2
0
1
9
A
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N
U
A
L
R
E
P
O
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T
2019
A N N U A L
R E P O R T
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
Tracker Off Road 800SX
Ship-to-Shore Connector (SSC)
Citation Latitude®
Bell-Boeing MV-22 Osprey
Arctic Cat RIOT 8000
Aerosonde® Small Unmanned
Aircraft System
Beechcraft AT-6 Wolverine
Bell 360 Invictus
E-Z-GO® RXV® ELiTETM
RIPSAW® M5
Beechcraft® King Air® 350i
Bell 525 Relentless
Jacobsen TR330
LycomingTM iE2 Integrated
Electronic Engine
Cessna SkyCourierTM
Bell 429 Global Ranger
Kautex Fuel Tank
TRU Simulaton + Training
Full Flight Simulator
DenaliTM
Bell 505 Jet Ranger X
Textron GSE TUGTM ALPHA 4
Common Unmanned Surface
Vehicle (CUSV®)
Textron’s Global Network of Businesses
TEXTRON AVIATION
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
Bell 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.
INDUSTRIAL
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
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.
FINANCE
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
Net Income—GAAP
Adjusted Net Income—Non-GAAP1
Per Share of Common Stock
Common Stock Price at Year-End
Diluted Net Income—GAAP
Adjusted Diluted Net Income—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
1. Adjusted Net Income, Adjusted Diluted
Earnings Per Share and Manufacturing
Cash Flow Before Pension Contributions
are Non-GAAP Measures. See page 7
for a Reconciliation to GAAP.
KEY PERFORMANCE METRICS
Net Cash Provided by Operating Activities of Continuing Operations
for Manufacturing Group—GAAP
Manufacturing Cash Flow Before Pension Contributions—Non-GAAP1
2019
2018
$13,630
1,270
815
870
$ 44.74
3.50
3.74
$13,972
1,267
1,222
845
$ 45.65
4.83
3.34
232,709
227,956
253,237
235,621
$15,018
3,124
686
5,518
$14,264
3,066
718
5,192
26%
36%
29%
37%
$ 960
642
$ 1,127
784
Textron 2019 Annual Report 1
FELLOW SHAREHOLDERS,
In 2019, our revenues were $13.6 billion, and we recorded segment profit of
$1.3 billion with a profit margin of 9.3 percent. Our manufacturing businesses generated
$960 million of net cash from operating activities of continuing operations as we made
investments in new product development programs, technologies and processes to
position us for success in 2020 and beyond.
Scott C. Donnelly
Chairman
and Chief Executive
Officer
INVESTING IN NEW PRODUCTS
We continued to develop a robust pipeline of new products and technologies to excite our customers and meet and
exceed their expectations. The Cessna Citation Longitude received Federal Aviation Administration (FAA) certification in
September. With this certification, we began customer deliveries of our new super-midsize jet in the fourth quarter and
delivered 13 Longitudes in 2019, including the first Longitude to NetJets. The FAA certification process of the Longitude
represented the most robust flight, structural and component qualification testing completed to date on a Citation with
11,000 test points and nearly 6,000 hours of flight time with the experimental and demo fleet. Customers have been very
enthusiastic about this innovative aircraft and have lauded its performance as well as its quiet, comfortable cabin.
The Citation Latitude, our midsize jet which entered service in August 2015, continues to see great success in the market.
For the fourth consecutive year, the Latitude was the most delivered midsize business jet in the industry. The Latitude
has become the best-selling platform in the NetJets fleet and, by the end of 2019, Textron Aviation had delivered 115
Latitudes to NetJets.
Textron Aviation marked a significant milestone in the development of the Cessna SkyCourier twin utility turboprop aircraft
with the successful mating of the wing and fuselage. The SkyCourier is our clean-sheet twin-engine, large-utility turboprop
aircraft that we expect will have its first flight in early 2020.
In January, Textron Specialized Vehicles (TSV) announced an exciting agreement with Bass Pro Shops under which TSV
would design and manufacture a new line of high-performance side-by-sides and ATVs to be branded as Tracker Off
Road and distributed by Bass Pro Shops, Cabela’s and independent Tracker Marine dealers. By the end of 2019, Tracker
Off Road vehicles were being offered at more than 230 retailers, with plans to add 80 more retailers in 2020.
In TSV’s Golf & Turf business, we are capitalizing on the strength of our innovative, exclusive products, including the E-Z-GO
ELiTE series of lithium-battery-powered vehicles. More than 80,000 ELiTE vehicles are now in service at more than 1,350
JANUARY
MARCH
s
U.S. Air Force
announces initial
order of up to three
Beechcraft AT-6
Wolverine aircraft in
support of its Light
Attack program.
FEBRUARY
s Agreement with Bass Pro Shops to
design and manufacture Tracker
Off Road vehicles.
s
Arctic Cat unveils RIOT
crossover sleds as part of
2020 model year lineup.
2 Textron 2019 Annual Report
s
Textron Systems receives
U.S. Army award; Army
will purchase Aerosonde®
HQ systems as part of its
Future Tactical Unmanned
Aircraft System Brigade
Combat Team Evaluation.
APRIL
s
Textron Systems
awarded U.S. Air Force
contract for flight line
Joint Service Electronic
Combat Systems Testers.
MAY
TOTAL REVENUE
BY SEGMENT
TOTAL REVENUE
BY TYPE
TOTAL REVENUE
BY REGION
s
Textron Aviation celebrates
200th Cessna Citation
Latitude rollout. It
continues to be the top-
selling midsize business
jet in the industry.
s Textron GSE signs multi-year agreement
with United Airlines to service its
worldwide operations with TUG and
Douglas brands.
Textron
Aviation 38%
Industrial 28%
Bell 24%
Textron
Systems 10%
Finance <1%
Commercial 76%
U.S. Government 24%
Finance <1%
U.S. 66%
Europe 14%
Asia and Australia 8%
Other 12%
private golf facilities worldwide, including Alabama’s Robert Trent Jones Golf Trail, which acquired
more than 1,400 E-Z-GO ELiTE vehicles in 2019 to serve over 500,000 customers each year.
TOTAL REVENUE
BY SEGMENT
Also at TSV, Arctic Cat released an exciting lineup of products for the 2020 and 2021 model
years. The 2020 model year lineup included the RIOT, which is designed to perform on both the
groomed snow of established trails and deep powder in the backcountry. The products for the
2021 model year feature the new BLAST series of snowmobiles.
LEADING WITH NEW TECHNOLOGIES
We continue to invest in critical technologies that enable our teams to develop the products and
Textron
Aviation 38%
systems to win new business and drive future growth.
In its pursuit of Future Vertical Lift military opportunities, Bell continued the successful flight test
Bell 24%
Industrial 28%
program of the Bell V-280 Valor next-generation tiltrotor and launched the Bell 360 Invictus.
The V-280 delivered performance milestones beyond expectations, including speeds of over
300 knots and low-speed agility to meet the Army’s Level 1 Handling Qualities requirements.
TOTAL REVENUE
BY SEGMENT
Textron
Systems 10%
Finance <1%
TOTAL REVENUE
BY TYPE
The aircraft also executed numerous, consecutive multi-sortie days of flight operations as it
competes for the Future Long-Range Attack Aircraft (FLRAA) program. The V-280 has now
completed its second full year of flight testing and in December closed out the year by making
its first autonomous flight.
At the Association of the U.S. Army (AUSA) annual convention in October, Bell introduced the
Bell 360 Invictus, our offering for the U.S. Army’s Future Attack Reconnaissance Aircraft (FARA)
program. The Invictus combines low-risk technologies with advanced processes, leveraging
innovations from the Bell 525 rotor system to deliver soldiers an affordable, agile and lethal
Commercial 76%
U.S. Government 24%
solution to win on the modern battlefield.
