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2018 ANNUAL REPORT
TEXTRON’S DIVERSE PRODUCT PORTFOLIO
Textron is known around the world for its powerful brands of aircraft, defense
and industrial products that provide customers with groundbreaking technologies,
innovative solutions and first-class service.
TEXTRON AVIATION
BELL
INDUSTRIAL
TEXTRON SYSTEMS
Citation Longitude®
Bell V-280 Valor
Arctic Cat Wildcat™ XX
Ship-to-Shore Connector (SSC)
Citation Latitude®
Bell-Boeing MV-22 Osprey
E-Z-GO® RXV® ELiTETM
Shadow® Tactical Unmanned Aircraft System
Textron Aviation Defense
Scorpion®
Bell AH-1Z Viper
Arctic Cat M 8000 Mountain Cat Alpha One
Aerosonde® Small Unmanned
Aircraft System
Beechcraft® King Air® 350i
Bell 525 Relentless
Cushman® Hauler® 4x4
Lycoming® 390 Thunderbolt Engines®
Cessna SkyCourierTM
Bell 429 Global Ranger
Kautex Fuel Tank
TRU’s Boeing 737 MAX
Full Flight Simulator
Cessna DenaliTM
Bell 505 Jet Ranger X
Textron GSE TUG™ ALPHA 4
Howe & Howe GrizzlyTM Equipment Transport
TEXTRON’S GLOBAL NETWORK OF BUSINESSES
TEXTRON AVIATION
BELL
INDUSTRIAL
TEXTRON SYSTEMS FINANCE
Textron Aviation is home
to the Beechcraft®, Cessna®
and Hawker® aircraft brands
and continues to be a leader
in general aviation through
two principal lines of business:
aircraft and aftermarket.
Aircraft includes sales of
business jet, turboprop and
piston aircraft, as well as
special mission and military
aircraft. Aftermarket includes
commercial parts sales,
maintenance, inspection and
repair services.
Bell Helicopter is a
leading supplier of
helicopters and
related spare parts
and services. Bell
is the pioneer of the
revolutionary tiltrotor
aircraft. Globally
recognized for world-
class customer service,
innovation and superior
quality, Bell’s global
workforce serves
customers flying Bell
aircraft in more than
130 countries.
Our Industrial segment
offers two main product
lines: fuel systems and
functional components
produced by Kautex;
and specialized
vehicles such as golf
cars, recreational and
utility vehicles, aviation
ground support
equipment and
professional mowers,
manufactured by
Textron Specialized
Vehicles businesses.
Textron Systems’
businesses provide
innovative solutions to
the defense, aerospace
and general aviation
markets. Product lines
include unmanned
systems, advanced
marine craft, armored
vehicles, intelligent
software solutions,
piston engines,
simulation, training
and other defense and
aviation mission support
products and services.
Our Finance segment,
operated by Textron
Financial Corporation
(TFC), is a commercial
finance business
that provides
financing solutions for
purchasers of Textron
products, primarily
Textron Aviation aircraft
and Bell helicopters.
For more than five
decades, TFC has
played a key role for
Textron customers
around the globe.
SELECTED YEAR-OVER-YEAR FINANCIAL DATA
(Dollars in Millions, Except Per Share Amounts)
Total Revenues
Total Segment Profit
Income from Continuing Operations—GAAP
Adjusted Income from Continuing Operations—Non-GAAP1
Per Share of Common Stock
Common Stock Price at Year-End
Diluted Earnings from Continuing Operations—GAAP
Adjusted Diluted Earnings from Continuing Operations—Non-GAAP1
COMMON SHARES OUTSTANDING (In Thousands)
Diluted Average
Year-End
FINANCIAL POSITION
Total Assets
Manufacturing Group Debt
Finance Group Debt
Shareholders’ Equity
Manufacturing Group Debt-to-Capital (Net of Cash)
Manufacturing Group Debt-to-Capital
KEY PERFORMANCE METRICS
Net Cash Provided by Operating Activities of Continuing Operations for Manufacturing Group—GAAP
Manufacturing Cash Flow Before Pension Contributions—Non-GAAP1
2018
2017
$13,972
1,267
1,222
845
$ 45.65
4.83
3.34
$14,198
1,169
306
658
$ 56.59
1.14
2.45
253,237
235,621
268,750
261,471
$14,264
3,066
718
5,192
$15,340
3,088
824
5,647
29%
37%
26%
35%
$ 1,127
784
$ 930
872
1. Adjusted Income from Continuing Operations, Adjusted Diluted Earnings Per Share from Continuing Operations and Manufacturing Cash Flow Before Pension Contributions are
Non-GAAP Measures. See page 7 for a Reconciliation to GAAP.
Textron 2018 Annual Report 1
FELLOW SHAREHOLDERS,
In 2018, we returned significant capital to our
shareholders through $1.8 billion in share
repurchases and dividend payments, including
$807 million of net proceeds from the sale of
our Textron Tools & Test businesses. Reflecting
operational improvements at our Bell, Textron
Aviation and Textron Systems businesses, our
profits were $1.3 billion, an 8% increase over 2017.
Our revenues were $14.0 billion, which represented
a 2% decrease over the previous year, largely as a
result of the Tools & Test sale.
Developing innovative and exciting new products
has been the hallmark of our company and, in
2018, we made progress on many of our product
development programs while continuing to deliver
great products that surpass our customers’
expectations and fulfill their missions.
ROBUST NEW PRODUCT PIPELINE
TO DRIVE GROWTH
During the year, the Citation Longitude
circumnavigated the globe as part of a world tour to
show customers its unmatched cabin experience
and commanding performance that we expect will
set a new standard in business aviation. At the close
of 2018, the Longitude was in the final phase of
certification with Longitude operators beginning flight
training in preparation for deliveries in early 2019.
The prospects for success of the Citation Longitude
received a significant boost in October when
Textron Aviation’s long-time customer NetJets
Scott C. Donnelly
Chairman and
Chief Executive Officer
expanded its Textron relationship, announcing
agreements at the National Business Aviation
Association (NBAA) show to purchase up to 175
Longitudes as well as an option to purchase
up to 150 Citation Hemispheres. The option to
purchase the Hemisphere distinguishes NetJets
as the launch customer for Textron Aviation’s
revolutionary, clean-sheet, large-cabin aircraft
currently under development.
The Longitude will join the Citation Latitude in
NetJets’ active fleet which, since entering service
in August 2015, has become the leader in the
mid-size segment with more than 155 aircraft
flying globally. For the second consecutive year,
the Latitude earned the title of the most delivered
business jet in the mid-size category. Across our
Citation business jet portfolio, we saw strong
orders during the year, increasing Textron Aviation’s
backlog $611 million in 2018 to $1.8 billion.
We also advanced our two new turboprop
programs, unveiling a full-scale mockup of the
JANUARY
FEBRUARY
MARCH
APRIL
MAY
JUNE
Bell launches
Bell 407GXi
TRU announces delivery and Level D
qualification of world’s first simulator
with seaplane configuration
Citation Longitude
circumnavigates the globe—
a 31,000-mile journey
visiting 12 countries
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Cessna SkyCourier, our twin-engine, large utility
turboprop at NBAA, and debuting the full-scale mockup
of the Cessna Denali single-engine turboprop at the
EAA Airventure show. We anticipate first flights of both
aircraft in 2019, and expect they will expand our market
reach and attract new customers.
Throughout the year, our Bell V-280 Valor team worked
closely with U.S. Army leadership, demonstrating how
this next-generation tiltrotor aircraft will define the future
of vertical lift. In more than 80 flight hours, the V-280
continued to expand the flight envelope, proving its
remarkable agility and performing a multitude of flight
test missions with unmatched speed, range, payload,
survivability and endurance. As the program continued
to progress, the V-280 achieved, and even exceeded,
its namesake airspeed of 280 knots. We anticipate flight
testing in the year ahead to prove out additional key
performance parameters.
In an effort to strengthen Bell’s presence with military
customers and policymakers in Washington D.C., we
opened our new Advanced Vertical Lift Center in Crystal
City, Virginia. Through interactive technologies such as
our V-280 flight simulator, augmented reality system
and a scenario demonstrator to show how the V-280
meets complex operational requirements, we’re able
to share Bell’s vision for the future of vertical lift. We
also advanced our Bell V-247 Vigilant, an unmanned
aerial system tiltrotor, debuting a full-scale mockup for
Department of Defense (DoD) leadership. We’re proud of
our success with the V-280 program and our progress on
the development of the V-247, and are confident they will
meet the current and future requirements of the military.
TOTAL REVENUE BY SEGMENT
TOTAL REVENUE BY TYPE
TOTAL REVENUE BY REGION
TEXTRON AVIATION 36%
INDUSTRIAL 31%
BELL 23%
TEXTRON SYSTEMS 10%
FINANCE <1%
COMMERCIAL 76%
U.S. GOVERNMENT 24%
FINANCE <1%
U.S. 62%
EUROPE 16%
OTHER 13%
ASIA AND AUSTRALIA 9%
JANUARY
FEBRUARY
MARCH
APRIL
MAY
JUNE
Bell opens Advanced
Vertical Lift Center
TUG wins first order for new
ALPHA 4 pushback vehicle
Textron Systems begins
Ship-to-Shore Connector
on-water testing
First 737 MAX full flight
simulator, developed by
TRU, is qualified at Level D
Textron Aviation showcased its CITATION LONGITUDE during
NetJets’ 2018 Ramp Day, setting the stage for an agreement to
purchase up to 175 Longitudes.
As we moved forward with these next-generation
aircraft, we continued to win new orders for our
Bell Boeing V-22 and Bell H-1 aircraft. The U.S.
government awarded the Bell Boeing strategic alliance
contracts for production and delivery of an additional
63 V-22 aircraft for the U.S. Air Force, Marine Corps,
Navy and the government of Japan, along with related
supplies and services through 2024. Bell also received
a $510 million contract from the DoD for 29 Bell AH-1Z
attack helicopters in support of the Marine Corps H-1
upgrade program and a foreign military sales order for
12 AH-1Z attack helicopters for the Royal Bahraini Air
Force to assist with their military modernization.
Production of the Bell 505 Jet Ranger X ramped up in
2018, which was the first full year of deliveries for our
light, single-engine aircraft. Milestones included the
first international deliveries to customers in Europe,
Australia, Japan and China. In addition to civilian
deliveries, Japan’s Coast Guard became the first
governmental agency to take delivery of a Bell 505,
receiving four aircraft for use as a basic helicopter
trainer, and the Sacramento Police Department took
delivery of the first law enforcement-configured aircraft.
In less than two years since entering service, more
than 100 505s are now in operation worldwide and
they have achieved more than 10,000 flight hours.
In early 2018, Bell introduced the new Bell 407GXi,
which received U.S., European and Chinese
certifications and has since been delivered to
customers. The Bell 525 program continued its path
toward certification with the ongoing execution of its
flight test program.
Textron Systems continued to advance its Ship-to-
Shore Connector (SSC) and Common Unmanned
Surface Vehicle (CUSV) programs. Our team worked
closely with the U.S. Navy on the SSC program and
plans to deliver the first SSC craft in 2019. Reaffirming
the Navy’s commitment to the SSC program, Textron
Systems received contracts in 2018 totaling $420
million to procure long-lead time material for the initial
production contract, which is expected to be awarded
in 2019. Following Pre-Delivery Inspection and Trials,
the CUSV began Development Testing as the U.S.
Navy leads underway operations and testing as part of
its Unmanned Influence Sweep System program.
As Textron Systems continues its advancements with
unmanned products, we acquired Howe & Howe
Technologies, a leader in robotic ground vehicles.
Howe & Howe has a history of innovation that fits
nicely into Textron Systems’ unmanned platforms
and control systems. These new capabilities enhance
Textron Systems’ ability to provide unmanned solutions
for air, sea or land-based applications to meet the
current and future needs of our military.
TRU Simulation + Training and FlightSafety
International announced in October their intention
to form a joint venture that would support the global
training needs for our broad and growing product
line of business and general aviation aircraft. The joint
JULY
AUGUST
SEPTEMBER
OCTOBER NOVEMBER
DECEMBER
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Bell 525 completes hot
weather testing
U.S. Department of Defense orders 58
additional V-22 tiltrotors, which was later
increased to 63
Full-scale Bell V-247 model debuts
4 Textron 2018 Annual Report
venture is intended to provide our Textron
Aviation customers with an expanded network
of training centers, instructors and resources that
leverages the capabilities of both organizations
to provide best-in-class pilot and maintenance
training programs. TRU will be the exclusive
supplier of simulators to this joint venture for
all Textron Aviation aircraft.
The SHIP-TO-SHORE CONNECTOR team
stands with the first craft, LCAC 100, that is
planned to be delivered to the U.S. Navy in 2019.
V-280 Team-Amarillo with
the BELL V-280 VALOR
next-generation tiltrotor.
Our pace of new product introductions across our
Textron Specialized Vehicles brands reaffirmed
our commitment to continue bringing exciting new
innovations to our markets. Throughout the year, TSV
introduced new products from its Arctic Cat and TUG
brands, reflecting the breadth and depth of its product
lines. The Arctic Cat M 8000 Mountain Cat Alpha One
snowmobile had a successful debut and was named the
2019 Snowmobile of the Year by Snow Goer magazine.
The new TUG ALPHA 4 pushback, launched in July, is
now being delivered to customers who appreciate its
technology, durability and safety features. Developed with
the input of customers, the ALPHA 4 represents the first
in a family of new pushbacks to accommodate a wider
range of aircraft from regional jets to airliners that “push
back” aircraft from the airport gate. Textron Ground
Support Equipment also solidified relationships with
customers and won new business for its TUG, Douglas
Equipment and Safeaero products.
As the demand for hybrid vehicles continues to grow
worldwide, Kautex positioned itself in the automotive
industry as a leader in the development and production
of all-plastic hybrid fuel systems. During the year, Kautex
won contracts with major OEMs for these new products,
while continuing to refine and develop the technologies to
improve the quality and energy efficiency of vehicles.
A COMMITMENT TO CONTINUED GROWTH
Our success as a company has been rooted in a
consistent strategy of investments in new products,
operational improvements and focus on our customers.
We see the enthusiastic response among customers
to products like the Citation Latitude and the Bell 505,
and we’re excited about the opportunities for the new
products in our pipeline as they go through testing and
are meeting their performance milestones.
Our teams continue putting in the hard work to
improve our operational execution and drive efficiencies
throughout our company, while we build sales teams
that are focused on developing enduring customer
relationships. Our strong performance in 2018 enabled
us to return capital to our shareholders while delivering
long-term value. We’re looking forward to 2019 and
achieving even greater results in the year ahead.
Scott C. Donnelly
Chairman and Chief Executive Officer
JULY
AUGUST
SEPTEMBER
OCTOBER NOVEMBER
DECEMBER
Textron Systems and TSV
showcase Havoc-M military
concept vehicle
Textron Systems acquires
Howe & Howe Technologies
Textron Aviation and NetJets
announce record order for
Longitude and Hemisphere
Popular Science names
Bell V-280 Valor Best of
What’s New in Aerospace
Technology
LEADERSHIP
BOARD OF DIRECTORS
Scott C. Donnelly (1)
Chairman, President and CEO
Textron Inc.
Lawrence K. Fish (3) (4)
Chairman and CEO (Retired)
Citizens Financial Group, Inc.
Lloyd G. Trotter (2) (4)
Managing Partner
GenNx 360 Capital Partners
Kathleen M. Bader (2) (3)
President and CEO (Retired)
NatureWorks LLC
Paul E. Gagné (1) (2) (4) (5)
Chairman (Retired)
Wajax Corporation
James L. Ziemer (1) (4)
President and CEO (Retired)
Harley-Davidson, Inc.
R. Kerry Clark (1) (2)
Chairman and CEO (Retired)
Cardinal Health, Inc.
James T. Conway (1) (3)
General (Retired)
U.S. Marine Corps
Ralph D. Heath (2) (4)
Executive Vice President,
Aeronautics (Retired)
Lockheed Martin Corporation
Deborah Lee James (2) (3)
23rd Secretary of the
U.S. Air Force (Retired)
Maria T. Zuber (3) (4)
Vice President, Research
Massachusetts Institute of
Technology
Numbers Indicate Committee
Memberships:
(1) Executive Committee:
Chair, Scott C. Donnelly
(2) Audit Committee:
Chair, R. Kerry Clark
(3) Nominating and Corporate
Governance Committee:
Chair, James T. Conway
(4) Organization and
Compensation Committee:
Chair, James L. Ziemer
(5) Lead Director:
Paul E. Gagné
EXECUTIVE
OFFICERS
Scott C. Donnelly
Chairman, President and
Chief Executive Officer
Textron Inc.
Frank T. Connor
Executive Vice President and
Chief Financial Officer
Textron Inc.
Julie G. Duffy
Executive Vice President –
Human Resources
Textron Inc.
E. Robert Lupone
Executive Vice President,
General Counsel, Secretary and
Chief Compliance Officer
Textron Inc.
SEGMENT AND
BUSINESS UNIT
PRESIDENTS
Lisa M. Atherton
President and CEO
Textron Systems Segment
Russ Bartlett
President and CEO
Textron Airborne Solutions
Ronald Draper
President and CEO
Textron Aviation
Scott A. Ernest
President and CEO
Industrial Segment and
Textron Specialized Vehicles
Gunnar Kleveland
President
TRU Simulation + Training Inc.
R. Danny Maldonado
President and CEO
Textron Financial Corporation
Jörg Rautenstrauch
President and CEO
Kautex
Mitch Snyder
President and CEO
Bell Helicopter
CORPORATE
OFFICERS
Mark S. Bamford
Vice President and
Corporate Controller
Textron Inc.
Dana L. Goldberg
Vice President – Tax
Textron Inc.
Scott P. Hegstrom
Vice President –
Mergers & Acquisitions
Textron Inc.
Stewart Holmes
Senior Vice President –
Washington Operations
Textron Inc.
Lawrence J. La Sala
Vice President and
Deputy General Counsel –
Litigation
Textron Inc.
Kimberly A. Mackenroth
Vice President and
Chief Information Officer
Textron Inc.
Paul A. Mc Gartoll
Vice President – Strategy and
Business Development
Textron Inc.
Thomas N. Nichipor
Vice President –
Textron Audit Services
Textron Inc.
Elizabeth C. Perkins
Vice President and
Deputy General Counsel
Textron Inc.
Eric Salander
Vice President – Investor
Relations and Treasurer
Textron Inc.
6 Textron 2018 Annual Report
FOOTNOTE TO SELECTED YEAR-OVER-YEAR FINANCIAL DATA
ADJUSTED INCOME FROM CONTINUING OPERATIONS AND ADJUSTED DILUTED EARNINGS PER SHARE
Adjusted income from continuing operations and adjusted diluted earnings per share both exclude Gain on business disposition, net of taxes,
Special charges, net of taxes, and the income tax expense (benefit) resulting from the Tax Cuts and Jobs Act (the “Tax Act”). The Gain on business
disposition is not considered indicative of ongoing operations as it is a significant one-time transaction. We consider items recorded in Special
charges such as enterprise-wide restructuring and acquisition-related restructuring, integration and transaction costs, to be of a non-recurring nature
that is not indicative of ongoing operations. In addition, the impact from the Tax Act is not considered to be indicative of ongoing operations since it
represents a one-time adjustment related to a significant tax reform of a non-recurring nature.
INCOME FROM CONTINUING OPERATIONS AND EARNINGS PER SHARE GAAP TO NON-GAAP RECONCILIATION
(Dollars in Millions, Except Per Share Amounts)
Income from continuing operations—GAAP
Gain on business disposition, net of taxes
Special charges, net of taxes
Income tax expense (benefit) resulting from Tax Act
Adjusted income from continuing operations—Non-GAAP
Diluted earnings per share:
Income from continuing operations—GAAP
Gain on business disposition, net of taxes
Special charges, net of taxes
Income tax expense (benefit) resulting from Tax Act
Adjusted income from continuing operations—Non-GAAP
2018
$1,222
(419)
56
(14)
$ 845
$ 4.83
(1.65)
0.22
(0.06)
$ 3.34
2017
$ 306
—
86
266
$ 658
$1.14
—
0.32
0.99
$2.45
MANUFACTURING CASH FLOW BEFORE PENSION CONTRIBUTIONS
Manufacturing cash flow before pension contributions adjusts net cash from operating activities of continuing operations (GAAP) for the following:
• Deducts capital expenditures and includes proceeds from the sale of property, plant and equipment to arrive at the net capital investment required
to support ongoing manufacturing operations;
• Excludes dividends received from Textron Financial Corporation (TFC) and capital contributions to TFC provided under the Support Agreement
and debt agreements as these cash flows are not representative of manufacturing operations;
• Adds back pension contributions as we consider our pension obligations to be debt-like liabilities. Additionally, these contributions can fluctuate
significantly from period to period and we believe that they are not representative of cash used by our manufacturing operations during the period.
• Adds back taxes paid on gain on business disposition as these cash outflows are not representative of manufacturing operations during the period.
While we believe this measure provides a focus on cash generated from manufacturing operations, before pension contributions, and may be used
as an additional relevant measure of liquidity, it does not necessarily provide the amount available for discretionary expenditures since we have
certain non-discretionary obligations that are not deducted from the measure.
MANUFACTURING CASH FLOW BEFORE PENSION CONTRIBUTIONS GAAP TO NON-GAAP RECONCILIATION Millions) 2018
2017
(In Millions)
Net cash provided by operating activities of continuing operations—GAAP
Less: Capital expenditures
Dividends received from TFC
Plus: Total pension contributions
Taxes paid on gain on business disposition
Proceeds from the sale of property, plant and equipment
Manufacturing cash flow before pension contributions—Non-GAAP
2018
2017
$1,127
(369)
(50)
52
10
14
$ 784
$ 930
(423)
—
358
—
7
$ 872
Textron 2018 Annual Report 7
PEOPLE ARE AT THE HEART
OF OUR SUCCESS.
The skill and ingenuity of 35,000 Textron employees fuel our
company’s success, creating new products and services for
customers around the globe. Our talented workforce is innovating
every day, in more than 25 countries—going the extra mile to
deliver great customer experiences. We continually invest in the
career development and technical competencies of our employees
to remain at the forefront of the industries we serve.
8 Textron 2018 Annual Report
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2018
or
For the transition period from to .
Commission File Number 1-5480
Textron Inc.
(Exact name of registrant as specified in its charter)
(cid:3)
Delaware
(State or other jurisdiction of incorporation or organization)
05-0315468
(I.R.S. Employer Identification No.)
40 Westminster Street, Providence, RI
(Address of principal executive offices)
02903
(Zip code)
Registrant’s Telephone Number, Including Area Code: (401) 421-2800
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock — par value $0.125
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:57) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No (cid:57)
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 (cid:57) No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted 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 and post such files). Yes (cid:57) No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ (cid:57) ]
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 [ (cid:57) ]
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 Act). Yes No (cid:57)
The aggregate market value of the registrant’s Common Stock held by non-affiliates at June 30, 2018 was approximately $16.4 billion based on
the New York Stock Exchange closing price for such shares on that date. The registrant has no non-voting common equity.
At February 2, 2019, 234,679,051 shares of Common Stock were outstanding.
(cid:3)
Part III of this Report incorporates information from certain portions of the registrant’s Definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on April 24, 2019.
(cid:3)
Documents Incorporated by Reference
Textron 2018 Annual Report 1
Textron Inc.
Index to Annual Report on Form 10-K
For the Fiscal Year Ended December 29, 2018
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13.
Certain Relationships and Related Transactions and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
Page
3
9
15
15
15
15
16
17
18
35
36
75
75
77
77
77
77
77
78
81
82
2 Textron 2018 Annual Report
PART I
Item 1. Business
Textron Inc. is a multi-industry company that leverages its global network of aircraft, defense, industrial and finance businesses to
provide customers with innovative products and services around the world. We have approximately 35,000 employees worldwide.
Textron Inc. was founded in 1923 and reincorporated in Delaware on July 31, 1967. Unless otherwise indicated, references to
“Textron Inc.,” the “Company,” “we,” “our” and “us” in this Annual Report on Form 10-K refer to Textron Inc. and its consolidated
subsidiaries.
We conduct our business through five operating segments: Textron Aviation, Bell, Textron Systems and Industrial, which represent
our manufacturing businesses, and Finance, which represents our finance business. A description of the business of each of our
segments is set forth below. Our segments include operations that are unincorporated divisions of Textron Inc. and others that are
separately incorporated subsidiaries. The following description of our business should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” on pages 18 through 34 of this Annual Report on Form
10-K. Information included in this Annual Report on Form 10-K refers to our continuing businesses unless otherwise indicated.
Textron Aviation Segment
Textron Aviation is a leader in general aviation. Textron Aviation manufactures, sells and services Beechcraft and Cessna aircraft,
and services the Hawker brand of business jets. The segment has two principal product lines: aircraft and aftermarket parts and
services. Aircraft includes sales of business jets, turboprop aircraft, piston engine aircraft, and military trainer and defense aircraft.
Aftermarket parts and services includes commercial parts sales, and maintenance, inspection and repair services. Revenues in the
Textron Aviation segment accounted for 36%, 33% and 36% of our total revenues in 2018, 2017 and 2016, respectively.
The family of jets currently offered by Textron Aviation includes the Citation M2, Citation CJ3+, Citation CJ4, Citation XLS+,
Citation Latitude, Citation Sovereign+, and the Citation X+, the fastest civilian jet in the world. The Citation Longitude, a super-
midsize jet, achieved provisional type certification in December 2018, which allows operators to begin flight training in preparation
for deliveries in early 2019. Textron Aviation is also continuing the development of the Citation Hemisphere, a large-cabin jet.
Textron Aviation’s turboprop aircraft include the Beechcraft King Air C90GTx, King Air 250, King Air 350ER and King Air 350i,
and the Cessna Caravan and Grand Caravan EX. The Cessna Denali, a high-performance single engine turboprop aircraft, is expected
to achieve its first flight in 2019. In addition, Textron Aviation is developing the Cessna Skycourier, a twin-engine, high-wing,
large-utility turboprop aircraft, which is targeted for first flight in 2019. Textron Aviation’s piston engine aircraft include the
Beechcraft Baron and Bonanza, and the Cessna Skyhawk, Skylane, and the Turbo Stationair.
Textron Aviation also offers the T-6 trainer, which has been used to train pilots from more than 20 countries, the AT-6 light attack
military aircraft, and the Scorpion. The Scorpion is a highly affordable, multi-mission aircraft designed primarily for the tactical
military jet aviation market. Both the AT-6 and the Scorpion are not yet in production, pending customer orders.
(cid:3)
In support of its family of aircraft, Textron Aviation operates a global network of 18 service centers, two of which are co-located
with Bell Helicopter, along with more than 350 authorized independent service centers located throughout the world. Textron
Aviation-owned service centers provide customers with 24-hour service and maintenance. Textron Aviation also provides its
customers with around-the-clock parts support and offers a mobile support program with over 70 mobile service units and several
dedicated support aircraft. In addition, Able Aerospace Services, Inc., a subsidiary of Textron Aviation, also provides component
and maintenance, repair and overhaul services in support of commercial and military fixed- and rotor-wing aircraft.
Textron Aviation markets its products worldwide through its own sales force, as well as through a network of authorized independent
sales representatives. Textron Aviation has several competitors domestically and internationally in various market segments. Textron
Aviation’s aircraft compete with other aircraft that vary in size, speed, range, capacity and handling characteristics on the basis of
price, product quality and reliability, direct operating costs, product support and reputation.
Textron 2018 Annual Report 3
Bell Segment
Bell Helicopter is one of the leading suppliers of military and commercial helicopters, tiltrotor aircraft, and related spare parts and
services in the world. Revenues for Bell accounted for 23%, 23% and 23% of our total revenues in 2018, 2017 and 2016, respectively.
Bell supplies advanced military helicopters and support to the U.S. Government and to military customers outside the United States.
Bell’s primary U.S. Government programs are the V-22 tiltrotor aircraft and the H-1 helicopters. Bell is one of the leading suppliers
of helicopters to the U.S. Government and, in association with The Boeing Company (Boeing), the only supplier of military tiltrotor
aircraft. Tiltrotor aircraft are designed to provide the benefits of both helicopters and fixed-wing aircraft. Through its strategic
alliance with Boeing, Bell produces and supports the V-22 tiltrotor aircraft for the U.S. Department of Defense (DoD), and also for
Japan under the U.S. Government-sponsored foreign military sales program. In 2018, the Bell Boeing V-22 program was awarded
a third multi-year contract for the production and delivery of an additional 63 units along with related supplies and services through
2024. The H-1 helicopter program includes a utility model, the UH-1Y, and an advanced attack model, the AH-1Z, which have 84%
parts commonality between them. While the U.S. Marine Corps is the primary customer for H-1 helicopters, we also sell H-1
helicopters under the U.S. Government-sponsored foreign military sales program.
Bell is developing the V-280 Valor, a next generation vertical lift aircraft as part of the Joint Multi Role Technology Demonstrator
(JMR-TD) initiative. The JMR-TD program is the science and technology precursor to the Department of Defense's Future Vertical
Lift program. Aircraft designed through this initiative will compete to replace thousands of aging utility and attack helicopters for
the U.S. Armed Forces over the next decade. The V-280 achieved its first flight in December 2017 and its first cruise mode flight in
May 2018, and continues to perform ongoing flight testing.(cid:3)
Through its commercial business, Bell is a leading supplier of commercially certified helicopters and support to corporate, offshore
petroleum exploration and development, utility, charter, police, fire, rescue and emergency medical helicopter operators, and foreign
governments. Bell produces a variety of commercial aircraft types, including light single- and twin-engine helicopters and medium
twin-engine helicopters, along with other related products. The helicopters currently offered by Bell for commercial applications
include the 407GXP, 407GXi, 412EP, 412EPI, 429, 429WLG, 505 Jet Ranger X and Huey II. In addition, the 525 Relentless, Bell’s
first super medium commercial helicopter, continues flight test activities with certification targeted in late 2019.
For both its military programs and its commercial products, Bell provides post-sale support and service for an installed base of
approximately 13,000 helicopters through a network of six Company-operated service centers, four global parts distribution centers
and over 100 independent service centers located in 35 countries. Collectively, these service sites offer a complete range of logistics
support, including parts, support equipment, technical data, training devices, pilot and maintenance training, component repair and
overhaul, engine repair and overhaul, aircraft modifications, aircraft customizing, accessory manufacturing, contractor maintenance,
field service and product support engineering.
Bell competes against a number of competitors throughout the world for its helicopter business and its parts and support business.
Competition is based primarily on price, product quality and reliability, product support, performance and reputation.(cid:3)
Textron Systems Segment
Textron Systems’ product lines consist of Unmanned Systems, Marine and Land systems, and Simulation, Training and Other.
Textron Systems is a supplier to the defense, aerospace and general aviation markets, and represents 10%, 13% and 13% of our total
revenues in 2018, 2017 and 2016, respectively. This segment sells products to U.S. Government customers and to customers outside
the U.S. through foreign military sales sponsored by the U.S. Government and directly through commercial sales channels. Textron
Systems competes on the basis of technology, contract performance, price, product quality and reliability, product support and
reputation.
