
Corporate expenses and other, net		(14)		(47)
Interest expense, net for Manufacturing group		(34)		(35)
Special charges		(39)		—
Income before income taxes	$	69	$	212

Note ~~11.~~12. Revenues

Disaggregation of Revenues

Our revenues disaggregated by major product type are presented below:

Three Months Ended
(In millions)

March 30,
2019

March 31,
2018
Aircraft
$
766
$
634
Aftermarket parts and services

368

376
Textron Aviation

1,134

1,010
Military aircraft and support programs

508

487
Commercial helicopters, parts and services

231

265
Bell

739

752
Unmanned systems

134

170
Marine and land systems

48

92
Simulation, training and other

125

125
Textron Systems

307

387
Fuel systems and functional components

594

655
Specialized vehicles

318

348
Tools and test equipment

—

128
Industrial

912

1,131
Finance

17

16
Total revenues
$
3,109
$
3,296

��


	Three Months Ended
	April 4,		March 30,
(In millions)	2020		2019
Aircraft	$	515	$	766
Aftermarket parts and services		357		368
Textron Aviation		872		1,134
Military aircraft and support programs		620		508
Commercial helicopters, parts and services		203		231
Bell		823		739
Unmanned systems		148		134
Marine and land systems		48		48
Simulation, training and other		132		125
Textron Systems		328		307
Fuel systems and functional components		465		594
Specialized vehicles		275		318
Industrial		740		912
Finance		14		17
Total revenues	$	2,777	$	3,109

15

Table of Contents

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


(In millions)		Textron Aviation		Bell		Textron Systems		Industrial		Finance		Total	Textron Aviation		Bell		Textron Systems		Industrial		Finance		Total
Three months ended April 4, 2020
Customer type:
Commercial													$	848	$	198	$	71	$	739	$	14	$	1,870
U.S. Government														24		625		257		1		—		907
Total revenues													$	872	$	823	$	328	$	740	$	14	$	2,777
Geographic location:
United States													$	597	$	690	$	286	$	329	$	6	$	1,908
Europe														84		24		12		228		1		349
Asia and Australia														123		50		20		53		1		247
Other international														68		59		10		130		6		273
Total revenues													$	872	$	823	$	328	$	740	$	14	$	2,777
Three months ended March 30, 2019
Customer type:
Commercial	$	1,092	$	230	$	74	$	905	$	17	$	2,318	$	1,092	$	230	$	74	$	905	$	17	$	2,318
U.S. Government		42		509		233		7		—		791		42		509		233		7		—		791
Total revenues	$	1,134	$	739	$	307	$	912	$	17	$	3,109	$	1,134	$	739	$	307	$	912	$	17	$	3,109
Geographic location:
United States	$	789	$	578	$	257	$	389	$	8	$	2,021	$	789	$	578	$	257	$	389	$	8	$	2,021
Europe		183		20		23		311		1		538		183		20		23		311		1		538
Asia and Australia		23		82		16		77		1		199		23		82		16		77		1		199
Other international		139		59		11		135		7		351		139		59		11		135		7		351
Total revenues	$	1,134	$	739	$	307	$	912	$	17	$	3,109	$	1,134	$	739	$	307	$	912	$	17	$	3,109
Three months ended March 31, 2018
Customer type:
Commercial	$	973	$	252	$	127	$	1,124	$	16	$	2,492
U.S. Government		37		500		260		7		—		804
Total revenues	$	1,010	$	752	$	387	$	1,131	$	16	$	3,296
Geographic location:
United States	$	665	$	509	$	287	$	496	$	7	$	1,964
Europe		146		27		12		383		1		569
Asia and Australia		81		127		28		92		2		330
Other international		118		89		60		160		6		433
Total revenues	$	1,010	$	752	$	387	$	1,131	$	16	$	3,296

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 ~~revenue~~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 ~~March 30, 2019,~~April 4, 2020, we had ~~$9.7~~$9.2 billion in remaining performance obligations of which we expect to recognize revenues of approximately ~~70%~~72% through ~~2020,~~2021, an additional ~~23%~~21% through ~~2022,~~2023, 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 ~~March 30, 2019,~~April 4, 2020 and January 4, 2020, contract assets totaled $565 million and $567 million, respectively, and contract liabilities totaled ~~$477~~$930 million and ~~$927~~$830 million, ~~respectively. At December 29, 2018, contract assets~~respectively, reflecting timing differences between revenue recognized, billings and ~~contract liabilities totaled $461 million and $974 million, respectively.~~ payments from customers. During the first quarter of 2020 and 2019, we recognized revenues of $231 million and $311 million, ~~in revenues that were included in the contract liability balance at December 29, 2018. We recognized $322 million in revenues in the first quarter of 2018~~respectively, that were included in the contract liability balance at the ~~adoption date.~~beginning of each year.

Note ~~12.~~13. Share-Based Compensation

Under our share-based compensation plans, 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. ~~Share-based compensation~~Compensation expense, or income in periods of share price depreciation, for ~~awards subject only to service conditions vest ratably and~~these plans is ~~recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. For employees eligible for early retirement under the plans, the service requirement of the award is satisfied at the date of grant and the expense is recognized in the period the award is granted.~~ ~~Compensation expense~~ included in net income ~~for these plans is~~ as follows:

��

Three Months Ended
(In millions)

March 30,
2019

March 31,
2018
Compensation expense

$
44
$
33
Income tax benefit

(11)

(7)
Total net compensation expense included in net income

$
33
$
26


	Three Months Ended
	April 4,		March 30,
(In millions)	2020		2019
Compensation (income) expense	$	(13)	$	44
Income tax expense (benefit)		3		(11)
Total net compensation (income) expense included in net income	$	(10)	$	33

Compensation (income) expense included stock option expense of $10 million in the first quarter 2020 and $11 million in the first quarter of 2019.

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Table of Contents

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 implied volatilities from traded options on our common stock, historical volatilities and other factors. The expected term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior.

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

Three Months Ended

March 30,
2019

March 31,
2018
Fair value of options at grant date

$
14.62
$
15.83
Dividend yield

0.2%

0.1%
Expected volatility

26.6%

26.6%
Risk-free interest rate

2.5%

2.6%
Expected term (in years)

4.7

4.7


	March 1,			March 1,
	2020			2019
Fair value of options at grant date	$	10.66		$	14.62
Dividend yield		0.2	%		0.2	%
Expected volatility		29.3	%		26.6	%
Risk-free interest rate		1.1	%		2.5	%
Expected term (in years)		4.7			4.7

The stock option activity during the first quarter of ~~2019~~2020 is provided below:

(Options in thousands)

Number of
Options

Weighted-
Average
Exercise Price
Outstanding at beginning of period

8,284
$
40.58
Granted

1,583

54.43
Exercised

(558)

(25.06)
Forfeited or expired

(75)

(47.43)
Outstanding at end of period

9,234
$
43.84
Exercisable at end of period

6,182
$
38.45

��


			Weighted-
	Number of		Average Exercise
(Options in thousands)	Options		Price
Outstanding at January 4, 2020		8,744	$	44.00
Granted		1,728		40.60
Exercised		(169)		(31.48)
Forfeited or expired		(66)		(51.93)
Outstanding at April 4, 2020		10,237	$	43.58
Exercisable at April 4, 2020		7,018	$	41.83

At ~~March 30, 2019, our outstanding options had an~~April 4, 2020, the aggregate intrinsic value of ~~$80 million~~our outstanding and exercisable options was de minimis and these options had a weighted-average remaining contractual life of ~~six years. Our exercisable options had an aggregate intrinsic value of $79 million~~6.2 and ~~a weighted-average remaining contractual life of five~~4.9 years, at ~~March 30, 2019~~.respectively. The total intrinsic value of options exercised ~~was $16 million and $8 million during~~in the first quarter of 2020 and 2019 was $3 million and ~~2018,~~$16 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 activity for restricted stock units payable in both stock and cash during the first quarter of ~~2019~~ 2020 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 beginning of period, nonvested

598
$
45.22

1,143
$
45.48
Granted

168

54.43

327

54.43
Vested

(164)

(39.34)

(294)

(39.27)
Forfeited

—

—

(30)

(46.76)
Outstanding at end of period, nonvested

602
$
49.40

1,146
$
49.59


	Units Payable in Stock					Units Payable in Cash
			Weighted-				Weighted-
	Number of		Average Grant		Number of		Average Grant
(Shares/Units in thousands)	Shares		Date Fair Value		Units		Date Fair Value
Outstanding at January 4, 2020, nonvested		543	$	49.44		1,104	$	49.61
Granted		134		40.60		358		40.60
Vested		(136)		(42.31)		(272)		(42.33)
Forfeited		—		—		(11)		(50.25)
Outstanding at April 4, 2020, nonvested		541	$	49.05		1,179	$	48.54

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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)

March 30,
2019

March 31,
2018
Fair value of awards vested

$
22
$
24
Cash paid

16

18


	Three Months Ended
	April 4,		March 30,
(In millions)	2020		2019
Fair value of awards vested	$	17	$	22
Cash paid		11		16

Performance Share Units

The a~~ctivity~~activity for our performance share units during the first quarter of ~~2019~~2020 is provided below:

(Units in thousands)

Number of
Units

Weighted-
Average Grant
Date Fair Value
Outstanding at beginning of period, nonvested

404
$
53.63
Granted

262

54.43
Outstanding at end of period, nonvested

666
$
53.95


			Weighted-
	Number of		Average Grant
(Units in thousands)	Units		Date Fair Value
Outstanding at January 4, 2020, nonvested		411	$	56.03
Granted		276		40.60
Outstanding at April 4, 2020, nonvested		687	$	49.84

Cash paid under these awards totaled $7 million and $10 million ~~and $11 million during~~in the first quarter of 2020 and 2019, ~~and 2018,~~ respectively.