Industrial 28%
Finance <1%
Bell 24%
The Bell 525 achieved several key milestones in the flight test and design validation process,
Textron
Aviation 38%
Textron
Systems 10%
including flying beyond 200 knots. There are four flight test vehicles currently gathering data for
certification that have amassed more than 1,500 flight hours.
Finance <1%
Bell completed a successful first autonomous flight of the Autonomous Pod Transport (APT)
70 at its testing site near Fort Worth and flew this concept vehicle throughout the year under
TOTAL REVENUE
BY TYPE
TOTAL REVENUE
BY REGION
U.S. 66%
Europe 14%
Asia and Australia 8%
Other 12%
Commercial 76%
U.S. Government 24%
Finance <1%
TOTAL REVENUE
BY REGION
U.S. 66%
Europe 14%
Asia and Australia 8%
Other 12%
Textron 2019 Annual Report 3
JULY
SEPTEMBER
JUNE
s TRU Simulation + Training to
provide Cathay Pacific Airways
with full flight simulators and flight
training devices as the airline
expands operations.
AUGUST
s Textron Aviation collaborates with
Wichita State University and its
Innovation Campus to develop next
generation of aviation employees.
s
Bell APT 70 achieves
first autonomous flight.
s Textron Aviation’s
largest business jet,
the Cessna Citation
Longitude, receives
FAA certification.
an experimental type certificate. Designed to carry small cargo loads, the APT 70 won the Popular Science Best of
What’s New Award in the Aerospace category for 2019. This marked the second consecutive year in which a Bell product
captured an award in this category; in 2018, the Bell V-280 Valor received this distinction.
The RIPSAW M5 vehicle from Textron Systems’ Howe & Howe Technologies also made its debut at AUSA and, on
January 9, 2020, the Army announced its intention to award us a contract to build four RIPSAW M5s in the Robotic
Combat Vehicle – Medium program. The RIPSAW is a highly capable, agile unmanned vehicle for ground combat
operations that was designed and built based on Howe & Howe’s deep knowledge of purpose-built ground vehicles.
Hybrid vehicles represent a fast-growing segment for many of Kautex’s OEM customers as they work to improve fuel
efficiency and meet increasingly stringent worldwide emissions standards. As a recognized leader in the development of
plastic fuel systems, which are ideal for hybrid vehicle applications, Kautex is well-positioned for this growth opportunity.
CAPTURING NEW COMMERCIAL AND MILITARY BUSINESS
We leverage our investments in new products and technologies by working closely with our commercial and military
customers to understand their needs. This paid off during the year in a number of ways.
In October, ATAC won a contract with the U.S. Air Force that will utilize its previously acquired former French Air Force
Mirage F1 fighter jets to provide live military air-to-air training and support services to the USAF. The Air Force and Navy
have plans to significantly grow their Adversary Air requirements. With its fleet of F1s, ATAC is particularly well-suited to
compete to provide related training and support services. In addition, ATAC has expanded its operations and is bringing
on board highly skilled former military pilots and maintenance and support personnel at its Adversary Center of Excellence
in Fort Worth, which houses its maintenance and training activities.
In a significant milestone for Textron Systems, its first Ship-to-Shore Connector, Craft 100, successfully completed
Acceptance Trials after a series of in-port and underway demonstrations for our U.S. Navy customer. Our record of
developing and delivering highly specialized products to the U.S. Army was also reflected in our selection as one
of three companies to deliver Next Generation Squad Weapons (NGSW). Textron Systems’ NGSW Rifles and Automatic
Rifles are designed with its mature, high-performance cased telescoped (CT) technology.
Bell realized a key Foreign Military Sales opportunity as the U.S. Government signed an agreement in December to sell
four Bell AH-1Z and eight UH-1Y helicopters to the Government of the Czech Republic. This purchase represents the first
foreign military sale that includes a fleet comprised of both AH-1Z and UH-1Y helicopters.
4 Textron 2019 Annual Report
As airlines expand and modernize their operations, Textron Ground Support Equipment (GSE) is capitalizing on its strong
relationships to win new business. In May, United Airlines entered into a multi-year agreement to procure more than 90 TUG
and Douglas units for use at airports in the U.S. and Japan. In April, American Airlines placed an order for 150 TUG tow
tractors and belt loaders to support growth at airports in Dallas-Fort Worth and Charlotte.
ENHANCING OUR CUSTOMER SERVICE
We continued to expand our service and sales operations in 2019. Recognizing the growing needs of our customers around
the world, Bell established its first customer service facility in Argentina to handle a full range of service solutions. Bell also
appointed Reignwood Star General Aviation as the first Bell Authorized Maintenance Center for the Bell 505 in China, which
underscores the growth of the 505 in that country. In February, Bell broke ground on its newest customer service facility at
the Fort Lauderdale Airport to serve its growing customer base in the region, including our Latin American customers.
To more quickly service and support our Beechcraft, Cessna and Hawker customers, Textron Aviation expanded its parts
distribution network around the world. Strengthening its footprint in Asia Pacific, Textron Aviation acquired Premiair Aviation
Maintenance Pty Ltd in Australia in January 2020, opened a new Australian parts warehouse and opened a new service
location in the Philippines. In Germany, the business doubled the size of its European Distribution Center in Dusseldorf
that holds thousands of parts from across Textron Aviation product lines. In the U.S., Textron Aviation expanded its parts
distribution footprint at its Orlando, Phoenix-Mesa and Teterboro service centers.
Able Aerospace expanded its service and support offerings for commercial and military rotorcraft, fixed-wing aircraft and
McCauley propellers. To accommodate its growth in the aftermarket support market, Able opened a 50,000-square-foot
addition in September at its headquarters in Mesa, Arizona.
OPPORTUNITIES TO DRIVE GROWTH
We have a number of great opportunities in front of us. These opportunities are the result of the hard work by our teams
who develop our products and technologies, our manufacturing teams who deliver great quality products and our
sales and service teams that support our customers from initial sales through full life cycle support. As a result of these
investments, and our ongoing commitment to providing great opportunities for the talented people who make it happen,
we are well-positioned to deliver long-term value for our shareholders.
SCOTT C. DONNELLY, Chairman and Chief Executive Officer
OCTOBER
NOVEMBER
s Two exciting debuts
at AUSA—Bell 360
Invictus aircraft and
s
Textron Systems’
RIPSAW M5 robotic
combat vehicle.
DECEMBER
s ATAC flies first F1 Mirage to support
U.S. Navy live training exercise.
s Bell V-280 Valor makes its first
autonomous flight, meeting all flight
goals during demonstration.
Textron 2019 Annual Report 5
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.
Kathleen M. Bader (2) (3)
President and CEO (Retired)
NatureWorks LLC
Paul E. Gagné (1) (2) (4) (5)
Chairman (Retired)
Wajax Corporation
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)
Lionel L. Nowell III (2) (3)
Senior Vice President and
Treasurer (Retired)
PepsiCo, Inc.
Lloyd G. Trotter (2) (4)
Managing Partner
GenNx 360 Capital Partners
James L. Ziemer (1) (4)
President and CEO (Retired)
Harley-Davidson, Inc.
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
Russ Bartlett
President and CEO
Textron Airborne Solutions
Ronald Draper
President and CEO
Textron Aviation
Gunnar Kleveland
President and CEO
Textron Specialized
Vehicles
R. Danny Maldonado
President and CEO
Textron Financial
Jörg Rautenstrauch
President and CEO
Industrial Segment and
Kautex
Mitch Snyder
President and CEO
Bell
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 and
Strategy
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.
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 2019 Annual Report
FOOTNOTE TO SELECTED YEAR-OVER-YEAR FINANCIAL DATA
ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE
Adjusted net income and adjusted diluted earnings per share both exclude Special charges, net of taxes, Gain on business disposition, net of
taxes, and the income tax benefit resulting from the Tax Cuts and Jobs Act (the “Tax Act”). 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. The Gain on business disposition is not considered indicative of ongoing operations as it is a significant one-time
transaction related to the sale of our Tools and Test product line. 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.
