UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


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

For the quarterly period ended April ~~4, 2020~~

3, 2021


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

For the transition period from ______ to ______.

Commission File Number 1-5480

Textron ~~Inc~~.

Inc.

(Exact name of registrant as specified in its charter)

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

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

(~~401~~)

(401) 421-2800

(Registrant’s telephone number, including area code)

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ þNo ☐¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ þNo ☐¨

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

Large accelerated filer

☑þ

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of April ~~17, 2020,~~16, 2021, there were ~~227,472,487~~225,708,875 shares of common stock ~~outstanding~~outstanding.

Table of Contents

TEXTRON INC.

Index to Form 10-Q

For the Quarterly Period Ended April ~~4, 2020~~

3, 2021

		~~Page~~
~~PART I.~~			~~FINANCIAL INFORMATION~~		Page
PART I.			FINANCIAL INFORMATION
~~Item 1.~~			~~Financial Statements~~
Item 1.			Financial Statements

			Consolidated Statements of Operations (Unaudited)		3

			Consolidated Statements of Comprehensive Income (Unaudited)		4

			Consolidated Balance Sheets (Unaudited)		5

			Consolidated Statements of Cash Flows (Unaudited)		6

			Notes to the Consolidated Financial Statements (Unaudited)		8

			Note 1.Basis of Presentation		8
			Note ~~2. Summary of Significant Accounting Policies Update~~2 .B usiness Dispo sition		8
			Note 3.3 . Accounts Receivable and Finance Receivables		9
			Note 4.4 . Inventories		11 10
			Note ~~5. Other Assets~~5 . Warranty Liability		11
			Note ~~6. Other Current Liabilities~~6 . Leases		11
			Note ~~7. Leases~~		11
	~~Note 8. Debt~~7	12
	~~Note 9.~~ . Derivative Instruments and Fair Value Measurements	12 11
			Note ~~10.~~ 8 . Shareholders’ Equity		13 12
			Note ~~11.~~ 9 . Segment Information		15 14
			Note ~~12.~~ 10 . Revenues		15 14
			Note ~~13.~~1 1 . Share-Based Compensation		16 15
			Note ~~14.~~1 2 . Retirement Plans		18 17
			Note ~~15.~~1 3 . Special ~~charges~~Charges		18 17
			Note ~~16.~~1 4 . Income Taxes		19 18
			Note ~~17.~~1 5 . Commitments and Contingencies		19 18

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		20 19

Item 3.			Quantitative and Qualitative Disclosures about Market Risk		31 28

Item 4.			Controls and Procedures		32 28

PART ~~II.~~II .			OTHER INFORMATION

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

~~Item 1A.~~	~~Risk Factors~~	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			33 28

Item 5.			Other Information		34 29

Item 6.			Exhibits		35 30

			Signatures		36 31

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TEXTRON INC.

Consolidated Statements of Operations (Unaudited)


	Three Months Ended
(In millions, except per share amounts)		April 3, 2021		April 4, 2020
Revenues
Manufacturing revenues		$	2,864	$	2,763
Finance revenues		15		14
Total revenues		2,879		2,777
Costs, expenses and other
Cost of sales		2,400		2,387
Selling and administrative expense		298		263
Interest expense		40		40
Special charges		6		39
Non-service components of pension and post-retirement income, net		(40)		(21)
Gain on business disposition		(15)		0
Total costs, expenses and other		2,689		2,708
Income before income taxes		190		69
Income tax expense		19		19
Net income		$	171	$	50
Earnings per share
Basic		$	0.75	$	0.22
Diluted		$	0.75	$	0.22

Three Months Ended

April 4,
March 30,
(In millions, except per share amounts)
2020
2019
Revenues

Manufacturing revenues
  $
2,763
  $
3,092
Finance revenues

14

17
Total revenues

2,777

3,109
Costs, expenses and other

Cost of sales

2,387

2,577
Selling and administrative expense

263

307
Interest expense

40

42
Special charges

39

—
Non-service components of pension and post-retirement income, net

(21)

(29)
Total costs, expenses and other

2,708

2,897
Income before income taxes

69

212
Income tax expense

19

33
Net income
  $
50
  $
179
Earnings per share

Basic
  $
0.22
  $
0.76
Diluted
  $
0.22
  $
0.76

See Notes to the Consolidated Financial Statements.

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TEXTRON INC.

Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended

April 4,
March 30,
(In millions)
2020
2019
Net income
  $
50
  $
179
Other comprehensive income, net of tax:

Pension and postretirement benefits adjustments, net of reclassifications

37

21
Foreign currency translation adjustments

(40)

3
Deferred gains (losses) on hedge contracts, net of reclassifications

(9)

2
Other comprehensive income (loss)

(12)

26
Comprehensive income
  $
38
  $
205


	Three Months Ended
(In millions)		April 3, 2021		April 4, 2020
Net income		$	171	$	50
Other comprehensive income (loss), net of tax
Pension and postretirement benefits adjustments, net of reclassifications		30		37
Foreign currency translation adjustments, net of reclassifications		(18)		(40)
Deferred gains (losses) on hedge contracts, net of reclassifications		4		(9)
Other comprehensive income (loss)		16		(12)
Comprehensive income		$	187	$	38

See Notes to the Consolidated Financial Statements.

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TEXTRON INC.

Consolidated Balance Sheets (Unaudited)

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


(Dollars in millions)	April 3, 2021		January 2, 2021
Assets
Manufacturing group
Cash and equivalents	$	1,897	$	2,146
Accounts receivable, net	883		787
Inventories	3,705		3,513
Other current assets	899		950
Total current assets	7,384		7,396
Property, plant and equipment, less accumulated depreciation and amortization of $4,737 and $4,696, respectively	2,478		2,516
Goodwill	2,152		2,157
Other assets	2,468		2,436
Total Manufacturing group assets	14,482		14,505
Finance group
Cash and equivalents	181		108
Finance receivables, net	672		744
Other assets	79		86
Total Finance group assets	932		938
Total assets	$	15,414	$	15,443
Liabilities and shareholders’ equity
Liabilities
Manufacturing group
Current portion of long-term debt	$	257	$	509
Accounts payable	1,033		776
Other current liabilities	1,833		1,985
Total current liabilities	3,123		3,270
Other liabilities	2,340		2,357
Long-term debt	3,183		3,198
Total Manufacturing group liabilities	8,646		8,825
Finance group
Other liabilities	119		111
Debt	653		662
Total Finance group liabilities	772		773
Total liabilities	9,418		9,598
Shareholders’ equity
Common stock	29		29
Capital surplus	1,845		1,785
Treasury stock	(294)		(203)
Retained earnings	6,139		5,973
Accumulated other comprehensive loss	(1,723)		(1,739)
Total shareholders’ equity	5,996		5,845
Total liabilities and shareholders’ equity	$	15,414	$	15,443
Common shares outstanding (in thousands)	225,898		226,444

See Notes to the Consolidated Financial Statements.

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TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended April 3, 2021 and April 4, 2020, ~~and March 30, 2019,~~ respectively

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


	Consolidated
(In millions)	2021		2020
Cash flows from operating activities
Net income	$	171	$	50
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Non-cash items:
Depreciation and amortization	90		90
Gain on business disposition	(15)		0
Deferred income taxes	11		(10)
Asset impairments	3		39
Other, net	35		33
Changes in assets and liabilities:
Accounts receivable, net	(103)		47
Inventories	(178)		(368)
Other assets	(17)		(41)
Accounts payable	259		(49)
Other liabilities	(105)		(203)
Income taxes, net	(11)		20
Pension, net	(23)		(5)
Captive finance receivables, net	69		0
Other operating activities, net	(5)		3
Net cash provided by (used in) operating activities of continuing operations	181		(394)
Net cash used in operating activities of discontinued operations	0		(1)
Net cash provided by (used in) operating activities	181		(395)
Cash flows from investing activities
Capital expenditures	(53)		(50)
Net proceeds from business disposition	39		0



Finance receivables repaid	13		13
Other investing activities, net	6		(6)
Net cash provided by (used in) investing activities	5		(43)
Cash flows from financing activities
Increase in short-term debt	0		603
Net proceeds from long-term debt	0		643
Proceeds from borrowings against corporate-owned life insurance policies	0		377

Principal payments on long-term debt and nonrecourse debt	(287)		(24)
Purchases of Textron common stock	(91)		(54)
Dividends paid	(5)		(5)
Other financing activities, net	24		3
Net cash provided by (used in) financing activities	(359)		1,543
Effect of exchange rate changes on cash and equivalents	(3)		(16)
Net increase (decrease) in cash and equivalents	(176)		1,089
Cash and equivalents at beginning of period	2,254		1,357
Cash and equivalents at end of period	$	2,078	$	2,446

See Notes to the Consolidated Financial Statements.