Note ~~13.~~14. Retirement Plans

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

Pension Benefits

Postretirement Benefits
Other Than Pensions
(In millions)

March 30,
2019

March 31,
2018

March 30,
2019

March 31,
2018
Three Months Ended

Service cost
$
23
$
26
$
1
$
1
Interest cost

82

77

2

2
Expected return on plan assets

(139)

(138)

—

—
Amortization of prior service cost (credit)

3

4

(2)

(2)
Amortization of net actuarial loss

25

38

—

—
Net periodic benefit cost (credit)
$
(6)
$
7
$
1
$
1


					Postretirement Benefits
	Pension Benefits				Other Than Pensions
	April 4,		March 30,		April 4,		March 30,
(In millions)	2020		2019		2020		2019
Three Months Ended
Service cost	$	26	$	23	$	1	$	1
Interest cost		73		82		2		2
Expected return on plan assets		(144)		(139)		—		—
Amortization of net actuarial loss		46		25		—		—
Amortization of prior service cost (credit)		3		3		(1)		(2)
Net periodic benefit cost (credit)	$	4	$	(6)	$	2	$	1

Note ~~14.~~15. Special Charges

In the first quarter of 2020, we recorded $39 million in asset impairment charges in the Textron Aviation and Industrial segments. The aviation industry in which Textron Aviation operates has been significantly impacted by the COVID-19 pandemic. We have experienced decreased demand for our products and services as our customers have delayed or ceased orders due to the current environment of economic uncertainty. In light of these conditions, Textron Aviation has temporarily shut down most aircraft production, including the King Air turboprop and Beechcraft piston product lines, and has instituted employee furloughs. Based on these events, we performed an interim impairment test of the indefinite-lived Beechcraft and King Air trade name intangible assets at April 4, 2020. Fair value of these assets was determined utilizing the relief of royalty method assuming an increase in the discount rate based on current market data to 9.7% and revised expectations of future revenues for the products and services associated with the tradenames. This analysis resulted in an impairment charge of $32 million. At April 4, 2020, these intangible assets totaled $169 million.

In the Industrial segment, the Specialized Vehicles product line has experienced reduced demand for its products as the consumer and commercial markets in which it operates have been significantly impacted by the pandemic. Many of the dealers and retail stores that sell its products are currently closed throughout the U.S. and globally, and there is uncertainty as to when they will reopen. Based on these events, we performed an interim intangible impairment test of the indefinite-lived Arctic Cat trade name intangible asset using the relief of royalty method and recorded an impairment charge of $7 million to fully impair this asset.

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Note 16. Income Taxes

Our effective tax rate for the first quarter of 2020 and 2019 was 27.5% and ~~2018 was~~ 15.6% ~~and 13.3%~~, respectively. In the first quarter of 2020, the effective tax rate was higher than the U.S. federal statutory tax rate of 21%, primarily due to a $10 million tax provision established related to a decision to dividend cash back from select non-U.S. jurisdictions to the U.S. in 2020. In the first quarter of 2019, the effective tax rate was lower than the U.S. federal statutory tax rate, ~~of 21%,~~ primarily due to a $12 million benefit recognized for additional research credits related to prior years. ~~In the first quarter of 2018, the effective tax rate was lower than the U.S. federal statutory tax rate of 21%, primarily due to benefits recognized from audit settlements.~~

Our reserve for unrecognized tax benefits totaled $175 million and $141 million at March 30, 2019 and December 29, 2018, respectively. The increase in this reserve largely reflects a claim filed in the first quarter of 2019 for tax credits related to prior years.

Note ~~15.~~17. 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.~~Manage~~m~~ent’s~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations

Recent Developments

The global pandemic caused by the novel coronavirus, known as “COVID-19”, has led to worldwide facility closures, workforce disruptions, supply chain destabilizations, reduced demand for many products and services, volatility in the capital markets and uncertainty in the economic outlook. Our operations have experienced and continue to experience various degrees of disruption due to the unprecedented conditions surrounding the pandemic. While our U.S. business operations are largely excluded from various state and local government shut-down orders implemented as a result of COVID-19, certain of our commercial manufacturing facilities have temporarily closed and/or furloughed employees due to reduced demand for our products. In addition, certain of our non-U.S. facilities have been, and a few currently are, subject to government issued shut-down orders and operating restrictions. Our businesses are and may continue to be affected by various other COVID-19 related challenges, including remote working arrangements, adherence to social distancing guidelines, travel restrictions, quarantines and other workforce and supply chain disruptions. Additionally, government shut-down orders and operating restrictions are subject to change at any time and our business could be further impacted by these actions in the future.

Our top priority has been the safety of our employees, and we have taken steps to implement safe work practices to protect the health of our employees, including reconfiguring workspaces to enable adherence to social distancing guidelines and increasing cleaning and disinfecting of our facilities. We have formed enterprise-wide response teams to implement actions and provide guidance for our businesses on reducing the spread of COVID-19 in the workplace. We have also enhanced our IT infrastructure to support employees who are working remotely.

At Bell and Textron Systems, as U.S. defense contractors, a significant portion of their operations remain open and these businesses continue to fulfill their contracts with the U.S. Government. However, the COVID-19 pandemic has adversely impacted revenues and segment profit during the quarter for our commercial businesses, which have experienced decreased demand most notably for general aviation products and services, recreational and other specialized vehicles and our automotive products. In particular, as a result of the outbreak of COVID-19, Textron Aviation has experienced decreased demand for its products and services and has temporarily shut down most aircraft production and instituted employee furloughs. The Industrial segment has also been significantly impacted due to reduced demand, temporary manufacturing facility closures throughout the world and employee furloughs. At our Finance segment, we are working with customers impacted by the pandemic to provide temporary payment relief, primarily in the form of interest-free periods, as discussed in Note 3 to the consolidated financial statements.

We ended the quarter with $2.4 billion in cash and cash equivalents and we have a $1.0 billion credit facility which remains undrawn. We strengthened our cash position during the quarter by issuing $650 million in senior debt and by borrowing $500 million under a new 364-day term loan credit agreement. In addition, we have taken measures to reduce costs and conserve cash, including closing manufacturing facilities and implementing employee furloughs at many of our commercial businesses, reducing capital expenditures, delaying certain research and development projects, and other cost reduction and cash preservation actions. We have also taken other measures to ensure adequate liquidity such as suspending share repurchases and deferring U.S. payroll tax payments as permitted under the Coronavirus Aid, Relief, and Economic Security Act (Cares Act). While we expect the impacts of COVID-19 to continue to have an adverse effect on our business, we cannot reasonably estimate the length or severity of this pandemic, or the extent to which the disruption may impact our consolidated financial position, results of operations and cash flows in 2020 and beyond.

As of April 4, 2020, we have reviewed our assets that are subject to impairment in light of the pandemic, resulting in charges that are included in the Special Charges section below. While we do not currently anticipate any material impairments on our other assets as a result of the pandemic, as discussed in the Critical Accounting Estimates – Goodwill section on pages 29 to 30, future changes in revenue expectations, earnings and cash flows related to intangible assets, goodwill and other long-lived assets below current projections could cause these assets to be impaired. There are many uncertainties regarding the COVID-19 pandemic, and we are closely monitoring the impact of the pandemic on all aspects of our business, including how it will impact our customers, employees, suppliers, vendors, business partners and distribution channels. The ultimate extent of the effects of the COVID-19 pandemic on the company is uncertain and will depend on future developments, and such effects could exist for an extended period of time, even after the pandemic ends.

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Consolidated Results of Operations

		Three Months Ended

						Three Months Ended
						April 4,			March 30,
(Dollars in millions)		March 30, 2019		March 31, 2018	% Change	2020			2019			% Change
Revenues	$	3,109	$	3,296	(6)%	$	2,777		$	3,109			(11)	%
Cost of sales		2,577		2,729	(6)%		2,387			2,577			(7)	%
Selling and administrative expense		307		327	(6)%		263			307			(14)	%
Gross margin as a percentage of Manufacturing revenues		16.7%		16.8%			13.6	%		16.7	%

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 2022 to ~~23.~~26.