Unmanned Systems
Our Unmanned Systems product line includes unmanned aircraft systems, unmanned surface systems, mission command hardware
and solutions, and worldwide customer support and logistics. Unmanned aircraft systems includes the Shadow, the U.S. Army’s
premier tactical unmanned aircraft system, which has surpassed one million flight hours since its introduction, and the Aerosonde
Small Unmanned Aircraft System, a multi-mission capable unmanned aircraft system that has amassed more than 300,000 flight
hours in commercial and military operations around the world. Unmanned Systems also provides complete systems solutions to its
government and commercial customers through comprehensive program management, operational and maintenance training,
technical assistance and logistics support, and end-to-end turnkey mission support.
4 Textron 2018 Annual Report
Marine and Land Systems
Our Marine and Land Systems product line includes advanced marine craft, armored vehicles, turrets and related subsystems, in
service with U.S. and international militaries, special operations forces, police forces and civilian entities. Marine and Land Systems’
primary U.S. Government program is for the development and production of the U.S. Navy’s next generation Landing Craft Air
Cushion as part of the Ship-to-Shore Connector program.
Simulation, Training and Other
Our Simulation, Training and Other product line includes products and services provided by the following businesses: TRU
Simulation + Training, Textron Airborne Solutions, Electronic Systems, Lycoming, and Weapons and Sensors Systems. TRU
Simulation + Training designs, develops, manufactures, installs, and provides maintenance of advanced flight training courseware
and devices, including full flight simulators, for both rotary- and fixed-wing aircraft for commercial airlines, aircraft original
equipment manufacturers (OEMs), flight training centers and training organizations worldwide. Through its training centers, TRU
Simulation + Training provides initial type-rating and recurrency training for pilots, as well as maintenance training in its Aviation
Maintenance Training Academy. Textron Airborne Solutions, which includes Airborne Tactical Advantage Company, focuses on
live military air-to-air and air-to-ship training and support services for U.S. Navy, Marine and Air Force pilots. Electronic Systems
provides high technology test equipment, electronic warfare test and training solutions and intelligence software solutions for U.S.
and international defense, intelligence and law enforcement communities. Lycoming specializes in the engineering, manufacture,
service and support of piston aircraft engines for the general aviation and remotely piloted aircraft markets. Weapons and Sensors
Systems offers advanced precision guided weapons systems, airborne and ground-based sensors and surveillance systems, and
protection systems for the defense and aerospace industries.
In October 2018, TRU Simulation + Training entered into a letter of intent to form a joint venture with FlightSafety International to
provide training solutions for Textron Aviation’s business and general aviation aircraft. This transaction is subject to a final
agreement and regulatory approvals.
Industrial Segment
Our Industrial segment designs and manufactures a variety of products within the Fuel Systems and Functional Components and
Specialized Vehicles product lines. On July 2, 2018, we sold our Tools and Test Equipment businesses that were previously included
in this segment as discussed in Note 2 to the Consolidated Financial Statements on page 50 of this Annual Report on Form 10-K.
Industrial segment revenues represented 31%, 30% and 28% of our total revenues in 2018, 2017 and 2016, respectively.
Fuel Systems and Functional Components
Our Fuel Systems and Functional Components product line is produced by our Kautex business unit which is headquartered in Bonn,
Germany and operates over 30 plants in 14 countries. Kautex is a leading developer and manufacturer of blow-molded plastic fuel
systems and advanced fuel systems, including pressurized fuel tanks for hybrid applications, for cars, light trucks and all-terrain
vehicles. Kautex also develops and manufactures clear-vision systems for automobiles, selective catalytic reduction systems used to
reduce emissions from diesel engines, and other fuel system components, as well as plastic bottles and containers for medical,
household, agricultural, laboratory and industrial uses. Additionally, Kautex operates a business that produces cast iron engine
camshafts, crankshafts and other engine components. Kautex serves the global automobile market, with operating facilities near its
major customers around the world.
Our automotive products have several major competitors worldwide, some of which are affiliated with the OEMs that comprise our
targeted customer base. Competition typically is based on a number of factors including price, technology, environmental
performance, product quality and reliability, prior experience and available manufacturing capacity.
Specialized Vehicles
Our Specialized Vehicles product line includes products sold by the Textron Specialized Vehicles businesses under the E-Z-GO,
Arctic Cat, TUG Technologies, Douglas Equipment, Premier, Safeaero, Ransomes, Jacobsen, Cushman and Dixie Chopper brands.
These businesses design, manufacture and sell golf cars, off-road utility vehicles, recreational side-by-side and all-terrain vehicles,
snowmobiles, light transportation vehicles, aviation ground support equipment and professional turf-maintenance equipment, as well
as specialized turf-care vehicles.
Textron 2018 Annual Report 5
These businesses have a diversified customer base that includes golf courses and resorts, government agencies and municipalities,
consumers, outdoor enthusiasts, and commercial and industrial users such as factories, warehouses, airports, planned communities,
hunting preserves, educational and corporate campuses, sporting venues, municipalities and landscaping professionals. Sales are
made through a combination of factory direct resources and a network of independent distributors and dealers worldwide. We have
two major competitors for both golf cars and professional turf-maintenance equipment, and several competitors for off-road utility
vehicles, recreational all-terrain and light transportation vehicles, side-by-sides and snowmobiles, aviation ground support
equipment, and specialized turf-care products. Competition is based primarily on price, product quality and reliability, product
features, product support and reputation.
Finance Segment
Our Finance segment, or the Finance group, is a commercial finance business that consists of Textron Financial Corporation (TFC)
and its consolidated subsidiaries. The Finance segment provides financing primarily to purchasers of new and pre-owned Textron
Aviation aircraft and Bell helicopters. A substantial number of the new originations in our finance receivable portfolio are cross-
border transactions for aircraft sold outside of the U.S. Finance receivables originated in the U.S. are primarily for purchasers who
had difficulty in accessing other sources of financing for the purchase of Textron-manufactured products. In 2018, 2017 and 2016,
our Finance group paid our Manufacturing group $177 million, $174 million and $173 million, respectively, related to the sale of
Textron-manufactured products to third parties that were financed by the Finance group.
The commercial finance business traditionally is extremely competitive. Our Finance segment is subject to competition from various
types of financing institutions, including banks, leasing companies, commercial finance companies and finance operations of
equipment vendors. Competition within the commercial finance industry primarily is focused on price, term, structure and service.
Our Finance segment’s largest business risk is the collectability of its finance receivable portfolio. See “Finance Portfolio Quality”
in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 27 for information about the
Finance segment’s credit performance.
Backlog
Our backlog at the end of 2018 and 2017 is summarized below:
(In millions)
Bell
Textron Aviation
Textron Systems
Total backlog
December 29,
2018
December 30,
2017
4,598
1,180
1,406
7,184
5,837 $
1,791
1,469
9,097 $
$
$
Backlog excludes unexercised contract options and potential orders under ordering-type contracts, such as Indefinite Delivery,
Indefinite Quantity contracts. With the adoption of ASC 606 at the beginning of 2018, as discussed in Note 1 to the Consolidated
Financial Statements on page 43 of this Annual Report on Form 10-K, backlog now includes amounts under contracts with the U.S.
Government and certain other agreements when contract criteria have been met. Prior to the adoption, our backlog excluded firm
orders with the U.S. Government for which funding had not been appropriated. Upon adoption, Bell’s backlog decreased $760
million, largely resulting from the acceleration of revenues upon conversion to the cost-to-cost method of revenue recognition, and
Textron Aviation’s backlog increased $170 million.
At December 29, 2018, Bell’s backlog included $2.4 billion for its portion of the third multi-year V-22 contract received in 2018 for
the production and delivery of 63 units along with related supplies and services through 2024.
U.S. Government Contracts
In 2018, approximately 24% of our consolidated revenues were generated by or resulted from contracts with the U.S. Government,
including those contracts under the U.S. Government-sponsored foreign military sales program. This business is subject to
competition, changes in procurement policies and regulations, the continuing availability of funding, which is dependent upon
congressional appropriations, national and international priorities for defense spending, world events, and the size and timing of
programs in which we may participate.
6 Textron 2018 Annual Report
Our contracts with the U.S. Government generally may be terminated by the U.S. Government for convenience or if we default in
whole or in part by failing to perform under the terms of the applicable contract. If the U.S. Government terminates a contract for
convenience, we normally will be entitled to payment for the cost of contract work performed before the effective date of termination,
including, if applicable, reasonable profit on such work, as well as reasonable termination costs. If, however, the U.S. Government
terminates a contract for default, generally: (a) we will be paid the contract price for completed supplies delivered and accepted and
services rendered, an agreed-upon amount for manufacturing materials delivered and accepted and for the protection and preservation
of property, and an amount for partially completed products accepted by the U.S. Government; (b) the U.S. Government may not be
liable for our costs with respect to unaccepted items and may be entitled to repayment of advance payments and progress payments
related to the terminated portions of the contract; (c) the U.S. Government may not be liable for assets we own and utilize to provide
services under the “fee-for-service” contracts; and (d) we may be liable for excess costs incurred by the U.S. Government in
procuring undelivered items from another source.
Patents and Trademarks
We own, or are licensed under, numerous patents throughout the world relating to products, services and methods of manufacturing.
Patents developed while under contract with the U.S. Government may be subject to use by the U.S. Government. We also own or
license active trademark registrations and pending trademark applications in the U.S. and in various foreign countries or regions, as
well as trade names and service marks. While our intellectual property rights in the aggregate are important to the operation of our
business, we do not believe that any existing patent, license, trademark or other intellectual property right is of such importance that
its loss or termination would have a material adverse effect on our business taken as a whole. Some of these trademarks, trade names
and service marks are used in this Annual Report on Form 10-K and other reports, including: A-2PATS; Able Aerospace Services;
Able Preferred; Aeronautical Accessories; Aerosonde; Alterra; AH-1Z; Arctic Cat; AT-6; AVCOAT; Baron; Bearcat; Beechcraft;
Beechcraft T-6; Bell; Bell Helicopter; BlackWorks McCauley; Bonanza; Cadillac Gage; CAP; Caravan; Cessna; Cessna SkyCourier;
Citation; Citation Latitude; Citation Longitude; Citation M2; Citation Sovereign; Citation X+; Citation XLS+; CJ1+; CJ2+; CJ3;
CJ3+; CJ4; Clairity; CLAW; Commando; Cushman; Customer Advantage Plans; CUSV; Denali; Dixie Chopper; Eclipse; El Tigre;
E-Z-GO; E-Z-GO EXPRESS; FAST-N-LATCH; Firecat; FOREVER WARRANTY; Freedom; Fury; GLOBAL MISSION
SUPPORT; Grand Caravan; H-1; HAULER; Hawker; Hemisphere; Huey; Huey II; IE2; Integrated Command Suite;
INTELLIBRAKE; Jacobsen; Jet Ranger X; Kautex; King Air; King Air C90GTx; King Air 250; King Air 350; Kiowa Warrior; LF;
Lycoming; Lynx; M1117 ASV; McCauley; Mission Critical Support (MCS); MISSIONLINK; Motorfist; MudPro; Mustang; Next
Generation Carbon Canister; Next Generation Fuel System; NGCC; NGFS; NightWarden; Odyssey; Pantera; Power Advantage;
Premier; Pro-Fit; ProFlight; ProParts; ProPropeller; Prowler; Ransomes; REALCue; REALFeel; Relentless; RIPSAW; RT2; RXV;
Safeaero; Scorpion; Shadow; Shadow Knight; Shadow Master; Skyhawk; Skyhawk SP; Skylane; SkyPLUS; Sno Pro; SnoCross;
Sovereign; Speedrack; Stampede; Stationair; Super Cargomaster; Super Medium; SuperCobra; Synturian; Team Arctic; Textron;
Textron Airborne Solutions; Textron Aviation; Textron Financial Corporation; Textron GSE; Textron Systems; Thundercat;
TRUESET; TRU Simulation + Training; TRUCKSTER; TTx; TUG; Turbo Skylane; Turbo Stationair; TRV; TXT; UH-1Y;
VALOR; Value-Driven MRO Solutions; V-22 Osprey; V-247; V-280; Wildcat; Wolverine; ZR; 2FIVE; 206; 206L4; 407; 407GXi;
412; 412EPI; 429; 429WLG; 505; 525 and 525 Relentless. These marks and their related trademark designs and logotypes (and
variations of the foregoing) are trademarks, trade names or service marks of Textron Inc., its subsidiaries, affiliates or joint ventures.
Environmental Considerations
Our operations are subject to numerous laws and regulations designed to protect the environment. Compliance with these laws and
expenditures for environmental controls has not had a material effect on our capital expenditures, earnings or competitive position.
Additional information regarding environmental matters is contained in Note 17 to the Consolidated Financial Statements on page
72 of this Annual Report on Form 10-K.
We do not believe that existing or pending climate change legislation, regulation, or international treaties or accords are reasonably
likely to have a material effect in the foreseeable future on our business or markets nor on our results of operations, capital
expenditures or financial position. We will continue to monitor emerging developments in this area.
Employees
At December 29, 2018, we had approximately 35,000 employees.
Executive Officers of the Registrant
The following table sets forth certain information concerning our executive officers as of February 14, 2019.
Name
Scott C. Donnelly
Frank T. Connor
Julie G. Duffy
E. Robert Lupone
Age
57
59
53
59
Current Position with Textron Inc.
Chairman, President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Executive Vice President, Human Resources
Executive Vice President, General Counsel, Secretary and Chief Compliance Officer
Textron 2018 Annual Report 7
Mr. Donnelly joined Textron in June 2008 as Executive Vice President and Chief Operating Officer and was promoted to President
and Chief Operating Officer in January 2009. He was appointed to the Board of Directors in October 2009 and became Chief
Executive Officer of Textron in December 2009, at which time the Chief Operating Officer position was eliminated. In July 2010,
Mr. Donnelly was appointed Chairman of the Board of Directors effective September 1, 2010. Previously, Mr. Donnelly was the
President and CEO of General Electric Company's Aviation business unit, a position he had held since July 2005. GE’s Aviation
business unit is a leading maker of commercial and military jet engines and components, as well as integrated digital, electric power
and mechanical systems for aircraft. Prior to July 2005, Mr. Donnelly served as Senior Vice President of GE Global Research, one
of the world’s largest and most diversified industrial research organizations with facilities in the U.S., India, China and Germany
and held various other management positions since joining General Electric in 1989.
Mr. Connor joined Textron in August 2009 as Executive Vice President and Chief Financial Officer. Previously, Mr. Connor was
head of Telecom Investment Banking at Goldman, Sachs & Co. from 2003 to 2008. Prior to that position, he served as Chief
Operating Officer of Telecom, Technology and Media Investment Banking at Goldman, Sachs & Co. from 1998 to 2003. Mr. Connor
joined the Corporate Finance Department of Goldman, Sachs & Co. in 1986 and became a Vice President in 1990 and a Managing
Director in 1996.
Ms. Duffy was named Executive Vice President, Human Resources in July 2017. Ms. Duffy joined Textron in 1997 as a member
of the corporate legal team and has since held positions of increasing responsibility within the Company’s legal function, most
recently serving as Vice President and Deputy General Counsel-Litigation, a position she had held since 2011. In that role she was
responsible for managing the corporate litigation staff with primary oversight of litigation throughout Textron. She has also played
an active role in developing, implementing and standardizing human resources policies across the Company and served as the senior
legal advisor on employment and benefits issues.
(cid:3)
Mr. Lupone joined Textron in February 2012 as Executive Vice President, General Counsel, Secretary and Chief Compliance Officer.
Previously, he was senior vice president and general counsel of Siemens Corporation (U.S.) since 1999 and general counsel of
Siemens AG for the Americas since 2008. Prior to joining Siemens in 1992, Mr. Lupone was vice president and general counsel of
Price Communications Corporation.
Available Information
We make available free of charge on our Internet Web site (www.textron.com) our Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish
it to, the Securities and Exchange Commission.
Forward-Looking Information
Certain statements in this Annual Report on Form 10-K 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 herein 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;
(cid:120)(cid:3)
(cid:120)(cid:3) Changing priorities or reductions in the U.S. Government defense budget, including those related to military operations in
foreign countries;
(cid:120)(cid:3) Our ability to perform as anticipated and to control costs under contracts with the U.S. Government;
(cid:120)(cid:3) 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;
(cid:120)(cid:3) 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;
(cid:120)(cid:3) Volatility in the global economy or changes in worldwide political conditions that adversely impact demand for our
products;
8 Textron 2018 Annual Report
(cid:120)(cid:3) Volatility in interest rates or foreign exchange rates;
(cid:120)(cid:3) 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;
(cid:120)(cid:3) Our Finance segment’s ability to maintain portfolio credit quality or to realize full value of receivables;
(cid:120)(cid:3) Performance issues with key suppliers or subcontractors;
(cid:120)(cid:3) Legislative or regulatory actions, both domestic and foreign, impacting our operations or demand for our products;
(cid:120)(cid:3) Our ability to control costs and successfully implement various cost-reduction activities;
(cid:120)(cid:3) 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;
(cid:120)(cid:3) The timing of our new product launches or certifications of our new aircraft products;
(cid:120)(cid:3) Our ability to keep pace with our competitors in the introduction of new products and upgrades with features and
technologies desired by our customers;
(cid:120)(cid:3) Pension plan assumptions and future contributions;
(cid:120)(cid:3) Demand softness or volatility in the markets in which we do business;
(cid:120)(cid:3) Cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or
operational disruption;
(cid:120)(cid:3) Difficulty or unanticipated expenses in connection with integrating acquired businesses;
(cid:120)(cid:3) The risk that acquisitions do not perform as planned, including, for example, the risk that acquired businesses will not
achieve revenues and profit projections; and
(cid:120)(cid:3) The impact of changes in tax legislation.
Item 1A. Risk Factors
Our business, financial condition and results of operations are subject to various risks, including those discussed below, which may
affect the value of our securities. The risks discussed below are those that we believe currently are the most significant to our
business.
We have customer concentration with the U.S. Government; reduction in U.S. Government defense spending may adversely affect
our results of operations and financial condition.
During 2018, we derived approximately 24% of our revenues from sales to a variety of U.S. Government entities. Our revenues
from the U.S. Government largely result from contracts awarded to us under various U.S. Government defense-related programs.
The funding of these programs is subject to congressional appropriation decisions and the U.S. Government budget process which
includes enacting relevant legislation, such as appropriations bills and accords on the debt ceiling. Although multiple-year contracts
may be planned in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a
program may continue for several years. Consequently, programs often are only partially funded initially, and additional funds are
committed only as Congress makes further appropriations. Further uncertainty with respect to ongoing programs could also result
in the event that the U.S. Government finances its operations through temporary funding measures such as “continuing resolutions”
rather than full-year appropriations. If we incur costs in advance or in excess of funds committed on a contract, we are at risk for
non-reimbursement of those costs until additional funds are appropriated. The reduction, termination or delay in the timing of
funding for U.S. Government programs for which we currently provide or propose to provide products or services may result in a
loss of anticipated future revenues that could materially and adversely impact our results of operations and financial condition.
Significant changes in national and international policies or priorities for defense spending, as well as the impact of sequestration,
could affect the funding, or the timing of funding, of our programs, which could negatively impact our results of operations and
financial condition. In addition, because our U.S. Government contracts generally require us to continue to perform even if the U.S.
Government is unable to make timely payments, we may need to finance our continued performance for the impacted contracts from
our other resources on an interim basis. For example, if the U.S. government is shut down for an extended period of time or the debt
ceiling is not raised, our customer may not pay us on a timely basis. An extended delay in the timely payment by the U.S. Government
could have a material adverse effect on our cash flows, results of operations and financial condition.
U.S. Government contracts may be terminated at any time and may contain other unfavorable provisions.
The U.S. Government typically can terminate or modify any of its contracts with us either for its convenience or if we default by
failing to perform under the terms of the applicable contract. In the event of termination for the U.S. Government’s convenience,
contractors are generally protected by provisions covering reimbursement for costs incurred on the contracts and profit on those
costs but not the anticipated profit that would have been earned had the contract been completed. A termination arising out of our
default for failure to perform could expose us to liability, including but not limited to, all costs incurred under the contract plus
potential liability for re-procurement costs in excess of the total original contract amount, less the value of work performed and
accepted by the customer under the contract. Such an event could also have an adverse effect on our ability to compete for future
Textron 2018 Annual Report 9
contracts and orders. If any of our contracts are terminated by the U.S. Government whether for convenience or default, our backlog
and anticipated revenues would be reduced by the expected value of the remaining work under such contracts. We also enter into
“fee for service” contracts with the U.S. Government where we retain ownership of, and consequently the risk of loss on, aircraft
and equipment supplied to perform under these contracts. Termination of these contracts could materially and adversely impact our
results of operations. On contracts for which we are teamed with others and are not the prime contractor, the U.S. Government could
terminate a prime contract under which we are a subcontractor, irrespective of the quality of our products and services as a
subcontractor. In addition, in the event that the U.S. Government is unable to make timely payments, failure to continue contract
performance places the contractor at risk of termination for default. Any such event could have a material adverse effect on our cash
flows, results of operations and financial condition.
As a U.S. Government contractor, we are subject to procurement rules and regulations.
We must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S.
Government contracts. These laws and regulations, among other things, require certification and disclosure of all cost and pricing
data in connection with contract negotiation, define allowable and unallowable costs and otherwise govern our right to
reimbursement under certain cost-based U.S. Government contracts, and safeguard and restrict the use and dissemination of
classified information, covered defense information, and the exportation of certain products and technical data. New laws, regulations
or procurement requirements or changes to current ones (including, for example, regulations related to cybersecurity) can
significantly increase our costs and risks and reduce our profitability. Our failure to comply with procurement regulations and
requirements could allow the U.S. Government to suspend or debar us from receiving new contracts for a period of time, reduce the
value of existing contracts, issue modifications to a contract, withhold cash on contract payments, and control and potentially prohibit
the export of our products, services and associated materials, any of which could negatively impact our results of operations, financial
condition or liquidity. A number of our U.S. Government contracts contain provisions that require us to make disclosure to the
Inspector General of the agency that is our customer if we have credible evidence that we have violated U.S. criminal laws involving
fraud, conflict of interest, or bribery; the U.S. civil False Claims Act; or received a significant overpayment under a U.S. Government
contract. Failure to properly and timely make disclosures under these provisions may result in a termination for default or cause,
suspension and/or debarment, and potential fines.
As a U.S. Government contractor, our businesses and systems are subject to audit and review by the Defense Contract Audit
Agency (DCAA) and the Defense Contract Management Agency (DCMA).
We operate in a highly regulated environment and are routinely audited and reviewed by the U.S. Government and its agencies such
as the DCAA and DCMA. These agencies review our performance under contracts, our cost structure and our compliance with laws
and regulations applicable to U.S. Government contractors. The systems that are subject to review include, but are not limited to,
our accounting, estimating, material management and accounting, earned value management, purchasing and government property
systems. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative
sanctions that may include the termination of our contracts, forfeiture of profits, suspension of payments, fines, and, under certain
circumstances, suspension or debarment from future contracts for a period of time. Whether or not illegal activities are alleged, the
U.S. Government also has the ability to decrease or withhold certain payments when it deems systems subject to its review to be
inadequate. These laws and regulations affect how we conduct business with our government customers and, in some instances,
impose added costs on our business.
The use of multi-award contracts by the U.S. Government may increase competition and pricing pressure.
The U.S. Government increasingly relies upon competitive contract award types, including indefinite-delivery, indefinite-quantity
and multi-award contracts, which have the potential to create greater competition and increased pricing pressure, as well as to
increase our cost by requiring that we submit multiple bids. In addition, multi-award contracts require that we make sustained efforts
to obtain task orders and delivery orders under the contract. Further, the competitive bidding process is costly and demands
managerial time to prepare bids and proposals for contracts that may not be awarded to us or may be split among competitors.
Our profitability and cash flow may vary depending on the mix of our government contracts and our ability to control costs.
Under fixed-price contracts, generally we receive a fixed price irrespective of the actual costs we incur, and, consequently, any costs
in excess of the fixed price are absorbed by us. Changes in underlying assumptions, circumstances or estimates used in developing
the pricing for such contracts may adversely affect our results of operations. Additionally, fixed-price contracts may require progress
payments rather than performance-based payments which can delay our ability to recover a significant amount of costs incurred on
a contract and thus affect the timing of our cash flows. Fixed-price incentive-based fee arrangements provide that allowable costs
incurred are reimbursable but are subject to a cost-share which could negatively impact our profitability. Under time and materials
contracts, we are paid for labor at negotiated hourly billing rates and for certain expenses. Under cost-reimbursement contracts that
are subject to a contract-ceiling amount, we are reimbursed for allowable costs and paid a fee, which may be fixed or performance
based, however, if our costs exceed the contract ceiling or are not allowable under the provisions of the contract or applicable
regulations, we may not be able to obtain reimbursement for all such costs. Under each type of contract, if we are unable to control
10 Textron 2018 Annual Report
costs incurred in performing under the contract, our cash flows, results of operations and financial condition could be adversely
affected. Cost overruns also may adversely affect our ability to sustain existing programs and obtain future contract awards.
Demand for our aircraft products is cyclical and could adversely affect our financial results.
Demand for business jets, turbo props and commercial helicopters has been cyclical and difficult to forecast. Therefore, future
demand for these products could be significantly and unexpectedly less than anticipated and/or less than previous period deliveries.
Similarly, there is uncertainty as to when or whether our existing commercial backlog for aircraft products will convert to revenues
as the conversion depends on production capacity, customer needs and credit availability. Changes in economic conditions may
cause customers to request that firm orders be rescheduled or cancelled. Reduced demand for our aircraft products or delays or
cancellations of orders could have a material adverse effect on our cash flows, results of operations and financial condition.
We may make acquisitions that increase the risks of our business.
We may enter into acquisitions in an effort to expand our business and enhance shareholder value. Acquisitions involve risks and
uncertainties that could result in our not achieving expected benefits. Such risks include difficulties in integrating newly acquired
businesses and operations in an efficient and cost-effective manner; challenges in achieving expected strategic objectives, cost
savings and other benefits; the risk that the acquired businesses’ markets do not evolve as anticipated and that the acquired
businesses’ products and technologies do not prove to be those needed to be successful in those markets; the risk that our due
diligence reviews of the acquired business do not identify or adequately assess all of the material issues which impact valuation of
the business or that may result in costs or liabilities in excess of what we anticipated; the risk that we pay a purchase price that
exceeds what the future results of operations would have merited; the risk that the acquired business may have significant internal
control deficiencies or exposure to regulatory sanctions; and the potential loss of key customers, suppliers and employees of the
acquired businesses.
If our Finance segment is unable to maintain portfolio credit quality, our financial performance could be adversely affected.
A key determinant of the financial performance of our Finance segment is the quality of loans, leases and other assets in its portfolio.
Portfolio quality may be adversely affected by several factors, including finance receivable underwriting procedures, collateral value,
geographic or industry concentrations, and the effect of general economic conditions. 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 may result in
difficulty or delay in collecting on the related finance receivables. If our Finance segment has difficulty successfully collecting its
finance receivable portfolio, our cash flow, results of operations and financial condition could be adversely affected.
We may need to obtain financing in the future; such financing may not be available to us on satisfactory terms, if at all.
We may periodically need to obtain financing in order to meet our debt obligations as they come due, to support our operations
and/or to make acquisitions. Our access to the debt capital markets and the cost of borrowings are affected by a number of factors
including market conditions and the strength of our credit ratings. If we cannot obtain adequate sources of credit on favorable terms,
or at all, our business, operating results, and financial condition could be adversely affected.
Failure to perform by our subcontractors or suppliers could adversely affect our performance.
We rely on other companies to provide raw materials, major components and subsystems for our products. Subcontractors also
perform services that we provide to our customers in certain circumstances. We depend on these suppliers and subcontractors to
meet our contractual obligations to our customers and conduct our operations. Our ability to meet our obligations to our customers
may be adversely affected if suppliers or subcontractors do not provide the agreed-upon supplies or perform the agreed-upon services
in compliance with customer requirements and in a timely and cost-effective manner. Likewise, the quality of our products may be
adversely impacted if companies to whom we delegate manufacture of major components or subsystems for our products, or from
whom we acquire such items, do not provide components or subsystems which meet required specifications and perform to our and
our customers’ expectations. Our suppliers may be less likely than us to be able to quickly recover from natural disasters and other
events beyond their control and may be subject to additional risks such as financial problems that limit their ability to conduct their
operations. The risk of these adverse effects may be greater in circumstances where we rely on only one or two subcontractors or
suppliers for a particular raw material, product or service. In particular, in the aircraft industry, most vendor parts are certified by the
regulatory agencies as part of the overall Type Certificate for the aircraft being produced by the manufacturer. If a vendor does not
or cannot supply its parts, then the manufacturer’s production line may be stopped until the manufacturer can design, manufacture
and certify a similar part itself or identify and certify another similar vendor’s part, resulting in significant delays in the completion
of aircraft. Such events may adversely affect our financial results, damage our reputation and relationships with our customers, and
result in regulatory actions and/or litigation.
Textron 2018 Annual Report 11
Our business could be negatively impacted by information technology disruptions and security threats.
Our information technology (IT) and related systems are critical to the efficient operation of our business and essential to our ability
to perform day to day processes. From time to time, we update and/or replace IT systems used by our businesses. The
implementation of new systems can present temporary disruptions of business activities as existing processes are transitioned to the
new systems, resulting in productivity issues, including delays in production, shipments or other business operations. We also
outsource certain support functions, including certain global IT infrastructure services, to third-party service providers, and any
disruption of such outsourced processes or functions could have a material adverse effect on our operations. In addition, as a U.S.
defense contractor, we face certain security threats, including threats to our IT infrastructure and unlawful attempts to gain access to
our information via phishing / malware campaigns and other cyberattack methods, as well as threats to the physical security of our
facilities and employees, as do our customers, suppliers, subcontractors and joint venture partners. Attempts to gain unauthorized
access to our confidential, classified or otherwise proprietary information or that of our employees or customers, as well as other
security breaches, are persistent, continue to evolve and require highly skilled IT resources.
We maintain Information Systems Incident Management Standards applicable to all our businesses to ensure information security
events and weaknesses associated with information systems are communicated and acted on in a timely manner. Our enterprise risk
management program includes cyber risk/network protection mitigation plans, and our disclosure controls and procedures address
cybersecurity and include processes intended to ensure that security breaches are analyzed for potential disclosure. Additionally, we
conduct periodic training for our employees regarding the protection of sensitive information which includes training intended to
prevent the success of cyberattacks. Further, our insider trading compliance program addresses restrictions against trading while in
possession of material, nonpublic information in connection with a cybersecurity incident.
While we have experienced cybersecurity attacks, we have not suffered any material losses relating to such attacks, and we believe
our threat detection and mitigation processes and procedures are robust. Due to the evolving nature of security threats, the possibility
of future material incidents cannot be completely mitigated and we may not be successful in detecting, reporting or responding to
cyber incidents in a timely manner. Future attacks or breaches of data security, whether of our systems or the systems of our service
providers or other third parties who may have access to our data for business purposes, could disrupt our operations, cause the loss
of business information or compromise confidential information, exposing us to liability or regulatory action. Such an incident also
could require significant management attention and resources, increase costs that may not be covered by insurance, and result in
reputational damage, potentially adversely affecting our competitiveness and our results of operations. Products and services that we
provide to our customers may themselves be subject to cyberthreats which may not be detected or effectively mitigated, resulting in
potential losses that could adversely affect us and our customers. In addition, our customers, including the U.S. Government, are
increasingly requiring cybersecurity protections and mandating cybersecurity standards in our products, and we may incur additional
costs to comply with such demands.