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TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited) (Continued)

For the Three Months Ended April 3, 2021 and April 4, 2020, ~~and March 30, 2019,~~ respectively

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


	Manufacturing Group				Finance Group
(In millions)	2021		2020		2021		2020
Cash flows from operating activities
Net income (loss)	$	177	$	48	$	(6)	$	2
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Non-cash items:
Depreciation and amortization	88		89		2		1
Gain on business disposition	(15)		0		0		0
Deferred income taxes	11		(11)		0		1
Asset impairments	3		39		0		0
Other, net	36		33		(1)		0
Changes in assets and liabilities:
Accounts receivable, net	(103)		47		0		0
Inventories	(178)		(368)		0		0
Other assets	(17)		(41)		0		0
Accounts payable	259		(49)		0		0
Other liabilities	(103)		(198)		(2)		(5)
Income taxes, net	(23)		20		12		0
Pension, net	(23)		(5)		0		0

Other operating activities, net	(5)		3		0		0
Net cash provided by (used in) operating activities of continuing operations	107		(393)		5		(1)
Net cash used in operating activities of discontinued operations	0		(1)		0		0
Net cash provided by (used in) operating activities	107		(394)		5		(1)
Cash flows from investing activities
Capital expenditures	(53)		(50)		0		0
Net proceeds from business disposition	39		0		0		0



Finance receivables repaid	0		0		89		46
Finance receivables originated	0		0		(7)		(33)
Other investing activities, net	0		(6)		6		0
Net cash provided by (used in) investing activities	(14)		(56)		88		13
Cash flows from financing activities
Increase in short-term debt	0		603		0		0
Net proceeds from long-term debt	0		643		0		0
Proceeds from borrowings against corporate-owned life insurance policies	0		377		0		0

Principal payments on long-term debt and nonrecourse debt	(267)		(7)		(20)		(17)
Purchases of Textron common stock	(91)		(54)		0		0
Dividends paid	(5)		(5)		0		0
Other financing activities, net	24		(9)		0		12
Net cash provided by (used in) financing activities	(339)		1,548		(20)		(5)
Effect of exchange rate changes on cash and equivalents	(3)		(16)		0		0
Net increase (decrease) in cash and equivalents	(249)		1,082		73		7
Cash and equivalents at beginning of period	2,146		1,181		108		176
Cash and equivalents at end of period	$	1,897	$	2,263	$	181	$	183

See Notes to the Consolidated Financial Statements.

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TEXTRON INC.

Notes to the Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

Our Consolidated Financial Statements include the accounts of Textron Inc. (Textron) and its majority-owned subsidiaries. We have prepared these unaudited consolidated financial statements in accordance with accounting principles generally accepted in the U.S. for interim financial information. Accordingly, these interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. The consolidated interim financial statements included in this quarterly report should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended January ~~4, 2020.~~2, 2021. In the opinion of management, the interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair presentation of our consolidated financial position, results of operations and cash flows for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

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

Use of Estimates

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

Contract Estimates

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

In the first quarter of ~~2020~~2021 and ~~2019,~~2020, our cumulative catch-up adjustments increased ~~revenues and~~ segment profit by $2$14 million and ~~$31~~$2 million, respectively, and net income by $1$11 million and ~~$23~~$1 million, respectively ($~~0.01~~0.05 and ~~$0.10~~$0.01 per diluted share, respectively). In the first quarter of 2021 and 2020, we recognized revenues from performance obligations satisfied in prior periods of $18 million and ~~2019,~~$4 million, which related to changes in profit booking rates that impacted revenue. In the first quarter of 2021 and 2020, gross favorable adjustments totaled ~~$27~~$36 million and ~~$53~~$27 million, respectively, and the gross unfavorable adjustments totaled $22 million and $25 million, ~~and $22 million,~~ respectively.

Note 2. ~~Summary~~Business Disposition

On January 25, 2021, we completed the sale of ~~Significant Accounting Policies Update~~

~~At the beginning~~TRU Simulation + Training Canada Inc. within our Textron Systems segment for net cash proceeds of ~~2020, we adopted Accounting Standards Update (ASU) No. 2016-13,~~ ~~Financial Instruments - Credit Losses~~ ~~(ASC 326). This standard changed the prior incurred loss model to a forward-looking current expected credit loss model for most financial assets, such as trade~~$39 million and ~~finance receivables, contract assets and other instruments. This standard required a cumulative-effect adjustment to retained earnings upon adoption with no restatement~~recorded an after-tax gain of ~~prior periods. There was no significant impact on our consolidated financial statements upon adoption of the standard.~~

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

~~Accounts Receivable, Net~~

Accounts receivable, net includes amounts billed to customers where the right to 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 pools with similar risk characteristics, based on

$15 million.

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customer and industry type and geographic location. The percentage is based on all available and relevant information including age of outstanding receivables and collateral value, if any, historical payment experience and loss history, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For amounts due from the U.S. Government, we have not established an allowance for credit losses as we have zero loss expectation based on a long history of no credit losses and the explicit guarantee of a sovereign entity.

~~Finance Receivables, Net~~

We establish an allowance for credit losses to cover probable but specifically unknown losses existing in the 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 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 impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's effective interest rate, or the fair value of the 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 it requires estimates, including the amount and timing of future cash flows expected to be received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results. While our analysis is specific to each individual account, critical factors included in this analysis include industry valuation guides, age and physical condition of the collateral, payment history, existence and financial strength of guarantors.

Note 3. Accounts Receivable and Finance Receivables

Accounts Receivable

Accounts receivable is composed of the following:

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

(In millions) April 3,
2021 January 2,
2021
Commercial $ 732 $ 668
U.S. Government contracts 184 155
916 823
Allowance for credit losses (33) (36)
Total accounts receivable, net $ 883 $ 787

Finance Receivables

Finance receivables are presented in the following table:

April 4,
January 4,
(In millions)
2020
2020
Finance receivables
  $
706
  $
707
Allowance for credit losses

(25)

(25)
Total finance receivables, net
  $
681
  $
682

(In millions) April 3,
2021 January 2,
2021
Finance receivables $ 705 $ 779
Allowance for credit losses (33) (35)
Total finance receivables, net $ 672 $ 744

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 3three categories based on the key credit quality indicators for the individual loan. These 3three categories are performing, watchlist and nonaccrual.

We classify finance receivables as nonaccrual if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three months unless collection of principal and interest is not doubtful. Accounts are classified as watchlist when credit quality indicators have deteriorated as compared with typical underwriting criteria, and we believe collection of full principal and interest is probable but not certain. All other finance receivables that do not meet the watchlist or nonaccrual categories are classified as performing.

~~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~~

Since the first quarter of 2020, ~~due~~the Finance segment has worked with certain customers impacted by the pandemic to ~~the economic impact of the COVID-19 pandemic and at the request of certain of our customers, we began working with them to~~ provide ~~temporary~~ payment relief through loan modifications. The types of temporary payment relief we offered to these customers included delays in the timing of required principal payments, deferrals of interest payments and/or interest-only payments. For loan modifications that cover payment-relief periods in excess of six months, even if the loan was previously current, the loan is deemed a troubled debt restructuring and considered impaired. These impaired loans are classified as either nonaccrual or watchlist based on a review of the credit quality indicators as discussed above. ~~Loan modifications in~~

During the first quarter of ~~2020~~2021, we modified finance receivable contracts for 12 customers with an outstanding balance at April 3, 2021 totaling $29 million, of which $25 million was categorized as troubled debt restructurings. Due to the nature of these restructurings, the financial effects were not ~~significant, however, we are working on modifications for approximately 30% of our total~~significant. We had 4 customer defaults related to finance ~~receivables.~~receivables previously modified as a troubled debt restructuring that had an insignificant outstanding balance. We believe our allowance for credit losses adequately covers our exposure on these loans as our estimated collateral values largely exceed the outstanding loan amounts.

Table of Contents

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

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
%


(Dollars in millions)	April 3, 2021		January 2, 2021
Performing	$	591	$	612
Watchlist	2		74
Nonaccrual	112		93
Nonaccrual as a percentage of finance receivables	15.89%		11.94%
Current and less than 31 days past due	$	676	$	738
31-60 days past due	3		12
61-90 days past due	6		11
Over 90 days past due	20		18
60+ days contractual delinquency as a percentage of finance receivables	3.69%		3.72%

At April ~~4, 2020, 31%~~3, 2021, 27% of our performing finance receivables were originated since the beginning of ~~2019~~2020 and ~~35%~~33% were originated from ~~2016~~2017 to ~~2018.~~2019. For finance receivables categorized as ~~watchlist, 36%~~nonaccrual, 68% were originated ~~since the beginning of 2019 and 23%~~ from ~~2016~~2017 to ~~2018.~~

2019.

On a quarterly basis, we evaluate individual larger balance accounts for impairment. A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators described above. Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified. If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification.

A summary of 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.

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


(In millions)	April 3, 2021		January 2, 2021
Finance receivables evaluated collectively	$	498	$	521
Finance receivables evaluated individually	113		163
Allowance for credit losses based on collective evaluation	26		28
Allowance for credit losses based on individual evaluation	7		7
Impaired finance receivables with specific allowance for losses	$	42	$	46
Impaired finance receivables with no specific allowance for losses	71		117
Unpaid principal balance of impaired finance receivables	122		175
Allowance for credit losses on impaired finance receivables	7		7
Average recorded investment of impaired finance receivables	138		126

~~Table of Contents~~

Note 4. Inventories

Inventories are composed of the following:


(In millions)	April 3, 2021		January 2, 2021
Finished goods	$	1,222	$	1,228
Work in process	1,663		1,455
Raw materials and components	820		830
Total inventories	$	3,705	$	3,513

Table of Contents

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~~

Other assets includes the cash surrender value of corporate-owned life insurance policies, net of any borrowings against these policies. During the first quarter of 2020, we borrowed $377 million against these policies as we strengthened our cash position in light of disruptions in the capital markets caused by the COVID-19 pandemic. These proceeds have been classified as financing activities in the consolidated statement of cash flows.