NET INCOME AND DILUTED EARNINGS PER SHARE GAAP TO NON-GAAP RECONCILIATION
(Dollars in Millions, Except Per Share Amounts)
Net income—GAAP
Special charges, net of taxes
Gain on business disposition, net of taxes
Income tax benefit resulting from Tax Act
Adjusted net income—Non-GAAP
Diluted earnings per share:
Net income—GAAP
Special charges, net of taxes
Gain on business disposition, net of taxes
Income tax benefit resulting from Tax Act
Adjusted net income—Non-GAAP
2019
$ 815
55
—
—
$ 870
$3.50
0.24
—
—
$3.74
2018
$1,222
56
(419)
(14)
$ 845
$ 4.83
0.22
(1.65)
(0.06)
$ 3.34
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
2019
2018
$ 960
(339)
(50)
51
11
9
$ 642
$1,127
(369)
(50)
52
10
14
$ 784
Textron 2019 Annual Report 7
IT STARTS
WITH
OUR PEOPLE
We’re a network of global
businesses with people who
are passionate about designing,
building and supporting some
of the most advanced technologies
and services the world has
ever seen. By working together
and supporting one another,
amazing things happen—we push
the boundaries of what’s possible,
soar to new heights and reach for
the extraordinary.
And it starts here. With our people.
8 Textron 2019 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 January 4, 2020
or
For the transition period from to .
Commission File Number 1-5480
Textron Inc.
(Exact name of registrant as specified in its charter)
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
Trading Symbol(s)
TXT
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 every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes (cid:57)
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer [ (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 29, 2019 was approximately $12.2 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 8, 2020, 228,049,518 shares of Common Stock were outstanding.
Documents Incorporated by Reference
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 29, 2020.
Textron 2019 Annual Report 1
Textron Inc.
Index to Annual Report on Form 10-K
For the Fiscal Year Ended January 4, 2020
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
16
16
17
18
19
35
36
77
77
79
79
79
79
79
80
83
84
2 Textron 2019 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 19 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 38%, 36% and 33% of our total revenues in 2019, 2018 and 2017, 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 Longitude, a super mid-size jet, which achieved type certification and began
deliveries in late 2019. We are no longer developing the previously announced 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. Textron Aviation is developing the Cessna Skycourier, a twin-engine, high-wing,
large-utility turboprop aircraft, which is targeted for first flight in early 2020. The Denali, a high-performance single engine
turboprop aircraft under development, is also expected to achieve its first flight in 2021. In addition, Textron Aviation’s piston
engine aircraft include the Beechcraft Baron and Bonanza, and the Cessna Skyhawk, Skylane, and the Turbo Stationair HD.
Textron Aviation’s military trainer and defense aircraft include the T-6 trainer, which has been used to train pilots from more than
20 countries. Textron Aviation also offers the AT-6 light attack military aircraft and the Scorpion, a highly affordable, multi-mission
aircraft, both of which are not yet in production, pending customer orders.
In support of its family of aircraft, Textron Aviation operates a global network of 20 service centers, two of which are co-located
with Bell Helicopter, along with more than 300 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. 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.
Bell Segment
Bell 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 24%, 23% and 23% of our total revenues in 2019, 2018 and 2017, 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
Textron 2019 Annual Report 3
alliance with Boeing, Bell produces and supports the V-22 tiltrotor aircraft for the U.S. Department of Defense (DoD), and also for
Japan under the U.S. Government-sponsored foreign military sales program. The H-1 helicopter program includes a utility model,
the UH-1Y, and an advanced attack model, the AH-1Z, which have 84% parts commonality between them. While the U.S. Marine
Corps is the primary customer for H-1 helicopters, we also sell H-1 helicopters 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. In October 2019, Bell announced a new rotorcraft, the Bell 360 Invictus,
which it is developing as its entrant for the U.S. Army’s Future Attack Reconnaissance Aircraft (FARA) Competitive Prototype
Program. This program was initiated by the Army to develop a successor to the retired Bell OH-58D Kiowa Warrior helicopter.
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 and is working on certification with the Federal Aviation
Administration.
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 nearly 100 independent service centers located in over 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.
Textron Systems Segment
Textron Systems’ product lines consist of Unmanned Systems, Marine and Land systems, and Simulation, Training and Other.
Textron Systems is a supplier to the defense, aerospace and general aviation markets, and represents 10%, 10% and 13% of our total
revenues in 2019, 2018 and 2017, respectively. This segment sells products to U.S. Government customers and to customers outside
the U.S. through foreign military sales 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 400,000 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.
Marine and Land Systems
Our Marine and Land Systems product line includes advanced marine craft, armored vehicles and specialty vehicles supporting fire
and rescue applications. These products are in service with U.S. and international militaries, special operations forces, police forces
and civilian entities. Marine and Land Systems’ primary U.S. Government program is for the development and production of the
U.S. Navy’s next generation Landing Craft Air Cushion as part of the Ship-to-Shore Connector program.
4 Textron 2019 Annual Report
Simulation, Training and Other
The Simulation, Training and Other product line includes products and services provided by the following businesses: TRU
Simulation + Training, Textron Airborne Solutions, Electronic Systems, Lycoming, and Weapons and Sensors Systems. TRU
Simulation + Training designs, develops, manufactures, installs, and provides maintenance of advanced flight training devices,
including full flight simulators, for both rotary- and fixed-wing aircraft for commercial airlines, aircraft original equipment
manufacturers (OEMs), flight training centers and training organizations worldwide. Textron Airborne Solutions, which includes
Airborne Tactical Advantage Company, focuses on live military air-to-air and air-to-ship training and support services for U.S.
Navy, Marine and Air Force pilots. Electronic Systems provides high technology test equipment, electronic warfare test and training
solutions and intelligence software solutions for U.S. and international defense, intelligence and law enforcement communities.
Lycoming specializes in the engineering, manufacture, service and 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.
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 28%, 31% and 30% of our total revenues in 2019, 2018 and 2017, 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. Kautex is a leader in designing and manufacturing plastic fuel systems for automobiles and light trucks, including blow-
molded solutions for conventional plastic fuel tanks and pressurized plastic fuel tanks for hybrid vehicle applications. Kautex also
develops and manufactures clear-vision systems for automotive safety and advanced driver assistance systems (ADAS). Our
cleaning systems are comprised of nozzles, reservoirs, inlets and pumps to support onboard cleaning for windscreens, headlamps
and ADAS cameras and sensors. In addition, Kautex produces plastic tanks for selective catalytic reduction systems used to reduce
emissions from diesel engines and other fuel system components.
Kautex’s business model is focused on developing and maintaining long-term customer relationships with leading global OEMs.
Kautex operates over 30 plants in 14 countries in close proximity to our customers, along with 9 engineering/research and
development locations 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 our E-Z-GO,
Arctic Cat, TUG Technologies, Douglas Equipment, Premier, Safeaero, Ransomes, Jacobsen and Cushman 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.
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, airlines, planned communities,
hunting preserves, educational and corporate campuses, sporting venues, municipalities and landscaping professionals. Sales are
made through a combination of a network of independent distributors and dealers worldwide, the Bass Pro Shops and Cabela’s retail
outlets, which sell our products under the Tracker Off-Road brand, and factory direct resources. 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.
Textron 2019 Annual Report 5
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 2019, 2018 and 2017,
our Finance group paid our Manufacturing group $184 million, $177 million and $174 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 segment section 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 2019 and 2018 is summarized below:
(In millions)
Bell
Textron Aviation
Textron Systems
Total backlog
January 4,
2020
6,902
1,714
1,211
9,827
$
$
$
December 29,
2018
5,837
1,791
1,469
9,097
$
Backlog represents amounts allocated to contracts that we expect to recognize as revenue in future periods when we perform under
the contracts. Backlog excludes unexercised contract options and potential orders under ordering-type contracts, such as Indefinite
Delivery, Indefinite Quantity contracts.