Developing new products and technologies entails significant risks and uncertainties.
To continue to grow our revenues and segment profit, we must successfully develop new products and technologies or modify our
existing products and technologies for our current and future markets. Our future performance depends, in part, on our ability to
identify emerging technological trends and customer requirements and to develop and maintain competitive products and services.
Delays or cost overruns in the development and acceptance of new products, or certification of new aircraft and other products, could
adversely affect our results of operations. These delays could be caused by unanticipated technological hurdles, production changes
to meet customer demands, unanticipated difficulties in obtaining required regulatory certifications of new aircraft or other products,
coordination with joint venture partners or failure on the part of our suppliers to deliver components as agreed. We also could be
adversely affected if our research and development investments are less successful than expected or if we do not adequately protect
the intellectual property developed through these efforts. Likewise, new products and technologies could generate unanticipated
safety or other concerns resulting in expanded product liability risks, potential product recalls and other regulatory issues that could
have an adverse impact on us. Furthermore, because of the lengthy research and development cycle involved in bringing certain of
our products to market, we cannot predict the economic conditions that will exist when any new product is complete. A reduction in
capital spending in the aerospace or defense industries could have a significant effect on the demand for new products and
technologies under development, which could have an adverse effect on our financial condition and results of operations. In addition,
our investments in equipment or technology that we believe will enable us to obtain future service contracts for our U.S. Government
or other customers may not result in contracts or revenues sufficient to offset such investment. The market for our product offerings
may not develop or continue to expand as we currently anticipate. Furthermore, we cannot be sure that our competitors will not
develop competing technologies which gain superior market acceptance compared to our products. A significant failure in our new
product development efforts or the failure of our products or services to achieve market acceptance relative to our competitors’
products or services could have an adverse effect on our financial condition and results of operations.
12 Textron 2018 Annual Report
We are subject to the risks of doing business in foreign countries.
During 2018, we derived approximately 38% of our revenues from international business, including U.S. exports. Conducting
business internationally exposes us to additional risks than if we conducted our business solely within the U.S. We maintain
manufacturing facilities, service centers, supply centers and other facilities worldwide, including in various emerging market
countries. Risks related to international operations include import, export and other trade restrictions; changing U.S. and foreign
procurement policies and practices; changes in international trade policies, including higher tariffs on imported goods and materials
and renegotiation of free trade agreements; impacts related to the pending voluntary exit of the United Kingdom from the European
Union (“Brexit”); restrictions on technology transfer; difficulties in protecting intellectual property; increasing complexity of
employment and environmental, health and safety regulations; foreign investment laws; exchange controls; repatriation of earnings
or cash settlement challenges, competition from foreign and multinational firms with home country advantages; economic and
government instability, acts of terrorism and related safety concerns. The impact of any one or more of these or other factors could
adversely affect our business, financial condition or operating results.
Additionally, some international government customers require contractors to agree to specific in-country purchases, technology
transfers, manufacturing agreements or financial support arrangements, known as offsets, as a condition for a contract award. These
contracts generally extend over several years and may include penalties if we fail to perform in accordance with the offset
requirements which are often subjective. We also are exposed to risks associated with using foreign representatives and consultants
for international sales and operations and teaming with international subcontractors and suppliers in connection with international
programs. In many foreign countries, particularly in those with developing economies, it is common to engage in business practices
that are prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act. Although we maintain policies
and procedures designed to facilitate compliance with these laws, a violation of such laws by any of our international representatives,
consultants, joint ventures, business partners, subcontractors or suppliers, even if prohibited by our policies, could have an adverse
effect on our business and reputation.
We are subject to increasing compliance risks that could adversely affect our operating results.
As a global business, we are subject to laws and regulations in the U.S. and other countries in which we operate. International sales
and global operations require importing and exporting goods and technology, some of which have military applications subjecting
them to more stringent import-export controls across international borders on a regular basis. For example, we sometimes initially
must obtain licenses and authorizations from various U.S. Government agencies before we are permitted to sell certain of our
aerospace and defense products outside the U.S. Both U.S. and foreign laws and regulations applicable to us have been increasing
in scope and complexity. For example, both U.S. and foreign governments and government agencies regulate the aviation industry,
and they may impose new regulations with additional aircraft security or other requirements or restrictions, including, for example,
restrictions and/or fees related to carbon emissions levels. Changes in environmental and climate change laws and regulations,
including laws relating to greenhouse gas emissions, could lead to the necessity for new or additional investment in product designs
or manufacturing processes and could increase environmental compliance expenditures, including costs to defend regulatory reviews.
New or changing laws and regulations or related interpretation and policies could increase our costs of doing business, affect how
we conduct our operations, adversely impact demand for our products, and/or limit our ability to sell our products and services.
Compliance with laws and regulations of increasing scope and complexity is even more challenging in our current business
environment in which reducing our operating costs is often necessary to remain competitive. In addition, a violation of U.S. and/or
foreign laws by one of our employees or business partners could subject us or our employees to civil or criminal penalties, including
material monetary fines, or other adverse actions, such as denial of import or export privileges and/or debarment as a government
contractor which could damage our reputation and have an adverse effect on our business.
We are subject to legal proceedings and other claims.
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. Due to the nature of our manufacturing business, we may be subject to liability claims arising from
accidents involving our products, including claims for serious personal injuries or death caused by weather or by pilot, driver or user
error. In the case of litigation matters for which reserves have not been established because the loss is not deemed probable, it is
reasonably possible that such claims could be decided against us and could require us to pay damages or make other expenditures in
amounts that are not presently estimable. In addition, we cannot be certain that our reserves are adequate and that our insurance
coverage will be sufficient to cover one or more substantial claims. Furthermore, we may not be able to obtain insurance coverage
at acceptable levels and costs in the future. Litigation is inherently unpredictable, and we could incur judgments, receive adverse
arbitration awards or enter into settlements for current or future claims that could adversely affect our financial position or our results
of operations in any particular period.
Textron 2018 Annual Report 13
Intellectual property infringement claims of others and the inability to protect our intellectual property rights could harm our
business and our customers.
Intellectual property infringement claims may be asserted by third parties against us or our customers. Any related indemnification
payments or legal costs we may be obliged to pay on behalf of our businesses, our customers or other third parties could be costly.
In addition, we own the rights to many patents, trademarks, brand names, trade names and trade secrets that are important to our
business. The inability to enforce these intellectual property rights may have an adverse effect on our results of operations.
Additionally, our intellectual property could be at risk due to cybersecurity threats.
Certain of our products are subject to laws regulating consumer products and could be subject to repurchase or recall as a result
of safety issues.
As a distributor of consumer products in the U.S., certain of our products are subject to the Consumer Product Safety Act, which
empowers the U.S. Consumer Product Safety Commission (CPSC) to exclude from the market products that are found to be unsafe
or hazardous. Under certain circumstances, the CPSC could require us to repair, replace or refund the purchase price of one or more
of our products, or potentially even discontinue entire product lines, or we may voluntarily do so, but within strictures recommended
by the CPSC. The CPSC also can impose fines or penalties on a manufacturer for non-compliance with its requirements. Furthermore,
failure to timely notify the CPSC of a potential safety hazard can result in significant fines being assessed against us. Any repurchases
or recalls of our products or an imposition of fines or penalties could be costly to us and could damage the reputation or the value of
our brands. Additionally, laws regulating certain consumer products exist in some states, as well as in other countries in which we
sell our products, and more restrictive laws and regulations may be adopted in the future.
The increasing costs of certain employee and retiree benefits could adversely affect our results.
Our results of operations and cash flows may be adversely impacted by increasing costs and funding requirements related to our
employee benefit plans. The obligation for our defined benefit pension plans is driven by, among other things, our assumptions of
the expected long-term rate of return on plan assets and the discount rate used for future payment obligations. Additionally, as part
of our annual evaluation of these plans, significant changes in our assumptions, due to changes in economic, legislative and/or
demographic experience or circumstances, or changes in our actual investment returns could negatively impact the funded status of
our plans requiring us to substantially increase our pension liability with a resulting decrease in shareholders’ equity. Also, changes
in pension legislation and regulations could increase the cost associated with our defined benefit pension plans.
Our business could be adversely affected by strikes or work stoppages and other labor issues.
Approximately 7,200, or 28%, of our U.S. employees are unionized, and many of our non-U.S. employees are represented by
organized councils. As a result, we may experience work stoppages, which could negatively impact our ability to manufacture our
products on a timely basis, resulting in strain on our relationships with our customers and a loss of revenues. The presence of unions
also may limit our flexibility in responding to competitive pressures in the marketplace. In addition, the workforces of many of our
suppliers and customers are represented by labor unions. Work stoppages or strikes at the plants of our key suppliers could disrupt
our manufacturing processes; similar actions at the plants of our customers could result in delayed or canceled orders for our products.
Any of these events could adversely affect our results of operations.
Currency, raw material price and interest rate fluctuations may adversely affect our results.
We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, raw material prices
and interest rates. Fluctuations in foreign currency rates may contribute to variations in revenue and costs in impacted jurisdictions
which could adversely affect our profitability. We monitor and manage these exposures as an integral part of our overall risk
management program. In some cases, we purchase derivatives or enter into contracts to insulate our results of operations from these
fluctuations. Nevertheless, changes in currency exchange rates, raw material prices and interest rates can have substantial adverse
effects on our results of operations.
We may be unable to effectively mitigate pricing pressures.
In some markets, particularly where we deliver component products and services to OEMs, we face ongoing customer demands for
price reductions, which sometimes are contractually obligated. However, if we are unable to effectively mitigate future pricing
pressures through technological advances or by lowering our cost base through improved operating and supply chain efficiencies,
our results of operations could be adversely affected.
Unanticipated changes in our tax rates or exposure to additional income tax liabilities could affect our profitability.
We are subject to income taxes in the U.S. and various non-U.S. jurisdictions, and our domestic and international tax liabilities are
subject to the location of income among these different jurisdictions. Our effective tax rate could be adversely affected by changes
in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities,
changes in the amount of earnings indefinitely reinvested offshore, changes to unrecognized tax benefits or changes in tax laws,
which could affect our profitability. In particular, the carrying value of deferred tax assets is dependent on our ability to generate
14 Textron 2018 Annual Report
future taxable income, as well as changes to applicable statutory tax rates. In addition, the amount of income taxes we pay is subject
to audits in various jurisdictions, and a material assessment by a tax authority could affect our profitability.
The Tax Cuts and Jobs Act was enacted on December 22, 2017 and significantly changed U.S. income tax law. Any additional tax
legislation in the United States or elsewhere, could adversely affect our effective tax rate, have a material impact on the value of our
deferred tax assets or increase our future U.S. tax expense.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
On December 29, 2018, we operated a total of 55 plants located throughout the U.S. and 50 plants outside the U.S. We own 55
plants and lease the remainder for a total manufacturing space of approximately 23.8 million square feet. We consider the productive
capacity of the plants operated by each of our business segments to be adequate. We also own or lease offices, warehouses, training
and service centers and other space at various locations. In general, our facilities are in good condition, are considered to be adequate
for the uses to which they are being put and are substantially in regular use.
Item 3. Legal Proceedings
As previously reported in Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, on February 7, 2012,
a lawsuit was filed in the United States Bankruptcy Court, Northern District of Ohio, Eastern Division (Akron) by Brian A. Bash,
Chapter 7 Trustee for Fair Finance Company against 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. The Trustee also seeks trebled damages on all claims under
Ohio law. 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 Textron, 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. We intend to continue to vigorously defend this lawsuit.
We also are subject to actual and threatened legal proceedings and other claims arising out of the conduct of our business, including
proceedings and claims relating to commercial and financial transactions; government contracts; alleged lack of compliance with
applicable laws and regulations; production partners; product liability; patent and trademark infringement; employment disputes;
and environmental, health and safety 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.
Item 4. Mine Safety Disclosures
Not applicable.
Textron 2018 Annual Report 15
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
The principal market on which our common stock is traded is the New York Stock Exchange under the symbol “TXT.” At December
29, 2018, there were approximately 8,300 record holders of Textron common stock.
Issuer Repurchases of Equity Securities
The following provides information about our fourth quarter 2018 repurchases of equity securities that are registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended:
Total
Number of
Shares
Purchased *
Average Price
Paid per Share
(excluding
commissions)
$
Total Number of
Shares Purchased as
part of Publicly
Announced Plan *
Period (shares in thousands)
September 30, 2018 – November 3, 2018
November 4, 2018 – December 1, 2018
December 2, 2018 – December 29, 2018
Total
* These shares were purchased pursuant to a plan authorizing the repurchase of up to 40 million shares of Textron common stock that was
announced on April 16, 2018. This plan has no expiration date.
2,905
1,910
2,710
7,525
2,905
1,910
2,710
7,525
54.65
55.76
49.64
53.13
$
Maximum
Number of Shares
that may yet be
Purchased under
the Plan
21,812
19,902
17,192
Stock Performance Graph
The following graph compares the total return on a cumulative basis at the end of each year of $100 invested in our common stock
on December 31, 2013 with the Standard & Poor’s (S&P) 500 Stock Index, the S&P 500 Aerospace & Defense (A&D) Index and
the S&P 500 Industrials Index, all of which include Textron. The values calculated assume dividend reinvestment.
$200
$175
$150
$125
$100
(cid:3)
Textron
S&P 500
S&P 500 A&D
S&P 500 Industrials
Textron Inc.
S&P 500
S&P 500 A&D
S&P 500 Industrials
16 Textron 2018 Annual Report
2013
2014
2018
$ 100.00 $ 115.83 $ 115.77 $ 134.09 $ 156.51 $ 126.42
149.64
180.24
150.54
100.00
100.00
100.00
114.15
112.09
112.81
157.85
198.66
156.67
115.73
118.18
116.08
129.57
140.52
127.82
2017
2016
2015
Item 6. Selected Financial Data
$
$
2014
2015
2018
2016
2017
$
$
4,921 $
3,239
1,756
3,794
78
4,822 $
3,454
1,520
3,544
83
303
415
139
290
22
1,169
(132)
(145)
(130)
—
(456)
306
445 $
425
156
218
23
1,267
(119)
(135)
(73)
444
(162)
1,222 $
389 $
386
186
329
19
1,309
(172)
(138)
(123)
—
(33)
843 $
4,686
4,971 $
3,317
3,180
1,840
1,464
4,286
4,291
69
66
$ 13,972 $ 14,198
4,568
4,245
1,624
3,338
103
$ 13,788 $ 13,423 $ 13,878
(Dollars in millions, except per share amounts)
Revenues (a)
Textron Aviation
Bell
Textron Systems
Industrial
Finance
Total revenues
Segment profit
Textron Aviation (b)
Bell
Textron Systems
Industrial
Finance
Total segment profit
Corporate expenses and other, net
Interest expense, net for Manufacturing group
Special charges (c)
Gain on business disposition (d)
Income tax expense (e)
Income from continuing operations
Earnings per share
Basic earnings per share — continuing operations
Diluted earnings per share — continuing operations
Basic average shares outstanding (in thousands)
Diluted average shares outstanding (in thousands)
Common stock information
Dividends declared per share
Book value at year-end
Price at year-end
Financial position
Total assets
Manufacturing group debt
Finance group debt
Shareholders’ equity
Manufacturing group debt-to-capital (net of cash)
Manufacturing group debt-to-capital
Investment data
429
Capital expenditures
379
Manufacturing group depreciation
(a)(cid:3) At the beginning of 2018, we adopted ASC 606 using a modified retrospective basis and as a result, the comparative information has not been restated and is
$ 15,358 $ 14,708 $ 14,605
2,811
$
1,063
$
4,272
$
33%
40%
$ 14,264 $ 15,340
3,088
$
824
$
5,647
$
26%
35%
2.17
$
$
2.15
270,774 276,682 279,409
272,365 278,727 281,790
400 $
400
129
302
24
1,255
(154)
(130)
—
—
(273)
698 $
1.15
4.88 $
$
$
1.14
4.83 $
250,196 266,380
253,237 268,750
234
529
150
280
21
1,214
(161)
(148)
(52)
—
(248)
605
3,066 $
718 $
5,192 $
29%
37%
2,697 $
913 $
4,964 $
2,777 $
903 $
5,574 $
0.08 $
22.04 $
45.65 $
2.52 $
2.50 $
3.11 $
3.09 $
420 $
383 $
446 $
368 $
0.08
15.45
42.17
0.08
18.10
42.01
0.08
21.60
56.59
0.08
20.62
48.56
369 $
358 $
$
$
$
$
$
$
$
$
$
23%
33%
26%
35%
423
362
$
$
$
$
$
$
$
$
$
reported under the accounting standards in effect for these years. See Note 1 to the Consolidated Financial Statements for additional information.
(b)(cid:3)
In 2015 and 2014, segment profit included amortization of $12 million and $63 million, respectively, related to fair value step-up adjustments of Beechcraft
acquired inventories sold during the period.
(c)(cid:3) Special charges of $73 million were recorded in the fourth quarter of 2018 under a restructuring plan for the Textron Specialized Vehicles businesses within our
Industrial segment. In 2017 and 2016, special charges included $90 million and $123 million, respectively, related to our 2016 restructuring plan. We also
recorded special charges of $40 million in 2017 related to the Arctic Cat acquisition, which included restructuring, integration and transaction costs. For 2014,
special charges included acquisition and restructuring costs related to the acquisition of Beechcraft.
(d)(cid:3) On July 2, 2018, Textron completed the sale of the Tools & Test Equipment product line which resulted in an after-tax gain of $419 million.
(e)(cid:3)
Income tax expense for 2017 included a $266 million charge to reflect our provisional estimate of the net impact of the Tax Cuts and Jobs Act. We completed our
analysis of this legislation in the fourth quarter of 2018 and recorded a $14 million income tax benefit. In 2016, we recognized an income tax benefit of $319
million, inclusive of interest, of which $206 million is attributable to continuing operations and $113 million is attributable to discontinued operations. This
benefit was a result of the final settlement with the Internal Revenue Service Office of Appeals for our 1998 to 2008 tax years.
Textron 2018 Annual Report 17
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview and Consolidated Results of Operations
For an overview of our business segments, including a discussion of our major products and services, refer to Item 1. Business on
pages 3 through 9. The following discussion should be read in conjunction with our Consolidated Financial Statements and related
Notes included in Item 8. Financial Statements and Supplementary Data. An analysis of our consolidated operating results is set
forth below, and a more detailed analysis of our segments’ operating results is provided in the Segment Analysis section on pages
21 through 27.
At the beginning of 2018, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASC
606) using the modified retrospective transition method applied to contracts that were not substantially complete at the end of 2017.
We recorded a $90 million adjustment to increase retained earnings to reflect the cumulative impact of adopting this standard at the
beginning of 2018, primarily related to certain long-term contracts our Bell segment has with the U.S. Government that converted
to the cost-to-cost method for revenue recognition. Revenues in 2018 for our U.S. Government contracts are primarily recognized
as costs are incurred, while revenues for 2017 were primarily recognized as units were delivered. The comparative information has
not been restated and is reported under the accounting standards in effect for those periods. A reconciliation of the financial statement
line items impacted for 2018 under ASC 606 to the prior accounting standards is provided in Note 12.
2018 Financial Highlights
(cid:120)(cid:3) Segment profit increased by 8% to $1.3 billion.
(cid:120)(cid:3) Generated $1.1 billion of net cash from operating activities of continuing operations for our manufacturing businesses.
(cid:120)(cid:3) Completed the sale of the Tools and Test Equipment product line within our Industrial segment and received $0.8 billion
in net cash proceeds.
(cid:120)(cid:3) Returned $1.8 billion to our shareholders through share repurchases and dividend payments.
(cid:120)(cid:3)
(cid:120)(cid:3) Backlog increased 27% to $9.1 billion. Our backlog includes the award of our third multi-year V-22 contract at Bell for
Invested $643 million in research and development activities and $369 million in capital expenditures.
$2.4 billion and increased orders for our commercial aircraft at the Textron Aviation and Bell segments.
Revenues
(Dollars in millions)
Revenues
2018
2017
2016
$ 13,972 $ 14,198 $ 13,788
% Change
2018
(2)%
2017
3%
Revenues decreased $226 million, 2%, in 2018, compared with 2017, largely driven by the disposition of the Tools and Test
Equipment product line within the Industrial segment. The net revenue decrease included the following factors:
(cid:120)(cid:3) Lower Textron Systems revenues of $376 million, primarily reflecting lower volume of $159 million in the Marine and
Land Systems product line, along with a decrease due to the discontinuance of our sensor-fuzed weapon product in 2017.
(cid:120)(cid:3) Lower Bell revenues of $137 million, primarily due to lower commercial revenues of $91 million, largely reflecting the
mix of aircraft sold in the year, and lower military revenues of $46 million.
(cid:120)(cid:3) Higher Textron Aviation revenues of $285 million, due to higher volume and mix of $185 million and favorable pricing of
$100 million.
(cid:120)(cid:3) Higher Industrial revenues of $5 million, primarily due to higher volume of $149 million, largely related to the Textron
Specialized Vehicles product line, a favorable impact of $57 million from foreign exchange and the impact from the Arctic
Cat acquisition of $49 million. These increases were largely offset by $246 million in lower revenues due to the disposition
of the Tools and Test Equipment product line.
18 Textron 2018 Annual Report
Revenues increased $410 million, 3%, in 2017, compared with 2016, largely driven by increases in the Industrial, Textron Systems
and Bell segments, partially offset by lower revenues at the Textron Aviation segment. The net revenue increase included the
following factors:
(cid:120)(cid:3) Higher Industrial revenues of $492 million, primarily due to the impact from the acquisition of Arctic Cat.
(cid:120)(cid:3) Higher Textron Systems revenues of $84 million, primarily due to higher volume of $176 million in the Marine and Land
Systems product line, partially offset by lower volume in the other products lines.
(cid:120)(cid:3) Higher Bell revenues of $78 million, primarily due to an increase in commercial revenues of $89 million, largely reflecting
higher commercial aircraft deliveries.
(cid:120)(cid:3) Lower Textron Aviation revenues of $235 million, primarily due to lower volume and mix of $307 million, largely the
result of lower military and commercial turboprop volume.
Cost of Sales and Selling and Administrative Expense
(cid:3)
(Dollars in millions)
Cost of sales
Gross margin as a percentage of Manufacturing revenues
Selling and administrative expense
(cid:3)
In 2018, cost of sales decreased $233 million, 2%, compared with 2017, largely resulting from the disposition of the Tools and Test
Equipment product line and lower net volume as described above. Selling and administrative expense decreased $59 million, 4%, in
2018, compared with 2017, primarily reflecting the impact from the disposition of the Tools and Test Equipment product line.
$ 11,594 $ 11,827 $ 11,337
16.6%
16.3%
1,275 $
1,334 $
17.3%
2017
4%
1,317
(4)%
$
1%
2017
2016
2018
% Change
2018
(2)%
Cost of sales increased $490 million, 4%, and selling and administrative expense increased $17 million, 1%, in 2017, compared with
2016, primarily due to an increase from acquired businesses, largely Arctic Cat. Gross margin as a percentage of Manufacturing
revenues decreased 100 basis points from 2016, primarily due to lower margins at the Textron Systems segment, largely reflecting
an unfavorable impact from net program adjustments, and the Industrial segment, which included the impact from the Arctic Cat
acquisition.
Interest Expense
(Dollars in millions)
Interest expense
$
2018
166 $
2017
174 $
2016
174
% Change
2018
(5)%
2017
—
Interest expense on the Consolidated Statements of Operations includes interest for both the Finance and Manufacturing borrowing
groups with interest related to intercompany borrowings eliminated. Interest expense for the Finance segment is included within
segment profit and includes intercompany interest. Consolidated interest expense decreased $8 million in 2018, compared with
2017, primarily due to lower average debt outstanding.
Gain on Business Disposition
On July 2, 2018, we completed the sale of the businesses that manufacture and sell the products in our Tools and Test Equipment
product line within our Industrial segment. We received net cash proceeds of $807 million in connection with this disposition and
recorded an after-tax gain of $419 million.
Special Charges
In the fourth quarter of 2018, we recorded $73 million in special charges in connection with a plan to restructure the Textron
Specialized Vehicles businesses within our Industrial segment. These businesses have undergone significant changes since the
acquisition of Arctic Cat as we have expanded the product portfolio and integrated manufacturing operations and retail distribution.
In the third quarter of 2018, the operating results for these businesses were significantly below our expectations as dealer sell-through
lagged despite the introduction of new products into our dealer network. Based on our review and assessment of the acquired dealer
network and go-to-market strategy for the Textron Off Road and Arctic Cat brands in the fourth quarter of 2018, along with a review
of the other businesses within the product line, we initiated a restructuring plan. This plan included product rationalization, closure
of several factory-direct turf-care branch locations and a manufacturing facility and headcount reductions. Under this plan, we
recorded asset impairment charges of $47 million, primarily intangible assets related to product rationalization, contract termination
and other costs of $18 million and severance costs of $8 million. Headcount reductions totaled approximately 400 positions,
Textron 2018 Annual Report 19
representing 10% of Textron Specialized Vehicles’ workforce. The actions taken under this plan were substantially completed at the
end of 2018.
In 2017 and 2016, we recorded special charges of $90 million and $123 million, respectively, related to a plan that was initiated in
2016 to restructure and realign our businesses by implementing headcount reductions, facility consolidations and other actions in
order to improve overall operating efficiency across Textron. The 2016 plan was completed in 2017. Special charges related to this
plan included $97 million of severance costs, $84 million of asset impairments and $32 million in contract terminations and other
costs. Of these amounts, $83 million was incurred at Textron Systems, $63 million at Textron Aviation, $38 million at Industrial,
$28 million at Bell and $1 million at Corporate. The total headcount reduction under this plan was approximately 2,100 positions,
representing 5% of our workforce.
In connection with the acquisition of Arctic Cat, we initiated a restructuring plan in the first quarter of 2017 and recorded restructuring
charges of $28 million in 2017, which included $19 million of severance costs, largely related to change-of-control provisions, and
$9 million of contract termination and other costs. In addition, we recorded $12 million of acquisition-related integration and
transaction costs in 2017.
For 2017 and 2016, special charges recorded by segment and type of cost are as follows:
(In millions)
2017
Industrial
Textron Aviation
Bell
Textron Systems
2016
Industrial
Textron Aviation
Bell
Textron Systems
Corporate
Income Taxes
Effective tax rate
Severance
Costs
Asset
Impairments
Contract
Terminations
and Other
Acquisition
Integration/
Transaction
Costs
Total
Special
Charges
$
$
$
$
26 $
11
3
6
46 $
17 $
33
4
15
1
70 $
1 $
17
12
16
46 $
2 $
1
1
34
—
38 $
19 $
—
8
(1)
26 $
1 $
1
—
13
—
15 $
12 $
—
—
—
12 $
— $
—
—
—
—
— $
58
28
23
21
130
20
35
5
62
1
123
2018
2017
11.7%
59.8%
2016
3.8%
In 2018, our effective tax rate was lower than the U.S. federal statutory tax rate of 21%, primarily due to the disposition of the Tools
and Test equipment product line which resulted in a gain taxable primarily in non-U.S. jurisdictions that partially exempt such gains
from tax. The effective tax rate for 2018 also reflects a $25 million benefit recognized upon the reassessment of our reserve for
uncertain tax positions based on new information, including interactions with the tax authorities and recent audit settlements. In
addition, we finalized the 2017 impacts of the Tax Cut and Jobs Act (the “Tax Act”) and recognized a $14 million benefit in the
fourth quarter of 2018.
Our effective tax rate for 2017 was higher than the U.S. federal statutory tax rate of 35%, largely due to the impact from the Tax
Act. In the fourth quarter of 2017, we recorded a provisional estimate of $266 million for one-time adjustments resulting from the
Tax Act. Approximately $154 million of this provisional estimate represented a charge resulting from the remeasurement of our
U.S. federal deferred tax assets and liabilities, and the remainder represented a provision for the transition tax on post-1986 earnings
and profits previously deferred from U.S. income taxes.
In 2016, our effective tax rate was lower than the U.S. federal statutory tax rate of 35%, largely due to a settlement with the U.S.
Internal Revenue Service Office of Appeals for our 1998 to 2008 tax years. This settlement resulted in a $206 million benefit
recognized in continuing operations and a $113 million benefit in discontinued operations.
For a full reconciliation of our effective tax rate to the U.S. federal statutory tax rate, see Note 16.
20 Textron 2018 Annual Report
Segment Analysis
We operate in, and report financial information for, the following five business segments: Textron Aviation, Bell, Textron Systems,
Industrial and Finance. Segment profit is an important measure used for evaluating performance and for decision-making purposes.
Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses, gains/losses on major business
dispositions and special charges. The measurement for the Finance segment includes interest income and expense along with
intercompany interest income and expense. Operating expenses for the Manufacturing segments include cost of sales, selling and
administrative expense and other non-service components of net periodic benefit cost/(credit), and exclude certain corporate
expenses and special charges.
In our discussion of comparative results for the Manufacturing group, changes in revenues and segment profit typically are expressed
for our commercial business in terms of volume, pricing, foreign exchange, acquisitions and dispositions, while changes in segment
profit may be expressed in terms of mix, inflation and cost performance. Volume changes in revenues for our commercial business
represent increases or decreases in the number of units delivered or services provided. 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 from the sale of businesses are reflected as Dispositions. For segment profit, mix represents a change
due to the composition of products and/or services sold at different profit margins. Inflation represents higher material, wages,
benefits, pension service cost or other costs. Performance reflects an increase or decrease in research and development, depreciation,
selling and administrative costs, warranty, product liability, quality/scrap, labor efficiency, overhead, non-service pension
cost/(credit), product line profitability, start-up, ramp up and cost-reduction initiatives or other manufacturing inputs. (cid:3)
Approximately 24% of our 2018 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
revenue related to these contracts are expressed in terms of volume. Revenues in 2018 for our U.S. Government contracts are
primarily recognized as costs are incurred, while revenues for 2017 and 2016 were primarily recognized as units were delivered.
Changes in segment profit are typically expressed in terms of volume 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
2018
$
(Dollars in millions)
Revenues:
Aircraft
Aftermarket parts and services
Total revenues
Operating expenses
Segment profit
Profit margin
Backlog
(cid:3)
Textron Aviation Revenues and Operating Expenses
Factors contributing to the 2018 year-over-year revenue change are provided below:
3,435 $
1,536
4,971
4,526
445
9.0%
1,791 $
$
2017
2016
% Change
2018
2017
3,112 $
1,574
4,686
4,383
303
6.5%
1,180 $
3,412
1,509
4,921
4,532
389
7.9%
1,041
10%
(2)%
6%
3%
47%
(9)%
4%
(5)%
(3)%
(22)%
52%
13%
(In millions)
Volume and mix
Pricing
Total change
2018 versus
2017
185
100
285
$
$
Textron Aviation’s revenues increased $285 million, 6%, in 2018, compared 2017, due to higher volume and mix of $185 million
and favorable pricing of $100 million. We delivered 188 Citation jets and 186 commercial turboprops in 2018, compared with 180
Citation jets and 155 commercial turboprops in 2017.
Textron Aviation’s operating expenses increased $143 million, 3%, in 2018, compared with 2017, largely due to higher net volume
as described above.