~~Note 6. Other Current Liabilities~~

Warranty Liability

Changes in our warranty liability are as follows:

Three Months Ended

April 4,
March 30,
(In millions)
2020
2019
Beginning of period
  $
141
  $
149
Provision

13

14
Settlements

(19)

(22)
Adjustments*

(2)

4
End of period
  $
133
  $
145

Three Months Ended
(In millions) April 3,
2021 April 4,
2020
Beginning of period $ 119 $ 141
Provision 14 13
Settlements (20) (19)
Adjustments* 3 (2)
End of period $ 116 $ 133

* Adjustments include changes to prior year estimates, new issues on prior year sales 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 7.6. 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.~~worldwide. Our operating leases have remaining lease terms up to 2928 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~~2021 and ~~2019, both our~~2020, operating lease cost totaled $16 million and ~~cash~~$15 million, respectively. Cash paid for ~~these~~operating leases totaled $16 million and $15 million in the first quarter of 2021 and ~~$16~~2020, respectively, which is classified in cash flows from operating activities. Noncash transactions totaled $45 million ~~respectively.~~and $3 million in the first quarter of 2021 and 2020, respectively, reflecting the recognition of operating lease assets and liabilities for new or extended leases. Variable and short-term lease costs were not significant.

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

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
%


(Dollars in millions)	April 3, 2021		January 2, 2021
Other assets	$	384	$	349
Other current liabilities	54		47
Other liabilities	336		306
Weighted-average remaining lease term (in years)	10.9		11.6
Weighted-average discount rate	3.52%		4.17%

~~Table of Contents~~

At April ~~4, 2020,~~3, 2021, maturities of our operating lease liabilities on an undiscounted basis totaled ~~$46~~$50 million for ~~2020, $48~~the remainder of 2021, $63 million for ~~2021,~~2022, $54 million for 2023, $45 million for 2024, $41 million for ~~2022, $32~~2025 and $240 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 31, 2021.

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 9.7. Derivative Instruments and Fair Value Measurements

We measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We prioritize the assumptions that market participants would use in pricing the asset or liability into a three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exist, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of Level 1, which include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect our estimates about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. Valuation techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are utilized only to the extent that observable inputs are not available or cost effective to obtain.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

We manufacture and sell our products in a number of countries throughout the world, and, therefore, we are exposed to movements in foreign currency exchange rates. We primarily utilize foreign currency exchange contracts with maturities of no more than three years to manage this volatility. These contracts qualify as cash flow hedges and are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and overhead expenses. Net gains and losses recognized in earnings and Accumulated other comprehensive loss on cash flow hedges, including gains and losses related to hedge ineffectiveness, were not significant in the periods presented.

Table of Contents

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 April ~~4, 2020~~3, 2021 and January ~~4, 2020,~~2, 2021, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of ~~$410~~$423 million and ~~$342~~$318 million, respectively. At April ~~4, 2020,~~3, 2021, the fair value amounts of our foreign currency exchange contracts were a ~~$14~~$9 million asset and a ~~$18~~$1 million liability. At January ~~4, 2020,~~2, 2021, the fair value amounts of our foreign currency exchange contracts were a $2$5 million asset and a $2 million liability.

~~We hedge our net investment position~~

Our Finance group enters into interest rate swap agreements to mitigate exposure to fluctuations in ~~certain major currencies and generate foreign currency~~ interest payments that offset other transactional exposures in these currencies. To accomplish this, we borrow directly in the foreign currency and designate a portion of the debt as a hedge of the net investment. We record changes in the fair value ofrates. By using these contracts, ~~in other comprehensive income~~we are able to ~~the extent they~~convert floating-rate cash flows to fixed-rate cash flows. These agreements are ~~effective~~designated as cash flow hedges. ~~Currency effects on the effective portion~~At April 3, 2021 and January 2, 2021, we had one swap agreement that matures in February 2022 with a notional amount of ~~these hedges, which are reflected in the foreign currency translation adjustments within Accumulated other comprehensive loss, were not significant in the periods presented.~~

$289 million and $294 million, respectively, and a fair value of a $3 million and $4 million liability, respectively.

~~Table of Contents~~

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:

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)


	April 3, 2021				January 2, 2021
	Carrying		Estimated		Carrying		Estimated
(In millions)	Value		Fair Value		Value		Fair Value
Manufacturing group
Debt, excluding leases	$	(3,438)	$	(3,615)	$	(3,690)	$	(3,986)
Finance group
Finance receivables, excluding leases	482		525		549		599
Debt	(653)		(599)		(662)		(587)

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 ~~10.~~8. Shareholders’ Equity

A reconciliation of ~~Shareholder’s~~Shareholders’ equity is presented below:

Accumulated

Other
Total

Common
Capital
Treasury
Retained
Comprehensive
Shareholders’
(In millions)
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
Net income

—

—

—

179

—

179
Other comprehensive income

—

—

—

—

26

26
Share-based compensation activity

—

43

—

—

—

43
Dividends declared

—

—

—

(5)

—

(5)
Purchases of common stock

—

—

(202)

—

—

(202)
Balance at March 30, 2019
  $
30
  $
1,689
  $
(331)
  $
5,581
  $
(1,736)
  $
5,233


(In millions)	Common Stock		Capital Surplus		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity















Three months ended April 3, 2021
Beginning of period	$	29	$	1,785	$	(203)	$	5,973	$	(1,739)	$	5,845
Net income	—		—		—		171		—		171
Other comprehensive income	—		—		—		—		16		16
Share-based compensation activity	—		60		—		—		—		60
Dividends declared	—		—		—		(5)		—		(5)
Purchases of common stock	—		—		(91)		—		—		(91)
End of period	$	29	$	1,845	$	(294)	$	6,139	$	(1,723)	$	5,996
Three months ended April 4, 2020
Beginning of period	$	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)
End of period	$	29	$	1,711	$	(74)	$	5,727	$	(1,859)	$	5,534

Dividends per share of common stock were $0.02 for both the first quarter of ~~2020~~2021 and ~~2019.~~

2020.

Table of Contents

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

April 4,
March 30,
(In thousands)
2020
2019
Basic weighted-average shares outstanding

228,311

234,839
Dilutive effect of stock options

616

1,598
Diluted weighted-average shares outstanding

228,927

236,437


	Three Months Ended
(In thousands)		April 3, 2021	April 4, 2020
Basic weighted-average shares outstanding		227,009	228,311
Dilutive effect of stock options		1,275	616
Diluted weighted-average shares outstanding		228,284	228,927

Stock options to purchase ~~7.5~~4.3 million and ~~3.1~~7.5 million shares of common stock ~~are~~were excluded from the calculation of diluted weighted-average shares outstanding for the first quarter of ~~2020~~2021 and ~~2019,~~2020, 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 Gain (Losses) on Hedge Contracts		Accumulated Other Comprehensive Loss
Balance at January 2, 2021	$	(1,780)	$	42	$	(1)	$	(1,739)
Other comprehensive loss before reclassifications	0		(32)		4		(28)
Reclassified from Accumulated other comprehensive loss	30		14		0		44
Balance at April 3, 2021	$	(1,750)	$	24	$	3	$	(1,723)
Balance at January 4, 2020	$	(1,811)	$	(36)	$	0	$	(1,847)
Other comprehensive loss before reclassifications	0		(40)		(8)		(48)
Reclassified from Accumulated other comprehensive loss	37		0		(1)		36
Balance at April 4, 2020	$	(1,774)	$	(76)	$	(9)	$	(1,859)

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:

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

April 3, 2021 April 4, 2020
(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* $ 38 $ (9) $ 29 $ 46 $ (10) $ 36
Amortization of prior service cost* 2 (1) 1 2 (1) 1
Pension and postretirement benefits adjustments, net 40 (10) 30 48 (11) 37
Foreign currency translation adjustments:
Foreign currency translation adjustments (32) 0 (32) (37) (3) (40)
Business disposition 14 0 14 0 0 0
Foreign currency translation adjustments, net (18) 0 (18) (37) (3) (40)
Deferred gains (losses) on hedge contracts:
Current deferrals 5 (1) 4 (9) 1 (8)
Reclassification adjustments 0 0 0 (1) 0 (1)
Deferred gains (losses) on hedge contracts, net 5 (1) 4 (10) 1 (9)
Total $ 27 $ (11) $ 16 $ 1 $ (13) $ (12)

*These components of other comprehensive income (loss) are included in the computation of net periodic pension cost (credit). See Note 16 of our ~~2019~~2020 Annual Report on Form 10-K for additional information.