U.S. Government Contracts
In 2019, 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.
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.
6 Textron 2019 Annual Report
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; ALPHA; Alterra; AH-1Z; Arctic Cat; AT-6; ATAC; AVCOAT; Baron;
Bearcat; Beechcraft; Beechcraft T-6; Bell; Bell Helicopter; BIG DOG; BlackWorks McCauley; BLAST; Bonanza; Cadillac Gage;
CAP; Caravan; Cessna; Cessna SkyCourier; Citation; Citation Latitude; Citation Longitude; Citation M2; Citation Sovereign;
Citation XLS+; CJ1+; CJ2+; CJ3; CJ3+; CJ4; Clairity; CLAW; Commando; Cushman; Customer Advantage Plans; CUSV; Denali;
Eclipse; El Tigre; EX1; Express Start; E-Z-GO; E-Z-GO EXPRESS; FAST-N-LATCH; Firecat; FOREVER WARRANTY;
Freedom; Fury; GLOBAL MISSION SUPPORT; Grand Caravan; GRIZZLY; H-1; HAULER; Hawker; Huey; Huey II;
HUNTSMAN; 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; SEEGEO; Shadow; Shadow Knight; Shadow Master;
SKYCOURIER; Skyhawk; Skyhawk SP; Skylane; SkyPLUS; Sno Pro; SnoCross; Sovereign; SNOWMEGEDDON; 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; TrainOnsite; 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 19 to the Consolidated Financial Statements on page
72 of this Annual Report on Form 10-K.
We do not believe that existing or pending climate change legislation, regulation, or international treaties or accords are reasonably
likely to have a material effect in the foreseeable future on our business or markets nor on our results of operations, capital
expenditures or financial position. We will continue to monitor emerging developments in this area.
Employees
At January 4, 2020, we had approximately 35,000 employees.
Information about our Executive Officers
The following table sets forth certain information concerning our executive officers as of February 25, 2020.
Name
Scott C. Donnelly
Frank T. Connor
Julie G. Duffy
E. Robert Lupone
Age
58
60
54
60
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
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.
Textron 2019 Annual Report 7
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, previously
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.
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:
(cid:120)
(cid:120)
Interruptions in the U.S. Government’s ability to fund its activities and/or pay its obligations;
Changing priorities or reductions in the U.S. Government defense budget, including those related to military operations in
foreign countries;
(cid:120) Our ability to perform as anticipated and to control costs under contracts with the U.S. Government;
(cid:120)
The U.S. Government’s ability to unilaterally modify or terminate its contracts with us for the U.S. Government’s
convenience or for our failure to perform, to change applicable procurement and accounting policies, or, under certain
circumstances, to withhold payment or suspend or debar us as a contractor eligible to receive future contract awards;
Changes in foreign military funding priorities or budget constraints and determinations, or changes in government
regulations or policies on the export and import of military and commercial products;
(cid:120)
(cid:120) Volatility in the global economy or changes in worldwide political conditions that adversely impact demand for our
products;
(cid:120) Volatility in interest rates or foreign exchange rates;
(cid:120)
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;
Performance issues with key suppliers or subcontractors;
Legislative or regulatory actions, both domestic and foreign, impacting our operations or demand for our products;
(cid:120) Our Finance segment’s ability to maintain portfolio credit quality or to realize full value of receivables;
(cid:120)
(cid:120)
(cid:120) Our ability to control costs and successfully implement various cost-reduction activities;
(cid:120)
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;
8 Textron 2019 Annual Report
(cid:120) The timing of our new product launches or certifications of our new aircraft products;
(cid:120) 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) Pension plan assumptions and future contributions;
(cid:120) Demand softness or volatility in the markets in which we do business;
(cid:120) Cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or
operational disruption;
(cid:120) Difficulty or unanticipated expenses in connection with integrating acquired businesses;
(cid:120) 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) 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 can adversely affect
our results of operations and financial condition.
During 2019, 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 from time to time
has resulted and, in the future, may result in a loss of anticipated revenues. A loss of such revenues 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 potential 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. An extended delay in the timely
payment by the U.S. Government could have a material adverse effect on our liquidity.
U.S. Government contracts can 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
contracts and orders. If any of our contracts are terminated by the U.S. Government whether for convenience or default, our backlog
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.
Textron 2019 Annual Report 9
As a U.S. Government contractor, we are subject to procurement rules and regulations; our failure to comply with these rules
and regulations could adversely affect our business.
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, reducing 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 or reduction of profits, suspension or reduction 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 increases competition, pricing pressure and cost.
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 increase our cost as they 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 varies 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 can adversely affect our results of operations. Additionally, fixed-price contracts generally 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. Under fixed-price incentive contracts, we share with the U.S.
Government cost underrun savings, which are derived from total cost being less than target costs; we also share in cost overruns,
which occur when total costs exceed target costs up to a negotiated cost ceiling, but are solely responsible for costs above the ceiling.
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. Due to the nature of our work
under government contracts, we sometimes experience unforeseen technological difficulties and cost overruns. Under each type of
contract, if we are unable to control costs or if our initial cost estimates are incorrect, 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.
10 Textron 2019 Annual Report
Demand for our aircraft products is cyclical and lower demand adversely affects 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 has in
the past caused, and in the future may cause, customers to request that firm orders be rescheduled, deferred or cancelled. Reduced
demand for our aircraft products or delays or cancellations of orders previously has had and, in the future, could have a material
adverse effect on our cash flows, results of operations and financial condition.
We have made and may continue to make acquisitions that increase the risks of our business.
We enter into acquisitions in an effort to expand our business and enhance shareholder value. Acquisitions involve risks and
uncertainties that, in some cases, have resulted, and, in the future, 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 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.
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
could 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
could 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 would likely 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.
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 intended 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.
Textron 2019 Annual Report 11
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 always be successful in detecting, reporting or
responding to cyber incidents. Future attacks or breaches of data security, whether of our systems or the systems of our service
providers or other third parties who may have access to our data for business purposes, could disrupt our operations, cause the loss
of business information or compromise confidential information, exposing us to liability or regulatory action. Such an incident also
could require significant management attention and resources, increase costs that may not be covered by insurance, and result in
reputational damage, potentially adversely affecting our competitiveness and our results of operations. Products and services that we
provide to our customers may themselves be subject to cyberthreats which may not be detected or effectively mitigated, resulting in
potential losses that could adversely affect us and our customers. In addition, our customers, including the U.S. Government, are
increasingly requiring cybersecurity protections and mandating cybersecurity standards in our products, and we may incur additional
costs to comply with such demands.
Developing new products and technologies entails significant risks and uncertainties.
To continue 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 occur
from time to time and 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 efforts 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 does not always develop or continue to expand as we 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.
We are subject to the risks of doing business in foreign countries that could adversely impact our business.
During 2019, we derived approximately 34% 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, economic sanctions 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; potential retaliatory tariffs imposed by foreign countries against U.S.
goods; impacts related to the 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.
12 Textron 2019 Annual Report
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, software 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., and we are not always successful in obtaining these licenses or authorizations
in a timely manner. 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 have previously and
may in the future impose new regulations for 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.
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 can be adversely affected by several factors, including finance receivable underwriting procedures, collateral value,
geographic or industry concentrations, and the effect of general economic conditions. In addition, a substantial number of the new
originations in our finance receivable portfolio are cross-border transactions for aircraft sold outside of the U.S. Cross-border
transactions present additional challenges and risks in realizing upon collateral in the event of borrower default, which can result in
difficulty or delay in collecting on the related finance receivables. 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 periodically need to obtain financing and such financing may not be available to us on satisfactory terms, if at all.
We periodically need to obtain financing in order to meet our debt obligations as they come due, to support our operations and/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.
Natural disasters or other events outside of our control may disrupt our operations, adversely affect our results of operations and
financial condition, and may not be fully covered by insurance.