Textron 2018 Annual Report 21
Factors contributing to the 2017 year-over-year revenue change are provided below:
(In millions)
Volume and mix
Other
Total change
$
2017 versus
2016
(307)
72
(235)
$
Textron Aviation’s revenues decreased $235 million, 5%, in 2017, compared with 2016, primarily due to lower volume and mix of
$307 million, largely the result of lower military and commercial turboprop volume. We delivered 180 Citation jets, 155 commercial
turboprops and 13 Beechcraft T-6 trainers in 2017, compared with 178 Citation jets, 190 commercial turboprops and 38 Beechcraft
T-6 trainers in 2016.
Textron Aviation’s operating expenses decreased $149 million, 3%, in 2017, compared with 2016, largely due to lower net volume
as described above.
Textron Aviation Segment Profit
Factors contributing to 2018 year-over-year segment profit change are provided below:
(In millions)
Volume and mix
Pricing, net of inflation
Performance
Total change
$
2018 versus
2017
65
57
20
142
$
Segment profit at Textron Aviation increased $142 million, 47%, in 2018, compared with 2017, primarily due to the impact from
higher volume and mix of $65 million as described above and the favorable impact from pricing, net of inflation.
Factors contributing to 2017 year-over-year segment profit change are provided below:
(In millions)
Volume and mix
Pricing, net of inflation
Performance and other
Total change
$
2017 versus
2016
(99)
56
(43)
(86)
$
Segment profit at Textron Aviation decreased $86 million, 22%, in 2017, compared with 2016, primarily as a result of lower net
volume and mix as described above. The favorable impact of $56 million from pricing, net of inflation, was largely offset by an
unfavorable impact of $43 million from performance and other, largely reflecting higher research, development and engineering
costs, which included costs related to the Scorpion program in 2017.
Textron Aviation Backlog
Backlog at Textron Aviation increased $611 million, 52%, in 2018 as a result of orders in excess of deliveries.
22 Textron 2018 Annual Report
2018
2017
2016
% Change
2018
2017
Bell
(Dollars in millions)
Revenues:
Military aircraft and support programs
Commercial helicopters, parts and services
Total revenues
Operating expenses
Segment profit
Profit margin
Backlog
(cid:3)
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 stage and represent a significant portion of Bell’s revenues from the U.S. Government.
5,837 $
4,598 $
11.9%
(14)%
5,360
27%
$
$
2,030 $
1,150
3,180
2,755
425
13.4%
2,076 $
1,241
3,317
2,902
415
12.5%
2,087
1,152
3,239
2,853
386
(2)%
(7)%
(4)%
(5)%
2%
(1)%
8%
2%
2%
8%
Bell Revenues and Operating Expenses
Factors contributing to the 2018 year-over-year revenue change are provided below:
(In millions)
Volume and mix
Other
Total change
2018 versus
2017
(155)
18
(137)
$
$
Bell’s revenues decreased $137 million, 4%, in 2018, compared with 2017, primarily due to lower commercial revenues of $91
million, largely reflecting the mix of aircraft sold in the year, and lower military revenues of $46 million. We delivered 192
commercial helicopters in 2018, compared with 132 commercial helicopters in 2017.
Bell’s operating expenses decreased $147 million, 5%, in 2018, compared with 2017, primarily due to lower volume and mix as
described above and improved performance on military programs described below.
Factors contributing to the 2017 year-over-year revenue change are provided below:
(In millions)
Volume and mix
Other
Total change
2017 versus
2016
57
21
78
$
$
Bell’s revenues increased $78 million, 2%, in 2017, compared with 2016, primarily due to an $89 million increase in commercial
revenues, largely due to higher deliveries as Bell delivered 132 commercial aircraft in 2017, compared with 114 aircraft in 2016.
Military deliveries were largely unchanged in 2017 compared with 2016, as we delivered 22 V-22 aircraft in both years and 38 H-1
aircraft in 2017, compared with 35 H-1 aircraft in 2016.
Bell’s operating expenses increased $49 million, 2%, in 2017, compared with 2016, primarily due to higher volume as described
above.
Bell Segment Profit
Factors contributing to 2018 year-over-year segment profit change are provided below:
(In millions)
Performance and other
Volume and mix
Total change
2018 versus
2017
60
(50)
10
$
$
Bell’s segment profit increased $10 million, 2%, in 2018, compared with 2017, due to a favorable impact of $60 million from
performance and other, partially offset by an unfavorable impact from volume and mix, largely due to the mix of commercial aircraft
sold in the year. The impact from performance and other was largely the result of $77 million in improved performance on military
Textron 2018 Annual Report 23
programs, which included an increase in favorable profit adjustments reflecting retirements of risk related to cost estimates and
improved labor and overhead rates, partially offset by higher research and development costs.
Factors contributing to 2017 year-over-year segment profit change are provided below:
(In millions)
Performance and other
Volume and mix
Total change
2017 versus
2016
66
(37)
29
$
$
Bell’s segment profit increased $29 million, 8%, in 2017, compared with 2016, reflecting a favorable impact from performance and
other of $66 million, largely the result of improved manufacturing performance and lower research and development costs, partially
offset by an unfavorable impact from volume and mix of $37 million.
Bell Backlog
Bell’s backlog increased $1.2 billion, 27%, in 2018. New contracts received in excess of revenues recognized totaled $2.0 billion,
which primarily reflected an increase of $2.4 billion for Bell’s portion of a third multi-year V-22 contract for the production and
delivery of 63 units along with related supplies and services through 2024. This was partially offset by a decrease of $760 million
upon the adoption of ASC 606 at the beginning of 2018, largely resulting from the acceleration of revenues upon conversion to the
cost-to-cost method of revenue recognition.
Bell’s backlog decreased $762 million, 14%, in 2017, primarily due to deliveries on the V-22 and H-1 programs in excess of orders.
Textron Systems
(Dollars in millions)
Revenues
Operating expenses
Segment profit
Profit margin
Backlog
2018
1,464
1,308
156
10.7%
1,469
$
$
$
$
Textron Systems Revenues and Operating Expenses
Factors contributing to the 2018 year-over-year revenue change are provided below:
(In millions)
Volume
Other
Total change
2017
1,840 $
1,701
139
2016
1,756
1,570
186
% Change
2018
(20)%
(23)%
12%
2017
5%
8%
(25)%
7.6%
1,406 $
10.6%
1,841
4%
(24)%
2018 versus
2017
(380)
4
(376)
$
$
Revenues at Textron Systems decreased $376 million, 20%, in 2018, compared with 2017, primarily due to lower volume of $159
million in the Marine and Land Systems product line reflecting lower Tactical Armoured Patrol Vehicle program (TAPV) deliveries,
along with a decrease due to the discontinuance of our sensor-fuzed weapon product in 2017.
Textron Systems’ operating expenses decreased $393 million, 23%, in 2018, compared with 2017, primarily due to lower volume
described above. The decrease in operating expenses in 2018 also included the impact from unfavorable net program adjustments
recorded in 2017 described below.
Factors contributing to the 2017 year-over-year revenue change are provided below:
(In millions)
Volume
Acquisitions
Other
Total change
24 Textron 2018 Annual Report
2017 versus
2016
67
10
7
84
$
$
Revenues at Textron Systems increased $84 million, 5%, in 2017, compared with 2016, primarily due to higher volume of $176
million in the Marine and Land Systems product line, partially offset by lower volume in the other product lines, largely due to the
final deliveries of our discontinued sensor-fuzed weapon product in the first half of 2017.
Textron Systems’ operating expenses increased $131 million, 8%, in 2017, compared with 2016, primarily due to higher volume as
described above and the unfavorable impact from net program adjustments described below.
Textron Systems Segment Profit
Factors contributing to 2018 year-over-year segment profit change are provided below:
(In millions)
Performance and other
Volume and mix
Total change
$
2018 versus
2017
62
(45)
17
$
Textron Systems’ segment profit increased $17 million, 12%, in 2018, compared with 2017, primarily due to favorable performance
and other of $62 million, partially offset by lower volume described above. Performance and other improved largely due to
unfavorable program adjustments recorded in 2017 as discussed below.
Factors contributing to 2017 year-over-year segment profit change are provided below:
(In millions)
Performance
Volume and mix
Other
Total change
$
2017 versus
2016
(28)
(13)
(6)
(47)
$
Textron Systems’ segment profit decreased $47 million, 25%, in 2017, compared with 2016, primarily due to unfavorable
performance. Performance reflects an unfavorable impact from net program adjustments compared with 2016, largely due to $44
million of adjustments recorded in 2017 related to the TAPV program. In 2017, this program experienced inefficiencies resulting
from various production issues during the ramp up and subsequent production.
Textron Systems Backlog
In 2017, backlog decreased $435 million, 24%, primarily due to deliveries in excess of orders in the Marine and Land Systems
product line as TAPV deliveries neared completion, and final deliveries of our discontinued sensor-fuzed weapon product in 2017.
(cid:3)
Industrial
(Dollars in millions)
Revenues:
Fuel Systems and Functional Components
Other Industrial
Total revenues
Operating expenses
Segment profit
Profit margin
2018
2017
2016
$
2,352 $
1,939
4,291
4,073
218
5.1%
2,330 $
1,956
4,286
3,996
290
6.8%
2,273
1,521
3,794
3,465
329
8.7%
% Change
2018
2017
1%
(1)%
—
2%
(25)%
3%
29%
13%
15%
(12)%
Textron 2018 Annual Report 25
Industrial Revenues and Operating Expenses
Factors contributing to the 2018 year-over-year revenue change are provided below:
(In millions)
Disposition
Volume
Foreign exchange
Acquisition
Other
Total change
2018 versus
2017
(246)
149
57
49
(4)
5
$
$
Industrial segment revenues increased $5 million, in 2018, compared with 2017. Higher volume of $149 million, largely related to
the Textron Specialized Vehicles product line, a favorable impact of $57 million from foreign exchange, primarily related to the
strengthening of the Euro against the U.S. dollar, and the impact of $49 million from the acquisition of Arctic Cat on March 6, 2017,
were largely offset by $246 million in lower revenues due to the disposition of the Tools and Test Equipment product line.
Operating expenses for the Industrial segment increased $77 million, 2%, in 2018, compared with 2017, primarily due to higher
volume described above, the impact from foreign exchange and additional operating expenses from the Arctic Cat acquisition. These
increases were partially offset by lower operating expenses from the disposition of our Tools and Test Equipment product line.
Factors contributing to the 2017 year-over-year revenue change are provided below:
(In millions)
Acquisitions
Volume
Foreign exchange
Other
Total change
2017 versus
2016
393
77
27
(5)
492
$
$
Industrial segment revenues increased $492 million, 13%, in 2017, compared with 2016, primarily due to the impact from acquired
businesses of $393 million, largely related to the acquisition of Arctic Cat as described below. Revenues were also impacted by
higher volume of $77 million, primarily related to the Fuel Systems and Functional Components product line and a favorable impact
of $27 million from foreign exchange, primarily related to the Euro.
On March 6, 2017, we acquired Arctic Cat, a manufacturer of all-terrain vehicles, side-by-sides and snowmobiles, in addition to
related parts, garments and accessories. The operating results of Arctic Cat have been included in our financial results only for the
period subsequent to the completion of the acquisition. See Note 2 for additional information regarding this acquisition.
Operating expenses for the Industrial segment increased $531 million, 15%, in 2017, compared with 2016, primarily due to additional
operating expenses from acquired businesses. The increase in operating expenses was also due to higher volume as described above.
Industrial Segment Profit
Factors contributing to 2018 year-over-year segment profit change are provided below:
(In millions)
Disposition
Pricing and inflation
Performance and other
Volume and mix
Total change
26 Textron 2018 Annual Report
2018 versus
2017
(22)
(21)
(16)
(13)
(72)
$
$
Segment profit for the Industrial segment decreased $72 million, 25%, in 2018, compared with 2017, resulting from the impact of
the disposition of our Tools and Test Equipment product line of $22 million, an unfavorable impact of pricing and inflation of $21
million and unfavorable performance and other of $16 million, which were both primarily related to the Textron Specialized Vehicles
product line. The unfavorable volume and mix was primarily due to the mix of products sold in the year. Performance and other
primarily included additional operating expenses in the first quarter of 2018 due to the timing of the Arctic Cat acquisition and the
seasonality of the outdoor power sports business and unfavorable inventory adjustments in the Textron Specialized Vehicles product
line, partially offset by a favorable impact of $17 million recognized in the fourth quarter of 2018 related to a patent infringement
matter.
Factors contributing to 2017 year-over-year segment profit change are provided below:
(In millions)
Pricing and inflation
Performance and other
Volume and mix(cid:3)
Total change
2017 versus
2016
(23)
(10)
(6)
(39)
$
$
Industrial’s segment profit decreased $39 million, 12%, in 2017, compared with 2016, largely due to an unfavorable impact from
pricing and inflation of $23 million, primarily in the Fuel Systems and Functional Components product line, and unfavorable
performance and other of $10 million. Performance and other primarily included the operating results of Arctic Cat, partially offset
by favorable performance in the Fuel Systems and Functional Components product line.
Finance
(In millions)
Revenues
Segment profit
$
2018
2017
66 $
23
69 $
22
2016
78
19
Finance segment revenues decreased $3 million and segment profit increased $1 million in 2018, compared with 2017. Finance
segment revenues decreased $9 million, in 2017, compared with 2016, primarily attributable to lower average finance receivables,
and segment profit increased $3 million in 2017, compared with 2016, primarily due to lower provision for loan losses, partially
offset by lower average finance receivables. The following table reflects information about the Finance segment’s credit performance
related to finance receivables. (cid:3)
(Dollars in millions)
Finance receivables
Nonaccrual finance receivables
Ratio of nonaccrual finance receivables to finance receivables
60+ days contractual delinquency
60+ days contractual delinquency as a percentage of finance receivables
$
December 29,
2018
789 $
40
5.07%
$
14(cid:3) $
December 30,
2017
850
61
7.18%
34
4.00%
1.77%
Textron 2018 Annual Report 27
Liquidity and Capital Resources
Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron consolidated
with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems and Industrial segments. The
Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated subsidiaries. We
designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations
include the development, production and delivery of tangible goods and services, while our Finance group provides financial
services. Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use
different measures to evaluate each group’s performance. To support those evaluations, we present balance sheet and cash flow
information for each borrowing group within the Consolidated Financial Statements.
Key information that is utilized in assessing our liquidity is summarized below:
(Dollars in millions)
Manufacturing group
Cash and equivalents
Debt
Shareholders’ equity
Capital (debt plus shareholders’ equity)
Net debt (net of cash and equivalents) to capital
Debt to capital
Finance group
Cash and equivalents
Debt
December 29,
2018
December 30,
2017
$ 987 $
3,066
5,192
8,258
29%
37%
1,079
3,088
5,647
8,735
26%
35%
$
120 $
718
183
824
We believe that our calculations of debt to capital and net debt to capital are useful measures as they provide a summary indication
of the level of debt financing (i.e., leverage) that is in place to support our capital structure, as well as to provide an indication of the
capacity to add further leverage. We believe that we will have sufficient cash to meet our future needs, based on our existing cash
balances, the cash we expect to generate from our manufacturing operations and other available funding alternatives, as appropriate.
Textron has a senior unsecured revolving credit facility that expires in September 2021 for an aggregate principal amount of $1.0
billion, of which up to $100 million is available for the issuance of letters of credit. At December 29, 2018, there were no amounts
borrowed against the facility and there were $10 million of letters of credit issued against it. 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.
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:
(In millions)
Operating activities
Investing activities
Financing activities
$
2018
1,127 $
539
(1,738)
2017
930 $
(728)
(266)
2016
901
(534)
(146)
In 2018, cash flows provided by operating activities was $1,127 million, compared with $930 million in 2017, a 21% increase,
primarily reflecting lower pension contributions of $306 million, higher earnings and a dividend of $50 million received from the
Finance group in the first quarter of 2018, which were partially offset by a higher use of net working capital in 2018, largely reflecting
a $145 million cash outflow from changes in net taxes paid/received.
Cash flows provided by operating activities was $930 million in 2017, compared with $901 million in 2016, a 3% increase, as
improvements in working capital, were largely offset by higher pension contributions of $308 million and lower earnings. Significant
factors contributing to the favorable change in working capital included an increase in cash flows of $769 million related to changes
in inventory between the periods, principally in the Textron Aviation and Textron Systems segments, $333 million related to changes
in customer deposits and $179 million from changes in net taxes paid/received, partially offset by changes in accounts payable and
accounts receivable. The increase in cash flows from customer deposits between the periods is primarily related to lower
performance-based payments received on certain military contracts in the Bell segment in 2016.
28 Textron 2018 Annual Report
Net tax payments/(receipts) were $129 million, $(16) million and $163 million in 2018, 2017 and 2016, respectively. Pension
contributions were $52 million, $358 million and $50 million in 2018, 2017 and 2016, respectively. In 2017, pension contributions
included a $300 million discretionary contribution to fund a U.S. pension plan.
In 2018, investing cash flows included net cash proceeds of $807 million from the disposition of the Tools and Test Equipment
product line and net proceeds from corporate-owned life insurance policies of $110 million, partially offset by capital expenditures
of $369 million. In 2017, cash flows used by investing activities included capital expenditures of $423 million and a $316 million
aggregate cash payment for the Arctic Cat acquisition. Investing cash flows for 2016 included capital expenditures of $446 million
and cash used for acquisitions of $186 million, partially offset by net proceeds from corporate-owned life insurance policies of $87
million.
Cash flows used in financing activities in 2018 primarily included $1.8 billion of cash paid to repurchase an aggregate of 29.1 million
shares of our outstanding common stock under both a new 2018 share repurchase authorization as disclosed below and a prior 2017
authorization. In 2017 and 2016, financing cash flows included $582 million and $241 million of cash paid, respectively, to repurchase
an aggregate of 11.9 million and 6.9 million shares, respectively, of our outstanding common stock under prior share repurchase
authorizations. Total financing cash flows in 2017 and 2016 also included the repayment of outstanding debt of $704 million and
$254 million, respectively, and proceeds from long-term debt of $992 million and $345 million, respectively.
On April 16, 2018, our Board of Directors authorized the repurchase of up to 40 million shares of our common stock. This repurchase
plan was utilized in 2018 for repurchases funded, in part, by the net proceeds of $0.8 billion from the disposition of the Tools and
Test product line. In addition, this 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.
Dividend payments to shareholders totaled $20 million, $21 million and $22 million in 2018, 2017 and 2016, respectively. Dividends
received from the Finance group, which totaled $50 million and $29 million in 2018 and 2016, respectively, are included within cash
flows from operating activities for the Manufacturing group as they represent a return on investment.
Finance Group Cash Flows
The cash flows from continuing operations for the Finance group as presented in our Consolidated Statements of Cash Flows are
summarized below:
(In millions)
Operating activities
Investing activities
Financing activities
$
2018
14 $
99
(176)
2017
(24) $
140
(94)
2016
11
142
(51)
The Finance group’s cash flows from operating activities included net tax payments of $17 million, $48 million and $11 million in
2018, 2017 and 2016, respectively. Cash flows from investing activities primarily included collections on finance receivables totaling
$226 million, $273 million and $292 million in 2018, 2017 and 2016, respectively, partially offset by finance receivable originations
of $177 million, $174 million and $173 million, respectively.
Cash flows used in financing activities included payments on long-term and nonrecourse debt of $126 million, $137 million and
$203 million in 2018, 2017 and 2016, respectively. In 2017 and 2016, cash flows from financing activities also included proceeds
from long-term debt of $44 million and $180 million, respectively. In 2018 and 2016, dividend payments to the Manufacturing group
totaled $50 million and $29 million, respectively.
Consolidated Cash Flows
The consolidated cash flows from continuing operations, after elimination of activity between the borrowing groups, are summarized
below:
(In millions)
Operating activities
Investing activities
Financing activities
$
$
2018
1,109
620
(1,864)
$
2017
963
(645)
(360)
2016
927
(436)
(168)
In 2018, consolidated cash flows provided by operating activities was $1,109 million, compared with $963 million in 2017, a 15%
increase, primarily reflecting lower pension contributions of $306 million and higher earnings, partially offset by a higher use of net
working capital in 2018, reflecting a $114 million increase in net tax payments and $45 million in lower cash flows related to captive
financing activities.
Textron 2018 Annual Report 29
Consolidated cash flows provided by operating activities was $963 million in 2017, compared with $927 million in 2016, a 4%
increase, as improvements in working capital, were largely offset by higher pension contributions of $308 million and lower earnings.
Significant factors contributing to the favorable change in working capital included an increase in cash flows of $764 million related
to changes in inventory between the periods, principally in the Textron Aviation and Textron Systems segments, $333 million related
to changes in customer deposits and $142 million of lower net tax payments, partially offset by changes in accounts payable and
accounts receivable. The increase in cash flows from customer deposits between the periods is primarily related to lower
performance-based payments received on certain military contracts in the Bell segment in 2016.
Net tax payments were $146 million, $32 million and $174 million in 2018, 2017 and 2016, respectively. Pension contributions
were $52 million, $358 million and $50 million in 2018, 2017 and 2016, respectively. In 2017, pension contributions included a
$300 million discretionary contribution to fund a U.S. pension plan.
Investing cash flows in 2018 included net cash proceeds of $807 million from the disposition of the Tools and Test Equipment
product line and net proceeds from corporate-owned life insurance policies of $110 million, partially offset by capital expenditures
of $369 million. In 2017, cash flows used by investing activities included capital expenditures of $423 million and a $316 million
aggregate cash payment for the Arctic Cat acquisition. Investing cash flows for 2016 included capital expenditures of $446 million
and cash used for acquisitions of $186 million, partially offset by net proceeds from corporate-owned life insurance policies of $87
million.
In 2018, 2017 and 2016, cash used in financing activities included share repurchases of $1,783 million, $582 million and $241
million, respectively, and the repayment of outstanding debt of $131 million, $841 million and $457 million, respectively. Total
financing cash flows in 2017 and 2016 also included proceeds from long-term debt of $1,036 million and $525 million, respectively.
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:
(In millions)
Reclassification adjustments from investing activities:
Cash received from customers
Finance receivable originations for Manufacturing group inventory sales(cid:3)
Other
Total reclassification adjustments from investing activities
Reclassification adjustments from financing activities:
Dividends received by Manufacturing group from Finance group
Total reclassification adjustments to cash flow from operating activities
2018
2017
2016
$
199 $
(177)
(4)
18
241 $
(174)
(10)
57
(50)
(32) $
—
57 $
$
248
(173)
(31)
44
(29)
15
Under a Support Agreement between Textron and TFC, Textron is required to maintain a controlling interest in TFC. The agreement,
as amended in December 2015, also requires Textron to ensure that TFC maintains fixed charge coverage of no less than 125% and
consolidated shareholder’s equity of no less than $125 million. There were no cash contributions required to be paid to TFC in 2018,
2017 and 2016 to maintain compliance with the support agreement.
30 Textron 2018 Annual Report
Contractual Obligations(cid:3)
Manufacturing Group
The following table summarizes the known contractual obligations, as defined by reporting regulations, of our Manufacturing group
as of December 29, 2018:
(In millions)
Debt
Purchase obligations not reflected in balance sheet
Interest on borrowings
Pension benefits for unfunded plans
Postretirement benefits other than pensions
Other long-term liabilities
Operating leases
Total Manufacturing group
Total
3,082 $
2,571
643
369
250
345
301
7,561 $
$
$
258 $
2,032
136
27
28
76
64
2,621 $
1,059 $
509
205
50
49
103
77
2,052 $
More Than 5
Years
1,751
2
167
246
132
112
115
2,525
14 $
28
135
46
41
54
45
363 $
Payments Due by Period
Year 1
Years 2-3
Years 4-5
Pension and Postretirement Benefits
We maintain defined benefit pension plans and postretirement benefit plans other than pensions as described in Note 14. Included
in the above table are discounted estimated benefit payments we expect to make related to unfunded pension and other postretirement
benefit plans. Actual benefit payments are dependent on a number of factors, including mortality assumptions, expected retirement
age, rate of compensation increases and medical trend rates, which are subject to change in future years. Our policy for funding
pension plans is to make contributions annually, consistent with applicable laws and regulations; however, future contributions to
our pension plans are not included in the above table. In 2019, we expect to make approximately $25 million of contributions to our
funded pension plans and the Retirement Account Plan. Based on our current assumptions, which may change with changes in
market conditions, our current contribution for each of the years from 2020 through 2023 are estimated to be approximately $50
million under the plan provisions in place at this time.
Other Long-Term Liabilities
Other long-term liabilities consist of undiscounted amounts in the Consolidated Balance Sheets that primarily include obligations
under deferred compensation arrangements and estimated environmental remediation costs. Payments under deferred compensation
arrangements have been estimated based on management’s assumptions of expected retirement age, mortality, stock price and rates
of return on participant deferrals. The timing of cash flows associated with environmental remediation costs is largely based on
historical experience. Certain other long-term liabilities, such as deferred taxes, unrecognized tax benefits and product liability,
warranty and litigation reserves, have been excluded from the table due to the uncertainty of the timing of payments combined with
the absence of historical trends to be used as a predictor for such payments.
Purchase Obligations
Purchase obligations include undiscounted amounts committed under legally enforceable contracts or purchase orders for goods and
services with defined terms as to price, quantity and delivery dates. Approximately 37% of the purchase obligations we disclose
represent purchase orders issued for goods and services to be delivered under firm contracts with the U.S. Government for which
we have full recourse under customary contract termination clauses.
Finance Group
The following table summarizes the known contractual obligations, as defined by reporting regulations, of our Finance group as of
December 29, 2018:
(In millions)
Term debt
Subordinated debt
Interest on borrowings
Total Finance group
$
$
Total
419
299
216
934
$
$
167 $
—
25
192 $
190 $
—
37
227 $
More Than 5
Years
25
299
124
448
37 $
—
30
67 $
Payments Due by Period
Year 1
Years 2-3
Years 4-5
Textron 2018 Annual Report 31
Critical Accounting Estimates(cid:3)
To prepare our Consolidated Financial Statements to be in conformity with generally accepted accounting principles, we must make
complex and subjective judgments in the selection and application of accounting policies. The accounting policies that we believe
are most critical to the portrayal of our financial condition and results of operations are listed below. We believe these policies
require our most difficult, subjective and complex judgments in estimating the effect of inherent uncertainties. This section should
be read in conjunction with Note 1, which includes other significant accounting policies.
Revenue Recognition
A substantial portion of our revenues is related to long-term contracts with the U.S. Government, including those under 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. At the beginning of 2018, we adopted Accounting Standards Update (ASU) No. 2014-
09, Revenue from Contracts with Customers (ASC 606) and its related amendments using the modified retrospective transition
method, which permitted comparative information to not be restated This standard primarily impacted our contracts with the U.S.
Government as we were required to convert certain contracts from the units-of-delivery method to the cost-to-cost method for
revenue recognition. Under ASC 606, while the timing of revenue recognition has changed for many of these contracts and the
number of units of accounting, known as performance obligations, have been reduced from the prior standards, the process for
establishing and reviewing our revenue and cost estimates is consistent with the prior periods.
With the adoption of ASC 606 in 2018, due to the continuous transfer of control to the U.S. Government, we recognize revenue over
the time that we perform under the contract. Selecting the method to measure progress towards completion requires judgment and
is based on the nature of the products or service to be provided. We generally use the cost-to-cost method to measure progress for
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.
Prior to the ASC 606 adoption, we accounted for our long-term contracts under the percentage of completion method of accounting.
Under this method, we estimated profit as the difference between total estimated revenues and cost of a contract. We then recognized
that estimated profit over the contract term based on either the units-of-delivery method or the cost-to-cost method (which typically
was used for development effort as costs were incurred), as appropriate under the circumstances. Revenues under fixed price
contracts generally were recorded using the units-of-delivery method, while revenues under cost-reimbursement contracts were
recorded using the cost-to-cost method.
Approximately 80% of our 2018 revenues with the U.S. Government were under fixed-price and fixed-price incentive contracts. To
the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit and
could potentially incur a loss.
The transaction price for our contracts represents our best estimate of the consideration we expect to receive and includes assumptions
regarding variable consideration as applicable. Certain of our long-term contracts contain incentive fees or other provisions that can
either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain
performance metrics, program milestones or cost targets and can be based upon customer discretion. We include estimated amounts
in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when
the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of
whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance,
historical performance and all other information that is reasonably available to us.
Due to the number of years it may take to complete many of our contracts and the scope and nature of the work required to be
performed on those contracts, the estimation of total transaction price and costs at completion is complicated and subject to many
variables and, accordingly, is subject to change. In estimating total costs at completion, we are required to make numerous
assumptions related to the complexity of design and related development work to be performed; engineering requirements; product
performance; subcontractor performance; availability and cost of materials; labor productivity, availability and cost; overhead and
capital costs; manufacturing efficiencies; the length of time to complete the contract (to estimate increases in wages and prices for
materials); and costs of satisfying offset obligations, among other variables. Our cost estimation process is based on the professional
knowledge and experience of engineers and program managers along with finance professionals. We review and update our cost
projections quarterly or more frequently when circumstances significantly change. When estimates of total costs to be incurred on
a contract exceed estimates of total sales to be earned, a provision for the entire loss on the contract is recorded in the period in which
the loss is determined.
32 Textron 2018 Annual Report
At the outset of each contract, we estimate an initial profit booking rate considering the risks surrounding our ability to achieve the
technical requirements (e.g., a newly-developed product versus a mature product), schedule (e.g., the number and type of milestone
events), and costs by contract requirements in the initial estimated costs at completion. Profit booking rates may increase during the
performance of the contract if we successfully retire risks surrounding the technical, schedule, and cost aspects of the contract.
Conversely, the profit booking rate may decrease if we are not successful in retiring the risks; and, as a result, our estimated costs at
completion increase. All estimates are subject to change during the performance of the contract and, therefore, may affect the profit
booking rate.
Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such
changes. Changes in our profit booking rate due to changes in our estimate of the total expected costs, along with changes in the
transaction price, are recognized on a 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. The impact
of our gross cumulative catch-up adjustments on revenues and segment profit recognized in prior periods is presented below:
(In millions)
Gross favorable
Gross unfavorable
Net adjustments
$
$
2018
249 $
(53)
196 $
2017
92 $
(87)
5 $
2016
106
(23)
83
With the adoption of ASC 606 at the beginning of 2018, a significant portion of our contracts with the U.S. Government converted
to the cost-to-cost method for revenue recognition from the units of delivery method. The cost-to-cost method generally results in
larger cumulative catch-up adjustments since revenue is recognized earlier on these contracts requiring the estimation of costs over
longer periods of time. Under the units of delivery method that we used for many of our contracts in 2017 and 2016, we had more
time to develop and refine our estimates as we were not required to recognize revenue until our products were delivered much later
in the contract term.
Due to the significance of judgment in the estimation process described above, it is likely that materially different revenues and/or
cost of sales amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Our
earnings could be reduced by a material amount resulting in a charge to earnings if (a) total estimated contract costs are significantly
higher than expected due to changes in customer specifications prior to contract amendment, (b) total estimated contract costs are
significantly higher than previously estimated due to cost overruns or inflation, (c) there is a change in engineering efforts required
during the development stage of the contract or (d) we are unable to meet contract milestones.