Revenues

Revenues decreased ~~$187~~$332 million, 6%11%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018, largely driven by~~ ~~the disposition of the Tools and Test Equipment product line within the Industrial segment which occurred on July 2, 2018~~.2019. The net revenue decrease included the following factors:

●

Lower Textron Aviation revenues of $262 million, largely due to lower volume and mix of $260 million, primarily from lower Citation jet volume and commercial turboprop volume, reflecting a decline in demand related to the pandemic, disruption in our composite manufacturing production due to a plant accident that occurred in December 2019, and delays in the acceptance of aircraft related to COVID-19 travel restrictions.

●

Lower Industrial revenues of $172 million, primarily due to lower volume and mix of $164 million, largely in the Fuel Systems and Functional Components product line related to manufacturing facility closures that began in China in January and extended to almost all locations by the end of the quarter as a result of the COVID-19 pandemic.

●

Higher Bell revenues of $80 million, primarily due to higher military revenue of $112 million, partially offset by lower commercial revenues, principally due to delayed deliveries as a result of COVID-19 travel restrictions.

●

Higher Textron Systems revenues of $21 million, primarily reflecting higher volume.

·~~Lower Industrial revenues of $219 million, primarily due to~~ ~~$128 million in lower revenues due to the impact from the disposition of the Tools and Test Equipment product line and lower volume of $72 million.~~

· ~~Lower Textron Systems revenues of $80 million, largely reflecting lower volume of $44 million in the Marine and Land Systems product line and $36 million in the Unmanned Systems product line.~~

· ~~Lower Bell revenues of $13 million, as lower commercial revenues of $34 million, largely due to lower aircraft deliveries, were partially offset by higher military revenues of $21 million.~~

·~~Higher Textron Aviation revenues of $124 million, primarily due to higher volume and mix of $118 million.~~

Cost of Sales and Selling and Administrative Expense

Cost of sales decreased ~~$152~~$190 million, 6%7%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018,~~2019, largely resulting from ~~the~~ ~~disposition of the Tools and Test Equipment product line and~~ lower net volume and mix described above. Gross margin as ~~described above~~. a percentage of Manufacturing revenues decreased 310 basis points, primarily due to lower margin at both the Textron Aviation and Industrial segments, largely reflecting the impact of lower volume and mix and unfavorable performance related to idle facility costs. We expensed approximately $25 million of idle facility costs in the first quarter of 2020 due to temporary manufacturing facility closures and employee furloughs resulting from the COVID-19 pandemic.

Selling and administrative expense decreased ~~$20~~$44 million, 6%14%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018,~~2019, primarily reflecting ~~the~~ ~~impact from~~lower share-based compensation expense.

Special Charges

In the ~~disposition~~first quarter of 2020, we recorded $39 million in asset impairment charges in the Textron Aviation and Industrial segments. In light of the ~~Tools~~impact of the COVID-19 pandemic on demand for turboprop aircraft, we performed an interim impairment test of Textron Aviation’s indefinite-lived intangible assets at April 4, 2020. We utilized a higher discount rate based on current market data and ~~Test Equipment~~revised our expectation of future revenues for the Beechcraft and King Air models, resulting in an impairment charge of $32 million. At April 4, 2020, these intangibles totaled $169 million.

In the Industrial segment, the Specialized Vehicles business product line. has experienced reduced demand in the consumer and commercial markets in which it operates, reflecting the impact of the pandemic. As a result, we performed an interim intangible impairment test of the indefinite-lived Arctic Cat trade name intangible asset and recorded an impairment charge of $7 million to fully impair the asset.

Income Taxes

Our effective tax rate for the first quarter of 2020 and 2019 was 27.5% and ~~2018 was~~ 15.6% ~~and 13.3%~~, respectively. In the first quarter of 2020, the effective tax rate was higher than the U.S. federal statutory tax rate of 21%, primarily due to a $10 million tax provision established related to a decision to dividend cash back from select non-U.S. jurisdictions to the U.S. in 2020. In the first quarter of 2019, the effective tax rate was lower than the U.S. federal statutory tax rate, ~~of 21%,~~ primarily due to a $12 million benefit recognized for additional research credits related to prior ~~years. In the first quarter~~years.

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Table of ~~2018, the effective tax rate was lower than the U.S. federal statutory tax rate of 21%, primarily due to benefits recognized from audit settlements.~~Contents

Backlog

Our backlog is summarized below:



					April 4,		January 4,
(In millions)		March 30, 2019		December 29, 2018	2020		2020
Bell	$	6,296	$	5,837	$	6,416	$	6,902
Textron Aviation		1,995		1,791		1,423		1,714
Textron Systems		1,407		1,469		1,371		1,211
Total backlog	$	9,698	$	9,097	$	9,210	$	9,827

~~Bell’s~~Bell's backlog ~~increased $459~~decreased $486 million, 8%7%, ~~in the first quarter of 2019,~~ primarily as a result of revenues recognized on our U.S. Government contracts in excess of new ~~military~~ contracts ~~received, largely related to the H-1 helicopter program.~~received. Backlog at Textron Aviation ~~increased $204~~decreased $291 million, ~~11%~~17%, ~~in the first quarter of 2019,~~primarily due to a fractional jet customer that reduced orders based on its revised demand outlook as a result of ~~orders~~the pandemic. Textron Systems' backlog increased $160 million, 13%, primarily due to new contracts received in excess of ~~deliveries.~~revenues recognized in the Unmanned Systems product line and the Weapons and Sensors System business in the Simulation, Training and Other product line.

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 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), and exclude certain corporate expenses and special charges.

In our discussion of comparative results for the Manufacturing group, changes in revenues and segment profit ~~typically are expressed~~ for our commercial ~~business~~businesses typically are expressed in terms of volume and mix, pricing, foreign exchange, acquisitions and dispositions, ~~while changes in segment profit may be expressed in terms of volume and mix,~~ inflation and ~~cost~~ 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. ~~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.~~ 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), product line profitability, start-up, ramp up and cost-reduction initiatives or other manufacturing inputs.

Approximately 24% of our ~~2018~~2019 revenues were derived from contracts with the U.S. Government, including those under the U.S. Government-sponsored foreign military sales ~~program~~.program. For our segments that contract with the U.S. Government, changes in ~~revenue~~revenues related to these contracts are expressed in terms of volume. ~~Revenues for our U.S. Government contracts are primarily recognized as costs are incurred.~~ 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
	April 4,			March 30,
(Dollars in millions)	2020			2019			% Change
Revenues:
Aircraft	$	515		$	766			(33)	%
Aftermarket parts and services		357			368			(3)	%
Total revenues		872			1,134			(23)	%
Operating expenses		869			1,028			(15)	%
Segment profit		3			106			(97)	%
Profit margin		0.3	%		9.3	%

~~Textron Aviation~~

Three Months Ended
(Dollars in millions)

March 30,
2019

March 31,
2018
Revenues:

Aircraft

$
766
$
634
Aftermarket parts and services

368

376
Total revenues

1,134

1,010
Operating expenses

1,028

938
Segment profit

106

72
Profit margin

9.3%

7.1%

Textron Aviation Revenues and Operating Expenses

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

(In millions)

2019 versus
2018
Volume and mix

$
118
Pricing

6
Total change

$
124


	2020versus
(In millions)	2019
Volume and mix	$	(260)
Pricing		(2)
Total change	$	(262)

Textron Aviation’s revenues ~~increased $124~~decreased $262 million, ~~12%~~23%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018,~~2019, primarily due to ~~higher~~lower volume and mix of ~~$118~~$260 million, largely the result of ~~higher~~lower Citation jet volume of $154 million and lower commercial turboprop ~~volume.~~volume of $99 million. We delivered 23 Citation jets and 16 commercial turboprops in the first quarter of 2020, compared with 44 Citation jets and 44 commercial turboprops in the first quarter of 2019. The decrease in Citation jet and turboprop volume reflected a decline in demand related to the pandemic, disruption in our composite manufacturing production due to a plant accident that occurred in December 2019, ~~compared with 36 Citation jets~~ and ~~29 commercial turboprops~~delays in the ~~first quarter~~acceptance of ~~2018.~~aircraft related to COVID-19 travel restrictions.

Textron Aviation’s operating expenses ~~increased $90~~decreased $159 million, ~~10%~~15%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018,~~2019, largely due to ~~higher~~lower volume and mix as described above.