Natural disasters, including hurricanes, fires, tornados, floods and other forms of severe weather, the intensity and frequency of
which are being exacerbated by climate change, other impacts of climate change, such as rising sea waters, as well as other events
outside of our control including public health crises or pandemics, power outages, industrial explosions or other accidents, have in
the past and could in the future disrupt our operations and adversely affect our business. Any of these events could result in physical
damage to and/or complete or partial closure of one or more of our facilities, temporary or long-term disruption of our operations or
the operations of our suppliers by causing business interruptions or by impacting the availability and cost of materials needed for
manufacturing or otherwise impacting our ability to deliver products and services to our customers. Existing insurance arrangements
may not provide full protection for the costs that may arise from such events. The occurrence of any of these events could materially
increase our costs and expenses and have a material adverse effect on our business, financial condition and results of operations.
Textron 2019 Annual Report 13
Global climate change could negatively affect our business.
Increased public awareness and concern regarding global climate change may result in more international, regional and/or federal
requirements to reduce or mitigate global warming and these regulations could mandate stricter limits on greenhouse gas emissions.
If environmental or climate change laws or regulations are either changed or adopted and impose significant operational restrictions
and compliance requirements upon our business or our products, they could negatively impact our business, capital expenditures,
results of operations, financial condition and competitive position.
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 are regularly 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 results of operations in any
particular period.
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 are, from time to time, asserted by third parties against us or our customers. Any related
indemnification payments or legal costs we are obliged to pay on behalf of our businesses, our customers or other third parties can
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 could 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. We also may voluntarily take such action and, from time to
time, have done so, but within strictures recommended by the CPSC. The CPSC also can impose fines or penalties on a manufacturer
for non-compliance with its requirements. Furthermore, failure to timely notify the CPSC of a potential safety hazard can result in
significant fines being assessed against us. Any repurchases or recalls of our products or an imposition of fines or penalties could be
costly to us and could damage the reputation or the value of our brands. Additionally, laws regulating certain consumer products
exist in some states, as well as in other countries in which we sell our products, and more restrictive laws and regulations could be
adopted in the future.
Our success is highly dependent on our ability to maintain a qualified workforce.
Our success is highly dependent upon our ability to maintain a workforce with the skills necessary for our businesses to succeed.
We need highly skilled personnel in multiple areas including, among others, engineering, manufacturing, information technology,
cybersecurity, flight operations, business development and strategy and management. From time to time we face challenges that
may impact employee retention such as workforce reductions and facility consolidations and closures. In addition, some of our most
experienced employees are retirement-eligible. To the extent that we lose experienced personnel through retirement or otherwise, it
is critical for us to develop other employees, hire new qualified employees and successfully manage the transfer of critical
knowledge. Competition for skilled employees is intense, and we may incur higher labor, recruiting and/or training costs in order
to attract and retain employees with the requisite skills. We may not be successful in hiring or retaining such employees which could
adversely impact our business and results of operations.
14 Textron 2019 Annual Report
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 7,400, or 29%, of our U.S. employees are unionized, and many of our non-U.S. employees are represented by
organized councils. As a result, from time to time we experience work stoppages, which can negatively impact our ability to
manufacture our products on a timely basis, resulting in strain on our relationships with our customers, loss or delay of revenue
and/or increased cost. 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 can adversely affect our results.
We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, raw material prices
and interest rates. Fluctuations in foreign currency rates contribute to variations in revenues and costs in impacted jurisdictions which
can adversely affect our profitability. We monitor and manage these exposures as an integral part of our overall risk management
program. Nevertheless, changes in currency exchange rates, raw material prices and interest rates can have substantial adverse effects
on our results of operations.
We may be unable to effectively mitigate pricing pressures.
In some markets, particularly where we deliver component products and services to OEMs, we face ongoing customer demands for
price reductions, which sometimes are contractually obligated. However, if we are unable to effectively mitigate future pricing
pressures through technological advances or by lowering our cost base through improved operating and supply chain efficiencies,
our results of operations could be adversely affected.
Unanticipated changes in our tax rates or exposure to additional income tax liabilities could affect our profitability.
We are subject to income taxes in the U.S. and various non-U.S. jurisdictions, and our domestic and international tax liabilities are
subject to the location of income among these different jurisdictions. Our effective tax rate could be adversely affected by changes
in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities,
changes in the amount of earnings indefinitely reinvested offshore, changes to unrecognized tax benefits or changes in tax laws,
which could affect our profitability. In particular, the carrying value of deferred tax assets is dependent on our ability to generate
future taxable income, as well as changes to applicable statutory tax rates. In addition, the amount of income taxes we pay is subject
to audits in various jurisdictions, and a material assessment by a tax authority could affect our profitability.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
On January 4, 2020, we operated a total of 54 plants located throughout the U.S. and 49 plants outside the U.S. We own 55 plants
and lease the remainder for a total manufacturing space of approximately 23.7 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.
Textron 2019 Annual Report 15
Item 3. Legal Proceedings
On August 22, 2019, a purported shareholder class action lawsuit was filed in the United States District Court in the Southern District
of New York against Textron, its Chairman and Chief Executive Officer and its Chief Financial Officer. The suit, filed by Building
Trades Pension Fund of Western Pennsylvania, alleges that the defendants violated the federal securities laws by making materially
false and misleading statements and concealing material adverse facts related to the Arctic Cat acquisition and integration. The
complaint seeks unspecified compensatory damages. On November 12, 2019, the Court appointed IWA Forest Industry Pension
Fund (“IWA”) as the sole lead plaintiff in the case. On December 24, 2019, IWA filed an Amended Complaint in the now entitled
In re Textron Inc. Securities Litigation. Textron intends to vigorously defend this lawsuit.
As previously reported in Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, on February 7, 2012,
a lawsuit was filed in the United States Bankruptcy Court, Northern District of Ohio, Eastern Division (Akron) by Brian A. Bash,
Chapter 7 Trustee for Fair Finance Company against TFC, Fortress Credit Corp. and Fair Facility I, LLC. TFC provided a revolving
line of credit of up to $17.5 million to Fair Finance Company from 2002 through 2007. The complaint alleges numerous counts
against TFC, as Fair Finance Company’s working capital lender, including receipt of fraudulent transfers and assisting in fraud
perpetrated on Fair Finance investors. The Trustee sought avoidance and recovery of alleged fraudulent transfers in the amount of
$316 million as well as damages of $223 million on the other claims. The Trustee also sought trebled damages on all claims under
Ohio law. 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. The trial for this matter began on February 24, 2020. 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.
16 Textron 2019 Annual Report
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 January
4, 2020, there were approximately 7,900 record holders of Textron common stock.
Issuer Repurchases of Equity Securities
The following provides information about our fourth quarter 2019 repurchases of equity securities that are registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended:
Period (shares in thousands)
September 29, 2019 – November 2, 2019
November 3, 2019 – November 30, 2019
December 1, 2019 – January 4, 2020
Total
*(cid:3) These shares were purchased pursuant to a plan authorizing the repurchase of up to 40 million shares of Textron common stock that was(cid:3)
announced on April 16, 2018, which had no expiration date.
Total
Number of
Shares
Purchased *
275
—
434
709
Average Price
Paid per Share
(excluding
commissions)
46.75
$
—
44.13
45.14
$
Total Number of
Shares Purchased as
part of Publicly
Announced Plan *
275
—
434
709
Maximum
Number of Shares
that may yet be
Purchased under
the Plan
7,615
7,615
7,181
On February 25, 2020, our Board of Directors authorized the repurchase of up to 25 million shares of our common stock. This new
plan has no expiration date and replaced the existing plan adopted in 2018 that had 6.7 million remaining shares available for
repurchase.
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, 2014 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.
Textron
S&P 500
S&P 500 A&D
S&P 500 Industrials
$250
$200
$150
$100
$50
$0
Textron Inc.