Goodwill
We evaluate the recoverability of goodwill annually in the fourth quarter or more frequently if events or changes in circumstances,
such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value
of a reporting unit might be impaired. The reporting unit represents the operating segment unless discrete financial information is
prepared and reviewed by segment management for businesses one level below that operating segment, in which case such
component is the reporting unit. In certain instances, we have aggregated components of an operating segment into a single reporting
unit based on similar economic characteristics.
We calculate the fair value of each reporting unit, primarily using discounted cash flows. These cash flows incorporate assumptions
for short- and long-term revenue growth rates, operating margins and discount rates that represent our best estimates of current and
forecasted market conditions, cost structure, anticipated net cost reductions, and the implied rate of return that we believe a market
participant would require for an investment in a business having similar risks and business characteristics to the reporting unit being
assessed. The revenue growth rates and operating margins used in our discounted cash flow analysis are based on our strategic plans
and long-range planning forecasts. The long-term growth rate we use to determine the terminal value of the business is based on
our assessment of its minimum expected terminal growth rate, as well as its past historical growth and broader economic
considerations such as gross domestic product, inflation and the maturity of the markets we serve. We utilize a weighted-average
cost of capital in our impairment analysis that makes assumptions about the capital structure that we believe a market participant
would make and include a risk premium based on an assessment of risks related to the projected cash flows of each reporting
unit. We believe this approach yields a discount rate that is consistent with an implied rate of return that an independent investor or
market participant would require for an investment in a company having similar risks and business characteristics to the reporting
unit being assessed.
Textron 2018 Annual Report 33
If the reporting unit’s estimated fair value exceeds its carrying value, there is no impairment, and no further analysis is performed.
Otherwise, an impairment loss is recognized in an amount equal to that excess carrying value over the estimated fair value amount.
Based on our annual impairment review, the fair value of all of our reporting units exceeded their carrying values, and we do not
believe that there is a reasonable possibility that any units might fail the initial step of the impairment test in the foreseeable future.
Retirement Benefits
We maintain various pension and postretirement plans for our employees globally. These plans include significant pension and
postretirement benefit obligations, which are calculated based on actuarial valuations. Key assumptions used in determining these
obligations and related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost
projections. We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover
and rate of compensation increases. We evaluate and update these assumptions annually.
To determine the weighted-average expected long-term rate of return on plan assets, we consider the current and expected asset
allocation, as well as historical and expected returns on each plan asset class. A lower expected rate of return on plan assets will
increase pension expense. For 2018, the assumed expected long-term rate of return on plan assets used in calculating pension
expense was 7.58%, compared with 7.57% in 2017. For the last seven years, the assumed rate of return for our domestic plans,
which represent approximately 93% of our total pension assets, was 7.75%. A 50 basis-point decrease in this long-term rate of return
in 2018 would have increased pension cost for our domestic plans by approximately $33 million.
The discount rate enables us to state expected future benefit payments as a present value on the measurement date, reflecting the
current rate at which the pension liabilities could be effectively settled. This rate should be in line with rates for high-quality fixed
income investments available for the period to maturity of the pension benefits, which fluctuate as long-term interest rates change.
A lower discount rate increases the present value of the benefit obligations and increases pension expense. In 2018, the weighted-
average discount rate used in calculating pension expense was 3.67%, compared with 4.13% in 2017. For our domestic plans, the
assumed discount rate was 3.75% in 2018, compared with 4.25% in 2017. A 50 basis-point decrease in this weighted-average
discount rate in 2018 would have increased pension cost for our domestic plans by approximately $31 million.
The trend in healthcare costs is difficult to estimate and has an important effect on postretirement liabilities. The 2018 medical and
prescription drug cost trend rates represent the weighted-average annual projected rate of increase in the per capita cost of covered
benefits. In 2018, we assumed a trend rate of 7% for both medical and prescription drug cost and assumed this rate would gradually
decline to 5% by 2024 and then remain at that level.
34 Textron 2018 Annual Report
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Risk
Our financial results are affected by changes in foreign currency exchange rates in the various countries in which our products are
manufactured and/or sold. For our manufacturing operations, we manage our foreign currency transaction exposures by entering
into foreign currency exchange contracts. These contracts generally are used to fix the local currency cost of purchased goods or
services or selling prices denominated in currencies other than the functional currency. The notional amount of outstanding foreign
currency exchange contracts was $379 million and $426 million at December 29, 2018 and December 30, 2017, respectively. We
also manage exposures to foreign currency assets and earnings primarily by funding certain foreign currency-denominated assets
with liabilities in the same currency so that certain exposures are naturally offset. We primarily use borrowings denominated in
British pound sterling for these purposes. The impact of foreign currency exchange rate changes on our Consolidated Statements of
Operations are as follows:
(In millions)
Increase (decrease) in revenues
Increase (decrease) in segment profit
$
2018
2017
57 $
1
27 $
(1)
2016
(36)
(12)
Interest Rate Risk
Our financial results are affected by changes in interest rates. As part of managing this risk, we seek to achieve a prudent balance
between floating- and fixed-rate exposures. We continually monitor our mix of these exposures and adjust the mix, as necessary.
For our Finance group, we generally limit our risk to changes in interest rates with a strategy of matching floating-rate assets with
floating-rate liabilities.
Quantitative Risk Measures
In the normal course of business, we enter into financial instruments for purposes other than trading. The financial instruments that
are subject to market risk include finance receivables (excluding leases), debt (excluding capital lease obligations) and foreign
currency exchange contracts. To quantify the market risk inherent in these financial instruments, we utilize a sensitivity analysis
that includes a hypothetical change in fair value assuming a 10% decrease in interest rates and a 10% strengthening in foreign
exchange rates against the U.S. dollar. The fair value of these financial instruments is estimated using discounted cash flow analysis
and indicative market pricing as reported by leading financial news and data providers.
At the end of each year, the table below provides the carrying and fair values of these financial instruments along with the sensitivity
of fair value to the hypothetical changes discussed above. This sensitivity analysis is most likely not indicative of actual results in
the future.
(In millions)
Manufacturing group
Foreign currency exchange risk
Debt
Foreign currency exchange contracts
Interest rate risk
Debt
Finance group
Interest rate risk
Finance receivables
Debt
* The value represents an asset or (liability).
December 29, 2018
December 30, 2017
Carrying
Value*
Fair
Value*
Sensitivity of
Fair Value
to a 10%
Change
Carrying
Value*
Fair
Value*
Sensitivity of
Fair Value
to a 10%
Change
$
$
(197) $
(8)
(205) $
(208) $
(8)
(216) $
(21) $
50
29
$
(212) $
11
(201) $
(232) $
11
(221) $
(23)
26
3
$
(2,996) $
(2,971) $
(30) $
(3,007) $
(3,136) $
(33)
$
582 $
(718)
584 $
(640)
$
14
1
643 $
(824)
675 $
(799)
14
2
Textron 2018 Annual Report 35
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements and the related report of our independent registered public accounting firm thereon are included in this
Annual Report on Form 10-K on the pages indicated below:
Consolidated Statements of Operations for each of the years in the three-year period ended December 29, 2018
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 29, 2018
Consolidated Balance Sheets as of December 29, 2018 and December 30, 2017
Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended December 29, 2018
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 29, 2018
Notes to the Consolidated Financial Statements
Summary of Significant Accounting Policies
Business Disposition and Acquisitions
Goodwill and Intangible Assets
Accounts Receivable and Finance Receivables
Inventories
Property, Plant and Equipment, Net
Other Current Liabilities
Debt and Credit Facilities
Derivative Instruments and Fair Value Measurements
Shareholders’ Equity
Segment and Geographic Data
Note 1.(cid:3)
Note 2.(cid:3)
Note 3.(cid:3)
Note 4.(cid:3)
Note 5.(cid:3)
Note 6.(cid:3)
Note 7.(cid:3)
Note 8.(cid:3)
Note 9.(cid:3)
Note 10.(cid:3)
Note 11.(cid:3)
Note 12.(cid:3) Revenues
Note 13.(cid:3)
Note 14.(cid:3) Retirement Plans
Special Charges
Note 15.(cid:3)
Note 16.(cid:3)
Income Taxes
Note 17.(cid:3) Commitments and Contingencies
Note 18.(cid:3)
Supplemental Cash Flow Information
Share-Based Compensation
Report of Independent Registered Public Accounting Firm
Supplementary Information:
Quarterly Data for 2018 and 2017 (Unaudited)
Schedule II – Valuation and Qualifying Accounts
Page
37
38
39
40
41
43
50
51
51
53
54
54
55
56
57
58
60
62
64
68
69
72
72
73
74
75
All other schedules are omitted either because they are not applicable or not required or because the required information is included in the financial
statements or notes thereto.
36 Textron 2018 Annual Report
Consolidated Statements of Operations
For each of the years in the three-year period ended December 29, 2018
(In millions, except per share data)
Revenues
Manufacturing revenues
Finance revenues
Total revenues
Costs, expenses and other
Cost of sales
Selling and administrative expense
Interest expense
Special charges
Gain on business disposition
Non-service components of pension and post-retirement income, net
Total costs, expenses and other
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations, net of income taxes*
Net income
Basic earnings per share
Continuing operations
Discontinued operations
Basic earnings per share
Diluted earnings per share
Continuing operations
Discontinued operations
Diluted earnings per share
* For 2016, see Note 16 for additional information.
See Notes to the Consolidated Financial Statements.
2018
2017
2016
$ 13,906 $ 14,129 $ 13,710
78
13,788
69
14,198
66
13,972
11,594
1,275
166
73
(444)
(76)
12,588
1,384
162
1,222
—
1,222 $
11,827
1,334
174
130
—
(29)
13,436
762
456
306
1
307 $
11,337
1,317
174
123
—
(39)
12,912
876
33
843
119
962
$
$
4.88 $
1.15 $
—
—
$
4.88 $
1.15 $
$
4.83 $
1.14 $
—
—
$
4.83 $
1.14 $
3.11
0.44
3.55
3.09
0.44
3.53
Textron 2018 Annual Report 37
Consolidated Statements of Comprehensive Income
For each of the years in the three-year period ended December 29, 2018
(In millions)
Net income
Other comprehensive income (loss), net of taxes:
Pension and postretirement benefits adjustments, net of reclassifications
Foreign currency translation adjustments, net of reclassifications
Deferred gains (losses) on hedge contracts, net of reclassifications
Other comprehensive income (loss)
Comprehensive income
See Notes to the Consolidated Financial Statements.
2018
$
1,222 $
2017
307 $
2016
962
(74)
(43)
(13)
(130)
1,092 $
109
107
14
230
537 $
(178)
(49)
20
(207)
755
$
38 Textron 2018 Annual Report
Consolidated Balance Sheets
(In millions, except share data)
Assets
Manufacturing group
Cash and equivalents
Accounts receivable, net
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Other assets
Total Manufacturing group assets
Finance group
Cash and equivalents
Finance receivables, net
Other assets
Total Finance group assets
Total assets
Liabilities and shareholders’ equity
Liabilities
Manufacturing group
Short-term debt and current portion of long-term debt
Accounts payable
Other current liabilities
Total current liabilities
Other liabilities
Long-term debt
Total Manufacturing group liabilities
Finance group
Other liabilities
Debt
Total Finance group liabilities
Total liabilities
Shareholders’ equity
Common stock (238.2 million and 262.3 million shares issued, respectively,(cid:3)
and 235.6 million and 261.5 million shares outstanding, respectively) (cid:3)
Capital surplus
Treasury stock
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
See Notes to the Consolidated Financial Statements.
December 29,
2018
December 30,
2017
$
987 $
1,024
3,818
785
6,614
2,615
2,218
1,800
13,247
1,079
1,363
4,150
435
7,027
2,721
2,364
2,059
14,171
120
760
137
1,017
183
819
167
1,169
$ 14,264 $ 15,340
$
258 $
1,099
2,149
3,506
1,932
2,808
8,246
108
718
826
9,072
14
1,205
2,441
3,660
2,006
3,074
8,740
129
824
953
9,693
30
1,646
(129)
5,407
(1,762)
5,192
33
1,669
(48)
5,368
(1,375)
5,647
$ 14,264 $ 15,340
Textron 2018 Annual Report 39
$
Treasury
Stock
(559)
—
—
—
—
(241)
800
—
—
—
—
—
—
(582)
534
(48)
—
—
—
—
—
—
(1,783)
1,702
(129)
$
$
Accumulated
Other
Comprehensive
Loss(cid:3)
(1,398)
—
(207)
—
—
—
—
—
(1,605)
—
230
—
—
—
—
(1,375)
—
—
(130)
(257)
—
—
—
—
(1,762)
$
Total
Shareholders’
Equity
$ 4,964
962
(207)
(22)
120
(241)
—
(2)
5,574
307
230
(21)
139
(582)
—
5,647
90
1,222
(130)
—
(20)
166
(1,783)
—
$ 5,192
Retained
Earnings(cid:3)
$ 5,298
962
—
(22)
—
—
(692)
—
5,546
307
—
(21)
—
—
(464)
5,368
90
1,222
—
257
(20)
—
—
(1,510)
$ 5,407
Consolidated Statements of Shareholders’ Equity
(In millions, except per share data)
Balance at January 2, 2016
Net income
Other comprehensive loss
Dividends declared ($0.08 per share)
Share-based compensation activity
Purchases of common stock
Retirement of treasury stock
Other
Balance at December 31, 2016
Net income
Other comprehensive income
Dividends declared ($0.08 per share)
Share-based compensation activity
Purchases of common stock
Retirement of treasury stock
Balance at December 30, 2017
Adoption of ASC 606
Net income
Other comprehensive loss
Reclassification of stranded tax effects
Dividends declared ($0.08 per share)
Share-based compensation activity
Purchases of common stock
Retirement of treasury stock
Balance at December 29, 2018
Common
Stock
$
$
36
—
—
—
1
—
(3)
—
34
—
—
—
—
—
(1)
33
—
—
—
—
—
—
—
(3)
30
Capital
Surplus
$ 1,587
—
—
—
119
—
(105)
(2)
1,599
—
—
—
139
—
(69)
1,669
—
—
—
—
—
166
—
(189)
$ 1,646
See Notes to the Consolidated Financial Statements.
40 Textron 2018 Annual Report
Consolidated Statements of Cash Flows
For each of the years in the three-year period ended December 29, 2018
(In millions)
Cash flows from operating activities
Net income
Less: Income from discontinued operations
Income from continuing operations
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Non-cash items:
Depreciation and amortization
Gain on business disposition
Deferred income taxes
Asset impairments
Other, net
Changes in assets and liabilities:
Accounts receivable, net
Inventories
Other assets
Accounts payable
Other liabilities
Income taxes, net
Pension, net
Captive finance receivables, net
Other operating activities, net
Net cash provided by operating activities of continuing operations
Net cash used in operating activities of discontinued operations
Net cash provided by operating activities
Cash flows from investing activities
Net proceeds from business disposition
Capital expenditures
Net proceeds from corporate-owned life insurance policies
Net cash used in acquisitions
Finance receivables repaid
Other investing activities, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from long-term debt
Principal payments on long-term debt and nonrecourse debt
Purchases of Textron common stock
Proceeds from exercise of stock options
Dividends paid
Other financing activities, net
Net cash used in financing activities
Effect of exchange rate changes on cash and equivalents
Net increase (decrease) in cash and equivalents
Cash and equivalents at beginning of year
Cash and equivalents at end of year
See Notes to the Consolidated Financial Statements.
Consolidated
2017
2018
$
1,222 $
—
1,222
307 $
1
306
437
(444)
49
48
102
50
41
(88)
(63)
(223)
(33)
(14)
22
3
1,109
(2)
1,107
807
(369)
110
(23)
27
68
620
447
—
346
47
90
(236)
412
(44)
(156)
(113)
78
(277)
67
(4)
963
(27)
936
—
(423)
17
(331)
32
60
(645)
—
(131)
(1,783)
74
(20)
(4)
(1,864)
(18)
(155)
1,262
1,107 $
1,036
(841)
(582)
52
(21)
(4)
(360)
33
(36)
1,298
1,262 $
$
2016
962
119
843
449
—
48
40
92
(33)
(352)
(15)
215
(281)
(189)
25
75
10
927
(2)
925
—
(446)
87
(186)
44
65
(436)
525
(457)
(241)
36
(22)
(9)
(168)
(28)
293
1,005
1,298
Textron 2018 Annual Report 41
Manufacturing Group
Finance Group
2018
2017
2016
2018
2017
2016
$ 1,198 $
—
1,198
248 $
1
247
951 $
119
832
24 $
—
24
59 $
—
59
429
(444)
54
48
97
50
45
(87)
(63)
(219)
(20)
(14)
50
3
1,127
(2)
1,125
807
(369)
110
(23)
—
—
14
539
435
—
390
47
94
(236)
422
(43)
(156)
(108)
119
(277)
—
(4)
930
(27)
903
—
(423)
17
(331)
—
—
9
(728)(cid:3)
437
—
36
40
90
(33)
(347)
17
215
(276)
(174)
25
29
10
901
(2)
899
—
(446)
87
(186)
—
—
11
(534)(cid:3)
—
(5)
(1,783)
74
(20)
(4)
(1,738)
(18)
(92)
1,079
345
(254)
(241)
36
(22)
(10)
(146)
(28)
191
946
987 $ 1,079 $ 1,137 $
992
(704)
(582)
52
(21)
(3)
(266)
33
(58)
1,137
8
—
(5)
—
5
—
—
(1)
—
(4)
(13)
—
—
—
14
—
14
—
—
—
—
226
(177)
50
99(cid:3)
—
(126)
—
—
(50)
—
(176)
—
(63)
183
120 $
12
—
(44)
—
(4)
—
—
(1)
—
(5)
(41)
—
—
—
(24)
—
(24)
—
—
—
—
273
(174)
41
140(cid:3)
44
(137)
—
—
—
(1)
(94)
—
22
161
183 $
11
—
11
12
—
12
—
2
—
—
(6)
—
(5)
(15)
—
—
—
11
—
11
—
—
—
—
292
(173)
23
142(cid:3)
180
(203)
—
—
(29)
1
(51)
—
102
59
161
Consolidated Statements of Cash Flows continued
For each of the years in the three-year period ended December 29, 2018
(In millions)
Cash flows from operating activities
Net income
Less: Income from discontinued operations
Income from continuing operations
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities:
Non-cash items:
Depreciation and amortization
Gain on business disposition
Deferred income taxes
Asset impairments
Other, net
Changes in assets and liabilities:
Accounts receivable, net
Inventories
Other assets
Accounts payable
Other liabilities
Income taxes, net
Pension, net
Dividends received from Finance group
Other operating activities, net
Net cash provided by (used in) operating activities of continuing operations
Net cash used in operating activities of discontinued operations
Net cash provided by (used in) operating activities
Cash flows from investing activities
Net proceeds from business disposition
Capital expenditures
Net proceeds from corporate-owned life insurance policies
Net cash used in acquisitions
Finance receivables repaid
Finance receivables originated
Other investing activities, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from long-term debt
Principal payments on long-term debt and nonrecourse debt
Purchases of Textron common stock
Proceeds from exercise of stock options
Dividends paid
Other financing activities, net
Net cash used in financing activities
Effect of exchange rate changes on cash and equivalents
Net increase (decrease) in cash and equivalents
Cash and equivalents at beginning of year
Cash and equivalents at end of year
See Notes to the Consolidated Financial Statements.
$
42 Textron 2018 Annual Report
Notes to the Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation and Financial Statement Presentation
Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings are
conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. 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 (TFC) 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.
Our 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 in
consolidation.
(cid:3)
At the beginning of 2018, we adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers
(ASC Topic 606) and its related amendments, collectively referred to as ASC 606. We adopted ASC 606 using the modified
retrospective transition method applied to contracts that were not substantially complete at the end of 2017. We recorded a $90
million adjustment to increase retained earnings to reflect the cumulative impact of adopting this standard at the beginning of 2018,
primarily related to certain long-term contracts our Bell segment has with the U.S. Government that converted to the cost-to-cost
method for revenue recognition. The comparative information included in our financial statements and notes has not been restated
and is reported under the accounting standards in effect for those periods based on the policies described in this note for the applicable
year.
(cid:3)
We also adopted ASU No. 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payment at the
beginning of 2018. This standard provides guidance on the classification of certain cash flows and requires companies to classify
cash proceeds received from the settlement of corporate-owned life insurance as cash inflows from investing activities. The standard
is required to be adopted on a retrospective basis. Prior to adoption of this standard, we classified these proceeds as operating
activities in the Consolidated Statements of Cash Flows. Upon adoption, we reclassified $17 million and $87 million of net cash
proceeds for 2017 and 2016, respectively, from operating activities to investing activities.
Collaborative Arrangements
Our Bell segment has a strategic alliance agreement with The Boeing Company (Boeing) to provide engineering, development and
test services related to the V-22 aircraft, as well as to produce the V-22 aircraft, under a number of separate contracts with the U.S.
Government (V-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets and no
true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity interest. We
account for this alliance as a collaborative arrangement with Bell and Boeing reporting costs incurred and revenues generated from
transactions with the U.S. Government in each company’s respective income statement. Neither Bell nor Boeing is considered to be
the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are allocated between Bell
and Boeing on a 50%-50% basis. Negotiated profits on fixed-price contracts are also allocated 50%-50%; however, Bell and Boeing
are each responsible for their own cost overruns and are entitled to retain any cost underruns. Based on the contractual arrangement
established under the alliance, Bell accounts for its rights and obligations under the specific requirements of the V-22 Contracts
allocated to Bell under the work breakdown structure. We account for all of our rights and obligations, including warranty, product
and any contingent liabilities, under the specific requirements of the V-22 Contracts allocated to us under the agreement. Revenues
and cost of sales reflect our performance under the V-22 Contracts with revenues recognized using the cost-to-cost method upon the
Textron 2018 Annual Report 43
adoption of ASC 606. We include all assets used in performance of the V-22 Contracts that we own and all liabilities arising from
our obligations under the V-22 Contracts in our Consolidated Balance Sheets.
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.
Revenue Recognition for 2018
With the adoption of ASC 606 at the beginning of 2018, revenue is recognized when control of the goods or services promised under
the contract is transferred to the customer either at a point in time (e.g., upon delivery) or over time (e.g., as we perform under the
contract). We account for a contract when it has approval and commitment from both parties, the rights and payment terms of the
parties are identified, the contract has commercial substance and collectability of consideration is probable. Contracts are reviewed
to determine whether there is one or multiple performance obligations. A performance obligation is a promise to transfer a distinct
good or service to a customer and represents the unit of accounting for revenue recognition. For contracts with multiple performance
obligations, the expected consideration, or the transaction price, is allocated to each performance obligation identified in the contract
based on the relative standalone selling price of each performance obligation. Revenue is then recognized for the transaction price
allocated to the performance obligation when control of the promised goods or services underlying the performance obligation is
transferred. Contract consideration is not adjusted for the effects of a significant financing component when, at contract inception,
the period between when control transfers and when the customer will pay for that good or service is one year or less.
Commercial Contracts
The majority of our contracts with commercial customers have a single performance obligation as there is only one good or service
promised or the promise to transfer the goods or services is not distinct or separately identifiable from other promises in the contract.
Revenue is primarily recognized at a point in time, which is generally when the customer obtains control of the asset upon delivery
and customer acceptance. Contract modifications that provide for additional distinct goods or services at the standalone selling price
are treated as separate contracts.
For commercial aircraft, we contract with our customers to sell fully outfitted fixed-wing aircraft, which may include configuration
options. The aircraft typically represents a single performance obligation and revenue is recognized upon customer acceptance and
delivery. For commercial helicopters, our customers generally contract with us for fully functional basic configuration aircraft and
control is transferred upon customer acceptance and delivery. At times, customers may separately contract with us for the installation
of accessories and customization to the basic aircraft. If these contracts are entered into at or near the same time of the basic aircraft
contract, we assess whether the contracts meet the criteria to be combined. For contracts that are combined, the basic aircraft and
the accessories and customization are typically considered to be distinct, and therefore, are separate performance obligations. For
these contracts, revenue is recognized on the basic aircraft upon customer acceptance and transfer of title and risk of loss and on the
accessories and customization upon delivery and customer acceptance. We utilize observable prices to determine the standalone
selling prices when allocating the transaction price to these performance obligations.
The transaction price for our commercial contracts reflects our estimate of returns, rebates and discounts, which are based on
historical, current and forecasted information. Amounts billed to customers for shipping and handling are included in the transaction
price and generally are not treated as separate performance obligations as these costs fulfill a promise to transfer the product to the
customer. Taxes collected from customers and remitted to government authorities are recorded on a net basis.
We primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from
one to five years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be
considered a performance obligation.(cid:3)
U.S. Government Contracts
Our contracts with the U.S. Government generally include the design, development, manufacture or modification of aerospace and
defense products as well as related services. These contracts, which also include those under the U.S. Government-sponsored foreign
military sales program, accounted for approximately 24% of total revenues in 2018. The customer typically contracts with us to
provide a significant service of integrating a complex set of tasks and components into a single project or capability, which often
results in the delivery of multiple units. Accordingly, the entire contract is accounted for as one performance obligation. In certain
circumstances, a contract may include both production and support services, such as logistics and parts plans, which are considered
to be distinct in the context of the contract and represent separate performance obligations. When a contract is separated into more
than one performance obligation, we generally utilize the expected cost plus a margin approach to determine the standalone selling
prices when allocating the transaction price.
44 Textron 2018 Annual Report
Our contracts are frequently modified for changes in contract specifications and requirements. Most of our contract modifications
with the U.S. Government are for goods and services that are not distinct from the existing contract due to the significant integration
service provided in the context of the contract and are accounted for as part of that existing contract. The effect of these contract
modifications on our estimates is recognized using the cumulative catch-up method of accounting.
Contracts with the U.S. Government generally contain clauses that provide lien rights to work-in-process along with clauses that
allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take
control of any work-in-process. Due to the continuous transfer of control to the U.S. Government, we recognize revenue over the
time that we perform under the contract. Selecting the method to measure progress towards completion requires judgment and is
based on the nature of the products or service to be provided. We generally use the cost-to-cost method to measure progress for 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.
The transaction price for our contracts represents our best estimate of the consideration we will receive and includes assumptions
regarding variable consideration as applicable. Certain of our long-term contracts contain incentive fees or other provisions that can
either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain
performance metrics, program milestones or cost targets and can be based upon customer discretion. We include estimated amounts
in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when
the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of
whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance,
historical performance, and all other information that is reasonably available to us.
Total contract cost is estimated utilizing current contract specifications and expected engineering requirements. Contract costs
typically are incurred over a period of several years, and the estimation of these costs requires substantial judgment. Our cost
estimation process is based on the professional knowledge and experience of engineers and program managers along with finance
professionals. We review and update our projections of costs quarterly or more frequently when circumstances significantly change.
Approximately 80% of our 2018 revenues with the U.S. Government were under fixed-price and fixed-price incentive contracts.
Under the typical payment terms of these contracts, the customer pays us either performance-based or progress payments.
Performance-based payments represent interim payments of up to 90% of the contract price based on quantifiable measures of
performance or on the achievement of specified events or milestones. Progress payments are interim payments of up to 80% of costs
incurred as the work progresses. Because the customer retains a small portion of the contract price until completion of the contract,
these contracts generally result in revenue recognized in excess of billings, which we present as contract assets in the Consolidated
Balance Sheets. Amounts billed and due from our customers are classified in Accounts receivable, net. The portion of the payments
retained by the customer until final contract settlement is not considered a significant financing component because the intent is to
protect the customer. For cost-type contracts, we are generally paid for our actual costs incurred within a short period of time.
Revenue Recognition for 2017 and 2016
Prior to the adoption of ASC 606 in 2018, we generally recognized revenue for the sale of products, which were not under long-term
contracts, upon delivery. For commercial aircraft, delivery is upon completion of manufacturing, customer acceptance, and the
transfer of the risk and rewards of ownership. When a sale arrangement involved multiple deliverables, such as sales of products
that include customization and other services, we evaluated the arrangement to determine whether there were separate items that
were required to be delivered under the arrangement that qualify as separate units of accounting. These arrangements typically
involved the customization services we offer to customers who purchase Bell helicopters, and the services generally are provided
within the first six months after the customer accepts the aircraft and assumes risk of loss. The aircraft and the customization services
were considered to be separate units of accounting and we allocated contract price between the two on a relative selling price basis
using the best evidence of selling price for each of the deliverables, typically by reference to the price charged when the same or
similar items were sold separately by us. We also considered any performance, cancellation, termination or refund-type provisions.
Revenue was then recognized when the recognition criteria for each unit of accounting was met. Taxes collected from customers
and remitted to government authorities are recorded on a net basis.
Revenues under long-term contracts were accounted for under the percentage-of-completion method of accounting. Under this
method, we estimated profit as the difference between the total estimated revenues and cost of a contract. We then recognized that
estimated profit over the contract term based on either the units-of-delivery method or the cost-to-cost method (which typically is
used for development effort as costs are incurred), as appropriate under the circumstances. Revenues under fixed-price contracts
generally were recorded using the units-of-delivery method. Revenues under cost-reimbursement contracts were recorded using the
cost-to-cost method. Long-term contract profits were based on estimates of total contract cost and revenues utilizing current contract
specifications, expected engineering requirements, the achievement of contract milestones and product deliveries. Certain contracts
Textron 2018 Annual Report 45
are awarded with fixed-price incentive fees that also were considered when estimating revenues and profit rates. Contract costs
typically are incurred over a period of several years, and the estimation of these costs requires substantial judgment. Our cost
estimation process is based on the professional knowledge and experience of engineers and program managers along with finance
professionals. We update our projections of costs at least semiannually or when circumstances significantly change. When
adjustments are required, any changes from prior estimates were recognized using the cumulative catch-up method with the impact
of the change from inception-to-date recorded in the current period. Anticipated losses on contracts were recognized in full in the
period in which the losses became probable and estimable.
Finance Revenues
Finance revenues primarily include interest on finance receivables, capital lease earnings and portfolio gains/losses. Portfolio
gains/losses include impairment charges related to repossessed assets and properties and gains/losses on the sale or early termination
of finance assets. We recognize interest using the interest method, which provides a constant rate of return over the terms of the
receivables. Accrual of interest income is suspended if credit quality indicators suggest full collection of principal and interest is
doubtful. In addition, we automatically suspend the accrual of interest income for accounts that are contractually delinquent by more
than three months unless collection is not doubtful. Cash payments on nonaccrual accounts, including finance charges, generally are
applied to reduce the net investment balance. Once we conclude that the collection of all principal and interest is no longer doubtful,
we resume the accrual of interest and recognize previously suspended interest income at the time either a) the loan becomes
contractually current through payment according to the original terms of the loan, or b) if the loan has been modified, following a
period of performance under the terms of the modification.
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 2018, 2017 and 2016, our cumulative catch-up adjustments increased segment profit by $196 million, $5 million and $83 million,
respectively, and net income by $149 million, $3 million and $52 million, respectively ($0.59, $0.01 and $0.19 per diluted share,
respectively). In 2018, we recognized revenue from performance obligations satisfied in prior periods of approximately $190
million, which related to changes in profit booking rates that impacted revenue.
For 2018, 2017 and 2016, gross favorable adjustments totaled $249 million, $92 million and $106 million, respectively. The 2018
favorable adjustments included $145 million, largely related to overhead rate improvements and risk retirements associated with
contracts in the Bell segment. In 2018, 2017 and 2016, gross unfavorable adjustments totaled $53 million, $87 million and $23
million, respectively. The 2017 unfavorable adjustments included $44 million related to the Tactical Armoured Patrol Vehicle
program related to inefficiencies resulting from various production issues during the ramp up and subsequent production.