Textron Aviation Segment Profit

The following factors contributed to the change in Textron Aviation’s segment profit from the prior year quarter:

(In millions)

2019 versus
2018
Volume and mix

$
21
Performance

15
Inflation, net of pricing

(2)
Total change

$
34


	2020versus
(In millions)	2019
Volume and mix	$	(72)
Performance		(23)
Inflation, net of pricing		(8)
Total change	$	(103)

Segment profit at Textron Aviation ~~increased $34~~decreased $103 million ~~47%,~~ in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018,~~2019, primarily due to the impact from ~~higher~~lower volume and mix of ~~$21~~$72 million as described above and ~~a favorable~~an unfavorable impact of ~~$15~~$23 million ~~reflecting improved~~from performance, which includes $12 million of idle facility costs recognized in the first quarter of 2020 due to temporary manufacturing ~~performance.~~facility closures and employee furloughs resulting from the COVID-19 pandemic. These facility closures and employee furloughs will continue into the second quarter of 2020, which will result in additional idle facility costs.

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Bell

		Three Months Ended

					Three Months Ended
					April 4,			March 30,
(Dollars in millions)		March 30, 2019		March 31, 2018	2020			2019			% Change
Revenues:
Military aircraft and support programs	$	508	$	487	$	620		$	508			22	%
Commercial helicopters, parts and services		231		265		203			231			(12)	%
Total revenues		739		752		823			739			11	%
Operating expenses		635		665		708			635			11	%
Segment profit		104		87		115			104			11	%
Profit margin		14.1%		11.6%		14.0	%		14.1	%

Bell’s major U.S. Government programs ~~currently~~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.

Bell Revenues and Operating Expenses

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


	2020	versus
(In millions)					2019 ~~versus~~ ~~2018~~
Volume and mix			$	~~(16)~~80
Other				34
Total change			$	~~(13)~~84

Bell’s revenues ~~decreased $13~~increased $84 million, 2%11%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018, primarily due to~~2019, as higher military revenues of $112 million was partially offset by lower commercial revenues, ~~of $34 million, largely~~principally due to ~~lower aircraft~~delayed deliveries as wea result of COVID-19 travel restrictions. We delivered 15 commercial helicopters in the first quarter of 2020, compared with 30 commercial helicopters in the first quarter of ~~2019, compared with 46 commercial helicopters in the first quarter of 2018. This decrease was partially offset by higher military revenues of $21 million.~~2019.

Bell’s operating expenses ~~decreased $30~~increased $73 million, 5%11%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018,~~2019, primarily due to ~~improved performance on military programs, as described below, and the lower~~higher net volume and mix as described above.

Bell Segment Profit

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

(In millions)

2019 versus
2018
Performance and other

$
27
Volume and mix

(10)
Total change

$
17


	2020versus
(In millions)	2019
Volume and mix	$	19
Performance and other		(8)
Total change	$	11

Bell’s segment profit increased ~~$17~~$11 million, ~~20%~~11%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018,~~2019, primarily due to ~~a favorable~~the impact of ~~$27 million from performance~~higher volume and ~~other, largely the result of improved performance on military programs,~~mix, partially offset by an unfavorable impact of $8 million from ~~volume~~performance and ~~mix.~~other. Performance and other included $25 million in lower net favorable program adjustments, partially offset by lower research and development costs.

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Textron Systems

		Three Months Ended

					Three Months Ended
					April 4,			March 30,
(Dollars in millions)		March 30, 2019		March 31, 2018	2020			2019			% Change
Revenues	$	307	$	387	$	328		$	307			7	%
Operating expenses		279		337		302			279			8	%
Segment profit		28		50		26			28			(7)	%
Profit margin		9.1%		12.9%		7.9	%		9.1	%

Textron Systems Revenues and Operating Expenses

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


	2020	versus
(In millions)					2019 ~~versus~~ ~~2018~~
Volume			$	~~(81)~~20
Other				1
Total change			$	~~(80)~~21

Revenues at Textron Systems ~~decreased $80~~increased $21 million, ~~21%~~7%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018,~~2019, largely due to ~~lower~~higher volume ~~of $44 million~~ in ~~the Marine and Land Systems~~most product ~~line, reflecting lower Tactical Armoured Patrol Vehicle program deliveries, and lower volume of $36 million in the Unmanned Systems product line.~~lines.

Textron Systems’ operating expenses ~~decreased $58~~increased $23 million, ~~17%~~8%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018,~~2019, primarily due to ~~lower~~higher net volume described above.

Textron Systems Segment Profit

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


		2020 versus
(In millions)	2019
Performance and other	$		~~2019 versus~~ ~~2018~~(13)
Volume and mix			$	~~(11)~~
~~Performance~~				~~(11)~~11
Total change			$	~~(22)~~(2)

Textron Systems’ segment profit decreased ~~$22~~$2 million, ~~44%~~7%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018, primarily due to an $11~~2019, as unfavorable performance and other of $13 million, was largely offset by the impact from ~~the lower~~higher volume described ~~above~~above. Performance and ~~an $11~~other included a $12 million unfavorable impact ~~from performance, primarily reflecting lower net favorable program adjustments~~ in the ~~first quarter of 2019.~~Simulation + Training business.

Industrial

Three Months Ended
(Dollars in millions)

March 30,
2019

March 31,
2018
Revenues:

Fuel systems and functional components

$
594
$
655
Specialized vehicles

318

348
Tools and test equipment

—

128
Total revenues

912

1,131
Operating expenses

862

1,067
Segment profit

50

64
Profit margin

5.5%

5.7%


	Three Months Ended
	April 4,			March 30,
(Dollars in millions)	2020			2019			% Change
Revenues:
Fuel Systems and Functional Components	$	465		$	594			(22)	%
Specialized Vehicles		275			318			(14)	%
Total revenues		740			912			(19)	%
Operating expenses		731			862			(15)	%
Segment profit		9			50			(82)	%
Profit margin		1.2	%		5.5	%

Industrial Revenues and Operating Expenses

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


		2020	versus
(In millions)						2019 ~~versus~~ ~~2018~~
~~Disposition~~				$	~~(128)~~
Volume and mix	$				~~(72)~~(164)
Foreign exchange					~~(25)~~(9)
Other					61
Total change				$	~~(219)~~(172)

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Industrial segment revenues decreased ~~$219~~$172 million, 19%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018,~~2019, largely due to ~~the impact from the disposition of our Tools and Test Equipment product line of $128 million,~~ lower volume and mix of ~~$72~~$164 million, atlargely in the ~~remaining~~Fuel Systems and Functional Components product ~~lines~~line related to manufacturing facility closures that began in China in January and ~~an unfavorable impact~~expanded to European and North American locations by the end of ~~$25 million from foreign exchange rate fluctuations,~~the quarter as a result of the COVID-19 pandemic. Most of our manufacturing facilities located in China reopened in March and the current expectation is that our other locations will begin opening once our OEM customers open and resume production. Lower volume and mix in the Specialized Vehicles product line was primarily related to reduced demand and temporary manufacturing facility closures as the ~~Euro.~~consumer and commercial markets in which it operates have been impacted by the pandemic.

Operating expenses for the Industrial segment decreased ~~$205~~$131 million, ~~19%~~15%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018,~~2019, primarily due to ~~lower operating expenses from the disposition of our Tools and Test Equipment product line,~~ lower volume and mix described ~~above and a favorable impact from foreign exchange rate fluctuations.~~above.

Industrial Segment Profit

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


			2020	versus
(In millions)							2019 ~~versus~~ ~~2018~~
~~Disposition~~					$	~~(15)~~
Volume and mix	$	(45)
Pricing and inflation				~~(10)~~3
Performance and other						15
~~Foreign exchange~~						~~(4)~~1
Total change					$	~~(14)~~(41)

Segment profit for the Industrial segment decreased ~~$14~~$41 million, ~~22%~~82%, in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018,~~2019, largely resulting from ~~the impact of the disposition of our Tools and Test Equipment product line of $15 million and $10 million of~~ lower volume and mix as described ~~above,~~above. Performance and other includes approximately $13 million of idle facility costs recognized in the first quarter of 2020 due to temporary manufacturing facility closures and employee furloughs resulting from the COVID-19 pandemic, partially offset by ~~favorable performance and other of $15 million, primarily related to the Specialized Vehicles product line.~~lower share-based compensation expense.

Finance

		Three Months Ended

					Three Months Ended
					April 4,		March 30,
(In millions)		March 30, 2019		March 31, 2018	2020		2019
Revenues	$	17	$	16	$	14	$	17
Segment profit		6		6		3		6

Finance segment revenues and profit were largely unchanged in the first quarter of ~~2019,~~2020, compared with the first quarter of ~~2018.~~ 2019. The following table reflects information about the Finance segment’s credit performance related to finance receivables.