S&P 500
S&P 500 A&D
S&P 500 Industrials
2014
$ 100.00
100.00
100.00
100.00
$
2015
99.81
101.40
105.33
102.95
2016
$ 115.60
113.53
125.25
113.37
2017
$ 134.93
138.32
177.07
138.95
2018
$ 108.99
131.12
160.65
133.52
2019
$ 106.99
174.15
220.35
178.27
Textron 2019 Annual Report 17
Item 6. Selected Financial Data
2015
2017
2019
2016
2018
$
$
5,187 $
3,254
1,325
3,798
66
4,971 $
3,180
1,464
4,291
66
4,686 $
3,317
1,840
4,286
69
4,921 $
3,239
1,756
3,794
78
303 $
415
139
290
22
1,169
(132)
(145)
(130)
389 $
386
186
329
19
1,309
(172)
(138)
(123)
—
449 $
435
141
217
28
1,270
(110)
(146)
(72)
—
(127)
815 $
445 $
425
156
218
23
1,267
(119)
(135)
(73)
444
(162)
1,222 $
4,822
3,454
1,520
3,544
83
$ 13,630 $ 13,972 $ 14,198 $ 13,788 $ 13,423
(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 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
420
Capital expenditures
383
Manufacturing group depreciation
(a) 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
reported under the accounting standards in effect for these years. For additional information, see Note 1 to the Consolidated Financial Statements included in
Item 8. Financial Statements and Supplementary Data.
$ 15,018 $ 14,264 $ 15,340 $ 15,358 $ 14,708
2,697
$
913
$
4,964
$
26%
35%
2.52
$
$
2.50
231,315 250,196 266,380 270,774 276,682
232,709 253,237 268,750 272,365 278,727
400
400
129
302
24
1,255
(154)
(130)
—
—
(273)
698
3,066 $
718 $
5,192 $
29%
37%
3,124 $
686 $
5,518 $
26%
36%
2,777 $
903 $
5,574 $
3,088 $
824 $
5,647 $
0.08 $
24.21 $
44.74 $
3.11 $
3.09 $
(33)
843 $
1.15 $
1.14 $
4.88 $
4.83 $
—
(456)
446 $
368 $
423 $
362 $
0.08
20.62
48.56
0.08
21.60
56.59
0.08
18.10
42.01
0.08
22.04
45.65
369 $
358 $
3.52 $
3.50 $
339 $
346 $
$
$
$
$
$
$
$
$
$
$
$
$
23%
33%
26%
35%
306 $
$
$
$
(b)
In 2019, special charges of $72 million were recorded under a restructuring plan principally impacting the Industrial and Textron Aviation segments. Special
charges of $73 million were recorded in 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 and $40 million in 2017 for a restructuring
plan related to the Arctic Cat acquisition.
(c)
In 2018, we completed the sale of the Tools & Test Equipment product line which resulted in an after-tax gain of $419 million.
(d)
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 benefit. In 2016, we recognized a 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.
18 Textron 2019 Annual Report
Item 7. Management’s Discussion and Analysis of Financial Condition and 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 a modified retrospective transition method applied to contracts that were not substantially complete at the end of 2017.
We recorded a $90 million adjustment to increase retained earnings to reflect the cumulative impact of adopting this standard at the
beginning of 2018, primarily related to certain long-term contracts our Bell segment has with the U.S. Government that converted
to the cost-to-cost method for revenue recognition. For 2019 and 2018, revenues for our U.S. Government contracts were primarily
recognized as costs are incurred, while revenues for 2017 were primarily recognized as units were delivered. The comparative
information for 2017 has not been restated and is reported under the accounting standards in effect at that time.
2019 Financial Highlights
Invested $647 million in research and development activities and $339 million in capital expenditures.
(cid:120) Our manufacturing businesses generated $960 million of net cash from operating activities of continuing operations.
(cid:120)
(cid:120) Returned $521 million to our shareholders through share repurchases and dividend payments.
(cid:120) Backlog increased 8% to $9.8 billion, which includes new contracts with the U.S. Government for spares and logistic
support for the V-22 tiltrotor aircraft and the H-1 helicopter programs at the Bell segment.
Consolidated Results of Operations
(Dollars in millions)
Revenues
Cost of sales
Gross margin as a percentage of Manufacturing revenues
Selling and administrative expense
Interest expense
2019
2018
2017
$ 13,630 $ 13,972 $ 14,198
11,827
16.3%
1,334
174
11,594
16.6%
1,275
166
11,406
15.9%
1,152
171
% Change
2019
(2)%
(2)%
(10)%
3%
2018
(2)%
(2)%
(4)%
(5)%
Revenues
Revenues decreased $342 million, 2%, in 2019, compared with 2018. The revenue decrease included the following factors:
(cid:120) Lower Industrial revenues of $493 million, primarily reflecting a $248 million impact from the 2018 disposition of the
Tools and Test Equipment product line and lower volume and mix of $233 million at the remaining product lines, primarily
in the Specialized Vehicles product line.
(cid:120) Lower Textron Systems revenues of $139 million, largely reflecting lower volume of $103 million in the Marine and Land
Systems product line and $41 million in the Unmanned Systems product line.
(cid:120) Higher Textron Aviation revenues of $216 million, largely due to higher Citation jet volume of $286 million, primarily
reflecting the Longitude’s entry into service in the fourth quarter of 2019, and higher aftermarket volume of $44 million,
partially offset by lower defense volume.
(cid:120) Higher Bell revenues of $74 million, resulting from an increase in commercial revenues of $116 million, largely reflecting
higher deliveries, partially offset by lower military volume.
Revenues decreased $226 million, 2%, in 2018, compared with 2017, largely driven by the disposition of the Tools and Test
Equipment product line within the Industrial segment. The net revenue decrease included the following factors:
(cid:120) 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) Lower Bell revenues of $137 million, due to lower commercial revenues of $91 million, largely reflecting the mix of aircraft
sold in the year, and lower military revenues of $46 million.
(cid:120) Higher Textron Aviation revenues of $285 million, due to higher volume and mix of $185 million and favorable pricing of
$100 million.
Textron 2019 Annual Report 19
(cid:120) Higher Industrial revenues of $5 million, primarily due to higher volume of $149 million, largely related to the 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.
Cost of Sales and Selling and Administrative Expense
Cost of sales decreased $188 million, 2%, in 2019, compared with 2018, largely resulting from the impact from the disposition of
the Tools and Test Equipment product line, improved performance and a favorable impact of $48 million from foreign exchange
rate fluctuations, partially offset by an unfavorable impact of $94 million from inflation. Gross margin as a percentage of
Manufacturing revenues decreased 70 basis points in 2019, compared with 2018, primarily due to lower margin at the Textron
Aviation segment, reflecting the mix of aircraft sold in the year.
Selling and administrative expense decreased $123 million, 10% in 2019, compared with 2018, primarily reflecting the impact from
the disposition of Tools and Test Equipment product line and cost reduction activities in the Specialized Vehicles product line.
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.
Interest Expense
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 increased $5 million in 2019, compared with 2018,
primarily due to higher average debt outstanding. In 2018, consolidated interest expense decreased $8 million, compared with 2017,
primarily due to lower average debt outstanding.
Special Charges
Special charges of $72 million, $73 million and $130 million in 2019, 2018 and 2017, respectively, primarily include restructuring
activities as described in Note 17 to the Consolidated Financial Statements.
Gain on Business Disposition
On July 2, 2018, we completed the sale of the businesses that manufacture and sell the products in the Tools and Test Equipment
product line within our Industrial segment. We recorded an after-tax gain of $419 million in 2018.
Income Taxes
Effective tax rate
2019
2018
13.5%
11.7%
2017
59.8%
In 2019, the effective tax rate of 13.5% was lower than the U.S. federal statutory tax rate of 21%, primarily due to $61 million in
benefits recognized for additional tax credits related to prior years as a result of the completion of a research and development tax
credit analysis.