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Note ~~11.~~9. Segment Information

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

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


	Three Months Ended
(In millions)		April 3, 2021		April 4, 2020
Revenues
Textron Aviation		$	865	$	872
Bell		846		823
Textron Systems		328		328
Industrial		825		740
Finance		15		14
Total revenues		$	2,879	$	2,777
Segment Profit
Textron Aviation		$	47	$	3
Bell		105		115
Textron Systems		51		26
Industrial		47		9
Finance		6		3
Segment profit		256		156
Corporate expenses and other, net		(40)		(14)
Interest expense, net for Manufacturing group		(35)		(34)
Special charges		(6)		(39)
Gain on business disposition		15		0

Income before income taxes		$	190	$	69

��

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 ~~12.~~10. Revenues

Disaggregation of Revenues

Our revenues disaggregated by major product type are presented below:

��

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


	Three Months Ended
(In millions)		April 3, 2021		April 4, 2020
Aircraft		$	535	$	515
Aftermarket parts and services		330		357
Textron Aviation		865		872
Military aircraft and support programs		577		620
Commercial helicopters, parts and services		269		203
Bell		846		823
Air systems*		123		136
Land and sea systems*		57		60
Other		148		132
Textron Systems		328		328
Fuel systems and functional components		497		465
Specialized vehicles		328		275
Industrial		825		740
Finance		15		14
Total revenues		$	2,879	$	2,777

*At the beginning of 2021, Textron Systems began reporting under the Air Systems, Land and Sea Systems and Other product lines to reflect a reorganization and transfer of certain products. Prior period revenues have been reclassified to conform to current period presentation.

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

(In millions)
Textron
Aviation
Bell
Textron
Systems
Industrial
Finance
Total
Three months ended 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
U.S. Government

42

509

233

7

—

791
Total revenues
  $
1,134
  $
739
  $
307
  $
912
  $
17
  $
3,109
Geographic location:

United States
  $
789
  $
578
  $
257
  $
389
  $
8
  $
2,021
Europe

183

20

23

311

1

538
Asia and Australia

23

82

16

77

1

199
Other international

139

59

11

135

7

351
Total revenues
  $
1,134
  $
739
  $
307
  $
912
  $
17
  $
3,109

(In millions) Textron
Aviation Bell Textron
Systems Industrial Finance Total
Three months ended April 3, 2021
Customer type:
Commercial $ 846 $ 266 $ 58 $ 820 $ 15 $ 2,005
U.S. Government 19 580 270 5 0 874
Total revenues $ 865 $ 846 $ 328 $ 825 $ 15 $ 2,879
Geographic location:
United States $ 609 $ 616 $ 289 $ 378 $ 8 $ 1,900
Europe 84 36 10 236 0 366
Asia and Australia 76 79 16 94 2 267
Other international 96 115 13 117 5 346
Total revenues $ 865 $ 846 $ 328 $ 825 $ 15 $ 2,879
Three months ended April 4, 2020
Customer type:
Commercial $ 848 $ 198 $ 71 $ 739 $ 14 $ 1,870
U.S. Government 24 625 257 1 0 907
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

Remaining Performance Obligations

Our remaining performance obligations, which is the equivalent of our backlog, represent the expected transaction price allocated to our contracts that we expect to recognize as revenues in future periods when we perform under the contracts. These remaining obligations exclude unexercised contract options and potential orders under ordering-type contracts such as Indefinite Delivery, Indefinite Quantity contracts. At April ~~4, 2020,~~3, 2021, we had ~~$9.2~~$9.6 billion in remaining performance obligations of which we expect to recognize revenues of approximately ~~72%~~73% through ~~2021,~~2022, an additional ~~21%~~23% through ~~2023,~~2024, 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 April ~~4, 2020~~3, 2021 and January ~~4, 2020,~~2, 2021, contract assets totaled ~~$565~~$578 million and ~~$567~~$561 million, respectively, and contract liabilities totaled ~~$930~~$887 million and ~~$830~~$842 million, respectively, reflecting timing differences between revenue recognized, billings and payments from customers. During the first quarter of ~~2020~~2021 and ~~2019,~~2020, we recognized revenues of ~~$231~~$278 million and ~~$311~~$231 million, respectively, that were included in the contract liability balance at the beginning of each year.

Note ~~13.~~11. Share-Based Compensation

Under our share-based compensation ~~plans,~~plan, we have authorization to provide awards to selected employees and non-employee directors in the form of stock options, restricted stock, restricted stock units, stock appreciation rights, performance stock, performance share units and other awards. Compensation expense, or income in periods of share price depreciation, ~~for these plans~~related to share-based compensation is included in net income as follows:

��

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


	Three Months Ended
(In millions)	April 3, 2021		April 4, 2020
Compensation expense (income)	$	55	$	(13)
Income tax (benefit) expense	(13)		3
Total net compensation expense (income) included in net income	$	42	$	(10)

Compensation expense (income) ~~expense~~ included stock option expense of $12 million in the first quarter of 2021 and $10 million in the first quarter ~~2020 and $11 million in the first quarter~~ of ~~2019.~~

2020.

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Stock Options

Options to purchase our shares have a maximum term of ten years and generally vest ratably over a three-year period. Stock option compensation cost is calculated under the fair value approach using the Black-Scholes option-pricing model to determine the fair value of options granted on the date of grant. The expected volatility used in this model is based on historical volatilities and implied volatilities from traded options on our common ~~stock, historical volatilities and other factors.~~stock. The expected term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior.

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

March 1,
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


	March 1, 2021		March 1, 2020
Fair value of options at grant date	$	15.05	$	10.66
Dividend yield	0.2%		0.2%
Expected volatility	33.6%		29.3%
Risk-free interest rate	0.7%		1.1%
Expected term (in years)	4.7		4.7

The stock option activity during the first quarter of ~~2020~~2021 is provided below:

��

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


(Options in thousands)	Number of Options	Weighted- Average Exercise Price
Outstanding at January 2, 2021	9,810	$	44.03
Granted	1,480	51.56
Exercised	(812)	(33.08)
Forfeited or expired	(59)	(45.91)
Outstanding at April 3, 2021	10,419	$	45.94
Exercisable at April 3, 2021	7,062	$	45.54

At April ~~4, 2020, the~~3, 2021, our outstanding options had an aggregate intrinsic value of ~~our outstanding~~$117 million and ~~exercisable options was de minimis and these options had~~ a weighted-average remaining contractual life of ~~6.2~~6.4 years. Our exercisable options had an aggregate intrinsic value of $83 million and ~~4.9~~a weighted-average remaining contractual life of 5.1 years ~~respectively.~~at April 3, 2021. The total intrinsic value of options exercised induring the first quarter of 2021 and 2020 was $15 million and ~~2019 was~~ $3 million, ~~and $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~~one-third each in the third, fourth and fifth year following the year of the grant. The fair value of these units is based on the trading price of our common stock. For units payable in stock, we use the trading price on the grant date, while units payable in cash are remeasured using the price at each reporting period date. The activity for restricted stock units payable in both stock and cash during the first quarter of ~~2020~~2021 is provided below:

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


	Units Payable in Stock			Units Payable in Cash
(Shares/Units in thousands)	Number of Shares	Weighted- Average Grant Date Fair Value		Number of Units	Weighted- Average Grant Date Fair Value
Outstanding at January 2, 2021, nonvested	583	$	47.60	1,145	$	48.53
Granted	124	51.56		333	51.56
Vested	(127)	(46.14)		(251)	(46.42)
Forfeited	0	0		(23)	(48.33)
Outstanding at April 3, 2021, nonvested	580	$	48.77	1,204	$	49.82

~~Table of Contents~~

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


	Three Months Ended
(In millions)	April 3, 2021		April 4, 2020
Fair value of awards vested	$	19	$	17
Cash paid	13		11

Table of Contents

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 activity for our performance share units during the first quarter of ~~2020~~2021 is ~~provided below:~~

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

as follows:


(Units in thousands)	Number of Units	Weighted- Average Grant Date Fair Value
Outstanding at January 2, 2021, nonvested	514	$	47.02
Granted	256	51.56
Outstanding at April 3, 2021, nonvested	770	$	48.52

Cash paid under these awards totaled $7$6 million and ~~$10~~$7 million in the first quarter of 2021 and 2020, ~~and 2019,~~ respectively.

Note ~~14.~~12. 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:

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

Three Months Ended
(In millions) April 3,
2021 April 4,
2020
Pension Benefits
Service cost $ 29 $ 26
Interest cost 63 73
Expected return on plan assets (144) (144)
Amortization of net actuarial loss 39 46
Amortization of prior service cost 3 3
Net periodic benefit cost (credit) $ (10) $ 4
Postretirement Benefits Other Than Pensions
Service cost $ 1 $ 1
Interest cost 1 2
Amortization of net actuarial loss (1) 0
Amortization of prior service credit (1) (1)
Net periodic benefit cost $ 0 $ 2

Note ~~15.~~13. Special Charges

First Quarter 2021 Charges

In the first quarter of 2021, we recorded special charges of $6 million related to a restructuring plan. This plan was initiated in the second quarter of 2020 to reduce operating expenses through headcount reductions, facility consolidations and other actions in response to the economic challenges and uncertainty resulting from the COVID-19 pandemic, and was expanded in the third quarter of 2020 to include additional headcount reductions and facility consolidations. Since inception of the plan, we have incurred total charges of $114 million, which included severance costs of $73 million for the termination of approximately 2,700 employees, asset impairment charges of $24 million and contract terminations and other costs of $17 million. Of these amounts, $40 million was incurred at Industrial, $37 million at Textron Systems, $33 million at Textron Aviation, and $4 million at Corporate. We expect to incur additional contract termination costs and other charges in the range of $14 million to $24 million, primarily in the Industrial segment, and expect the plan to be substantially completed in the third quarter of 2021.