Contract Assets and Liabilities
Under ASC 606, contract assets arise from contracts when revenue is recognized over time and the amount of revenue recognized
exceeds the amount billed to the customer. These amounts are included in contract assets until the right to payment is no longer
conditional on events other than the passage of time. At December 29, 2018, contract assets are included in Other current assets in
the Consolidated Balance Sheet. Contract liabilities, which are primarily included in Other current liabilities, include deposits, largely
from our commercial aviation customers, and billings in excess of revenue recognized.
The incremental costs of obtaining a contract with a customer that is expected to be recovered is expensed as incurred when the
period to be benefitted is one year or less.
Accounts Receivable, Net
Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. We maintain an
allowance for doubtful accounts to provide for the estimated amount of accounts receivable that will not be collected, which is based
on an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivable and collateral value,
if any.
Cash and Equivalents
Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less.
46 Textron 2018 Annual Report
Inventories
Inventories are stated at the lower of cost or estimated net realizable value. We value our inventories generally using the first-in,
first-out (FIFO) method or the last-in, first-out (LIFO) method for certain qualifying inventories where LIFO provides a better
matching of costs and revenues. We determine costs for our commercial helicopters on an average cost basis by model considering
the expended and estimated costs for the current production release.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. We capitalize
expenditures for improvements that increase asset values and extend useful lives. Property, plant and equipment are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If
the carrying value of the asset exceeds the sum of the undiscounted expected future cash flows, the asset is written down to fair
value.
Goodwill and Intangible Assets
Goodwill represents the excess of the consideration paid for the acquisition of a business over the fair values assigned to intangible
and other net assets of the acquired business. Goodwill and intangible assets deemed to have indefinite lives are not amortized but
are subject to an annual impairment test. We evaluate the recoverability of these assets in the fourth quarter of each year or more
frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the
business climate, indicate a potential impairment.
For our impairment test, we calculate the fair value of each reporting unit and indefinite-lived intangible asset primarily using
discounted cash flows. A reporting unit represents the operating segment unless discrete financial information is prepared and
reviewed by segment management for businesses one level below that operating segment, in which case such component is the
reporting unit. In certain instances, we have aggregated components of an operating segment into a single reporting unit based on
similar economic characteristics. For the goodwill impairment test, the discounted cash flows incorporate assumptions for revenue
growth, operating margins and discount rates that represent our best estimates of current and forecasted market conditions, cost
structure, anticipated net cost reductions, and the implied rate of return that we believe a market participant would require for an
investment in a business having similar risks and characteristics to the reporting unit being assessed. If the estimated fair value of
the reporting unit or indefinite-lived intangible asset exceeds the carrying value, there is no impairment. Otherwise, an impairment
loss is recognized for the amount by which the carrying value exceeds the estimated fair value.
Acquired intangible assets with finite lives are subject to amortization. These assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Amortization of these intangible
assets is recognized over their estimated useful lives using a method that reflects the pattern in which the economic benefits of the
intangible assets are consumed or otherwise realized. Approximately 84% of our gross intangible assets are amortized based on the
cash flow streams used to value the assets, with the remaining assets amortized using the straight-line method.
Finance Receivables
Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell
helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for losses.
We maintain an allowance for losses on finance receivables at a level considered adequate to cover inherent losses in the portfolio
based on management’s evaluation. For 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 and existence
and financial strength of guarantors.
We also establish an allowance for losses to cover probable but specifically unknown losses existing in the portfolio. This allowance
is established as a percentage of non-recourse finance receivables, which have not been identified as requiring specific reserves. The
percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends,
collateral values and both general economic and specific industry trends.
Textron 2018 Annual Report 47
Finance receivables are charged off at the earlier of the date the collateral is repossessed or when no payment has been received for
six months, unless management deems the receivable collectible. Repossessed assets are recorded at their fair value, less estimated
cost to sell.
Pension and Postretirement Benefit Obligations
We maintain various pension and postretirement plans for our employees globally. These plans include significant pension and
postretirement benefit obligations, which are calculated based on actuarial valuations. Key assumptions used in determining these
obligations and related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost
projections. We evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors.
We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of
compensation increases.
For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to our
fiscal year-end. We recognize the overfunded or underfunded status of our pension and postretirement plans in the Consolidated
Balance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income in the year in which
they occur. Actuarial gains and losses that are not immediately recognized as net periodic pension cost are recognized as a component
of other comprehensive income (loss) (OCI) and are amortized into net periodic pension cost in future periods.
Derivatives and Hedging Activities
We are exposed to market risk primarily from changes in currency exchange rates and interest rates. We do not hold or issue
derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net these
exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various derivative
transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. Credit risk related to derivative
financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through
periodic settlements of positions.
All derivative instruments are reported at fair value in the Consolidated Balance Sheets. Designation to support hedge accounting
is performed on a specific exposure basis. For financial instruments qualifying as cash flow hedges, we record changes in the fair
value of derivatives (to the extent they are effective as hedges) in OCI, net of deferred taxes. Changes in fair value of derivatives
not qualifying as hedges are recorded in earnings.
Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are
recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or
substantially liquidated. We use foreign currency financing transactions to effectively hedge long-term investments in foreign
operations with the same corresponding currency. Foreign currency gains and losses on the hedge of the long-term investments are
recorded in the cumulative translation adjustment account.
Product Liabilities
We accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. Our estimates
are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience.
Environmental Liabilities and Asset Retirement Obligations
Liabilities for environmental matters are recorded on a site-by-site basis when it is probable that an obligation has been incurred and
the cost can be reasonably estimated. We estimate our accrued environmental liabilities using currently available facts, existing
technology, and presently enacted laws and regulations, all of which are subject to a number of factors and uncertainties. Our
environmental liabilities are not discounted and do not take into consideration possible future insurance proceeds or significant
amounts from claims against other third parties.
We have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and
asbestos materials used in insulation, adhesive fillers and floor tiles. There is no legal requirement to remove these items, and there
currently is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset
retirement obligations are not estimable, there is no related liability recorded in the Consolidated Balance Sheets.
Warranty Liabilities
For our assurance-type warranty programs, we estimate the costs that may be incurred and record a liability in the amount of such
costs at the time product revenues are recognized. Factors that affect this liability include the number of products sold, historical
costs per claim, length of warranty period, contractual recoveries from vendors and historical and anticipated rates of warranty
claims, including production and warranty patterns for new models. We assess the adequacy of our recorded warranty liability
48 Textron 2018 Annual Report
periodically and adjust the amounts as necessary. Additionally, we may establish a warranty liability related to the issuance of
aircraft service bulletins for aircraft no longer covered under the limited warranty programs.
Research and Development Costs
Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S.
Government contracts. In accordance with government regulations, we recover a portion of company-funded research and
development costs through overhead rate charges on our U.S. Government contracts. Research and development costs that are not
reimbursable under a contract with the U.S. Government or another customer are charged to expense as incurred. Company-funded
research and development costs were $643 million, $634 million and $677 million in 2018, 2017 and 2016, respectively, and are
included in cost of sales.
Income Taxes
The provision for income tax expense is calculated on reported Income from continuing operations before income taxes based on
current tax law and includes, in the current period, the cumulative effect of any changes in tax rates from those used previously in
determining deferred tax assets and liabilities. Tax laws may require items to be included in the determination of taxable income at
different times from when the items are reflected in the financial statements. Deferred tax balances reflect the effects of temporary
differences between the financial reporting carrying amounts of assets and liabilities and their tax bases, as well as from net operating
losses and tax credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered.
Deferred tax assets represent tax benefits for tax deductions or credits available in future years and require certain estimates and
assumptions to determine whether it is more likely than not that all or a portion of the benefit will not be realized. The recoverability
of these future tax deductions and credits is determined by assessing the adequacy of future expected taxable income from all sources,
including the future reversal of existing taxable temporary differences, taxable income in carryback years, estimated future taxable
income and available tax planning strategies. Should a change in facts or circumstances lead to a change in judgment about the
ultimate recoverability of a deferred tax asset, we record or adjust the related valuation allowance in the period that the change in
facts and circumstances occurs, along with a corresponding increase or decrease in income tax expense.
We record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the reporting
date. To be recognized in the financial statements, the tax position must meet the more-likely-than-not threshold that the position
will be sustained upon examination by the tax authority based on technical merits assuming the tax authority has full knowledge of
all relevant information. For positions meeting this recognition threshold, the benefit is measured as the largest amount of benefit
that meets the more-likely-than-not threshold to be sustained. We periodically evaluate these tax positions based on the latest
available information. For tax positions that do not meet the threshold requirement, we recognize net tax-related interest and
penalties for continuing operations in income tax expense.
New Accounting Standards Not Yet Adopted
Lease Accounting
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases, requiring lessees to
recognize all leases with a term greater than 12 months on the balance sheet as right-of-use assets and lease liabilities. Under current
accounting guidance, we are not required to recognize assets and liabilities arising from operating leases on the balance sheet. In
2018, the FASB issued additional guidance to provide an alternate transition method for adoption. Under this method, entities may
record the balance sheet amounts and the cumulative effect of adopting the standard to retained earnings as of the effective date
without adjustment to comparative periods. This new standard becomes effective for us at the beginning of 2019 and will be adopted
using this alternate transition method.
At the adoption date, approximately $300 million of right-of-use assets and lease liabilities will be recognized related to our operating
leases. The cumulative transition adjustment to retained earnings resulting from the adoption is not significant. We plan to elect the
practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to
carryforward the historical lease classification and allows hindsight when evaluating options within a contract, resulting in the
extension of the lease term for certain of our existing leases at the adoption date. We have updated the accounting policies affected
by this standard, redesigned our related internal controls over financial reporting and are expanding the disclosures to be included in
our first quarter 2019 Form 10-Q to meet the new requirements. The standard has no impact on our liquidity or our debt-covenant
compliance under our current agreements, and is not expected to have any significant impact on our results of operations.
Textron 2018 Annual Report 49
Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. For most financial assets, such as trade
and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking
expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is
effective for our company at the beginning of 2020. Entities are required to apply the provisions of the standard through a
cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of the standard on
our consolidated financial statements.
Note 2. Business Disposition and Acquisitions
Disposition
On July 2, 2018, we completed the sale of the businesses that manufacture and sell the products in our Tools and Test Equipment
product line within our Industrial segment to Emerson Electric Co. for net cash proceeds of $807 million. We recorded an after-tax
gain of $419 million related to this disposition. The carrying amounts by major classes of assets and liabilities for this disposition
are as follows:
(In millions)
Assets
Accounts receivable, net
Inventories
Property, plant and equipment, net
Goodwill
Other assets
Total Assets
Liabilities
Accounts payable
Other current liabilities
Other liabilities
Total Liabilities
July 2,
2018
71
100
59
153
24
407
30
25
11
66
$
$
$
$
Acquisitions
On March 6, 2017, we completed the acquisition of Arctic Cat Inc. (Arctic Cat), a publicly-held company (NASDAQ: ACAT),
pursuant to a cash tender offer for $18.50 per share, followed by a short-form merger. The cash paid for this business, including
repayment of debt and net of cash acquired, totaled $316 million. Arctic Cat was incorporated into our Textron Specialized Vehicles
business in the Industrial segment and its operating results are included in the Consolidated Statements of Operations since the
closing date. We allocated the consideration paid for this business to the assets acquired and liabilities assumed based on their fair
values, and recorded $230 million in goodwill, related to expected synergies and the value of the assembled workforce, and $75
million in intangible assets.
In 2016, we paid $186 million in cash and assumed debt of $19 million to acquire six businesses, net of cash acquired and
holdbacks. Our acquisition of Able Engineering and Component Services, Inc. and Able Aerospace, Inc. in the first quarter of 2016
represented the largest of these businesses and is included in the Textron Aviation segment.
50 Textron 2018 Annual Report
Note 3. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill by segment are as follows:
(In millions)
Balance at December 31, 2016
Acquisitions
Foreign currency translation
Balance at December 30, 2017
Disposition
Acquisition
Foreign currency translation
Balance at December 29, 2018
Intangible Assets
Our intangible assets are summarized below:
Textron
Aviation
613 $
—
1
614
—
—
—
614 $
$
$
Bell
31 $
—
—
31
—
—
—
31 $
Textron
Systems
Industrial
1,087 $
—
—
1,087
—
13
—
1,100 $
382 $
234
16
632
(153)
—
(6)
473 $
Total
2,113
234
17
2,364
(153)
13
(6)
2,218
(Dollars in millions)
Patents and technology
Trade names and trademarks
Customer relationships and
contractual agreements
Other
Total
Weighted-Average
Amortization
Period (in years)
14
14
December 29, 2018
Gross
Carrying
Amount
Accumulated
Amortization
$
514 $
224
(211) $
(7)
December 30, 2017
Gross
Carrying
Amount
Accumulated
Amortization
545 $
284
(188) $
(40)
Net
303 $
217
15
4
413
6
1,157 $
(275)
(6)
(499) $
138
—
658 $
418
18
1,265 $
(255)
(17)
(500) $
$
Net
357
244
163
1
765
In connection with the 2018 restructuring plan discussed in Note 15, we recognized intangible asset impairment charges of $38
million in the fourth quarter of 2018, which primarily included $20 million of patents and technology and $14 million of trade names
and trademarks.
Trade names and trademarks in the table above include $208 million and $222 million of indefinite-lived intangible assets at
December 29, 2018 and December 30, 2017, respectively. Amortization expense totaled $66 million, $69 million and $66 million
in 2018, 2017 and 2016, respectively. Amortization expense is estimated to be approximately $60 million, $56 million, $54 million,
$54 million and $38 million in 2019, 2020, 2021, 2022 and 2023, respectively.
Note 4. Accounts Receivable and Finance Receivables
Accounts Receivable
Accounts receivable is composed of the following:
(In millions)
Commercial
U.S. Government contracts
Allowance for doubtful accounts
Total
$
December 29,
2018
885 $
166
1,051
(27)
1,024 $
December 30,
2017
1,007
383
1,390
(27)
1,363
$
Upon adoption of ASC 606, unbilled receivables, primarily related to U.S. Government contracts, totaling $203 million were
reclassified from accounts receivable to contract assets or contract liabilities based on the net position of the contract as discussed in
Note 12. In addition, $71 million of accounts receivable, net were sold in the third quarter of 2018 as a result of a business disposition
as disclosed in Note 2.
Textron 2018 Annual Report 51
Finance Receivables
Finance receivables are presented in the following table:
(In millions)
Finance receivables
Allowance for losses
Total finance receivables, net
$
December 29,
2018
789 $
(29)
760 $
December 30,
2017
850
(31)
819
$
Finance receivables primarily includes loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell
helicopters. These loans typically have initial terms ranging from five to twelve years, amortization terms ranging from eight to
fifteen years and an average balance of $1 million at December 29, 2018. Loans generally require the customer to pay a significant
down payment, along with periodic scheduled principal payments that reduce the outstanding balance through the term of the loan.
Our finance receivables are diversified across geographic region and borrower industry. At December 29, 2018, 59% of our finance
receivables were distributed internationally and 41% throughout the U.S., compared with 56% and 44%, respectively, at December
30, 2017. At December 29, 2018 and December 30, 2017, finance receivables of $201 million and $257 million, respectively, have
been pledged as collateral for TFC’s debt of $119 million and $175 million, respectively.
Finance Receivable Portfolio Quality
We internally assess the quality of our finance receivables based on a number of key credit quality indicators and statistics such as
delinquency, loan balance to estimated collateral value and the financial strength of individual borrowers and guarantors. Because
many of these indicators are difficult to apply across an entire class of receivables, we evaluate individual loans on a quarterly basis
and classify these loans into three categories based on the key credit quality indicators for the individual loan. These three categories
are performing, watchlist and nonaccrual.
We classify finance receivables as nonaccrual if credit quality indicators suggest full collection of principal and interest is doubtful.
In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three months
unless collection of principal and interest is not doubtful. Accounts are classified as watchlist when credit quality indicators have
deteriorated as compared with typical underwriting criteria, and we believe collection of full principal and interest is probable but
not certain. All other finance receivables that do not meet the watchlist or nonaccrual categories are classified as performing.
We measure delinquency based on the contractual payment terms of our finance receivables. In determining the delinquency aging
category of an account, any/all principal and interest received is applied to the most past-due principal and/or interest amounts due.
If a significant portion of the contractually due payment is delinquent, the entire finance receivable balance is reported in accordance
with the most past-due delinquency aging category.
Finance receivables categorized based on the credit quality indicators and by delinquency aging category are summarized as follows:
(Dollars in millions)
Performing
Watchlist
Nonaccrual
Nonaccrual as a percentage of finance receivables
Less than 31 days past due
31-60 days past due
61-90 days past due
Over 90 days past due
60+ days contractual delinquency as a percentage of finance receivables
$
December 29,
2018
704 $
45
40
5.07%
$
719 $
56
5
9
1.77%
December 30,
2017
733
56
61
7.18%
791
25
14
20
4.00%
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.
52 Textron 2018 Annual Report
A summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment is provided below:
(In millions)
Recorded investment:
Impaired loans with related allowance for losses
Impaired loans with no related allowance for losses
Total
Unpaid principal balance
Allowance for losses on impaired loans
Average recorded investment
December 29,
2018
December 30,
2017
$
$
$
15 $
43
58 $
67 $
5
61
24
70
94
106
6
92
A summary of the allowance for losses on finance receivables based on how the underlying finance receivables are evaluated for
impairment, is provided below. The finance receivables reported in this table specifically exclude $101 million and $98 million of
leveraged leases at December 29, 2018 and December 30, 2017, respectively, in accordance with U.S. generally accepted accounting
principles.
(In millions)
Allowance based on collective evaluation
Allowance based on individual evaluation
Finance receivables evaluated collectively
Finance receivables evaluated individually
Note 5. Inventories
Inventories are composed of the following:
(In millions)
Finished goods
Work in process
Raw materials and components
Progress payments
Total
$
December 29,
2018
24
5
630
58
$
December 30,
2017
25
6
658
94
December 29,
2018
December 30,
2017
1,790
2,238
804
4,832
(682)
4,150
1,662 $
1,356
800
3,818
—
3,818 $
$
$
Upon adoption of ASC 606, $199 million of inventories, net of progress payments, primarily related to our U.S. Government
contracts, were reclassified from inventories to contract assets or contract liabilities based on the net position of the contract as
discussed in Note 12. In addition, $100 million of inventories were sold in the third quarter of 2018 as a result of a business disposition
as disclosed in Note 2.
Inventories valued by the LIFO method totaled $2.2 billion at both December 29, 2018 and December 30, 2017, respectively, and
the carrying values of these inventories would have been higher by approximately $457 million and $452 million, respectively, had
our LIFO inventories been valued at current costs.
Textron 2018 Annual Report 53
Note 6. Property, Plant and Equipment, Net
Our Manufacturing group’s property, plant and equipment, net is composed of the following:
(Dollars in millions)
Land, buildings and improvements
Machinery and equipment
Accumulated depreciation and amortization
Total
Useful Lives(cid:3)
(in years)(cid:3)
3 – 40 (cid:3)
1 – 20 (cid:3)
December 29,
2018
December 30,
2017
1,948
4,893
6,841
(4,120)
2,721
1,927 $
4,891
6,818
(4,203)
2,615 $
$
$
At December 29, 2018 and December 30, 2017, assets under capital leases totaled $168 million and $176 million, respectively, and
had accumulated amortization of $47 million and $46 million, respectively. The Manufacturing group’s depreciation expense, which
included amortization expense on capital leases, totaled $358 million, $362 million and $368 million in 2018, 2017 and 2016,
respectively.
Note 7. Other Current Liabilities
The other current liabilities of our Manufacturing group are summarized below:
(In millions)
Contract liabilities
Customer deposits
Salaries, wages and employer taxes
Current portion of warranty and product maintenance liabilities
Other
Total (cid:3)
$
December 29,
2018
876 $
—
381
177
715
2,149 $
December 30,
2017
—
1,007
329
190
915
2,441
$
Upon adoption of ASC 606, we reclassified customer deposits and certain other current liabilities totaling $1,166 million to contract
liabilities or contract assets based on the net position of the contract as discussed in Note 12.
Changes in our warranty liability are as follows:
(In millions)
Balance at beginning of year
Provision
Settlements
Acquisitions
Adjustments*
Balance at end of year
* Adjustments include changes to prior year estimates, new issues on prior year sales, business dispositions and currency translation adjustments.
2018
164 $
72
(78)
1
(10)
149 $
2017
138 $
81
(69)
35
(21)
164 $
$
$
2016
143
79
(70)
2
(16)
138
54 Textron 2018 Annual Report
Note 8. Debt and Credit Facilities
Our debt is summarized in the table below:
(In millions)
Manufacturing group
7.25% due 2019
6.625% due 2020
Variable-rate notes due 2020 (3.17% and 1.96%, respectively)
3.65% due 2021
5.95% due 2021
4.30% due 2024
3.875% due 2025
4.00% due 2026
3.65% due 2027
3.375% due 2028
Other (weighted-average rate of 2.63% and 3.04%, respectively)
Total Manufacturing group debt
Less: Short-term debt and current portion of long-term debt
Total Long-term debt
Finance group
2.26% note due 2019
Variable-rate note due 2020 (3.57% and 2.38%, respectively)
Fixed-rate notes due 2018-2028 (weighted-average rate of 3.17% and 3.15%, respectively) (a) (b)
Variable-rate notes due 2018-2027 (weighted-average rate of 3.99% and 2.99%, respectively) (a) (b)(cid:3)
Fixed-to-Floating Rate Junior Subordinated Notes (4.35% and 3.15%, respectively)(cid:3)
Total Finance group debt
(a)(cid:3) Notes amortize on a quarterly or semi-annual basis.
(b)(cid:3) Notes are secured by finance receivables as described in Note 4.
December 29,
2018
December 30,
2017
$
$
$
$
$
250 $
190
350
250
250
350
350
350
350
300
76
3,066 $
(258)
2,808 $
150 $
150
84
35
299
718 $
250
201
350
250
250
350
350
350
350
300
87
3,088
(14)
3,074
150
200
131
44
299
824
The following table shows required payments during the next five years on debt outstanding at December 29, 2018:
(In millions)
Manufacturing group
Finance group
Total
$
$
2019
258 $
167
425 $
2020
552 $
172
724 $
2021
507 $
18
525 $
2022
7 $
18
25 $
2023
7
19
26
Textron has a senior unsecured revolving credit facility that expires in September 2021 for an aggregate principal amount of $1.0
billion, of which up to $100 million is available for the issuance of letters of credit. At December 29, 2018, there were no amounts
borrowed against the facility and there were $10 million of letters of credit issued against it.
(cid:3)
Fixed-to-Floating Rate Junior Subordinated Notes
The Finance group’s $299 million of Fixed-to-Floating Rate Junior Subordinated Notes are unsecured and rank junior to all of its
existing and future senior debt. The notes mature on February 15, 2067; however, we have the right to redeem the notes at par at
any time and we are obligated to redeem the notes beginning on February 15, 2042. Interest on the notes was fixed at 6% through
February 15, 2017 and is now variable at the three-month London Interbank Offered Rate + 1.735%.
Support Agreement
Under a Support Agreement, as amended in December 2015, Textron Inc. is required to ensure that TFC maintains fixed charge
coverage of no less than 125% and consolidated shareholder’s equity of no less than $125 million. There were no cash contributions
required to be paid to TFC in 2018, 2017 and 2016 to maintain compliance with the support agreement.
Textron 2018 Annual Report 55
Note 9. Derivative Instruments and Fair Value Measurements
We measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. We prioritize the assumptions that market participants would use in pricing
the asset or liability into a three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted
prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no
market data exist, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of Level
1, which include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in
markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect our estimates about the assumptions
market participants would use in pricing the asset or liability based on the best information available in the circumstances. Valuation
techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the
income approach or the cost approach and may use unobservable inputs such as projections, estimates and management’s
interpretation of current market data. These unobservable inputs are utilized only to the extent that observable inputs are not available
or cost effective to obtain.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
We manufacture and sell our products in a number of countries throughout the world, and, therefore, we are exposed to movements
in foreign currency exchange rates. We primarily utilize foreign currency exchange contracts with maturities of no more than three
years to manage this volatility.(cid:3)These contracts qualify as cash flow hedges and are intended to offset the effect of exchange rate
fluctuations on forecasted sales, inventory purchases and overhead expenses. Net gains and losses recognized in earnings and
Accumulated other comprehensive loss on cash flow hedges, including gains and losses related to hedge ineffectiveness, were not
significant in the periods presented.
Our foreign currency exchange contracts are measured at fair value using the market method valuation technique. The inputs to this
technique utilize current foreign currency exchange forward market rates published by third-party leading financial news and data
providers. These are observable data that represent the rates that the financial institution uses for contracts entered into at that date;
however, they are not based on actual transactions so they are classified as Level 2. At December 29, 2018 and December 30, 2017,
we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $379 million and $426
million, respectively. At December 29, 2018, the fair value amounts of our foreign currency exchange contracts were a $2 million
asset and a $10 million liability. At December 30, 2017, the fair value amounts of our foreign currency exchange contracts were a
$13 million asset and a $7 million liability.
We hedge our net investment position in certain major currencies and generate foreign currency interest payments that offset other
transactional exposures in these currencies. To accomplish this, we borrow directly in the foreign currency and designate a portion
of the debt as a hedge of the net investment. We record changes in the fair value of these contracts in other comprehensive income
to the extent they are effective as cash flow hedges. Currency effects on the effective portion of these hedges, which are reflected
in the foreign currency translation adjustments within Accumulated other comprehensive loss, were not significant in the periods
presented.
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:
(In millions)
Manufacturing group
Debt, excluding leases
Finance group
Finance receivables, excluding leases
Debt
December 29, 2018
Carrying
Value
Estimated
Fair Value
December 30, 2017
Carrying
Value
Estimated
Fair Value
$
(2,996) $
(2,971) $
(3,007) $
(3,136)
582
(718)
584
(640)
643
(824)
675
(799)
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.
56 Textron 2018 Annual Report
Note 10. Shareholders’ Equity
Capital Stock
We have authorization for 15 million shares of preferred stock with a par value of $0.01 and 500 million shares of common stock
with a par value of $0.125. Outstanding common stock activity is presented below:
(In thousands)
Balance at beginning of year
Share repurchases
Share-based compensation activity
Balance at end of year
2018
2017
261,471
(29,094)
3,244
235,621
270,287
(11,917)
3,101
261,471
2016
274,228
(6,898)
2,957
270,287
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:
(In thousands)
Basic weighted-average shares outstanding
Dilutive effect of stock options
Diluted weighted-average shares outstanding
2018
2017
250,196
3,041
253,237
266,380
2,370
268,750
2016
270,774
1,591
272,365
In 2018, 2017 and 2016, stock options to purchase 1.3 million, 1.6 million and 2.0 million shares, respectively, of common stock are
excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive.
Accumulated Other Comprehensive Loss
The components of Accumulated other comprehensive loss are presented below:
(In millions)
Balance at December 31, 2016
Other comprehensive income before reclassifications
Reclassified from Accumulated other comprehensive loss
Balance at December 30, 2017
Other comprehensive income before reclassifications
Reclassified from Accumulated other comprehensive loss
Reclassification of stranded tax effects
Balance at December 29, 2018
Pension and
Postretirement
Benefits
Adjustments
Foreign
Currency
Translation
Adjustments
Deferred
Gains (Losses)
on Hedge
Contracts
$
$
$
(1,505) $
16
93
(1,396) $
(198)
124
(257)
(1,727) $
$
(96) $
107
—
11
(49)
6
—
(32) $
Accumulated
Other
Comprehensive
Loss
(1,605)
131
99
(1,375)
(255)
125
(257)
(1,762)
(4) $
8
6
10
(8)
(5)
—
(3) $
$
In 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows entities to reclassify stranded tax effects
resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive loss to retained earnings. The
stranded tax effects are comprised of the tax amounts included in accumulated other comprehensive loss at the previous U.S. federal
corporate tax rate of 35%, for which the related deferred tax asset or liability was remeasured at the new U.S. federal corporate tax
rate of 21% in the fourth quarter of 2017. We elected to early adopt this standard in the fourth quarter of 2018, which resulted in an
increase to accumulated other comprehensive loss of $257 million, with an offsetting increase to retained earnings.
Textron 2018 Annual Report 57
Other Comprehensive Income (Loss)
The before and after-tax components of other comprehensive income (loss) are presented below
2018
2017
2016
Pre-Tax
Amount
Tax
(Expense)
Benefit
After-
Tax
Amount
Pre-Tax
Amount
Tax
(Expense)
Benefit
After-
Tax
Amount
Pre-Tax
Amount
Tax
(Expense)
Benefit
After-
Tax
Amount
117
7
(15)
7
152
9
(20)
7
(35)
(2)
5
—
136
7
(1)
—
$ (248) $ 58 $ (190) $ 18 $
(1) $ 17 $ (382) $ 135 $ (247)
65
(3)
7
—
(In millions)
Pension and postretirement benefits
adjustments:
Unrealized gains (losses)
Amortization of net actuarial loss*
Amortization of prior service cost (credit)*
Recognition of prior service credit (cost)
Business disposition
Pension and postretirement benefits
adjustments, net
Foreign currency translation adjustments:
Foreign currency translation adjustments
Business disposition
Foreign currency translation adjustments, net
Deferred gains (losses) on hedge contracts:
Current deferrals
Reclassification adjustments
Deferred gains (losses) on hedge
contracts, net
Total
*These components of other comprehensive income (loss) are included in the computation of net periodic pension cost. See Note 14 for additional information.
20
$ (155) $ 25 $ (130) $ 277 $ (47) $ 230 $ (281) $ 74 $ (207)
104
(7)
12
—
(39)
4
(5)
—
88
5
(1)
—
(48)
(2)
—
—
(13)
—
(13)
(36)
—
(36)
100
—
100
(3)
—
(3)
(49)
—
(49)
107
—
107
7
—
7
—
2
(49)
6
(43)
(46)
6
(40)
11
17
10
7
(8)
(5)
(4)
(4)
(8)
(7)
(273)
(100)
160
(178)
(2)
(1)
109
7
13
(13)
(74)
(15)
(51)
28
26
17
95
8
6
(8)
(3)
14
2
Note 11. Segment and Geographic Data
We operate in, and report financial information for, the following five business segments: Textron Aviation, Bell, Textron Systems,
Industrial and Finance. The accounting policies of the segments are the same as those described in Note 1.
Textron Aviation products include Citation jets, King Air and Caravan turboprop aircraft, piston engine aircraft, military turboprop
aircraft, and aftermarket part sales and services sold to a diverse base of corporate and individual buyers.
(cid:3)
Bell products include military and commercial helicopters, tiltrotor aircraft and related spare parts and services. Bell supplies
military helicopters and, in association with The Boeing Company, military tiltrotor aircraft, and aftermarket services to the U.S.
and non-U.S. governments. Bell also supplies commercial helicopters and aftermarket services to corporate, offshore petroleum
exploration and development, utility, charter, police, fire, rescue and emergency medical helicopter operators, and foreign
governments.