						April 4,			January 4,
(Dollars in millions)			March 30, 2019		December 29, 2018	2020			2020
Finance receivables		$	782	$	789	$	706		$	707
Allowance for credit losses							25			25
Ratio of allowance for credit losses to finance receivables							3.54	%		3.54	%
Nonaccrual finance receivables			31		40		37			39
Ratio of nonaccrual finance receivables to finance receivables			3.96%		5.07%		5.24	%		5.52	%
60+ days contractual delinquency		$	21	$	14	$	55		$	17
60+ days contractual delinquency as a percentage of finance receivables	60+ days contractual delinquency as a percentage of finance receivables		2.69%		1.77%		7.79	%		2.40	%

During the first quarter of 2020, 60+ days delinquency increased by $38 million, largely due to one customer. The Finance segment is working to provide relief to customers through loan modifications as discussed above, however, if the current economic conditions continue to persist or worsen, we may experience increased customer delinquencies. 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. Key portfolio quality indicators for the portfolio 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:


					April 4,			January 4,
(Dollars in millions)		March 30, 2019		December 29, 2018	2020			2020
Manufacturing group
Cash and equivalents	$	646	$	987	$	2,263		$	1,181
Debt		3,175		3,066		4,352			3,124
Shareholders’ equity		5,233		5,192		5,534			5,518
Capital (debt plus shareholders’ equity)		8,408		8,258		9,886			8,642
Net debt (net of cash and equivalents) to capital		33%		29%		27	%		26	%
Debt to capital		38%		37%		44	%		36	%
Finance group
Cash and equivalents	$	96	$	120	$	183		$	176
Debt		711		718		682			686

~~We believe that~~As discussed in the Recent Developments section on page 20, the COVID-19 pandemic has led to volatility in the capital markets and uncertainty in the economic outlook, in addition to various degrees of disruption in our ~~calculations~~operations due to the unprecedented conditions surrounding the pandemic. In light of ~~debt~~these conditions, we have strengthened our cash position by increasing our borrowings as discussed below and have suspended share repurchases. In addition, we have taken other measures to reduce costs and conserve cash, including closing manufacturing facilities and implementing employee furloughs at many of our commercial businesses, reducing capital expenditures, delaying certain research and ~~net debt~~development projects, and other cost reduction and cash preservation actions. While we expect the impacts of COVID-19 to ~~capital are useful measures as they provide a summary indication~~continue to have an adverse effect on our business, we cannot reasonably estimate the length or severity of this pandemic, or the ~~level~~extent to which the disruption may impact our consolidated financial position, results of ~~debt financing (i.e., leverage) that is~~operations and cash flows in ~~place to support our capital structure, as well as to provide an indication of the capacity to add further leverage.~~ 2020 and beyond. We believe that we will 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.~~the availability of our existing credit facility.

Credit Facilities and Other Sources of Capital

Textron has a senior unsecured revolving credit facility ~~that expires in September 2021~~ 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. At ~~March 30, 2019,~~April 4, 2020 and January 4, 2020, there were no amounts borrowed against the facility.

On April 1, 2020, we entered into a 364-Day Term Loan Credit Agreement in an aggregate principal amount of $500 million and borrowed the full principal amount available under the agreement. At our current credit ratings, the borrowings accrue interest at a rate equal to the London interbank offered rate plus 2.0%, which is an annual interest rate of 3.00% at April 4, 2020. We can pre-pay any amount of the principal balance during the term of the loan; however, we cannot borrow additional principal amounts. The Term Loan Credit Agreement restricts us from incurring additional indebtedness, subject to various exceptions, one of which allows us to borrow under our $1.0 billion revolving credit facility. While this loan is outstanding, we have agreed not to repurchase any of our common stock. The principal amount outstanding, plus accrued and unpaid interest and fees, is due on March 31, 2021.

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. Under this registration statement, on March 17, 2020, we issued $650 million of fixed-rate notes due June 2030 with an annual interest rate of 3.00%.

To further enhance our liquidity, in the first quarter of 2020, we borrowed $377 million against the cash surrender value of our corporate-owned life insurance policies, representing the maximum amount available to be borrowed against these policies.

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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:

		Three Months Ended

					Three Months Ended
					April 4,		March 30,
(In millions)		March 30, 2019		March 31, 2018	2020		2019
Operating activities	$	(196)	$	(53)	$	(393)	$	(196)
Investing activities		(56)		(10)		(56)		(56)
Financing activities		(98)		(339)		1,548		(98)

The first quarter of our fiscal year typically results in net cash outflow from operating activities. Consistent with prior years, we expect positive cash flows from operating activities for the full year. In the first quarter of ~~2019,~~2020, the net cash outflow from operating activities was ~~$196~~$393 million, compared with ~~$53~~$196 million in the first quarter of ~~2018,~~2019, primarily reflecting ~~changes in working capital, which included~~lower earnings and an increase in cash outflows of ~~$113~~$127 million related to changes in inventories between the ~~periods.~~periods, principally at the Textron Aviation segment.

Cash flows used in investing activities primarily included capital expenditures of ~~$59~~$50 million and ~~$77~~$59 million in the first quarter of 2020 and 2019, ~~and 2018,~~ respectively. ~~Investing~~

In the first quarter of 2020, cash flows ~~also~~provided by financing activities primarily included net proceeds of $643 million from the issuance of long-term debt and $498 million from borrowings under the 364-Day Term Loan facility discussed above. In addition, we received $377 million in proceeds from borrowings against corporate-owned life insurance policies and $105 million of $2proceeds from the issuance of commercial paper. These cash inflows were partially offset by $54 million of cash paid to repurchase an aggregate of 1.3 million shares of our common stock under both a prior 2018 share repurchase plan and ~~$58 million in the first quarter of 2019 and 2018, respectively.~~

a recent repurchase plan as described below. In the first quarter of 2019, ~~and 2018,~~ cash flows used in financing activities primarily included $202 million ~~and $344 million, respectively,~~ of cash paid to repurchase an aggregate of 3.9 million ~~and 5.9 million~~ shares ~~respectively,~~ of our outstanding common ~~stock. Financing cash flows in the first quarter of 2019 also included~~stock, partially offset by $100 million of ~~cash~~ proceeds from the issuance of ~~short-term debt.~~commercial paper.

On February 25, 2020, our Board of Directors authorized the repurchase of up to 25 million shares of our common stock. This new plan allows us to opportunistically repurchase shares and to continue our practice of repurchasing shares to offset the impact of dilution from shares issued under compensation and benefit plans. The 2020 plan replaces the prior 2018 share repurchase authorization. We have suspended share repurchases while our 364-Day Term Loan remains outstanding.

Finance Group Cash Flows

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

		Three Months Ended

					Three Months Ended
					April 4,		March 30,
(In millions)		March 30, 2019		March 31, 2018	2020		2019
Operating activities	$	5	$	3	$	(1)	$	5
Investing activities		39		31		13		39
Financing activities		(68)		(69)		(5)		(68)

The Finance group’s cash flows from investing activities primarily included collections on finance receivables totaling ~~$40~~$46 million and ~~$65~~$40 million in the first quarter of ~~2019~~2020 and ~~2018,~~2019, respectively, partially offset by finance receivable originations of ~~$29~~$33 million and ~~$34~~$29 million, respectively. Financing activities in ~~both~~ the first quarter of 2019 ~~and 2018 primarily reflected~~included a dividend payment of $50 million to the Manufacturing group.

Consolidated Cash Flows

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

		Three Months Ended

					Three Months Ended
					April 4,		March 30,
(In millions)		March 30, 2019		March 31, 2018	2020		2019
Operating activities	$	(216)	$	(85)	$	(394)	$	(216)
Investing activities		(42)		6		(43)		(42)
Financing activities		(116)		(358)		1,543		(116)

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In the first quarter of ~~2019,~~2020, the net cash outflow from Consolidated operating activities was ~~$216~~$394 million, compared with ~~$85~~$216 million in the first quarter of ~~2018,~~2019, primarily reflecting ~~changes in working capital, which included~~lower earnings and an increase in cash outflows of ~~$87~~$127 million related to changes in inventories between the ~~periods.~~periods, principally at the Textron Aviation segment.

Investing cash flows primarily included capital expenditures of ~~$59~~$50 million and ~~$77~~$59 million in the first quarter of 2020 and 2019, ~~and 2018, respectively. Investing cash flows also included net proceeds received from corporate-owned life insurance policies of $2~~respectively, partially offset by collections on finance receivables totaling $13 million and ~~$58~~$12 million, ~~in the first quarter of 2019 and 2018,~~ respectively.