In 2018, our effective tax rate of 11.7% was lower than the U.S. federal statutory tax rate of 21%, primarily due to the disposition of
the Tools and Test equipment product line which resulted in a gain taxable primarily in non-U.S. jurisdictions that partially exempt
such gains from tax. The effective tax rate for 2018 also reflects a $25 million benefit recognized upon the reassessment of our
reserve for uncertain tax positions based on new information, including interactions with the tax authorities and recent audit
settlements. In addition, we finalized the 2017 impacts of the Tax Cut and Jobs Act (the Tax Act) and recognized a $14 million
benefit in the fourth quarter of 2018.
Our effective tax rate of 59.8% for 2017 was higher than the U.S. federal statutory tax rate of 35%, largely due to the 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.
For a full reconciliation of our effective tax rate to the U.S. federal statutory tax rate, see Note 18 to the Consolidated Financial
Statements.
20 Textron 2019 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 for our commercial
businesses typically are expressed in terms of volume and mix, pricing, foreign exchange, acquisitions and dispositions, inflation
and performance. For revenues, volume and mix represents changes in revenues from increases or decreases in the number of units
delivered or services provided and the composition of products and/or services sold. For segment profit, volume and mix represents
a change due to the number of units delivered or services provided and the composition of products and/or services sold at different
profit margins. Pricing represents changes in unit pricing. Foreign exchange is the change resulting from translating foreign-
denominated amounts into U.S. dollars at exchange rates that are different from the prior period. Revenues generated by acquired
businesses are reflected in Acquisitions for a twelve-month period, while reductions in revenues and segment profit from the sale of
businesses are reflected as Dispositions. Inflation represents higher material, wages, benefits, pension service cost or other costs.
Performance reflects an increase or decrease in research and development, depreciation, selling and administrative costs, warranty,
product liability, quality/scrap, labor efficiency, overhead, non-service pension cost/(credit), product line profitability, start-up, ramp
up and cost-reduction initiatives or other manufacturing inputs.
Approximately 24% of our 2019 revenues were derived from contracts with the U.S. Government, including those under the U.S.
Government-sponsored foreign military sales program. For our segments that contract with the U.S. Government, changes in
revenues related to these contracts are expressed in terms of volume. Changes in segment profit for these contracts are typically
expressed in terms of volume and mix and performance; these include cumulative catch-up adjustments associated with a) revisions
to the transaction price that may reflect contract modifications or changes in assumptions related to award fees and other variable
consideration or b) changes in the total estimated costs at completion due to improved or deteriorated operating performance.
Textron Aviation
(Dollars in millions)
Revenues:
Aircraft
Aftermarket parts and services
Total revenues
Operating expenses
Segment profit
Profit margin
Backlog
2019
2018
2017
$
$
3,592 $
1,595
5,187
4,738
449
8.7%
1,714 $
3,435 $
1,536
4,971
4,526
445
9.0%
1,791 $
3,112
1,574
4,686
4,383
303
6.5%
1,180
% Change
2019
2018
5%
4%
4%
5%
1%
10%
(2)%
6%
3%
47%
(4)%
52%
Textron Aviation Revenues and Operating Expenses
Factors contributing to the 2019 year-over-year revenue change are provided below:
(In millions)
Volume and mix
Pricing
Total change
2019 versus
2018
199
17
216
$
$
Textron Aviation’s revenues increased $216 million, 4%, in 2019, compared with 2018, largely due to higher volume and mix of
$199 million. Volume and mix includes higher Citation jet volume of $286 million, primarily reflecting the Longitude’s entry into
service in the fourth quarter of 2019, and higher aftermarket volume of $44 million, partially offset by lower defense volume. We
delivered 206 Citation jets and 176 commercial turboprops in 2019, compared with 188 Citation jets and 186 commercial turboprops
in 2018.
Textron 2019 Annual Report 21
Textron Aviation’s operating expenses increased $212 million, 5%, in 2019, compared with 2018, largely due to higher net volume
and mix as described above and an unfavorable impact from inflation, partially offset by improved manufacturing performance.
Factors contributing to the 2018 year-over-year revenue change are provided below:
(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 with 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 Aviation Segment Profit
Factors contributing to 2019 year-over-year segment profit change are provided below:
(In millions)
Performance
Inflation, net of pricing
Volume and mix
Total change
2019 versus
2018
49
(28)
(17)
4
$
$
Textron Aviation’s segment profit increased $4 million, in 2019, compared with 2018, due to a favorable impact of $49 million from
performance, reflecting manufacturing efficiencies, partially offset by an unfavorable impact of $28 million from inflation, net of
pricing and lower volume and mix of $17 million due to the mix of products sold in the year.
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.
Textron Aviation Backlog
Backlog at Textron Aviation increased $611 million, 52%, in 2018 as a result of orders in excess of deliveries.
22 Textron 2019 Annual Report
Bell
(Dollars in millions)
Revenues:
Military aircraft and support programs
Commercial helicopters, parts and services
Total revenues
Operating expenses
Segment profit
Profit margin
Backlog
2019
2018
2017
% Change
2019
2018
$
1,988 $
1,266
3,254
2,819
435
13.4%
$
6,902 $
2,030 $
1,150
3,180
2,755
425
13.4%
2,076
1,241
3,317
2,902
415
(2)%
10%
2%
2%
2%
(2)%
(7)%
(4)%
(5)%
2%
12.5%
5,837 $
4,598
18%
27%
Bell’s major U.S. Government programs at this time are the V-22 tiltrotor aircraft and the H-1 helicopter platforms, which are both
in the production and support stage and represent a significant portion of Bell’s revenues from the U.S. Government.
Bell Revenues and Operating Expenses
Factors contributing to the 2019 year-over-year revenue change are provided below:
(In millions)
Volume and mix
Other
Total change
2019 versus
2018
61
13
74
$
$
Bell’s revenues increased $74 million, 2%, in 2019, compared with 2018, reflecting higher commercial revenues of $116 million,
partially offset by lower military volume. We delivered 201 commercial helicopters in 2019, compared with 192 commercial
helicopters in 2018.
Bell’s operating expenses increased $64 million, 2%, in 2019, compared with 2018, primarily due to higher volume and mix as
described above.
Factors contributing to the 2018 year-over-year revenue change are provided below:
(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, 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.
Bell Segment Profit
Factors contributing to 2019 year-over-year segment profit change are provided below:
(In millions)
Performance and other
Volume and mix
Total change
2019 versus
2018
6
4
10
$
$
Bell’s segment profit increased $10 million, 2%, in 2019, compared with 2018, due to favorable performance and other of $6 million
and the impact of higher volume and mix as described above. Performance and other includes improved manufacturing performance,
partially offset by lower net favorable program adjustments.
Textron 2019 Annual Report 23
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
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.
Bell Backlog
Bell’s backlog increased $1.1 billion, 18%, in 2019, primarily reflecting new contracts with the U.S. Government for spares and
logistic support for the V-22 tiltrotor aircraft and the H-1 helicopter programs, in excess of revenues recognized.
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.
Textron Systems
(Dollars in millions)
Revenues
Operating expenses
Segment profit
Profit margin
Backlog
$
2019
1,325 $
1,184
141
10.6%
2018
1,464 $
1,308
156
10.7%
$
1,211 $
1,469 $
Textron Systems Revenues and Operating Expenses
Factors contributing to the 2019 year-over-year revenue change are provided below:
(In millions)
Volume
Other
Total change
2017
1,840
1,701
139
7.6%
1,406
% Change
2019
(9)%
(9)%
(10)%
2018
(20)%
(23)%
12%
(18)%
4%
2019 versus
2018
(144)
5
(139)
$
$
Revenues at Textron Systems decreased $139 million, 9%, in 2019, compared with 2018, largely due to lower volume of $103
million in the Marine and Land Systems product line, primarily reflecting lower armored vehicle deliveries, and $41 million in the
Unmanned Systems product line.