Textron Systems products include unmanned aircraft systems, marine and land systems, simulation, training and other defense and
aviation mission support products and services primarily for U.S. and non-U.S. governments.
Industrial products and markets include the following:
(cid:120)(cid:3) Kautex products include blow-molded plastic fuel systems and advanced fuel systems including pressurized fuel tanks for
hybrid applications, clear-vision systems, selective catalytic reduction systems, cast iron engine components and other fuel
system components that are marketed primarily to automobile OEMs, as well as plastic bottles and containers for various
uses; and
(cid:120)(cid:3) Specialized Vehicles products include golf cars, off-road utility vehicles, recreational side-by-side and all-terrain vehicles,
snowmobiles, light transportation vehicles, aviation ground support equipment, professional turf-maintenance equipment
and turf-care vehicles that are marketed primarily to golf courses and resorts, government agencies and municipalities,
consumers, and commercial and industrial users.
On July 2, 2018, we sold our Tools and Test Equipment businesses that were previously included in the Industrial segment as
discussed in Note 2.
58 Textron 2018 Annual Report
The Finance segment provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell
helicopters.
Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the
manufacturing segments excludes interest expense, certain corporate expenses, gains/losses on major business dispositions and
special charges. The measurement for the Finance segment includes interest income and expense along with intercompany interest
income and expense.
Our revenues by segment, along with a reconciliation of segment profit to income from continuing operations before income taxes,
are as follows:(cid:3)
(In millions)
Textron Aviation
Bell
Textron Systems
Industrial
Finance
Total
Corporate expenses and other, net
Interest expense, net for Manufacturing group
Special charges
Gain on business disposition
Income from continuing operations before income taxes
Other information by segment is provided below:
2018
2016
Segment Profit
3,239
1,756
3,794
78
3,180
1,464
4,291
66
2018
445 $
425
156
218
23
Revenues
2017
$ 4,971 $ 4,686 $ 4,921 $
3,317
1,840
4,286
69
2016
389
386
186
329
19
$ 13,972 $ 14,198 $ 13,788 $ 1,267 $ 1,169 $ 1,309
(172)
(138)
(123)
—
876
2017
303 $
415
139
290
22
(132)
(145)
(130)
—
762 $
(119)
(135)
(73)
444
$ 1,384 $
(In millions)
Textron Aviation
Bell
Textron Systems
Industrial
Finance
Corporate
Total
Assets
Capital Expenditures
Depreciation and Amortization
December 29,
2018
December 30,
2017
$
4,290 $
2,652
2,254
2,815
1,017
1,236
4,403 $
2,660
2,330
3,360
1,169
1,418
$ 14,264 $ 15,340 $
2018(cid:3)
132 $
65
39
132
—
1
369 $
2017
128 $
73
60
158
—
4
423 $
2016(cid:3)
157 $
86
71
121
—
11
446 $
2018(cid:3)
145 $
108
54
112
8
10
437 $
2017(cid:3)
139 $
117
65
105
12
9
447 $
2016(cid:3)
140
132
75
81
12
9
449
Geographic Data
Presented below is selected financial information of our continuing operations by geographic area:
Revenues*
Property, Plant
and Equipment, net**
(In millions)
United States
Europe
Asia and Australia
Other international
Total
* Revenues are attributed to countries based on the location of the customer.
** Property, plant and equipment, net is based on the location of the asset.(cid:3)
2018
2017
$
2016
8,574
1,954
998
2,262
$ 13,972 $ 14,198 $ 13,788
8,667 $
2,187
1,253
1,865
8,786 $
1,962
1,206
2,244
December 29,
2018
December 30,
2017
2,172
328
84
137
2,721
2,115 $
267
88
145
2,615 $
$
$
Textron 2018 Annual Report 59
Note 12. Revenues
Disaggregation of Revenues
Our revenues disaggregated by major product type are presented below:
(In millions)
Aircraft
Aftermarket parts and services
Textron Aviation
Military aircraft and support programs
Commercial helicopters, parts and services
Bell
Unmanned systems
Marine and land systems
Simulation, training and other
Textron Systems
Fuel systems and functional components
Specialized vehicles
Tools and test equipment
Industrial
Finance
Total revenues
2018
2017
$
2016
3,412
1,509
4,921
2,087
1,152
3,239
763
294
699
1,756
2,273
1,080
441
3,794
78
$ 13,972 $ 14,198 $ 13,788
3,112 $
1,574
4,686
2,076
1,241
3,317
714
470
656
1,840
2,330
1,486
470
4,286
69
3,435 $
1,536
4,971
2,030
1,150
3,180
612
311
541
1,464
2,352
1,691
248
4,291
66
Our 2018 revenues for our segments by customer type and geographic location are presented below:
(In millions)
Customer type:
Commercial
U.S. Government
Total revenues
Geographic location:
United States
Europe
Asia and Australia
Other international
Total revenues
Textron
Aviation
Bell
Textron
Systems
Industrial
Finance
Total
$
$
$
$
4,734 $
237
4,971 $
1,114 $
2,066
3,180 $
431 $
1,033
1,464 $
4,277 $
14
4,291 $
66 $ 10,622
—
3,350
66 $ 13,972
3,379 $
612
336
644
4,971 $
2,186 $
162
427
405
3,180 $
1,118 $
74
127
145
1,464 $
1,957 $
1,333
357
644
4,291 $
8,667
27 $
2,187
6
1,253
6
27
1,865
66 $ 13,972
In 2017 and 2016, our revenues included sales to the U.S. Government of approximately $3.1 billion and $3.4 billion, respectively,
primarily in the Bell and Textron Systems segments.
Remaining Performance Obligations
Our remaining performance obligations, which is the equivalent of our backlog, represent the expected transaction price allocated to
our contracts that we expect to recognize as revenue 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 December 29, 2018, we had $9.1 billion in remaining performance obligations of which we expect
to recognize revenues of approximately 75% through 2020, an additional 14% through 2022, 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 December 29, 2018, contract assets and contract liabilities totaled $461 million and $974 million, respectively. Upon
adoption of ASC 606 on December 31, 2017, contract assets and contract liabilities related to our contracts with customers were
$429 million and $1.0 billion, respectively. During 2018, we recognized $817 million in revenues that were included in the contract
liability balance at the adoption date.
60 Textron 2018 Annual Report
Reconciliation of ASC 606 to Prior Accounting Standards
The amount by which each financial statement line item is affected in 2018 as a result of applying the new accounting standard as
discussed in Note 1 is presented below:
(In millions)
Consolidated Balance Sheets
Accounts receivable, net
Inventories
Other current assets
Property, plant and equipment, net
Other assets
Total Manufacturing group assets
Total assets
Other current liabilities
Total Manufacturing group liabilities
Total liabilities
Retained earnings
Total shareholders’ equity
(In millions, except per share amounts)
Consolidated Statements of Operations
Manufacturing revenues
Total revenues
Cost of sales
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Net income
Basic earnings per share - continuing operations
Diluted earnings per share - continuing operations
Consolidated Statements of Comprehensive Income
Other comprehensive loss
Comprehensive income
Consolidated Statements of Cash flows
Net income
Income from continuing operations
Deferred income taxes
Accounts receivable, net
Inventories
Other assets
Other liabilities
Net cash provided by operating activities of continuing operations
$
December 29, 2018
As
Reported
Effect of the
adoption of
ASC 606
Under
Prior
Accounting
1,024 $
3,818
785
2,615
1,800
13,247
14,264
2,149
8,246
9,072
5,407
5,192
219 $
228
(454)
6
36
35
35
145
145
145
(110)
(110)
1,243
4,046
331
2,621
1,836
13,282
14,299
2,294
8,391
9,217
5,297
5,082
2018
Effect of the
adoption of
ASC 606
Under
Prior
Accounting
As
Reported
$ 13,906 $
13,972
11,594
1,384
162
1,222
1,222
4.88 $
4.83
(201) $ 13,705
13,771
(201)
11,420
(174)
1,357
(27)
155
(7)
1,202
(20)
1,202
(20)
4.80
(0.08) $
4.75
(0.08)
$
$
$
(130) $
1,092
(20) $
(20)
(150)
1,072
1,222 $
1,222
49
50
41
(88)
(223)
1,109
(20) $
(20)
(7)
(16)
(50)
34
59
—
1,202
1,202
42
34
(9)
(54)
(164)
1,109
Textron 2018 Annual Report 61
Note 13. Share-Based Compensation
Under our 2015 Long-Term Incentive Plan (Plan), which replaced our 2007 Long-Term Incentive Plan in April 2015, we have
authorization to provide awards to selected employees in the form of stock options, restricted stock, restricted stock units, stock
appreciation rights, performance stock, performance share units and other awards. A maximum of 17 million shares is authorized
for issuance for all purposes under the Plan plus any shares that become available upon cancellation, forfeiture or expiration of
awards granted under the 2007 Long-Term Incentive Plan. No more than 17 million shares may be awarded pursuant to incentive
stock options, and no more than 4.25 million shares may be issued pursuant to awards of restricted stock, restricted stock units,
performance stock or other awards that are payable in shares. For 2018, 2017 and 2016, the awards granted under this Plan primarily
included stock options, restricted stock units and performance share units.
Through our Deferred Income Plan for Textron Executives, we provide certain executives the opportunity to voluntarily defer up to
80% of their base salary, along with incentive compensation. Elective deferrals may be put into either a stock unit account or an
interest-bearing account. Participants cannot move amounts between the two accounts while actively employed by us and cannot
receive distributions until termination of employment. The intrinsic value of amounts paid under this deferred income plan was not
significant in 2018, 2017 and 2016.
Share-based compensation costs are reflected primarily in selling and administrative expense. Compensation expense included in
net income for our share-based compensation plans is as follows:
(In millions)
Compensation expense
Income tax benefit
Total net compensation expense included in net income
$
$
2018
35 $
(8)
27 $
2017
77 $
(28)
49 $
2016
71
(26)
45
Compensation cost for awards subject only to service conditions that vest ratably are recognized on a straight-line basis over the
requisite service period for each separately vesting portion of the award. As of December 29, 2018, we had not recognized $30
million of total compensation costs associated with unvested awards subject only to service conditions. We expect to recognize
compensation expense for these awards over a weighted-average period of approximately two years.
Stock Options
Options to purchase our shares have a maximum term of ten years and generally vest ratably over a three-year period. The stock
option compensation cost calculated under the fair value approach is recognized over the vesting period of the stock options. In
2018, 2017 and 2016, compensation expense included $23 million, $20 million and $20 million, respectively, from stock options.
We estimate the fair value of options granted on the date of grant using the Black-Scholes option-pricing model. Expected volatilities
are based on implied volatilities from traded options on our common stock, historical volatilities and other factors. The expected
term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior. The
weighted-average fair value of options granted during the past three years and the assumptions used in our option-pricing model for
such grants are as follows:
Fair value of options at grant date
Dividend yield
Expected volatility
Risk-free interest rate
Expected term (in years)
The stock option activity during 2018 is provided below:
(Options in thousands)
Outstanding at beginning of year
Granted
Exercised
Forfeited or expired
Outstanding at end of year
Exercisable at end of year
62 Textron 2018 Annual Report
2018
15.83
$
2017
13.80
$
$
0.1%
26.6%
2.6%
4.7
0.2%
29.2%
1.9%
4.7
2016
10.33
0.2%
33.6%
1.2%
4.8
Number of
Options
9,238 $
1,353
(2,098)
(209)
8,284 $
5,391 $
Weighted-
Average
Exercise Price
37.02
58.22
(35.30)
(50.49)
40.58
34.95
At December 29, 2018, our outstanding options had an aggregate intrinsic value of $66 million and a weighted-average remaining
contractual life of six years. Our exercisable options had an aggregate intrinsic value of $60 million and a weighted-average
remaining contractual life of five years at December 29, 2018. The total intrinsic value of options exercised during 2018, 2017 and
2016 was $62 million, $29 million and $15 million, respectively.(cid:3)
Restricted Stock Units
We issue restricted stock units settled in both cash and stock (vesting one-third each in the third, fourth and fifth year following the
year of the grant), which include the right to receive dividend equivalents. The fair value of these units is based on the trading price
of our common stock and is recognized ratably over the vesting period. 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 2018 activity for restricted stock units is provided below:
Units Payable in Stock
Units Payable in Cash
(Shares/Units in thousands)
Outstanding at beginning of year, nonvested
Granted
Vested
Forfeited
Outstanding at end of year, nonvested
Number of
Shares
668
130
(177)
(23)
598
Weighted-
Average Grant
Date Fair Value
40.55
$
58.17
(37.02)
(45.83)
45.22
$
Number of
Units
1,263
270
(311)
(79)
1,143
Weighted-
Average Grant
Date Fair Value
40.75
$
58.24
(37.40)
(45.40)
45.48
$
The fair value of the restricted stock unit awards that vested and/or amounts paid under these awards is as follows:
(In millions)
Fair value of awards vested
Cash paid
$
2018
2017
25 $
18
27 $
19
2016
20
12
Performance Share Units
The fair value of share-based compensation awards accounted for as liabilities includes performance share units, which are paid in
cash in the first quarter of the year following vesting. Payouts under performance share units vary based on certain performance
criteria generally set for each year of a three-year performance period. The performance share units vest at the end of three years.
The fair value of these awards is based on the trading price of our common stock and is remeasured at each reporting period date.
The 2018 activity for our performance share units is as follows:
(Units in thousands)
Outstanding at beginning of year, nonvested
Granted
Vested
Forfeited
Outstanding at end of year, nonvested
Number of
Units
485 $
201
(257)
(25)
404 $
Weighted-
Average Grant
Date Fair Value
41.34
58.02
(34.50)
(46.74)
53.63
The fair value of the performance share units that vested and/or amounts paid under these awards is as follows:
(In millions)
Fair value of awards vested
Cash paid
$
2018
2017
12 $
11
15 $
15
2016
14
13
Textron 2018 Annual Report 63
Note 14. Retirement Plans
Our defined benefit and contribution plans cover substantially all of our employees. A significant number of our U.S.-based
employees participate in the Textron Retirement Plan, which is designed to be a “floor-offset” arrangement with both a defined
benefit component and a defined contribution component. The defined benefit component of the arrangement includes the Textron
Master Retirement Plan (TMRP) and the Bell Helicopter Textron Master Retirement Plan (BHTMRP), and the defined contribution
component is the Retirement Account Plan (RAP). The defined benefit component provides a minimum guaranteed benefit (or
“floor” benefit). Under the RAP, participants are eligible to receive contributions from Textron of 2% of their eligible compensation
but may not make contributions to the plan. Upon retirement, participants receive the greater of the floor benefit or the value of the
RAP. Both the TMRP and the BHTMRP are subject to the provisions of the Employee Retirement Income Security Act of 1974
(ERISA). Effective on January 1, 2010, the Textron Retirement Plan was closed to new participants, and employees hired after that
date receive an additional 4% annual cash contribution to their Textron Savings Plan account based on their eligible compensation.
We also have other funded and unfunded defined benefit pension plans that cover certain of our U.S. and Non-U.S. employees. In
addition, several defined contribution plans are sponsored by our various businesses, of which the largest plan is the Textron Savings
Plan, which is a qualified 401(k) plan subject to ERISA. Our defined contribution plans cost $125 million, $123 million and $110
million in 2018, 2017 and 2016, respectively, which included $13 million, $13 million and $10 million, respectively, in contributions
to the RAP. We also provide postretirement benefits other than pensions for certain retired employees in the U.S. that include
healthcare, dental care, Medicare Part B reimbursement and life insurance.
Periodic Benefit Cost (Credit)
The components of net periodic benefit cost (credit) and other amounts recognized in OCI are as follows:
(In millions)
Net periodic benefit cost (credit)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (credit)
Amortization of net actuarial loss (gain)
Net periodic benefit cost (credit)
Other changes in plan assets and benefit obligations
recognized in OCI
Current year actuarial loss (gain)
Current year prior service cost (credit)
Amortization of net actuarial gain (loss)
Amortization of prior service credit (cost)
Business disposition
Total recognized in OCI, before taxes
Total recognized in net periodic benefit cost (credit) and OCI
Pension Benefits
Postretirement Benefits
Other than Pensions
2018
2017
2016
2018
2017
2016
$ 104 $ 100 $
306
(553)
15
153
323
(507)
15
137
$
25 $
68 $
98 $
338
3 $
10
3 $
12
(490) — —
(8)
(1)
6 $
(6)
(1)
6 $
15
104
3
16
—
(22)
—
(3)
65 $
$ 270 $
(11) $ 399 $
(22) $
(7) $
20
(153)
(15)
(7)
1 — — —
1
(104)
(15)
8
— — —
(137)
(15)
—
1
6
$ 115 $ (162) $ 280 $
(94) $ 345 $
$ 140 $
(15) $
(9) $
2 $
8 $
(17)
(12)
—
22
—
(7)
(10)
In the first quarter of 2018, we adopted ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost. This standard requires companies to present only the service cost component of net periodic benefit
cost in operating income in the same line as other compensation costs arising from services rendered by the pertinent employees
during the period. The other non-service components of net periodic benefit cost must be presented separately from service cost and
excluded from operating income. In addition, only the service cost component is eligible for capitalization into inventory. The
change in the amount capitalized into inventory was applied prospectively. Using a practical expedient, the other non-service
components of net periodic benefit cost (credit) previously disclosed were reclassified to a separate line on a retrospective basis for
prior periods. As a result, we reclassified $(29) million and $(39) million of other non-service components for 2017 and 2016,
respectively, from Cost of sales and Selling and administrative expense to Non-service components of pension and post-retirement
income, net in the Consolidated Statements of Operations.
64 Textron 2018 Annual Report
Obligations and Funded Status
All of our plans are measured as of our fiscal year-end. The changes in the projected benefit obligation and in the fair value of plan
assets, along with our funded status, are as follows:
(cid:3)
(In millions)
Change in projected benefit obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Actuarial (gains) losses
Benefits paid
Plan amendment
Business disposition
Foreign exchange rate changes and other
Projected benefit obligation at end of year
Pension Benefits
Postretirement Benefits
Other than Pensions
2018
2017
2018
2017
$
$
8,563 $
104
306
—
(615)
(422)
20
(15)
(40)
7,901 $
7,991 $
100
323
—
494
(413)
1
—
67
8,563 $
6,874
1,011
345
(413)
60
7,877
(686) $
289 $
3
10
5
(22)
(35)
—
—
—
250 $
317
3
12
5
(7)
(41)
—
—
—
289
(250) $
(289)
Change in fair value of plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions*
Benefits paid
Foreign exchange rate changes and other
Fair value of plan assets at end of year
7,877 $
(335)
39
(422)
(37)
7,122 $
Funded status at end of year
(779) $
*In 2017, employer contributions included a $300 million discretionary contribution to fund a U.S. pension plan.
$
$
$
Actuarial (gains) losses reflected in the table above for both 2018 and 2017 were the result of changes in the discount rate utilized
and asset return rate experienced as compared with our assumptions.
Amounts recognized in our balance sheets are as follows:
(In millions)
Non-current assets
Current liabilities
Non-current liabilities
Recognized in Accumulated other comprehensive loss, pre-tax:
Net loss (gain)
Prior service cost (credit)
Pension Benefits
Postretirement Benefits
Other than Pensions
$
2018
112 $
(27)
(864)
2017
106 $
(27)
(765)
2018
— $
(28)
(222)
2,157
69
2,055
64
(34)
(27)
2017
—
(31)
(258)
(13)
(33)
The accumulated benefit obligation for all defined benefit pension plans was $7.5 billion and $8.1 billion at December 29, 2018 and
December 30, 2017, respectively, which included $369 million and $404 million, respectively, in accumulated benefit obligations
for unfunded plans where funding is not permitted or in foreign environments where funding is not feasible.
Pension plans with accumulated benefit obligation exceeding the fair value of plan assets are as follows:
(In millions)
Accumulated benefit obligation
Fair value of plan assets
Pension plans with projected benefit obligation exceeding the fair value of plan assets are as follows:
(In millions)
Projected benefit obligation
Fair value of plan assets
$
2018
7,137
6,589
$
2018
7,481
6,589
$
$
2017
670
237
2017
8,078
7,285
Textron 2018 Annual Report 65
Assumptions
The weighted-average assumptions we use for our pension and postretirement plans are as follows:
Pension Benefits
Postretirement Benefits
Other than Pensions
2018
2017
2016
2018
2017
2016
Net periodic benefit cost
Discount rate
Expected long-term rate of return on assets
Rate of compensation increase
Benefit obligations at year-end
Discount rate
Rate of compensation increase
Interest crediting rate for cash balance plans
3.67%
7.58%
3.50%
4.24%
3.50%
5.25%
4.13%
7.57%
3.50%
3.66%
3.50%
5.25%
4.66%
7.58%
3.49%
4.13%
3.50%
5.25%
3.50%
4.00%
4.50%
4.25%
3.50%
4.00%
Our assumed healthcare cost trend rate for both the medical and prescription drug cost was 7.00% and 7.25% in 2018 and 2017,
respectively. We expect this rate to gradually decline to 5% by 2024 where we assume it will remain. (cid:3)
Pension Assets
The expected long-term rate of return on plan assets is determined based on a variety of considerations, including the established
asset allocation targets and expectations for those asset classes, historical returns of the plans’ assets and other market considerations.
We invest our pension assets with the objective of achieving a total rate of return over the long term that will be sufficient to fund
future pension obligations and to minimize future pension contributions. We are willing to tolerate a commensurate level of risk to
achieve this objective based on the funded status of the plans and the long-term nature of our pension liability. Risk is controlled by
maintaining a portfolio of assets that is diversified across a variety of asset classes, investment styles and investment managers.
Where possible, investment managers are prohibited from owning our securities in the portfolios that they manage on our behalf.
For U.S. plan assets, which represent the majority of our plan assets, asset allocation target ranges are established consistent with
our investment objectives, and the assets are rebalanced periodically. For Non-U.S. plan assets, allocations are based on expected
cash flow needs and assessments of the local practices and markets. Our target allocation ranges are as follows:
17% to 33%
8% to 19%
5% to 17%
27% to 38%
7% to 13%
5% to 11%
0%
51% to 74%
26% to 46%(cid:3)
0% to 13%
U.S. Plan Assets
Domestic equity securities
International equity securities
Global equities
Debt securities
Real estate
Private investment partnerships
Hedge funds
Non-U.S. Plan Assets
Equity securities
Debt securities
Real estate
66 Textron 2018 Annual Report
The fair value of our pension plan assets by major category and valuation method is as follows:
December 29, 2018
December 30, 2017
(In millions)
Cash and equivalents
Equity securities:
Domestic
International(cid:3)
Mutual funds(cid:3)
Debt securities:
National, state and local governments(cid:3)
Corporate debt(cid:3)
Asset-backed securities(cid:3)
Private investment partnerships
Real estate
Hedge funds
Total
Level 1
Level 2
Level 3
Not
Subject to
Leveling
Level 1
$
19 $
19 $ — $ 113 $
22 $
Not
Subject to
Leveling
10 $ — $ 149
Level 3
Level 2
1,256 — —
835 — —
266 — —
828 1,404 —
919 —
450
387 —
—
665
—
—
636
— —
53
56
290 —
366
148
—
908 —
103
— — —
591
— — —
284
— —
460
— — —
197
$ 2,742 $ 1,217 $ 460 $ 2,703 $ 3,377 $ 1,211 $ 460 $ 2,829
289
645
220 —
912
104 — —
650 — —
285 — —
— — —
—
—
—
—
460
—
Cash and equivalents, equity securities and debt securities include comingled funds, which represent investments in funds offered to
institutional investors that are similar to mutual funds in that they provide diversification by holding various equity and debt
securities. Since these comingled funds are not quoted on any active market, they are priced based on the relative value of the
underlying equity and debt investments and their individual prices at any given time; these funds are not subject to leveling within
the fair value hierarchy. Debt securities are valued based on same day actual trading prices, if available. If such prices are not
available, we use a matrix pricing model with historical prices, trends and other factors.
Private investment partnerships represents interests in funds which invest in equity, debt and other financial assets. These funds are
generally not publicly traded so the interests therein are valued using income and market methods that include cash flow projections
and market multiples for various comparable investments. Real estate includes owned properties and limited partnership interests
in real estate partnerships. Owned properties are valued using certified appraisals at least every three years that are updated at least
annually by the real estate investment manager based on current market trends and other available information. These appraisals
generally use the standard methods for valuing real estate, including forecasting income and identifying current transactions for
comparable real estate to arrive at a fair value. Limited partnership interests in real estate partnerships are valued similarly to private
investment partnerships, with the general partner using standard real estate valuation methods to value the real estate properties and
securities held within their portfolios. Neither private investment nor real estate partnerships are subject to leveling within the fair
value hierarchy.
The table below presents a reconciliation of the fair value measurements for owned real estate properties, which use significant
unobservable inputs (Level 3):
(In millions)
Balance at beginning of year
Unrealized gains (losses), net
Realized gains, net
Purchases, sales and settlements, net
Balance at end of year
$
$
2018
460 $
13
12
(25)
460 $
2017
494
(6)
24
(52)
460
Textron 2018 Annual Report 67
Estimated Future Cash Flow Impact
Defined benefits under salaried plans are based on salary and years of service. Hourly plans generally provide benefits based on
stated amounts for each year of service. Our funding policy is consistent with applicable laws and regulations. In 2019, we expect
to contribute approximately $50 million to our pension plans and the RAP. Benefit payments provided below reflect expected future
employee service, as appropriate, and are expected to be paid, net of estimated participant contributions. These payments are based
on the same assumptions used to measure our benefit obligation at the end of 2018. While pension benefit payments primarily will
be paid out of qualified pension trusts, we will pay postretirement benefits other than pensions out of our general corporate assets.
Benefit payments that we expect to pay on an undiscounted basis are as follows:
(In millions)
Pension benefits
Post-retirement benefits other than pensions
$
2019
418 $
29
2020
424 $
27
2021
432
26
$
2022
441 $
25
2023
449
24
$
2024-2028
2,379
96
Note 15. Special Charges
2018 Restructuring Plan
In the fourth quarter of 2018, we recorded $73 million in special charges in connection with a plan to restructure the Textron
Specialized Vehicles businesses within our Industrial segment. These businesses have undergone significant changes since the
acquisition of Arctic Cat as we have expanded the product portfolio and integrated manufacturing operations and retail distribution.
In the third quarter of 2018, the operating results for these businesses were significantly below our expectations as dealer sell-through
lagged despite the introduction of new products into our dealer network. Based on our review and assessment of the acquired dealer
network and go-to-market strategy for the Textron Off Road and Arctic Cat brands in the fourth quarter of 2018, along with a review
of the other businesses within the product line, we initiated a restructuring plan. This plan included product rationalization, closure
of several factory-direct turf-care branch locations and a manufacturing facility and headcount reductions. Under this plan, we
recorded asset impairment charges of $47 million, primarily intangible assets related to product rationalization, contract termination
and other costs of $18 million and severance costs of $8 million. Headcount reductions totaled approximately 400 positions,
representing 10% of Textron Specialized Vehicles’ workforce. The actions taken under this plan were substantially completed at the
end of 2018.
2017 and 2016 Restructuring Plans
In 2017 and 2016, we recorded special charges of $90 million and $123 million, respectively, related to a plan that was initiated in
2016 to restructure and realign our businesses by implementing headcount reductions, facility consolidations and other actions in
order to improve overall operating efficiency across Textron. The 2016 plan was completed in 2017. Special charges related to this
plan included $97 million of severance costs, $84 million of asset impairments and $32 million in contract terminations and other
costs. Of these amounts, $83 million was incurred at Textron Systems, $63 million at Textron Aviation, $38 million at Industrial,
$28 million at Bell and $1 million at Corporate. The total headcount reduction under this plan was approximately 2,100 positions,
representing 5% of our workforce.
In connection with the acquisition of Arctic Cat, as discussed in Note 2, we initiated a restructuring plan in the first quarter of 2017
and recorded restructuring charges of $28 million in 2017, which included $19 million of severance costs, largely related to change-
of-control provisions, and $9 million of contract termination and other costs. In addition, we recorded $12 million of acquisition-
related integration and transaction costs in 2017.
68 Textron 2018 Annual Report
For 2017 and 2016, special charges recorded by segment and type of cost are as follows:
58
28
23
21
130
20
35
5
62
1
123
Total
63
58
28
(87)
(14)
(4)
44
26
(30)
—
40
(In millions)
2017
Industrial
Textron Aviation
Bell
Textron Systems
2016
Industrial
Textron Aviation
Bell
Textron Systems
Corporate
Severance
Costs
Asset
Impairments
Contract
Terminations
and Other
Acquisition
Integration/
Transaction
Costs
Total
Special
Charges
$
$
$
$
26 $
11
3
6
46 $
17 $
33
4
15
1
70 $
1 $
17
12
16
46 $
2 $
1
1
34
—
38 $
19 $
—
8
(1)
26 $
1 $
1
—
13
—
15 $
12 $
—
—
—
12 $
— $
—
—
—
—
— $
Restructuring Reserve
Our restructuring reserve activity is summarized below:
(In millions)
Balance at December 31, 2016
Provision for 2016 plan
Provision for Arctic Cat plan
Cash paid
Reversals*
Non-cash utilization
Balance at December 30, 2017
Provision for 2018 plan
Cash paid
(Reversals)/provision for prior plans
Balance at December 29, 2018
*Primarily related to favorable contract negotiations in the Textron Systems segment.
Severance
Costs
Contract
Terminations
and Other
$
$
50 $
33
19
(72)
(6)
—
24
8
(21)
(3)
8 $
13 $
25
9
(15)
(8)
(4)
20
18
(9)
3
32 $
The majority of the remaining cash outlays of $40 million are expected to be paid in 2019. Severance costs generally are paid on a
lump-sum basis and include outplacement costs, which are paid in accordance with normal payment terms.
Note 16. Income Taxes
We conduct business globally and, as a result, file numerous consolidated and separate income tax returns within and outside the
U.S. For all of our U.S. subsidiaries, we file a consolidated federal income tax return. Income from continuing operations before
income taxes is as follows:
(In millions)
U.S.
Non-U.S.
Income from continuing operations before income taxes
2018
557 $
827
1,384 $
$
$
2017
428
334
762
$
$
2016
652
224
876
Textron 2018 Annual Report 69
Income tax expense for continuing operations is summarized as follows:
(In millions)
Current expense (benefit):
Federal
State
Non-U.S.
Deferred expense (benefit):
Federal
State
Non-U.S.