First Quarter 2020 Charges

In the first quarter of 2020, we ~~recorded~~recognized $39 million inof intangible asset impairment charges inat the Textron Aviation and Industrial segments. ~~The aviation industry in which Textron Aviation operates has been significantly impacted by~~Due to the impact of the COVID-19 ~~pandemic. We have~~pandemic, we 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~~had temporarily shut down most aircraft production, including the King Air turboprop and Beechcraft piston product lines, and ~~has~~had instituted employee furloughs. Based on these events, we performed an interim impairment test of the indefinite-lived Beechcraft and King Air trade name intangible assets ~~at April 4, 2020. Fair value of these assets was determined utilizing the relief of royalty method assuming an increase in the discount rate based on 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~~recorded an impairment charge of $32 million. ~~At April 4, 2020, these intangible assets totaled $169 million.~~

Table of Contents

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

Restructuring Reserve

Our restructuring reserve activity is summarized below:


			Contract
	Severance		Terminations
(In millions)	Costs		and Other		Total
Balance at January 2, 2021	$	43	$	9	$	52
Provision for 2020 COVID-19 restructuring plan	0		4		4
Cash paid	(13)		(4)		(17)
Foreign currency translation	(1)		0		(1)
Balance at April 3, 2021	$	29	$	9	$	38

The majority of the ~~dealers~~remaining cash outlays of $38 million is expected to be paid in 2021. Severance costs generally are paid on a lump-sum basis and ~~retail stores that sell its products~~include outplacement costs, which 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.

paid in accordance with normal payment terms.

~~Table of Contents~~

Note ~~16.~~14. Income Taxes

Our effective tax rate for the first quarter of 2021 and 2020 was 10.0% and ~~2019 was~~ 27.5% ~~and 15.6%~~, respectively. In the first quarter of 2021, the effective tax rate was lower than the U.S. federal statutory rate of 21%, primarily due to a $12 million benefit recognized for additional research and development credits related to prior years. 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, primarily due to a $12 million benefit recognized for additional research credits related to prior years.

Note ~~17.~~15. Commitments and Contingencies

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

Table of Contents

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

~~Recent Developments~~

Overview

~~The global pandemic caused by~~

In the ~~novel coronavirus, known as “COVID-19”, has led to worldwide facility closures, workforce disruptions, supply chain destabilizations, reduced~~first quarter of 2021, customer 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~~products increased relative 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~~levels experienced since 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 uncertaintiesbegan. For additional information regarding ~~the COVID-19 pandemic, and we are closely monitoring~~ the impact of the pandemic on ~~all aspects~~our operations in 2020, see our Annual Report on Form 10-K for the year ended January 2, 2021.

Key financial highlights for the first quarter of 2021, with comparisons to the first quarter of 2020, include:

•Net income of $171 million, or $0.75 per diluted share, an increase of $121 million or $0.53 per diluted share.

•Segment profit increased $100 million, 64%, on a 4% increase in revenues.

•Gross margin at our Manufacturing businesses increased by 260 basis points to 16.2%.

•Generated $107 million of net cash from operating activities of our ~~business, including how it will impact our customers, employees, suppliers, vendors, business partners and distribution channels. The ultimate extent~~manufacturing businesses, an increase 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.~~

$500 million.

~~Table of Contents~~

Consolidated Results of Operations

Three Months Ended

April 4,
March 30,



(Dollars in millions)
2020
2019

  % Change
Revenues
  $
2,777
  $
3,109

(11)
%
Cost of sales

2,387

2,577

(7)
%
Selling and administrative expense

263

307

(14)
%
Gross margin as a percentage of Manufacturing revenues

13.6
%

16.7
%


	Three Months Ended
(Dollars in millions)		April 3, 2021		April 4, 2020		% Change
Revenues		$	2,879	$	2,777	4%
Cost of sales		2,400		2,387		1%
Selling and administrative expense		298		263		13%
Gross margin as a percentage of Manufacturing revenues		16.2%		13.6%

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 2220 to ~~26.~~

24.

Revenues

Revenues ~~decreased $332~~increased $102 million, ~~11%~~4%, in the first quarter of ~~2020,~~2021, compared with the first quarter of ~~2019. The net revenue decrease included~~2020, primarily due to higher revenues of $85 million in 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.~~

Industrial segment, reflecting higher volume and mix of $47 million and a favorable impact of $20 million from pricing, primarily in the Specialized Vehicles product line, along with $18 million from foreign exchange rate fluctuations. Revenues in the Bell segment also increased $23 million, reflecting higher commercial revenues of $66 million, partially offset by lower military revenues.

Cost of Sales and Selling and Administrative Expense

Cost of sales ~~decreased $190~~increased $13 million, 7%1%, in the first quarter of ~~2020,~~2021, compared with the first quarter of ~~2019, largely resulting from lower net volume and mix described above.~~2020. Gross margin as a percentage of Manufacturing revenues ~~decreased 310~~increased 260 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~~2021, primarily due to ~~temporary manufacturing facility closures~~higher margins in the Industrial and ~~employee furloughs resulting from the COVID-19 pandemic.~~

Textron Aviation segments.

Selling and administrative expense ~~decreased $44~~increased $35 million, ~~14%~~13%, in the first quarter of ~~2020,~~2021, compared with the first quarter of ~~2019,~~2020, primarily reflecting ~~lower~~higher share-based compensation expense.

Special Charges

Special charges of $6 million and $39 million in the first quarter of 2021 and 2020, ~~we recorded $39 million in asset~~respectively, included restructuring activities and impairment charges, respectively, as described in Note 13 to the Textron Aviation and Industrial segments. In light of the 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 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.

Consolidated Financial Statements.

Income Taxes

Table of Contents

Backlog

Our backlog is summarized below:

April 4,
January 4,
(In millions)
2020
2020
Bell
  $
6,416
  $
6,902
Textron Aviation

1,423

1,714
Textron Systems

1,371

1,211
Total backlog
  $
9,210
  $
9,827

Bell's backlog decreased $486 million, 7%, primarily as a result of revenues recognized on our U.S. Government contracts in excess of new contracts received. Backlog at Textron Aviation decreased $291 million, 17%, primarily due to a fractional jet customer that reduced orders based on its revised demand outlook as a result of the pandemic. Textron Systems' backlog increased $160 million, 13%, primarily due to new contracts received in excess of revenues recognized in the Unmanned Systems product line and the Weapons and Sensors System business in the Simulation, Training and Other product line.

(In millions) April 3,
2021 January 2,
2021
Bell $ 5,192 $ 5,342
Textron Systems 2,359 2,556
Textron Aviation 2,055 1,603
Total backlog $ 9,606 $ 9,501

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

Approximately ~~24%~~30% of our ~~2019~~2020 revenues were derived from contracts with the U.S. Government, including those under the U.S. Government-sponsored foreign military sales program. For our segments that contract with the U.S. Government, changes in revenues related to these contracts are expressed in terms of volume. Changes in segment profit for these contracts are typically expressed in terms of volume and mix and performance; these include cumulative catch-up adjustments associated with a) revisions to the transaction price that may reflect contract modifications or changes in assumptions related to award fees and other variable consideration or b) changes in the total estimated costs at completion due to improved or deteriorated operating performance.

Textron Aviation


	Three Months Ended
(Dollars in millions)		April 3, 2021		April 4, 2020		% Change
Revenues:
Aircraft		$	535	$	515	4%
Aftermarket parts and services		330		357		(8)%
Total revenues		865		872		(1)%
Operating expenses		818		869		(6)%
Segment profit		47		3		1467%
Profit margin		5.4%		0.3%

Table of Contents

~~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 Revenues and Operating Expenses

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


(In millions)					Q1 2021 versus Q1 2020~~versus~~
~~(In millions)~~		~~2019~~
Volume and mix	$		~~(260)~~$	(13)
Pricing					~~(2)~~6
Total change		$			~~(262)~~$	(7)

Textron Aviation’s revenues decreased ~~$262~~$7 million, ~~23%~~1%, in the first quarter of ~~2020,~~2021, compared with the first quarter of ~~2019, primarily~~2020, due to lower volume and mix of ~~$260~~$13 million, ~~largely~~primarily reflecting lower aftermarket volume, partially offset by higher pricing. We delivered 28 Citation jets and 14 commercial turboprops in the ~~result~~first quarter of ~~lower Citation jet volume of $154 million and lower commercial turboprop volume of $99 million. We delivered~~2021, compared with 23 Citation jets and 16 commercial turboprops in the first quarter of ~~2020, compared with 44 Citation jets and 44 commercial turboprops~~2020.

Textron Aviation’s operating expenses decreased $51 million, 6% in the first quarter of ~~2019. The decrease in Citation jet and turboprop volume reflected a decline in demand related to~~2021, compared with the ~~pandemic, disruption in our composite manufacturing production~~first quarter of 2020, primarily due to a ~~plant accident that occurred in December 2019,~~$29 million favorable impact from lower volume and ~~delays in the acceptance of aircraft related to COVID-19 travel restrictions.~~

~~Textron Aviation’s operating~~mix. Operating expenses ~~decreased $159 million, 15%,~~ in the first quarter of 2020 ~~compared with the first quarter~~were also negatively impacted by $12 million of ~~2019, largely due to lower volume and mix as described above.~~

idle facility costs.