Cash flows ~~used in~~provided by financing activities in the first quarter of 2020 primarily included net proceeds of $643 million from the issuance of long-term debt and $498 million from borrowings under the 364-Day Term Loan facility discussed above. In addition, we received $377 million in proceeds from borrowings against corporate-owned life insurance policies and $105 million of proceeds from the issuance of commercial paper. These cash inflows were partially offset by $54 million of cash paid to repurchase shares of our outstanding common stock. In the first quarter of 2019, ~~and 2018~~cash flows used in financing activities primarily included $202 million ~~and $344 million, respectively,~~ of cash paid to repurchase an aggregate of 3.9 million ~~and 5.9 million~~ shares ~~respectively,~~ of our outstanding common ~~stock. Financing cash flows in the first quarter of 2019 also included~~stock, partially offset by $100 million of ~~cash~~ proceeds from the issuance of ~~short-term debt.~~commercial paper.

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 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:

		Three Months Ended

					Three Months Ended
					April 4,		March 30,
(In millions)		March 30, 2019		March 31, 2018	2020		2019
Reclassification adjustments from investing activities:
Finance receivable originations for Manufacturing group inventory sales					$	(33)	$	(29)
Cash received from customers	$	28	$	49		33		28
Finance receivable originations for Manufacturing group inventory sales		(29)		(34)
Other		26		—		—		26
Total reclassification adjustments from investing activities		25		15		—		25
Reclassification adjustments from financing activities:
Dividends received by Manufacturing group from Finance group		(50)		(50)		—		(50)
Total reclassification adjustments to cash flows from operating activities	$	(25)	$	(35)	$	—	$	(25)

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 ~~December 29, 2018.~~ January 4, 2020. The following section provides an update of the year-end disclosure.

Goodwill

In March of 2020, we observed a significant decline in the market valuation of our common shares as the overall stock market declined related to the COVID-19 pandemic. The global pandemic has led to worldwide facility closures, workforce disruptions, supply chain destabilizations, reduced demand for many products and services, volatility in the capital markets and uncertainty in the economic outlook. Despite the significant excess fair value identified in our 2019 impairment assessment, we determined that these factors could indicate that an impairment loss may have occurred. While short-term disruptions may not indicate an impairment, the effects of a prolonged suspension of activities may cause goodwill, intangible and other asset impairments. Accordingly, in the first quarter of 2020, we reviewed our reporting units to determine whether the impacts caused by the pandemic triggered an interim impairment test and identified indicators at three of our reporting units, Textron Aviation, Kautex and Textron Specialized Vehicles. See Note 15 to the consolidated financial statements for a discussion of our review of indefinite-lived intangible assets, which resulted in the impairment of trade names related to discrete product lines due to the impact of the pandemic.

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For the Textron Aviation and Kautex reporting units, considering the impact of the pandemic on the industries in which they operate and our expectation that it will likely take the economy a period of time to recover, we performed an interim impairment test in the first quarter of 2020. Based on this test, we determined that the fair value of these reporting units continues to exceed the carrying amount and no impairment is required.

For the Textron Specialized Vehicles reporting unit, the consumer and commercial markets in which it operates have been significantly impacted. Many of the dealers and retail stores that sell its products are currently closed throughout the U.S. and globally, and there is uncertainty as to when they will reopen. In addition, the severity of the economic impact caused by the pandemic has resulted in a substantial increase in unemployment levels with projections of a severe global recession impacting demand for products produced by this reporting unit. Textron Specialized Vehicles also serves the airline industry, which has been significantly impacted by the travel restrictions caused by the pandemic. We calculated the fair value of Textron Specialized Vehicles using discounted cash flows, assuming a reduction in revenues and profit for the remainder of 2020 and into the next few years and calculated the discount rate based on current market data which resulted in an increase of 60 basis points as compared to the prior year analysis. Based on this analysis, we determined that the fair value of Textron Specialized Vehicles exceeded its carrying amount by 15% and no impairment is required. To assess the sensitivity of this estimate to a change in the discount rate, we increased the rate by an additional 50 basis points and the fair value estimate exceeded the carrying amount by 8%. Depending on the timing and continued impact of the pandemic on this unit, it is reasonably possible that it may require another interim impairment test during 2020 that may result in an impairment charge. At the end of the first quarter of 2020, Textron Specialized Vehicles had $363 million in goodwill.

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 thethe design, development, manufacture or modification of aerospace and defense products as well as related services. DueDue to the continuous transfer of control to the U.S. Government, we recognize revenue over the time that we perform under the contract. We generally use the cost-to-cost method to measure progress for our 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

					Three Months Ended
					April 4,		March 30,
(In millions)		March 30, 2019		March 31, 2018	2020		2019
Gross favorable	$	53	$	56	$	27	$	53
Gross unfavorable		(22)		(16)		(25)		(22)
Net adjustments	$	31	$	40	$	2	$	31

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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 ~~2018~~2019 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;

●

Risks related to our international business, including establishing and maintaining facilities in locations around the world and relying on joint venture partners, subcontractors, suppliers, representatives, consultants and other business partners in connection with international business, including in emerging market countries;

●

Our Finance segment’s ability to maintain portfolio credit quality or to realize full value of receivables;

●

Performance issues with key suppliers or subcontractors;

●

Legislative or regulatory actions, both domestic and foreign, impacting our operations or demand for our products;

●

Our ability to control costs and successfully implement various cost-reduction activities;

●

The efficacy of research and development investments to develop new products or unanticipated expenses in connection with the launching of significant new products or programs;

●

The timing of our new product launches or certifications of our new aircraft products;

●

Our ability to keep pace with our competitors in the introduction of new products and upgrades with features and technologies desired by our customers;

●

Pension plan assumptions and future contributions;

●

Demand softness or volatility in the markets in which we do business;

●

Cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption;

●

Difficulty or unanticipated expenses in connection with integrating acquired businesses;

●

The risk that acquisitions do not perform as planned, including, for example, the risk that acquired businesses will not achieve revenues and profit projections;

●

The impact of changes in tax legislation; and

●

Risks and uncertainties related to the impact of the COVID-19 pandemic on our business and operations.

· ~~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;~~

· Risks related to our international business, including establishing and maintaining facilities in locations around the world and relying on joint venture partners, subcontractors, suppliers, representatives, consultants and other business partners in connection with international business, including in emerging market countries;

· ~~Our Finance segment’s ability to maintain portfolio credit quality or to realize full value of receivables;~~

· ~~Performance issues with key suppliers or subcontractors;~~

· ~~Legislative or regulatory actions, both domestic and foreign, impacting our operations or demand for our products;~~

· ~~Our ability to control costs and successfully implement various cost-reduction activities;~~

· ~~The efficacy of research and development investments to develop new products or unanticipated expenses in connection with the launching of significant new products or programs;~~

· ~~The timing of our new product launches or certifications of our new aircraft products;~~

· ~~Our ability to keep pace with our competitors in the introduction of new products and upgrades with features and technologies desired by our customers;~~

· ~~Pension plan assumptions and future contributions;~~

· ~~Demand softness or volatility in the markets in which we do business;~~

· ~~Cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption;~~

· ~~Difficulty or unanticipated expenses in connection with integrating acquired businesses;~~

· ~~The risk that acquisitions do not perform as planned, including, for example, the risk that acquired businesses will not achieve revenues and profit projections; and~~

· ~~The impact of changes in tax legislation.~~

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 ~~March 30, 2019.~~April 4, 2020. For discussion of our exposure to market risk, refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk contained in Textron’s ~~2018~~2019 Annual Report on Form 10-K.

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Item 4.Controls and Procedures

We performed an evaluation of the effectiveness of our disclosure controls and procedures as of ~~March 30, 2019.~~April 4, 2020. 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 ~~March 30, 2019.~~April 4, 2020.

There were no changes in our internal control over financial reporting during the fiscal quarter ended ~~March 30, 2019~~April 4, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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. Trial in this matter commenced on February 24, 2020. 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. We intend to continue to vigorously defend this lawsuit.

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. On March 6, 2020, Textron filed a motion to dismiss the Second Amended Complaint. We intend to continue to vigorously defend this lawsuit.

Item 1A. Risk Factors

In addition to the effects of the COVID-19 pandemic and resulting global disruptions on our business and operations discussed in Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in the risk factors below in this Form 10-Q, additional or unforeseen effects from the COVID-19 pandemic and the global economic disruptions may give rise to or amplify many of the risks discussed in “Part I. Item 1A. Risk Factors” in our 2019 Annual Report on Form 10-K. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events, or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations.

Our business is being adversely impacted, and is expected to continue to be adversely impacted, by the coronavirus (COVID-19) pandemic.