Income tax expense
2018
2017
2016
$
$
3 $
9
101
113
60
(5)
(6)
49
162 $
29 $
(9)
79
99
358
(14)
13
357
456 $
(74)
18
41
(15)
47
(7)
8
48
33
The following table reconciles the federal statutory income tax rate to our effective income tax rate for continuing operations:
U.S. Federal statutory income tax rate
Increase (decrease) resulting from:
U.S. tax reform enactment impact
Federal tax settlement of 1998 to 2008
State income taxes (net of federal impact)
Non-U.S. tax rate differential and foreign tax credits
Domestic manufacturing deduction
Research credit*
Gain on business disposition, primarily in non-U.S. jurisdictions
Other, net
2018
21.0%
2017
35.0%
2016
35.0%
(1.0)
—
(0.1)
1.3
—
(2.9)
(5.0)
(1.6)
11.7%
34.9
—
(1.9)
(2.9)
(1.1)
(2.6)
—
(1.6)
59.8%
—
(23.5)
0.8
(2.7)
(1.6)
(3.2)
—
(1.0)
3.8%
Effective income tax rate
(cid:13)Includes a favorable impact of (1.8)% in 2018 for the reassessment of reserves for uncertain tax positions.(cid:3)
(cid:3)
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. Among other things, the Tax Act reduced the U.S.
federal corporate tax rate from 35% to 21% and required companies to pay a one-time transition tax on earnings of certain foreign
subsidiaries that were previously tax deferred. We reasonably estimated the effects of the Tax Act and recorded provisional amounts
in the fourth quarter of 2017 totaling $266 million. Our provisional estimate included a $154 million charge to remeasure our U.S.
federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally
21%. In addition, the provisional estimate included $112 million in expense for the one-time transition tax. This tax was based on
approximately $1.6 billion of our post-1986 earnings and profits that were previously deferred from U.S. income taxes, and on the
amount of those earnings held in cash and other specified net assets.(cid:3) In 2018, we finalized the 2017 impacts of the Tax Act,
specifically the remeasurement of our U.S. Federal deferred tax assets and liabilities and the post-1986 earnings and profits transition
tax, which resulted in a $14 million benefit.
For 2016, the provision for income taxes included a benefit of $319 million to reflect the settlement with the U.S. Internal Revenue
Service Office of Appeals for our 1998 to 2008 tax years, which resulted in a $206 million benefit attributable to continuing
operations and $113 million attributable to discontinued operations.
70 Textron 2018 Annual Report
Unrecognized Tax Benefits
Our unrecognized tax benefits represent tax positions for which reserves have been established, with unrecognized state tax benefits
reflected net of applicable tax benefits. A reconciliation of our unrecognized tax benefits is as follows:
(In millions)
Balance at beginning of year
Additions for tax positions related to current year
Additions for tax positions of prior years
Reductions for settlements and expiration of statute of limitations
Reductions for tax positions of prior years*
Balance at end of year
(cid:13)In 2018, certain tax positions related to research credits were reduced by $25 million based on new information, including interactions with the tax authorities and
recent audit settlements.(cid:3)
December 30,
2017
186 $
12
16
(17)
(15)
182 $
December 29,
2018
182 $
5
13
(22)
(37)
141 $
December 31,
2016
401
12
—
(219)
(8)
186
$
$
At the end of 2018, 2017 and 2016, if these unrecognized tax benefits were recognized in future periods, they would favorably impact
our effective tax rate.
In the normal course of business, we are subject to examination by tax authorities throughout the world. We are no longer subject
to U.S. federal tax examinations for years before 2014, state and local income tax examinations for years before 2009, and non-U.S.
income tax examinations for years before 2011.
Deferred Taxes
The significant components of our net deferred tax assets/(liabilities) are provided below:
(In millions)
Obligation for pension and postretirement benefits
Accrued expenses (a)
Deferred compensation
U.S. operating loss and tax credit carryforwards (b)
Non-U.S. operating loss and tax credit carryforwards (c)
Valuation allowance on deferred tax assets
Property, plant and equipment, principally depreciation
Amortization of goodwill and other intangibles
Leasing transactions
Prepaid pension benefits
Other, net
Deferred taxes, net
(a)(cid:3) Accrued expenses included warranty reserves, self-insured liabilities and interest.
(b)(cid:3) At December 29, 2018,(cid:3)U.S. operating loss and tax credit carryforward benefits of $186 million expire through 2038 if not utilized and $26 million may be
December 29,
2018
272 $
236
96
212
69
(157)
(142)
(143)
(77)
(21)
(23)
322 $
December 30,
2017
247
260
103
208
72
(148)
(125)
(154)
(81)
(21)
(13)
348
$
$
carried forward indefinitely.
(c)(cid:3) At December 29, 2018, non-U.S. operating loss and tax credit carryforward benefits of $16 million expire through 2038 if not utilized and $53 million may be
carried forward indefinitely.
We believe earnings during the period when the temporary differences become deductible will be sufficient to realize the related
future income tax benefits. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results
indicate that realization is not more than likely, a valuation allowance is provided.
The following table presents the breakdown of our deferred taxes:
(In millions)
Manufacturing group:
Deferred tax assets, net of valuation allowance
Deferred tax liabilities
Finance group – Deferred tax liabilities
Net deferred tax asset
December 29,
2018
December 30,
2017
$
$
397 $
(5)
(70)
322 $
430
(7)
(75)
348
At December 29, 2018 and December 30, 2017, non-U.S. and U.S. state income taxes have not been provided for on basis differences
in certain investments, primarily as a result of $1.6 billion of unremitted earnings in foreign subsidiaries which are indefinitely
Textron 2018 Annual Report 71
reinvested. Should these earnings be distributed in the future in the form of dividends or otherwise, we would be subject to
withholding and income taxes payable to various non-U.S. jurisdictions and U.S. states. Determination of the deferred tax liability
associated with indefinitely reinvested earnings is not practicable due to multiple factors, including the complexity of non-U.S. tax
laws and tax treaty interpretations, exchange rate fluctuations, and the uncertainty of available credits or exemptions under U.S.
federal and state tax laws.
Note 17. Commitments and Contingencies
We are subject to legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims
relating to commercial and financial transactions; government contracts; alleged lack of compliance with applicable laws and
regulations; production partners; product liability; patent and trademark infringement; employment disputes; and environmental,
safety and health matters. Some of these legal proceedings and claims seek damages, fines or penalties in substantial amounts or
remediation of environmental contamination. As a government contractor, we are subject to audits, reviews and investigations to
determine whether our operations are being conducted in accordance with applicable regulatory requirements. Under federal
government procurement regulations, certain claims brought by the U.S. Government could result in our suspension or debarment
from U.S. Government contracting for a period of time. On the basis of information presently available, we do not believe that
existing proceedings and claims will have a material effect on our financial position or results of operations.
In the ordinary course of business, we enter into standby letter of credit agreements and surety bonds with financial institutions to
meet various performance and other obligations. These outstanding letter of credit arrangements and surety bonds aggregated to
approximately $333 million and $380 million at December 29, 2018 and December 30, 2017, respectively.
Environmental Remediation
As with other industrial enterprises engaged in similar businesses, we are involved in a number of remedial actions under various
federal and state laws and regulations relating to the environment that impose liability on companies to clean up, or contribute to the
cost of cleaning up, sites on which hazardous wastes or materials were disposed or released. Our accrued environmental liabilities
relate to installation of remediation systems, disposal costs, U.S. Environmental Protection Agency oversight costs, legal fees, and
operating and maintenance costs for both currently and formerly owned or operated facilities. Circumstances that can affect the
reliability and precision of the accruals include the identification of additional sites, environmental regulations, level of cleanup
required, technologies available, number and financial condition of other contributors to remediation and the time period over which
remediation may occur. We believe that any changes to the accruals that may result from these factors and uncertainties will not
have a material effect on our financial position or results of operations.
Based upon information currently available, we estimate that our potential environmental liabilities are within the range of $45
million to $150 million. At December 29, 2018, environmental reserves of approximately $81 million have been established to
address these specific estimated liabilities. We estimate that we will likely pay our accrued environmental remediation liabilities
over the next ten years and have classified $14 million as current liabilities. Expenditures to evaluate and remediate contaminated
sites were $13 million, $18 million and $15 million in 2018, 2017 and 2016, respectively.
Leases
Rental expense was $114 million, $122 million and $126 million in 2018, 2017 and 2016, respectively. Future minimum rental
commitments for noncancelable operating leases in effect at December 29, 2018 totaled $64 million for 2019, $45 million for 2020,
$32 million for 2021, $26 million for 2022, $19 million for 2023 and $115 million thereafter. The total future minimum rental
receipts under noncancelable subleases at December 29, 2018 totaled $18 million.
Note 18. Supplemental Cash Flow Information
Our cash payments and receipts are as follows:
(cid:3)
(In millions)
Interest paid:
Manufacturing group
Finance group
Net taxes paid/(received):
Manufacturing group
Finance group
72 Textron 2018 Annual Report
2018
2017
2016
$
132 $
25
133 $
29
129
17
(16)
48
132
32
163
11
Report of Independent Registered Public Accounting Firm
To the Board of Directors and the Shareholders of Textron Inc.
Opinion on the Financial Statements
We have audited the accompanying Consolidated Balance Sheets of Textron Inc. (the Company) as of December 29, 2018 and
December 30, 2017, the related Consolidated Statements of Operations, Comprehensive Income, Shareholders’ Equity and Cash
Flows for each of the three years in the period ended December 29, 2018, and the related notes and financial statement schedule
contained on page 75 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 29, 2018 and December 30,
2017 and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2018, in
conformity with U.S. generally accepted accounting principles.
(cid:3)
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 29, 2018, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
Framework) and our report dated February 14, 2019 expressed an unqualified opinion thereon.
(cid:3)
Adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606)
As discussed in Note 1 to the consolidated financial statements, the Company changed its method for recognizing revenue as a result
of the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and its related amendments effective
December 31, 2017.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
(cid:3)
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1957.
(cid:3)
Boston, Massachusetts
February 14, 2019
Textron 2018 Annual Report 73
Quarterly Data
(Unaudited)
(Dollars in millions, except per share amounts)
Revenues (a)
Textron Aviation
Bell
Textron Systems
Industrial
Finance
Total revenues
Segment profit
Textron Aviation
Bell
Textron Systems
Industrial
Finance
Total segment profit
Corporate expenses and other, net
Interest expense, net for Manufacturing group
Special charges (b)
Gain on business disposition (c)
Income tax expense (d)
Income (loss) from continuing operations
Income from discontinued operations,
net of income taxes
Net income (loss)
Basic earnings per share
Continuing operations
Discontinued operations
Basic earnings per share
Basic average shares outstanding (in thousands)
Diluted earnings per share (e)
Q1
2018
Q2
Q3
Q4
Q1
2017
Q2
Q3
Q4
752
387
$ 1,010 $ 1,276 $ 1,133 $ 1,552 $
831
380
1,131 1,222
17
970 $ 1,171 $ 1,154 $ 1,391
983
697
827
770
416
489
352
345
992 1,113 1,042 1,139
930 1,008
15
18
$ 3,296 $ 3,726 $ 3,200 $ 3,750 $ 3,093 $ 3,604 $ 3,484 $ 4,017
825
477
812
458
15
18
18
16
18
$
72 $
87
50
64
6
279
(27)
(34)
—
—
(29)
189
104 $
117
40
80
5
346
(51)
(35)
—
—
(36)
224
99 $
113
29
1
3
245
(29)
(32)
—
444
(65)
563
170 $
108
37
73
9
397
(12)
(34)
(73)
—
(32)
246
36 $
83
20
76
4
219
(27)
(34)
(37)
—
(21)
100
54 $
93 $
112
42
82
5
295
(31)
(36)
(13)
—
(62)
153
106
40
49
7
295
(30)
(37)
(25)
—
(44)
159
120
114
37
83
6
360
(44)
(38)
(55)
—
(329)
(106)
— —
189 $
224 $
—
563 $
—
246 $
1 —
101 $
153 $
—
159 $
—
(106)
$
—
$ 0.73 $ 0.88 $ 2.29 $ 1.02 $ 0.37 $ 0.57 $ 0.60 $ (0.40)
—
—
$ 0.73 $ 0.88 $ 2.29 $ 1.02 $ 0.37 $ 0.57 $ 0.60 $ (0.40)
260,497 253,904 246,136 240,248 270,489 267,114 264,624 263,295
—
—
—
—
—
—
—
$ 0.72 $ 0.87 $ 2.26 $ 1.02 $ 0.37 $ 0.57 $ 0.60 $
Continuing operations
Discontinued operations
Diluted earnings per share
Diluted average shares outstanding (in thousands)
Segment profit margins
Textron Aviation
Bell
Textron Systems
Industrial
Finance
Segment profit margin
9.0%
(a)(cid:3) At the beginning of 2018, we adopted ASC 606 using a modified retrospective basis and as a result, the comparative information has not been restated and is
$ 0.72 $ 0.87 $ 2.26 $ 1.02 $ 0.37 $ 0.57 $ 0.60 $
263,672 257,177 249,378 242,569 272,830 269,299 266,989 263,295
11.0%
13.1
10.7
7.2
50.0
10.6%
14.7
8.2
0.1
20.0
11.6
7.6
7.3
40.0
11.9
4.8
7.7
22.2
13.6
8.8
7.4
27.8
13.1
8.7
4.7
38.9
11.6
12.9
5.7
37.5
14.1
10.5
6.5
29.4
(0.40)
—
(0.40)
—
—
—
—
—
8.2%
4.6%
7.7%
8.7%
8.5%
9.3%
8.2%
7.1%
8.6%
8.5%
8.1%
7.1%
3.7%
reported under the accounting standards in effect for these periods. See Note 1 to the Consolidated Financial Statements for additional information.
(b)(cid:3) Special charges of $73 million were recorded in the fourth quarter of 2018 under a restructuring plan for the Textron Specialized Vehicles businesses within
our Industrial segment that was initiated in December 2018. Special charges related to our 2016 restructuring plan were $15 million, $12 million, $15 million
and $48 million in the first, second, third and fourth quarters of 2017, respectively. In addition, we recorded special charges of $22 million, $1 million, $10
million and $7 million in the first, second, third and fourth quarters of 2017, respectively, related to the Arctic Cat acquisition, which included restructuring,
integration and transaction costs.
(c)(cid:3) On July 2, 2018, Textron completed the sale of the Tools & Test Equipment product line which resulted in an after-tax gain of $419 million.
(d)(cid:3)
Income tax expense for the fourth quarter of 2017 included a $266 million charge to reflect our provisional estimate of the net impact of the Tax Cuts and
Jobs Act. We completed our analysis of this legislation in the fourth quarter of 2018 and recorded a $14 million income tax benefit.
(e)(cid:3) For the fourth quarter of 2017, the diluted average shares outstanding excluded potential common shares (stock options) due to their antidilutive effect
resulting from the net loss.
74 Textron 2018 Annual Report
Schedule II — Valuation and Qualifying Accounts
2018
2017
2016
$
(In millions)
Allowance for doubtful accounts
Balance at beginning of year
Charged to costs and expenses
Deductions from reserves*
Balance at end of year
Allowance for losses on finance receivables
Balance at beginning of year
Reversal of the provision for losses
Charge-offs
Recoveries
Balance at end of year
Inventory FIFO reserves
Balance at beginning of year
Charged to costs and expenses
Deductions from reserves*
Balance at end of year
*Deductions primarily include amounts written off on uncollectable accounts (less recoveries), inventory disposals, changes to prior year estimates, business
dispositions and currency translation adjustments.
41 $
(11)
(6)
7
31 $
31 $
(3)
(4)
5
29 $
231 $
63
(32)
262 $
262 $
56
(38)
280 $
27 $
5
(5)
27 $
27 $
3
(3)
27 $
48
(1)
(16)
10
41
206
59
(34)
231
33
3
(9)
27
$
$
$
$
$
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 29, 2018. 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 December 29, 2018.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of the fiscal year covered by this
report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for Textron Inc. as
such term is defined in Exchange Act Rules 13a-15(f). Our internal control structure is designed to provide reasonable assurance,
at appropriate cost, that assets are safeguarded and that transactions are properly executed and recorded. The internal control
structure includes, among other things, established policies and procedures, an internal audit function, the selection and training of
qualified personnel as well as management oversight.
With the participation of our management, we performed an evaluation of the effectiveness of our internal control over financial
reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 Framework). Based on our evaluation under the 2013 Framework, we have
concluded that Textron Inc. maintained, in all material respects, effective internal control over financial reporting as of December
29, 2018.
The independent registered public accounting firm, Ernst & Young LLP, has audited the Consolidated Financial Statements of
Textron Inc. and has issued an attestation report on Textron’s internal controls over financial reporting as of December 29, 2018, as
stated in its report, which is included herein.
Textron 2018 Annual Report 75
To the Board of Directors and the Shareholders of Textron Inc.
Report of Independent Registered Public Accounting Firm
Opinion on Internal Control over Financial Reporting
(cid:3)
We have audited Textron Inc.’s internal control over financial reporting as of December 29, 2018, based on criteria established in
Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
Framework), (the COSO criteria). In our opinion, Textron, Inc. (the Company) maintained, in all material respects, effective internal
control over financial reporting as of December 29, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Consolidated Balance Sheets of the Company as of December 29, 2018 and December 30, 2017, and the related
Consolidated Statements of Operations, Comprehensive Income, Shareholder’s Equity and Cash Flows for each of the three years
in the period ended December 29, 2018, and the related notes and financial statement schedule contained on page 75, of the Company
and our report dated February 14, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 14, 2019
76 Textron 2018 Annual Report
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information appearing under “ELECTION OF DIRECTORS— Nominees for Director,” “CORPORATE GOVERNANCE—
Corporate Governance Guidelines and Policies,” “— Code of Ethics,” “–Board Committees— Audit Committee,” and “SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in the Proxy Statement for our Annual Meeting of Shareholders
to be held on April 24, 2019 is incorporated by reference into this Annual Report on Form 10-K.
Information regarding our executive officers is contained in Part I of this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information appearing under “CORPORATE GOVERNANCE —Compensation of Directors,” “COMPENSATION
COMMITTEE REPORT,” “COMPENSATION DISCUSSION AND ANALYSIS” and “EXECUTIVE COMPENSATION” in the
Proxy Statement for our Annual Meeting of Shareholders to be held on April 24, 2019 is incorporated by reference into this Annual
Report on Form 10-K.
(cid:3)
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information appearing under “SECURITY OWNERSHIP” and “EXECUTIVE COMPENSATION – Equity Compensation Plan
Information” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April 24, 2019 is incorporated by
reference into this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions and Director Independence
information
The
“EXECUTIVE
“CORPORATE GOVERNANCE--Director
COMPENSATION — Transactions with Related Persons” in the Proxy Statement for our Annual Meeting of Shareholders to be
held on April 24, 2019 is incorporated by reference into this Annual Report on Form 10-K.
appearing under
Independence”
and
Item 14. Principal Accountant Fees and Services
The information appearing under “RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM — Fees to Independent Auditors” in the Proxy Statement for our Annual Meeting of Shareholders to be held
on April 24, 2019 is incorporated by reference into this Annual Report on Form 10-K.
Textron 2018 Annual Report 77
PART IV
Item 15. Exhibits and Financial Statement Schedules
Financial Statements and Schedules — See Index on Page 36.
Exhibits
3.1A
3.1B
3.2
4.1A
4.1B
NOTE:
NOTE:
10.1A
10.1B
10.1C
10.1D
10.1E
10.1F
Restated Certificate of Incorporation of Textron as filed with the Secretary of State of Delaware on April 29,
2010. Incorporated by reference to Exhibit 3.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal
quarter ended April 3, 2010. (SEC File No. 1-5480)
Certificate of Amendment of Restated Certificate of Incorporation of Textron Inc., filed with the Secretary of
State of Delaware on April 27, 2011. Incorporated by reference to Exhibit 3.1 to Textron’s Quarterly Report
on Form 10-Q for the fiscal quarter ended April 2, 2011. (SEC File No. 1-5480)
Amended and Restated By-Laws of Textron Inc., effective April 28, 2010 and further amended April 27, 2011,
July 23, 2013, February 25, 2015 and December 6, 2016. Incorporated by reference to Exhibit 3.2 to Textron’s
Current Report on Form 8-K filed on December 8, 2016.
Support Agreement dated as of May 25, 1994, between Textron Inc. and Textron Financial Corporation.
Incorporated by reference to Exhibit 4.1 to Textron’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2011. (SEC File No. 1-5480)
Amendment to Support Agreement, dated as of December 23, 2015, by and between Textron Inc. and Textron
Financial Corporation. Incorporated by reference to Exhibit 4.1B to Textron’s Annual Report on Form 10-K
for the fiscal year ended January 2, 2016.
Instruments defining the rights of holders of certain issues of long-term debt of Textron have not been filed as
exhibits because the authorized principal amount of any one of such issues does not exceed 10% of the total
assets of Textron and its subsidiaries on a consolidated basis. Textron agrees to furnish a copy of each such
instrument to the Commission upon request.
Exhibits 10.1 through 10.16 below are management contracts or compensatory plans, contracts or agreements.
Textron Inc. 2007 Long-Term Incentive Plan (Amended and Restated as of April 28, 2010). Incorporated by
reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2012. (SEC File No. 1-5480)
Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.2 to Textron’s
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007. (SEC File No. 1-5480)
Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 2007. (SEC File No. 1-5480)
Form of Restricted Stock Unit Grant Agreement. Incorporated by reference to Exhibit 10.4 to Textron’s
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007. (SEC File No. 1-5480)
Form of Restricted Stock Unit Grant Agreement with Dividend Equivalents. Incorporated by reference to
Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2008. (SEC
File No. 1-5480)
Form of Performance Share Unit Grant Agreement. Incorporated by reference to Exhibit 10.1H to Textron’s
Annual Report on Form 10-K for the fiscal year ended January 3, 2009. (SEC File No. 1-5480)
78 Textron 2018 Annual Report
10.1G
10.1H
10.1I
Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.1 to Textron’s
Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014. (SEC File No. 1-5480)
Form of Stock-Settled Restricted Stock Unit Grant Agreement with Dividend Equivalents. Incorporated by
reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29,
2014. (SEC File No. 1-5480)
Form of Performance Share Unit Grant Agreement. Incorporated by reference to Exhibit 10.3 to Textron’s
Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014. (SEC File No. 1-5480)
10.2
Textron Inc. Short-Term Incentive Plan. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly
Report on Form 10-Q for the fiscal quarter ended April 1, 2017.
10.3A
10.3B
10.3C
10.3D
Textron Inc. 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly
Report on Form 10-Q for the fiscal quarter ended July 4, 2015.
Form of Non-Qualified Stock Option Agreement under 2015 Long-Term Incentive Plan. Incorporated by
reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2,
2016.
Form of Stock-Settled Restricted Stock Unit (with Dividend Equivalents) Grant Agreement under 2015 Long-
Term Incentive Plan. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q
for the fiscal quarter ended April 2, 2016.
Form of Performance Share Unit Grant Agreement under 2015 Long-Term Incentive Plan. Incorporated by
reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2,
2016.
10.4
Textron Spillover Savings Plan, effective October 5, 2015. Incorporated by reference to Exhibit 10.4 to
Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016.
10.5A
10.5B
10.5C
10.6
10.7A
10.7B
Textron Spillover Pension Plan, As Amended and Restated Effective January 3, 2010, including Appendix A
(as amended and restated effective January 3, 2010), Defined Benefit Provisions of the Supplemental Benefits
Plan for Textron Key Executives (As in effect before January 1, 2007). Incorporated by reference to Exhibit
10.4 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2010. (SEC File No. 1-
5480)
Amendments to the Textron Spillover Pension Plan, dated October 12, 2011. Incorporated by reference to
Exhibit 10.5B to Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. (SEC
File No. 1-5480)
Second Amendment to the Textron Spillover Pension Plan, dated October 7, 2013. Incorporated by reference
to Exhibit 10.5C to Textron’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013. (SEC
File No. 1-5480)
Deferred Income Plan for Textron Executives, Effective October 5, 2015. Incorporated by reference to Exhibit
10.6 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016.
Deferred Income Plan for Non-Employee Directors, As Amended and Restated Effective January 1, 2009,
including Appendix A, Prior Plan Provisions (As in effect before January 1, 2008). Incorporated by reference
to Exhibit 10.9 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. (SEC File
No. 1-5480)
Amendment No. 1 to Deferred Income Plan for Non-Employee Directors, as Amended and Restated Effective
January 1, 2009, dated as of November 6, 2012. Incorporated by reference to Exhibit 10.8B to Textron’s
Annual Report on Form 10-K for the fiscal year ended December 29, 2012. (SEC File No. 1-5480)
Textron 2018 Annual Report 79
10.7C
10.7D
10.8A
10.8B
10.8C
10.9
10.10
10.11A
10.11B
(cid:3)
10.11C
Amendment No. 2 to Deferred Income Plan for Non-Employee Directors, as Amended and Restated Effective
January 1, 2009. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for
the fiscal quarter ended April 1, 2017.
Amendment No. 3 to Deferred Income Plan for Non-Employee Directors, as Amended and Restated Effective
January 1, 2009. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for
the fiscal quarter ended September 29, 2018.
Severance Plan for Textron Key Executives, As Amended and Restated Effective January 1, 2010.
Incorporated by reference to Exhibit 10.10 to Textron’s Annual Report on Form 10-K for the fiscal year ended
January 2, 2010. (SEC File No. 1-5480)
First Amendment to the Severance Plan for Textron Key Executives, dated October 26, 2010. Incorporated by
reference to Exhibit 10.10B to Textron’s Annual Report on Form 10-K for the fiscal year ended January 1,
2011. (SEC File No. 1-5480)
Second Amendment to the Severance Plan for Textron Key Executives, dated March 24, 2014. Incorporated
by reference to Exhibit 10.5 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March
29, 2014. (SEC File No. 1-5480)
Form of Indemnity Agreement between Textron and its executive officers. Incorporated by reference to Exhibit
10.9 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017.
Form of Indemnity Agreement between Textron and its non-employee directors (approved by the Nominating
and Corporate Governance Committee of the Board of Directors on July 21, 2009 and entered into with all
non-employee directors, effective as of August 1, 2009). Incorporated by reference to Exhibit 10.1 to Textron’s
Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2009. (SEC File No. 1-5480)
Letter Agreement between Textron and Scott C. Donnelly, dated June 26, 2008. Incorporated by reference to
Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2008. (SEC File
No. 1-5480)
Amendment to Letter Agreement between Textron and Scott C. Donnelly, dated December 16, 2008, together
with Addendum No.1 thereto, dated December 23, 2008. Incorporated by reference to Exhibit 10.15B to
Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. (SEC File No. 1-5480)
Amended and Restated Hangar License and Services Agreement, made and entered into as of October 1, 2015,
between Textron Inc. and Mr. Donnelly’s limited liability company. Incorporated by reference to Exhibit 10.2
to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2015.
10.11D
Aircraft Dry Lease Agreement, made and entered into as of December 18, 2018, between Mr. Donnelly’s
limited liability company and Textron Inc.
10.12A
10.12B
10.13
10.14A
Letter Agreement between Textron and Frank Connor, dated July 27, 2009. Incorporated by reference to
Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2009. (SEC
File No. 1-5480)
Amended and Restated Hangar License and Services Agreement, made and entered into on July 24, 2015,
between Textron Inc. and Mr. Connor’s limited liability company. Incorporated by reference to Exhibit 10.3
to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2015.
Letter Agreement between Textron and Julie G. Duffy, dated July 27, 2017. Incorporated by reference to
Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2017.
Letter Agreement between Textron and E. Robert Lupone, dated December 22, 2011. Incorporated by
reference to Exhibit 10.17 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 31,
2011. (SEC File No. 1-5480)
80 Textron 2018 Annual Report
10.14B
10.15
10.16
10.17
21
23
24
31.1
31.2
32.1
32.2
101
Amendment to letter agreement between Textron and E. Robert Lupone, dated July 27, 2012. Incorporated by
reference to Exhibit 10.5 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended September
29, 2012. (SEC File No. 1-5480)
Director Compensation. Incorporated by reference to Exhibit 10.15 to Textron’s Annual Report on Form 10-
K for the fiscal year ended December 30, 2017.
Form of Aircraft Time Sharing Agreement between Textron and its executive officers. Incorporated by
reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended September
27, 2008. (SEC File No. 1-5480)
Credit Agreement, dated as of September 30, 2016, among Textron, the Lenders listed therein, JPMorgan
Chase Bank, N.A., as Administrative Agent, Citibank, N.A. and Bank of America, N.A., as Syndication
Agents, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Documentation Agent. Incorporated by reference to
Exhibit 10.1 to Textron’s Current Report on Form 8-K filed on October 3, 2016.
Certain subsidiaries of Textron. Other subsidiaries, which considered in the aggregate do not constitute a
significant subsidiary, are omitted from such list.
Consent of Independent Registered Public Accounting Firm.
Power of attorney.
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.
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.
The following materials from Textron Inc.’s Annual Report on Form 10-K for the year ended December 29,
2018, 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 Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, (vi)
the Notes to the Consolidated Financial Statements, and (vii) Schedule II – Valuation and Qualifying Accounts.
Item 16. Form 10-K Summary
Not applicable.
Textron 2018 Annual Report 81
Signatures
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 14th day of February 2019.
TEXTRON INC.
Registrant
By:
/s/ Frank T. Connor
Frank T. Connor
Executive Vice President and Chief Financial Officer
82 Textron 2018 Annual Report
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below on
this 14th day of February 2019 by the following persons on behalf of the registrant and in the capacities indicated:
Name
Title
/s/ Scott C. Donnelly
Scott C. Donnelly
*
Kathleen M. Bader
*
R. Kerry Clark
*
James T. Conway
*
Lawrence K. Fish
*
Paul E. Gagné
*
Ralph D. Heath
*
Deborah Lee James
*
Lloyd G. Trotter
*
James L. Ziemer
*
Maria T. Zuber
/s/ Frank T. Connor
Frank T. Connor
/s/ Mark S. Bamford
Mark S. Bamford
*By: /s/ Jayne M. Donegan
Jayne M. Donegan, Attorney-in-fact
Chairman, President and Chief Executive Officer
(principal executive officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Executive Vice President and Chief Financial Officer
(principal financial officer)
Vice President and Corporate Controller
(principal accounting officer)
Textron 2018 Annual Report 83
NOTES
84 Textron 2018 Annual Report
CORPORATE INFORMATION
Corporate Headquarters
Textron Inc.
40 Westminster Street
Providence, RI 02903
(401) 421-2800
www.textron.com
Annual Meeting
Textron’s annual meeting of shareholders will be
held on Wednesday, April 24, 2019, at 11 a.m.
at Textron Inc., 40 Westminster Street, 18th Floor,
Providence, RI 02903.
Transfer Agent, Registrar and
Dividend Paying Agent
For shareholder services such as change of address,
lost certificates or dividend checks, change in
registered ownership or the Dividend Reinvestment
Plan, write or call:
American Stock Transfer & Trust
Company, LLC
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
phone: (866) 621-2790
email: info@amstock.com
Stock Exchange Information
(Symbol: TXT)
Textron common stock is listed on the New York
Stock Exchange.
Investor Relations
Textron Inc.
Investor Relations
40 Westminster Street
Providence, RI 02903
Investor Relations phone line:
(401) 457-2288
News media phone line:
(401) 457-2362
For more information, visit our website at
www.textron.com.
Company Publications and
General Information
To receive a copy of Textron’s Forms 10-K and
10-Q, Proxy Statement or Annual Report without
charge, visit our website at www.textron.com or
send a written request to Textron Investor Relations
at the address listed above. For the most recent
company news and earnings press releases, visit our
website at www.textron.com.
Textron is an Equal Opportunity Employer.
Textron Board of Directors
To contact the Textron Board of Directors or to
report concerns or complaints about accounting,
internal accounting controls or auditing matters,
you may write to Board of Directors, Textron Inc.,
40 Westminster Street, Providence, RI 02903;
call (866) 698-6655 or (401) 457-2269; or send
an email to textrondirectors@textron.com.
Textron provides a multimedia interactive version of the Annual Report in the Investor Resources section of
its website at www.textron.com.
www.textron.com
© 2019 Textron Inc.
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