Textron Aviation Segment Profit

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


(In millions)					Q1 2021 versus Q1 2020~~versus~~
~~(In millions)~~ Performance		~~2019~~			$	25
Volume and mix		$			~~(72)~~16
~~Performance~~ Pricing, net of inflation					~~(23)~~3
~~Inflation, net of pricing~~			~~(8)~~
Total change	$		~~(103)~~$	44

Segment profit at Textron Aviation ~~decreased $103~~increased $44 million in the first quarter of ~~2020,~~2021, compared with the first quarter of ~~2019,~~2020, primarily due to ~~the~~a favorable impact from ~~lower~~performance of $25 million and volume and mix of ~~$72~~$16 million, ~~described above and an unfavorable impact~~largely reflecting the mix of ~~$23 million from performance, which includes~~products sold. Performance included a $12 million ofimpact from 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. These facility closures and employee furloughs will continue into the second quarter of 2020, which will result in additional idle facility costs.

2020.

Bell

~~Table of Contents~~


	Three Months Ended
(Dollars in millions)		April 3, 2021		April 4, 2020		% Change
Revenues:
Military aircraft and support programs		$	577	$	620	(7)%
Commercial helicopters, parts and services		269		203		33%
Total revenues		846		823		3%
Operating expenses		741		708		5%
Segment profit		105		115		(9)%
Profit margin		12.4%		14.0%

~~Bell~~

Three Months Ended

April 4,
March 30,



(Dollars in millions)
2020
2019

% Change
Revenues:




Military aircraft and support programs
  $
620
  $
508

22
%
Commercial helicopters, parts and services

203

231

(12)
%
Total revenues

823

739

11
%
Operating expenses

708

635

11
%
Segment profit

115

104

11
%
Profit margin

14.0
%

14.1
%

Bell’s major U.S. Government programs at this time are the V-22 tiltrotor aircraft and the H-1 helicopter platforms, which are both in the production and support stage and represent a significant portion of Bell’s revenues from the U.S. Government.

Bell Revenues and Operating Expenses

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


(In millions)					Q1 2021 versus Q1 2020~~versus~~
~~(In millions)~~		~~2019~~
Volume and mix	$		80$	19
Other					4
Total change		$			84$	23

Bell’s revenues increased ~~$84~~$23 million, ~~11%~~3%, in the first quarter of ~~2020,~~2021, compared with the first quarter of ~~2019, as~~2020, reflecting higher ~~military~~commercial revenues of ~~$112~~$66 million, ~~was~~ partially offset by lower ~~commercial revenues, principally due to delayed deliveries as a result of COVID-19 travel restrictions.~~military revenues. We delivered 17 commercial helicopters in the first quarter of 2021, compared with 15 commercial helicopters in the first quarter of ~~2020, compared with 30 commercial helicopters in the first quarter~~2020.

Table of ~~2019.~~

Contents

Bell’s operating expenses increased ~~$73~~$33 million, ~~11%~~5%, in the first quarter of ~~2020,~~2021, compared with the first quarter of ~~2019,~~2020, primarily due to higher net volume and mix described ~~above.~~

above and higher research and development costs, largely related to the future vertical lift programs.

Bell Segment Profit

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


(In millions)					Q1 2021 versus Q1 2020~~versus~~
~~(In millions)~~ Performance and other		~~2019~~			$	(7)
Volume and mix		$			19(3)
~~Performance and other~~			~~(8)~~
Total change	$		11$	(10)

Bell’s segment profit ~~increased $11~~decreased $10 million, ~~11%~~9%, in the first quarter of ~~2020,~~2021, compared with the first quarter ~~of 2019,~~2020, primarily due to ~~the impact of higher volume and mix, partially offset by~~ an unfavorable impact of $8$7 million from performance and ~~other. Performance and~~ other, which included ~~$25 million in lower net favorable program adjustments, partially offset by lower~~higher research and development ~~costs.~~

costs discussed above.

~~Table of Contents~~

Textron Systems

Three Months Ended

April 4,
March 30,



(Dollars in millions)
2020
2019

% Change
Revenues
  $
328
  $
307

7
%
Operating expenses

302

279

8
%
Segment profit

26

28

(7)
%
Profit margin

7.9
%

9.1
%

Three Months Ended
(Dollars in millions) April 3,
2021 April 4,
2020 % Change
Revenues $ 328 $ 328 —%
Operating expenses 277 302 (8)%
Segment profit 51 26 96%
Profit margin 15.5% 7.9%

Textron Systems Revenues and Operating Expenses

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


(In millions)		Q1 2021 versus Q1 2020~~versus~~
~~(In millions)~~	~~2019~~
Volume	$	20$	6
Other		1(6)
Total change	$	21$	—

~~Revenues at Textron Systems increased $21 million, 7%, in~~

In the first quarter of ~~2020,~~2021, Textron Systems revenues reflected higher volume of $6 million, compared with the first quarter of ~~2019, largely due~~2020. Other included the impact of a $7 million reduction in revenues as a result of the cessation of manufacturing at the TRU Simulation + Training Canada Inc. (TRU Canada) facility which occurred in the second quarter of 2020 related to ~~higher volume~~the impact of the pandemic on that business. In January 2021, we sold TRU Canada as discussed in ~~most product lines.~~

Note 2 to the Consolidated Financial Statements.

Textron ~~Systems’~~Systems' operating expenses ~~increased $23~~decreased $25 million, 8%, in the first quarter of ~~2020,~~2021, compared with the first quarter of ~~2019,~~2020, primarily ~~due~~related to ~~higher net volume described above.~~

the cessation of manufacturing at TRU Canada.

Textron Systems Segment Profit

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


(In millions)					Q1 2021 versus Q1 2020 ~~versus~~
~~(In millions)~~		~~2019~~
Performance and other	$		~~(13)~~$	27

Volume and mix					11(2)
Total change		$			~~(2)~~$	25

Textron Systems’ segment profit ~~decreased $2~~increased $25 million ~~7%,~~ in the first quarter of ~~2020,~~2021, compared with the first quarter of ~~2019, as unfavorable~~2020, primarily due to a favorable impact of $27 million from performance and other, ofwhich included a $13 million ~~was~~impact largely ~~offset by the impact from higher volume described above. Performance and other included a $12 million~~related to unfavorable ~~impact~~performance at TRU Canada in the ~~Simulation + Training business.~~

first quarter of 2020.

Table of Contents

Industrial

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
%

Three Months Ended
(Dollars in millions) April 3,
2021 April 4,
2020 % Change
Revenues:
Fuel systems and functional components $ 497 $ 465 7%
Specialized vehicles 328 275 19%
Total revenues 825 740 11%
Operating expenses 778 731 6%
Segment profit 47 9 422%
Profit margin 5.7% 1.2%

Industrial Revenues and Operating Expenses

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


(In millions)					Q1 2021 versus Q1 2020~~versus~~
~~(In millions)~~		~~2019~~
Volume and mix	$		~~(164)~~$	47
~~Foreign exchange~~ Pricing					~~(9)~~20
~~Other~~ Foreign exchange					118
Total change		$			~~(172)~~$	85

~~Table of Contents~~

Industrial segment revenues ~~decreased $172~~increased $85 million, ~~19%~~11%, in the first quarter of ~~2020,~~2021, compared with the first quarter of ~~2019, largely~~2020, due to ~~lower~~higher volume and mix of ~~$164~~$47 million ~~largely in the Fuel Systems~~ and ~~Functional Components product line related to manufacturing facility closures that began in China in January and expanded to European and North American locations by the end~~a favorable impact of 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$20 million from pricing, primarily in the Specialized Vehicles product line, ~~was~~along with $18 million from foreign exchange rate fluctuations, primarily related to ~~reduced demand and temporary manufacturing facility closures as~~ the ~~consumer and commercial markets in which it operates have been impacted by the pandemic.~~

Euro.

Operating expenses for the Industrial segment ~~decreased $131~~increased $47 million, ~~15%~~6%, in the first quarter of ~~2020,~~2021, compared with the first quarter of ~~2019,~~2020, primarily due to ~~lower~~higher volume and mix described ~~above.~~

above, and an unfavorable impact from foreign exchange rate fluctuations.

Industrial Segment Profit

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


(In millions)					Q1 2021 versus Q1 2020~~versus~~
~~(In millions)~~		~~2019~~
Volume and mix	$		~~(45)~~$	16
~~Pricing and inflation~~ Performance					311
~~Performance and other~~ Pricing, net of inflation					111

Total change		$			~~(41)~~$	38

Segment profit for the Industrial segment ~~decreased $41~~increased $38 million ~~82%,~~ in the first quarter of ~~2020,~~2021, compared with the first quarter of ~~2019, largely resulting from lower~~2020, reflecting higher volume and mix ~~described above.~~of $16 million, favorable pricing, net of inflation of $11 million, and favorable performance of $11 million, primarily at the Specialized Vehicles product line. Performance ~~and other includes approximately~~included a $13 million ofimpact from 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 lower share-based compensation expense.~~

2020.

Table of Contents

Finance

Three Months Ended

April 4,
March 30,
(In millions)
2020
2019
Revenues
$
14
$
17
Segment profit

3

6


	Three Months Ended
(In millions)		April 3, 2021		April 4, 2020
Revenues		$	15	$	14
Segment profit		6		3

Finance segment revenues ~~and profit were largely unchanged~~increased $1 million in the first quarter of ~~2020,~~2021, compared with the first quarter of ~~2019.~~2020, and segment profit increased $3 million. The following table reflects information about the Finance segment’s credit performance related to finance receivables.