As described under Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, our businesses have experienced and continue to experience various degrees of disruption and reduced demand for our products due to the unprecedented conditions surrounding the COVID-19 pandemic. The effects of COVID-19 have included and could continue to include disruptions in our supply chain, disruptions or restrictions on the ability of many of our employees to work effectively, including because of illness, quarantines, government actions, facility closures or other restrictions, as well as temporary closures of certain of our facilities, including manufacturing and service facilities, or the facilities of our customers, suppliers or business partners. Our commercial businesses have been and may continue to be adversely impacted due to a general slowdown in demand for our general aviation products and services, our recreational and other specialized vehicles and our automotive products. We have experienced a decline in orders for our aviation products and services and the delay and cancellation of existing orders by

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a fractional jet customer because of economic weakness resulting from the pandemic, and we have also experienced lower deliveries of commercial helicopters and fixed-wing aircraft because of travel restrictions imposed in response to the pandemic. Economic and other impacts from the COVID-19 pandemic may also result in future weak demand for our aviation and commercial helicopter products and services, the delay or cancellation of existing orders by our fixed wing and commercial helicopter customers and lower flight hours, and consequently, lower demand for parts and maintenance. In recent weeks the continued spread of COVID-19 has resulted in disruption and volatility in the global capital markets, adversely impacting access to capital. Any of these events are likely to negatively impact our operations. As a result, we may be unable to perform fully on our contracts and our costs may increase as a result of the COVID-19 outbreak. We also expect to experience increased costs as a result of the business and production disruptions described above. These cost increases may not be fully recoverable, negatively impacting our profitability, and may continue even after the business environment has improved. It is possible that the continued spread of COVID-19 and actions taken by various governmental authorities and other third parties in response to the outbreak could also further cause disruption in our supply chain or in the operations of our business partners, impacting their ability to perform their obligations; cause delay, or limit the ability of, the U.S. Government and other customers to perform, including in making timely payments to us; and cause other unpredictable events. In addition, new regulations by U.S. or foreign governments and government agencies addressed to the aviation or travel industry could impose additional regulatory, aircraft security, travel restrictions or other requirements or restrictions related to the pandemic that could adversely impact demand for aircraft and rotorcraft or significantly reduce hours flown.

The outbreak of COVID-19 has resulted in a widespread health crisis that is adversely affecting the economies and financial markets of many countries. The resulting economic downturn, the severity and length of which cannot be predicted, may cause continued reduced demand for our products, delays or cancellations of customer orders, the inability of customers to obtain financing to purchase our products, bankruptcy of suppliers, customers or other business partners, adverse impact to investment performance of our pension plans and continued volatility in the global capital markets adversely impacting our access to capital. The extent to which COVID-19 could impact our business, results of operations, financial condition and liquidity is highly uncertain and will depend on future developments, many of which are outside our control. Such developments may include the geographic spread and duration of the virus, the severity of the disease and the effects of actions that have been or may be taken by various governmental authorities and other third parties in response to the outbreak.

If our Finance segment has difficulty collecting on its finance receivables, our financial performance could be adversely affected.

The financial performance of our Finance segment depends on the quality of loans, leases and other assets in its portfolio. Portfolio quality can be adversely affected by several factors, including finance receivable underwriting procedures, collateral value, geographic or industry concentrations, and the effect of general economic conditions such as the recent deterioration of the economy due to the impact from the COVID-19 pandemic. The pandemic has resulted in disruptions in the ability of many of our customers to conduct business effectively because of illness, quarantines, government shut-down orders, facility closures, reduced customer demand or other restrictions. As a result, our Finance segment is working with certain of its customers to modify a significant number of the loans in its portfolio in order to provide temporary payment relief which will delay our ultimate recovery on these assets. In addition, a substantial number of the new originations in our finance receivable portfolio are cross-border transactions for aircraft sold outside of the U.S. Cross-border transactions present additional challenges and risks in realizing upon collateral in the event of borrower default, which can result in difficulty or delay in collecting on the related finance receivables. Should current economic conditions persist or worsen, our Finance segment may have difficulty successfully collecting on its finance receivable portfolio, and as a result our cash flow, results of operations and financial condition could be adversely affected.

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

The following provides information about our first quarter ~~2019~~2020 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
December 30, 2018 – February 2, 2019

1,175

$ 50.38

1,175

16,017
February 3, 2019 – March 2, 2019

1,380

53.74

1,380

14,637
March 3, 2019 – March 30, 2019

1,327

51.89

1,327

13,310
Total

3,882

$ 52.09

3,882


							Maximum
	Total		Average Price		Total Number of		Number of Shares
	Number of		Paid per Share		Shares Purchased as		that may yet be
	Shares		(excluding		part of Publicly		Purchased under
Period (shares in thousands)	Purchased *		commissions)		Announced Plan *		the Plan
January 5, 2020 – February 8, 2020		200	$	46.27		200		6,981
February 9, 2020 – March 7, 2020		660		44.84		660		24,575
March 8, 2020 – April 4, 2020		450		33.71		450		24,125
Total		1,310	$	41.24		1,310

* ~~These shares were purchased pursuant to a plan authorizing~~On February 25, 2020, our Board of Directors authorized the repurchase of up to 4025 million shares of ~~Textron~~our common ~~stock that was announced on April 16, 2018.~~stock. This new plan has no expiration ~~date.~~date and replaced the existing plan adopted in 2018. Under the 2018 plan, 435,000 shares were repurchased during the period January 5, 2020 through February 24, 2020, with the remainder purchased pursuant to the 2020 plan.

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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 ~~2019~~2020 Annual Meeting of Shareholders of Textron was held on April ~~24, 2019.~~29, 2020.

(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

					For	Against	Abstain	Broker Non-Vote
Scott C. Donnelly	193,279,640	4,288,664	606,042	18,197,211	172,220,276	18,532,856	1,085,308	15,047,516
Kathleen M. Bader	191,080,354	6,174,933	919,059	18,197,211	173,822,752	16,238,609	1,777,079	15,047,516
R. Kerry Clark	188,941,175	8,225,358	1,007,813	18,197,211	172,510,636	17,116,092	2,211,712	15,047,516
James T. Conway	191,293,041	6,048,460	832,845	18,197,211	175,975,123	13,852,379	2,010,938	15,047,516
Lawrence K. Fish	189,782,244	7,455,817	936,285	18,197,211
Paul E. Gagné	189,795,968	7,556,543	821,835	18,197,211	149,490,023	40,169,166	2,179,251	15,047,516
Ralph D. Heath	194,178,721	2,967,217	1,028,408	18,197,211	153,076,421	36,692,233	2,069,786	15,047,516
Deborah Lee James	194,224,199	3,146,031	804,116	18,197,211	175,745,351	14,033,042	2,060,047	15,047,516
Lloyd G. Trotter	192,428,965	4,901,159	844,222	18,197,211
Lionel L. Nowell III					185,943,643	3,635,670	2,259,127	15,047,516
James L. Ziemer	191,648,565	5,549,506	976,275	18,197,211	149,404,785	40,264,376	2,169,279	15,047,516
Maria T. Zuber	194,048,816	3,334,982	790,548	18,197,211	153,387,104	36,429,603	2,021,733	15,047,516

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	Against	Abstain	Broker Non-Vote
109,537,581	86,261,358	2,375,407	18,197,211
126,708,595				55,355,856	9,773,989	15,047,516

3.The appointment of Ernst & Young LLP by the Audit Committee as ~~Textron’s~~Textron's independent registered public accounting firm for ~~2019~~2020 was ratified by the following vote:


For	Against	Abstain	Against	Abstain
210,336,872	5,414,939	619,746
199,056,151			6,019,306	1,810,499

4.~~The shareholder proposal regarding shareholder action by written consent was rejected by the following vote:~~

For
Against
Abstain
Broker Non-Vote
82,262,437
113,357,870
2,554,039
18,197,211

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Item 6.Exhibits

~~Item 6.~~
10.1		~~Exhibits~~Form of Stock-Settled Restricted Stock Unit (with Dividend Equivalents) Grant Agreement under 2015 Long-Term Incentive Plan

10.2		Form of Performance Share Unit Grant Agreement under 2015 Long-Term Incentive Plan

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 ~~March 30, 2019,~~April 4, 2020, 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).