April 4,
January 4,
(Dollars in millions)
2020
2020
Finance receivables
  $
706
  $
707
Allowance for credit losses

25

25
Ratio of allowance for credit losses to finance receivables

3.54
%

3.54
%
Nonaccrual finance receivables

37

39
Ratio of nonaccrual finance receivables to finance receivables

5.24
%

5.52
%
60+ days contractual delinquency
  $
55
  $
17
60+ days contractual delinquency as a percentage of finance receivables

7.79
%

2.40
%

~~During~~


(Dollars in millions)	April 3, 2021		January 2, 2021
Finance receivables	$	705	$	779
Allowance for credit losses	33		35
Ratio of allowance for credit losses to finance receivables	4.68%		4.49%
Nonaccrual finance receivables	112		93
Ratio of nonaccrual finance receivables to finance receivables	15.89%		11.94%
60+ days contractual delinquency	26		29
60+ days contractual delinquency as a percentage of finance receivables	3.69%		3.72%

Since the first quarter of 2020, ~~60+ days delinquency increased by $38 million, largely due to one customer. The~~the Finance segment ~~is working~~has worked with certain customers impacted by the pandemic to provide payment 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.~~modifications. 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~~Loan modifications and key portfolio quality indicators ~~for the portfolio~~ are discussed in Note 3 to the ~~consolidated financial statements.~~

Consolidated Financial Statements.

~~Table of Contents~~

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)
2020
2020
Manufacturing group





Cash and equivalents
  $
2,263
  $
1,181
Debt

4,352

3,124
Shareholders’ equity

5,534

5,518
Capital (debt plus shareholders’ equity)

9,886

8,642
Net debt (net of cash and equivalents) to capital

27
%

26
%
Debt to capital

44
%

36
%
Finance group





Cash and equivalents
  $
183
  $
176
Debt

682

686

~~As discussed~~


(Dollars in millions)	April 3, 2021		January 2, 2021
Manufacturing group
Cash and equivalents	$	1,897	$	2,146
Debt	3,440		3,707
Shareholders’ equity	5,996		5,845
Capital (debt plus shareholders’ equity)	9,436		9,552
Net debt (net of cash and equivalents) to capital	20%		21%
Debt to capital	36%		39%
Finance group
Cash and equivalents	$	181	$	108
Debt	653		662

We believe that our calculations of debt to capital and net debt to capital are useful measures as they provide a summary indication of the level of debt financing (i.e., leverage) that is in place to support our capital structure, as well as to provide an indication of the ~~Recent Developments section on page 20, the COVID-19 pandemic has led~~capacity to volatility in the capital markets and uncertainty in the economic outlook, in addition to various degrees of disruption in our operations due to the unprecedented conditions surrounding the pandemic. In light of 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 development projects, and other cost reduction and cash preservation actions. 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.add further leverage. 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 ~~the availability~~other available funding alternatives, as appropriate.

Table of ~~our existing credit facility.~~

Contents

Credit Facilities and Other Sources of Capital

Textron has a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 billion, of which up to $100 million is available for the issuance of letters of credit. We may elect to increase the aggregate amount of commitments under the facility to up to $1.3 billion by designating an additional lender or by an existing lender agreeing to increase its commitment. The facility expires in October 2024, subject to up to two one-year extensions at our option with the consent of lenders representing a majority of the commitments under the facility. At April ~~4, 2020~~3, 2021 and January ~~4, 2020,~~2, 2021, 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~~facility and there were $9 million of ~~$500 million and borrowed the full principal amount available~~outstanding letters of credit issued 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.

~~Table of Contents~~

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

April 4,
March 30,
(In millions)
2020
2019
Operating activities
$
(393)
$
(196)
Investing activities

(56)

(56)
Financing activities

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.


	Three Months Ended
(In millions)	April 3, 2021		April 4, 2020
Operating activities	$	107	$	(393)
Investing activities	(14)		(56)
Financing activities	(339)		1,548

In the first quarter of 2021, net cash inflow from operating activities increased $500 million to $107 million, compared with a net cash outflow of $393 million in the first quarter of 2020. The first quarter of 2020 reflects the net cash outflow from operating activities ~~was $393~~that we typically have in the first quarter. The quarter over quarter increase in net cash inflow reflected working capital improvements with a favorable change of $308 million ~~compared~~from accounts payable and $190 million from inventories, both primarily at the Textron Aviation segment, along with ~~$196~~an increase in earnings, partially offset by a net cash outflow of $150 million from changes in accounts receivable.

In the first quarter of 2021 and 2020, cash flows used in investing activities included capital expenditures of $53 million and $50 million, respectively. Investing activities in the first quarter of ~~2019, primarily reflecting lower earnings and an increase in cash outflows~~2021 also included $39 million of ~~$127 million related to changes in inventories between~~net proceeds from the ~~periods, principally at the Textron Aviation segment.~~

disposition of TRU Canada.

Cash flows used ~~in investing~~by financing activities ~~primarily included capital expenditures of $50 million and $59 million~~ in the first quarter of ~~2020~~2021 included $267 million of payments on long-term debt and ~~2019, respectively.~~

$91 million of cash paid to repurchase an aggregate of 1.8 million shares of our common stock. In the first quarter of 2020, cash flows provided by financing activities primarily included $643 million of net proceeds ~~of $643 million~~ from the issuance of long-term debt, ~~and~~ $498 million from borrowings under ~~the~~a 364-Day Term Loan facility, ~~discussed above. In addition, we received~~ $377 million inof proceeds from borrowings against corporate-owned life insurance policies and $105 million of proceeds from the issuance of commercial ~~paper. These cash inflows were~~paper, 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 a recent repurchase plan as described below. In the first quarter of 2019, cash flows used in financing activities primarily included $202 million of cash paid to repurchase an aggregate of 3.9 million shares of our outstanding common ~~stock, partially offset by $100 million of proceeds from the issuance of 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

April 4,
March 30,
(In millions)
2020
2019
Operating activities
$
(1)
$
5
Investing activities

13

39
Financing activities

(5)

(68)


	Three Months Ended
(In millions)	April 3, 2021		April 4, 2020
Operating activities	$	5	$	(1)
Investing activities	88		13
Financing activities	(20)		(5)

The Finance group’s cash flows from investing activities primarily included collections on finance receivables totaling ~~$46~~$89 million and ~~$40~~$46 million in the first quarter of ~~2020~~2021 and ~~2019,~~2020, respectively, partially offset by finance receivable originations of $7 million and $33 million, ~~and $29 million,~~ respectively. ~~Financing activities in~~In the first quarter of ~~2019~~2021 and 2020, financing activities included ~~a dividend payment~~payments on long-term and nonrecourse debt of ~~$50~~$20 million ~~to the Manufacturing group.~~

and $17 million, respectively.

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Consolidated Cash Flows

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

Three Months Ended

April 4,
March 30,
(In millions)
2020
2019
Operating activities
$
(394)
$
(216)
Investing activities

(43)

(42)
Financing activities

1,543

(116)


	Three Months Ended
(In millions)	April 3, 2021		April 4, 2020
Operating activities	$	181	$	(394)
Investing activities	5		(43)
Financing activities	(359)		1,543

~~Table of Contents~~

In the first quarter of ~~2020, the~~2021, net cash inflow from operating activities increased $575 million to $181 million, compared with a net cash outflow ~~from Consolidated operating activities was~~of $394 ~~million, compared with $216~~ million in the first quarter of ~~2019, primarily reflecting lower earnings and an~~2020. The quarter over quarter increase in net cash ~~outflows~~inflow reflected working capital improvements with a favorable change of ~~$127~~$308 million ~~related to changes in~~from accounts payable and $190 million from inventories, ~~between the periods, principally~~both primarily at the Textron Aviation ~~segment.~~

~~Investing~~segment, along with an increase in earnings and a $69 million increase in cash flows from captive financing activities. These favorable changes in cash flows were partially offset by a net cash outflow of $150 million from changes in accounts receivable.

In the first quarter of 2021 and 2020, cash flows used in investing activities primarily included capital expenditures of $53 million and $50 million, ~~and $59 million~~respectively. Investing activities in the first quarter of ~~2020 and 2019, respectively, partially offset by collections on finance receivables totaling $13~~2021 also included $39 million ~~and $12 million, respectively.~~

of net proceeds from the disposition of TRU Canada.

Cash flows ~~provided~~used by financing activities in the first quarter of 2021 included $287 million of payments on long-term debt and $91 million of cash paid to repurchase shares of our outstanding common stock. In the first quarter of 2020, cash flows provided by financing activities primarily included $643 million of net proceeds ~~of $643 million~~ from the issuance of long-term debt, ~~and~~ $498 million from borrowings under ~~the~~a 364-Day Term Loan facility, ~~discussed above. In addition, we received~~ $377 million inof proceeds from borrowings against corporate-owned life insurance policies and $105 million of proceeds from the issuance of commercial ~~paper. These cash inflows were~~paper, partially offset by $54 million of cash paid to repurchase shares of our outstanding common stock. In the first quarter of 2019, cash flows used in financing activities primarily included $202 million of cash paid to repurchase an aggregate of 3.9 million shares of our outstanding common stock, partially offset by $100 million of proceeds from the issuance of 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
(In millions)	April 3, 2021		April 4, 2020
Reclassification adjustments from investing activities to operating activities:
Cash received from customers	$	76	$	33
Finance receivable originations for Manufacturing group inventory sales	(7)		(33)




Total reclassification adjustments from investing activities to operating activities	$	69	$	—

Table of Contents

Three Months Ended

April 4,
March 30,
(In millions)
2020
2019
Reclassification adjustments from investing activities:




Finance receivable originations for Manufacturing group inventory sales
  $
(33)
  $
(29)
Cash received from customers

33

28
Other

—

26
Total reclassification adjustments from investing activities

—

25
Reclassification adjustments from financing activities:




Dividends received by Manufacturing group from Finance group

—

(50)
Total reclassification adjustments to cash flows from operating activities
  $
—
  $
(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 January ~~4, 2020.~~2, 2021. 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.

~~Table of Contents~~

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 the design, development, manufacture or modification of aerospace and defense products as well as related services. ~~Due 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

April 4,
March 30,
(In millions)
2020
2019
Gross favorable
  $
27
  $
53
Gross unfavorable

(25)

(22)
Net adjustments
  $
2
  $
31


	Three Months Ended
(In millions)		April 3, 2021		April 4, 2020
Gross favorable		$	36	$	27
Gross unfavorable		(22)		(25)
Net adjustments		$	14	$	2

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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 ~~2019~~2020 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;

•

●

~~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;

Table 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.~~

Contents

•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.

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 April ~~4, 2020.~~3, 2021. For discussion of our exposure to market risk, refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk contained in Textron’s ~~2019~~2020 Annual Report on Form 10-K.

~~Table of Contents~~

Item 4. Controls and Procedures

We performed an evaluation of the effectiveness of our disclosure controls and procedures as of April ~~4, 2020.~~3, 2021. The evaluation was performed with the participation of senior management of each business segment and key Corporate functions, under the supervision of our Chairman, President and Chief Executive Officer (CEO) and our Executive Vice President and Chief Financial Officer (CFO). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were operating and effective as of April ~~4, 2020.~~

3, 2021.

There were no changes in our internal control over financial reporting during the fiscal quarter ended April ~~4, 2020~~3, 2021 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

~~Table of Contents~~

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 ~~2020~~2021 repurchases of equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:

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

Period (shares in thousands) Total
Number of
Shares
Purchased * Average Price
Paid per Share
(excluding
commissions) Total Number of
Shares Purchased as
part of Publicly
Announced Plan * Maximum
Number of Shares
that may yet be
Purchased under
the Plan
January 3, 2021 – February 6, 2021 365 $ 46.47 365 20,925
February 7 2021 - March 6, 2021 350 50.94 350 20,575
March 7, 2021 - April 3, 2021 1,075 52.53 1,075 19,500
Total 1,790 $ 50.98 1,790

* ~~On February 25, 2020, our Board of Directors authorized~~These shares were purchased pursuant to a plan authorizing the repurchase of up to 25 million shares of ~~our~~Textron common ~~stock. This new plan has~~stock that was announced on February 25, 2020, which had no expiration 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.

date.

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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)~~

a.The ~~2020~~2021 Annual Meeting of Shareholders of Textron was held on April ~~29, 2020.~~

28, 2021.

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

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


	For	Against	Abstain	Broker Non-Vote
Scott C. Donnelly	193,330,289	7,849,175	703,899	10,873,997
Kathleen M. Bader	194,764,447	6,035,885	1,083,031	10,873,997
R. Kerry Clark	194,922,384	5,843,666	1,117,313	10,873,997
James T. Conway	181,130,275	19,709,532	1,043,556	10,873,997
Paul E. Gagné	192,553,173	8,218,473	1,111,717	10,873,997
Ralph D. Heath	196,593,155	3,838,932	1,451,276	10,873,997
Deborah Lee James	197,480,128	3,324,652	1,078,583	10,873,997
Lionel L. Nowell III	197,409,330	3,059,999	1,414,034	10,873,997
James L. Ziemer	192,237,297	8,474,498	1,171,568	10,873,997
Maria T. Zuber	196,718,570	3,738,177	1,426,616	10,873,997

For

Against

Abstain

Broker Non-Vote
Scott C. Donnelly

172,220,276

18,532,856

1,085,308

15,047,516
Kathleen M. Bader

173,822,752

16,238,609

1,777,079

15,047,516
R. Kerry Clark

172,510,636

17,116,092

2,211,712

15,047,516
James T. Conway

175,975,123

13,852,379

2,010,938

15,047,516
Paul E. Gagné

149,490,023

40,169,166

2,179,251

15,047,516
Ralph D. Heath

153,076,421

36,692,233

2,069,786

15,047,516
Deborah Lee James

175,745,351

14,033,042

2,060,047

15,047,516
Lionel L. Nowell III

185,943,643

3,635,670

2,259,127

15,047,516
James L. Ziemer

149,404,785

40,264,376

2,169,279

15,047,516
Maria T. Zuber

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
141,763,087	51,781,035	8,339,241	10,873,997

For

Against

Abstain

Broker Non-Vote
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 independent registered public accounting firm for ~~2020~~2021 was ratified by the following vote:


For	Against	Abstain
207,710,182	4,181,935	865,223

For

Against

Abstain
199,056,151

6,019,306

1,810,499

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


For	Against	Abstain	Broker Non-Vote
80,150,168	118,755,906	2,977,289	10,873,997

Table of Contents

Item 6.Exhibits


~~10.1~~ 31.1		~~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 April ~~4, 2020,~~3, 2021, 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).

Table of Contents

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.~~
			TEXTRON INC.
~~Date:~~		~~May 1, 2020~~
Date:		April 29, 2021	/s/ Mark S. Bamford
			Mark S. Bamford
		Vice President and Corporate Controller
		(principal accounting officer)


	Three Months Ended
	April 4,		March 30,
(In millions, except per share amounts)	2020		2019
Revenues
Manufacturing revenues	$	2,763	$	3,092
Finance revenues		14		17
Total revenues		2,777		3,109
Costs, expenses and other
Cost of sales		2,387		2,577
Selling and administrative expense		263		307
Interest expense		40		42
Special charges		39		—
Non-service components of pension and post-retirement income, net		(21)		(29)
Total costs, expenses and other		2,708		2,897
Income before income taxes		69		212
Income tax expense		19		33
Net income	$	50	$	179
Earnings per share
Basic	$	0.22	$	0.76
Diluted	$	0.22	$	0.76


	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


	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


			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


	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)


									Accumulated
									Other		Total
	Common		Capital		Treasury		Retained		Comprehensive		Shareholders’
(In millions)	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
Net income		—		—		—		179		—		179
Other comprehensive income		—		—		—		—		26		26
Share-based compensation activity		—		43		—		—		—		43
Dividends declared		—		—		—		(5)		—		(5)
Purchases of common stock		—		—		(202)		—		—		(202)
Balance at March 30, 2019	$	30	$	1,689	$	(331)	$	5,581	$	(1,736)	$	5,233


	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)


	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


	April 3, 2021						April 4, 2020
(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*	$	38	$	(9)	$	29	$	46	$	(10)	$	36
Amortization of prior service cost*	2		(1)		1		2		(1)		1
Pension and postretirement benefits adjustments, net	40		(10)		30		48		(11)		37
Foreign currency translation adjustments:
Foreign currency translation adjustments	(32)		0		(32)		(37)		(3)		(40)
Business disposition	14		0		14		0		0		0
Foreign currency translation adjustments, net	(18)		0		(18)		(37)		(3)		(40)
Deferred gains (losses) on hedge contracts:
Current deferrals	5		(1)		4		(9)		1		(8)
Reclassification adjustments	0		0		0		(1)		0		(1)
Deferred gains (losses) on hedge contracts, net	5		(1)		4		(10)		1		(9)
Total	$	27	$	(11)	$	16	$	1	$	(13)	$	(12)


(In millions)	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
U.S. Government		42		509		233		7		—		791
Total revenues	$	1,134	$	739	$	307	$	912	$	17	$	3,109
Geographic location:
United States	$	789	$	578	$	257	$	389	$	8	$	2,021
Europe		183		20		23		311		1		538
Asia and Australia		23		82		16		77		1		199
Other international		139		59		11		135		7		351
Total revenues	$	1,134	$	739	$	307	$	912	$	17	$	3,109


	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


			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


	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


					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


							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


Period (shares in thousands)	Total Number of Shares Purchased *	Average Price Paid per Share (excluding commissions)		Total Number of Shares Purchased as part of Publicly Announced Plan *	Maximum Number of Shares that may yet be Purchased under the Plan
January 3, 2021 – February 6, 2021	365	$	46.47	365	20,925
February 7 2021 - March 6, 2021	350	50.94		350	20,575
March 7, 2021 - April 3, 2021	1,075	52.53		1,075	19,500
Total	1,790	$	50.98	1,790


	For	Against	Abstain	Broker Non-Vote
Scott C. Donnelly	172,220,276	18,532,856	1,085,308	15,047,516
Kathleen M. Bader	173,822,752	16,238,609	1,777,079	15,047,516
R. Kerry Clark	172,510,636	17,116,092	2,211,712	15,047,516
James T. Conway	175,975,123	13,852,379	2,010,938	15,047,516
Paul E. Gagné	149,490,023	40,169,166	2,179,251	15,047,516
Ralph D. Heath	153,076,421	36,692,233	2,069,786	15,047,516
Deborah Lee James	175,745,351	14,033,042	2,060,047	15,047,516
Lionel L. Nowell III	185,943,643	3,635,670	2,259,127	15,047,516
James L. Ziemer	149,404,785	40,264,376	2,169,279	15,047,516
Maria T. Zuber	153,387,104	36,429,603	2,021,733	15,047,516