~~Signatures~~

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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:	~~April 24, 2019~~May 1, 2020	/s/ Mark S. Bamford
		Mark S. Bamford
		Vice President and Corporate Controller
		(principal accounting officer)

30

36

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)

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)

Large accelerated filer	☑	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐			Emerging growth company	☐


	April 4,		January 4,
(Dollars in millions)	2020		2020
Assets
Manufacturing group
Cash and equivalents	$	2,263	$	1,181
Accounts receivable, net		870		921
Inventories		4,385		4,069
Other current assets		984		894
Total current assets		8,502		7,065
Property, plant and equipment, less accumulated depreciation and amortization of $4,453 and $4,405, respectively		2,483		2,527
Goodwill		2,150		2,150
Other assets		1,854		2,312
Total Manufacturing group assets		14,989		14,054
Finance group
Cash and equivalents		183		176
Finance receivables, net		681		682
Other assets		93		106
Total Finance group assets		957		964
Total assets	$	15,946	$	15,018
Liabilities and shareholders’ equity
Liabilities
Manufacturing group
Short-term debt and current portion of long-term debt	$	1,396	$	561
Accounts payable		1,322		1,378
Other current liabilities		1,797		1,907
Total current liabilities		4,515		3,846
Other liabilities		2,143		2,288
Long-term debt		2,956		2,563
Total Manufacturing group liabilities		9,614		8,697
Finance group
Other liabilities		116		117
Debt		682		686
Total Finance group liabilities		798		803
Total liabilities		10,412		9,500
Shareholders’ equity
Common stock		29		29
Capital surplus		1,711		1,674
Treasury stock		(74)		(20)
Retained earnings		5,727		5,682
Accumulated other comprehensive loss		(1,859)		(1,847)
Total shareholders’ equity		5,534		5,518
Total liabilities and shareholders’ equity	$	15,946	$	15,018
Common shares outstanding (in thousands)		227,379		227,956

		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)

	~~Note 1.Basis of Presentation~~	8

	Note 2.~~Summary~~1. Basis of ~~Significant Accounting Policies Update~~Presentation	8
	Note 2. Summary of Significant Accounting Policies Update	8
	Note 3.Accounts Receivable and Finance Receivables	9
	Note 4.Inventories	10
	~~Note 5.Other Assets~~	10
	~~Note 6.Warranty Liability~~	11
	Note 7.~~Leases~~5. Other Assets	11
	Note 6. Other Current Liabilities	11
	Note 7. Leases	11
	Note 8.~~Derivative Instruments and Fair Value Measurements~~ Debt	12
	Note 9. Derivative Instruments and Fair Value Measurements	12
	Note 10. Shareholders’ Equity	13
	Note ~~10.~~11. Segment Information	14
	~~Note 11.Revenues~~	15
	Note 12. Revenues	15
	Note 13. Share-Based Compensation	16
	Note ~~13.~~14. Retirement Plans	17
	~~Note 14.Income Taxes~~	17
	~~Note 15.Commitments and Contingencies~~	18
	Note 15. Special charges	18
~~Item 2.~~	Note 16. Income Taxes	19
	Note 17. Commitments and Contingencies	19

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1920

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2731

Item 4.	Controls and Procedures	2832

PART II.	OTHER INFORMATION

Item 2.1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2833

Item 5.	Other Information	2934

Item 6.	Exhibits	3035

	Signatures	3036

		Three Months Ended
(In millions, except per share amounts)		March 30, 2019		March 31, 2018
Revenues
Manufacturing revenues	$	3,092	$	3,280
Finance revenues		17		16
Total revenues		3,109		3,296
Costs, expenses and other
Cost of sales		2,577		2,729
Selling and administrative expense		307		327
Interest expense		42		41
Non-service components of pension and post-retirement income, net		(29)		(19)
Total costs, expenses and other		2,897		3,078
Income before income taxes		212		218
Income tax expense		33		29
Net income	$	179	$	189
Earnings per share
Basic	$	0.76	$	0.73
Diluted	$	0.76	$	0.72

(Dollars in millions)		March 30, 2019		December 29, 2018
Assets
Manufacturing group
Cash and equivalents	$	646	$	987
Accounts receivable, net		1,059		1,024
Inventories		4,047		3,818
Other current assets		835		785
Total current assets		6,587		6,614
Property, plant and equipment, less accumulated depreciation and amortization of $4,256 and $4,203, respectively		2,523		2,615
Goodwill		2,141		2,218
Other assets		2,267		1,800
Total Manufacturing group assets		13,518		13,247
Finance group
Cash and equivalents		96		120
Finance receivables, net		756		760
Other assets		110		137
Total Finance group assets		962		1,017
Total assets	$	14,480	$	14,264
Liabilities and shareholders’ equity
Liabilities
Manufacturing group
Short-term debt and current portion of long-term debt	$	363	$	258
Accounts payable		1,147		1,099
Other current liabilities		1,922		2,149
Total current liabilities		3,432		3,506
Other liabilities		2,186		1,932
Long-term debt		2,812		2,808
Total Manufacturing group liabilities		8,430		8,246
Finance group
Other liabilities		106		108
Debt		711		718
Total Finance group liabilities		817		826
Total liabilities		9,247		9,072
Shareholders’ equity
Common stock		30		30
Capital surplus		1,689		1,646
Treasury stock		(331)		(129)
Retained earnings		5,581		5,407
Accumulated other comprehensive loss		(1,736)		(1,762)
Total shareholders’ equity		5,233		5,192
Total liabilities and shareholders’ equity	$	14,480	$	14,264
Common shares outstanding (in thousands)		232,699		235,621

(Dollars in millions)		March 30, 2019
Operating leases:
Other assets	$	301
Other current liabilities		54
Other liabilities		250
Finance leases:
Property, plant and equipment, less accumulated amortization of $50 million	$	117
Short-term and current portion of long-term debt		7
Long-term debt		78
Weighted-average remaining lease term (in years)
Finance leases		14.2
Operating leases		10.4
Weighted-average discount rate
Finance leases		2.72%
Operating leases		4.47%

(In millions)		Operating Leases		Finance Leases
2019	$	48	$	7
2020		55		9
2021		42		9
2022		35		9
2023		30		9
Thereafter		177		69
Total lease payments		387		112
Less: interest		(83)		(27)
Total lease liabilities	$	304	$	85

		March 30, 2019				December 29, 2018
(In millions)		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Manufacturing group
Debt, excluding leases	$	(3,105)	$	(3,135)	$	(2,996)	$	(2,971)
Finance group
Finance receivables, excluding leases		579		610		582		584
Debt		(711)		(645)		(718)		(640)

(In millions)		Pension and Postretirement Benefits Adjustments		Foreign Currency Translation Adjustments		Deferred Gains (Losses) on Hedge Contracts		Accumulated Other Comprehensive Loss
Balance at December 29, 2018	$	(1,727)	$	(32)	$	(3)	$	(1,762)
Other comprehensive income before reclassifications		—		3		3		6
Reclassified from Accumulated other comprehensive loss		21		—		(1)		20
Balance at March 30, 2019	$	(1,706)	$	(29)	$	(1)	$	(1,736)
Balance at December 30, 2017	$	(1,396)	$	11	$	10	$	(1,375)
Other comprehensive income before reclassifications		—		42		1		43
Reclassified from Accumulated other comprehensive loss		31		—		—		31
Balance at March 31, 2018	$	(1,365)	$	53	$	11	$	(1,301)

		March 30, 2019						March 31, 2018
(In millions)		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount		Pre-Tax Amount		Tax (Expense) Benefit		After-Tax Amount
Three Months Ended
Pension and postretirement benefits adjustments:
Amortization of net actuarial loss*	$	25	$	(5)	$	20	$	38	$	(9)	$	29
Amortization of prior service cost*		1		—		1		2		—		2
Pension and postretirement benefits adjustments, net		26		(5)		21		40		(9)		31
Deferred gains on hedge contracts:
Current deferrals		4		(1)		3		2		(1)		1
Reclassification adjustments		(1)		—		(1)		—		—		—
Deferred gains on hedge contracts, net		3		(1)		2		2		(1)		1
Foreign currency translation adjustments		1		2		3		40		2		42
Total	$	30	$	(4)	$	26	$	82	$	(8)	$	74

		Three Months Ended
(In millions)		March 30, 2019		March 31, 2018
Compensation expense	$	44	$	33
Income tax benefit		(11)		(7)
Total net compensation expense included in net income	$	33	$	26

(Options in thousands)	Number of Options		Weighted- Average Exercise Price
Outstanding at beginning of period	8,284	$	40.58
Granted	1,583		54.43
Exercised	(558)		(25.06)
Forfeited or expired	(75)		(47.43)
Outstanding at end of period	9,234	$	43.84
Exercisable at end of period	6,182	$	38.45


(Units in thousands)	Number of Units		Weighted- Average Grant Date Fair Value
Outstanding at beginning of period, nonvested	404	$	53.63
Granted	262		54.43
Outstanding at end of period, nonvested	666	$	53.95

		Pension Benefits				Postretirement Benefits Other Than Pensions
(In millions)		March 30, 2019		March 31, 2018		March 30, 2019		March 31, 2018
Three Months Ended
Service cost	$	23	$	26	$	1	$	1
Interest cost		82		77		2		2
Expected return on plan assets		(139)		(138)		—		—
Amortization of prior service cost (credit)		3		4		(2)		(2)
Amortization of net actuarial loss		25		38		—		—
Net periodic benefit cost (credit)	$	(6)	$	7	$	1	$	1


(In millions)		2019 versus 2018
Volume and mix	$	118
Pricing		6
Total change	$	124


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
December 30, 2018 – February 2, 2019	1,175	$ 50.38	1,175	16,017
February 3, 2019 – March 2, 2019	1,380	53.74	1,380	14,637
March 3, 2019 – March 30, 2019	1,327	51.89	1,327	13,310
Total	3,882	$ 52.09	3,882