Textron Systems’ operating expenses decreased $124 million, 9%, in 2019, compared with 2018, primarily due to lower volume
described above, and a favorable impact from the $18 million gain discussed below.
24 Textron 2019 Annual Report
Factors contributing to the 2018 year-over-year revenue change are provided below:
(In millions)
Volume
Other
Total change
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 as described below.
Textron Systems Segment Profit
Factors contributing to 2019 year-over-year segment profit change are provided below:
(In millions)
Performance and other
Volume and mix
Total change
2019 versus
2018
(9)
(6)
(15)
$
$
Textron Systems’ segment profit decreased $15 million, 10%, in 2019, compared with 2018, primarily due to the unfavorable impact
from performance and other of $9 million and the impact from lower volume as described above. Performance and other includes
the impact of lower net favorable program adjustments, partially offset by an $18 million gain recognized in the second quarter of
2019 related to a new training business we formed with FlightSafety International Inc., discussed in Note 7 to the Consolidated
Financial Statements.
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 of $44 million recorded in 2017 related to the TAPV program. In 2017, this program experienced
inefficiencies resulting from various production issues during the ramp up and subsequent production.
Textron Systems Backlog
In 2019, backlog decreased $258 million, 18%, primarily in the Marine and Land Systems product line as revenues recognized
exceeded new contracts.
Textron 2019 Annual Report 25
Industrial
(Dollars in millions)
Revenues:
Fuel Systems and Functional Components
Specialized Vehicles
Tools and Test Equipment
Total revenues
Operating expenses
Segment profit
Profit margin
$
2019
2018
2017
$
2,237 $
1,561
—
3,798
3,581
217
5.7%
2,352
1,691
248
4,291
4,073
218
5.1%
2,330
1,486
470
4,286
3,996
290
6.8%
% Change
2019
2018
(5)%
(8)%
—
(11)%
(12)%
—
1%
14%
(47)%
—
2%
(25)%
Industrial Revenues and Operating Expenses
Factors contributing to the 2019 year-over-year revenue change are provided below:
(In millions)
Disposition
Volume and mix
Foreign exchange
Pricing
Total change
2019 versus
2018
(248)
(233)
(66)
54
(493)
$
$
Industrial segment revenues decreased $493 million, 11%, in 2019, compared with 2018, largely due to the impact of $248 million
from the disposition of the Tools and Test Equipment product line in 2018 and $233 million of lower volume and mix at the remaining
product lines, primarily in the Specialized Vehicles product line. The reduction in volume in the Specialized Vehicles product line
largely reflected our management of the distribution channel related to products under the Arctic Cat brand, including a reduction of
inventories sold into the channel.
Operating expenses for the Industrial segment decreased $492 million, 12%, in 2019 compared with 2018, primarily due to lower
operating expenses of $226 million from the disposition of our Tools and Test Equipment product line, lower volume and mix
described above and improved performance described below.
Factors contributing to the 2018 year-over-year revenue change are provided below:
(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 Specialized Vehicles product line, a favorable impact of $57 million from foreign exchange, primarily related to the strengthening
of the Euro against the U.S. dollar, and the impact of $49 million from the acquisition of Arctic Cat on March 6, 2017, were largely
offset by $246 million in lower revenues due to the disposition of the Tools and Test Equipment product line.
Operating expenses for the Industrial segment increased $77 million, 2%, in 2018, compared with 2017, primarily due to higher
volume described above, the impact from foreign exchange and additional operating expenses from the Arctic Cat acquisition. These
increases were partially offset by lower operating expenses from the disposition of our Tools and Test Equipment product line.
26 Textron 2019 Annual Report
Industrial Segment Profit
Factors contributing to 2019 year-over-year segment profit change are provided below:
(In millions)
Performance
Pricing, net of inflation
Volume and mix
Disposition
Foreign exchange
Total change
$
2019 versus
2018
94
18
(82)
(22)
(9)
(1)
$
Segment profit for the Industrial segment was largely unchanged in 2019, compared with 2018, as favorable performance of $94
million, principally in the Specialized Vehicles product line primarily reflecting cost reduction activities, was largely offset by the
impact from lower volume and mix described above. Performance also includes the impact of a $17 million favorable adjustment
recognized in the fourth quarter of 2018 related to a patent infringement matter.
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
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 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 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.
Finance
(In millions)
Revenues
Segment profit
$
2019
66 $
28
2018
66
23
$
2017
69
22
Finance segment revenues were unchanged and segment profit increased $5 million in 2019, compared with 2018. Finance segment
revenues decreased $3 million and segment profit increased $1 million in 2018, compared with 2017. The following table reflects
information about the Finance segment’s credit performance related to finance receivables.
(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
January 4,
2020
707 $
39
5.52%
17 $
December 29,
2018
789
40
5.07%
14
1.77%
2.40%
$
$
Textron 2019 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
January 4,
2020
December 29,
2018
$
$
1,181
3,124
5,518
8,642
26%
36%
987
3,066
5,192
8,258
29%
37%
$
$
176
686
120
718
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.
On October 18, 2019, Textron entered into a senior unsecured revolving credit facility for an aggregate principal amount of $1.0
billion, of which up to $100 million is available for the issuance of letters of credit. Textron may elect to increase the aggregate
amount of commitments under the facility to up to $1.3 billion by designating an additional lender or by an existing lender agreeing
to increase its commitment. The facility expires in October 2024, subject to up to two one-year extensions at Textron’s option with
the consent of lenders representing a majority of the commitments under the facility. This new facility replaced the prior 5-year
facility, which was scheduled to expire in September 2021. At January 4, 2020 and December 29, 2018, there were no amounts
borrowed against either facility. At January 4, 2020, there were $10 million of outstanding letters of credit issued under the new
facility and at December 29, 2018, there were $10 million of outstanding letters of credit issued under the prior facility.
We also maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to issue
an unlimited amount of public debt and other securities. Under this registration statement, in May 2019, we issued $300 million of
fixed-rate notes due September 2029 with an annual interest rate of 3.90%.
In June 2019, we amended the Finance Group’s $150 million fixed-rate loan due August 2019, extending the maturity date to June
2022 and modifying the annual interest rate from the prior rate of 2.26% to 2.88%.
28 Textron 2019 Annual Report
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
$
2019
960 $
(329)
(439)
2018
1,127 $
539
(1,738)
2017
930
(728)
(266)
In 2019, cash flows from operating activities were $960 million, compared with $1,127 million in 2018, a decrease of $167 million.
The change in cash flows included a $364 million decrease from changes in inventories between the periods and a $133 million
decrease from other liabilities, primarily due to changes in salaries, wages and employer taxes payable, partially offset by a $343
million increase in cash flows from changes in accounts payable.
Cash flows provided by operating activities in 2018 were $1,127 million, compared with $930 million in 2017, a 21% increase,
primarily reflecting lower pension contributions of $306 million, higher earnings and a dividend of $50 million received from the
Finance group in 2018, which were partially offset by a higher use of net working capital in 2018, largely reflecting a $145 million
cash outflow from changes in net taxes paid/received.
Net tax payments/(receipts) were $120 million, $129 million and $(16) million in 2019, 2018 and 2017, respectively. Pension
contributions were $51 million, $52 million and $358 million in 2019, 2018 and 2017, respectively. In 2017, pension contributions
included a $300 million discretionary contribution to fund a U.S. pension plan.
In 2019, investing cash flows included capital expenditures of $339 million. 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.
Cash flows used in financing activities in 2019 primarily included $503 million of cash paid to repurchase an aggregate of 10.0
million shares of our outstanding common stock under a 2018 share repurchase authorization, and $252 million of payments on
long-term debt, partially offset by net proceeds of $301 million from the issuance of long-term debt. In 2018, financing cash flows
included $1.8 billion of cash paid to repurchase an aggregate of 29.1 million shares of our outstanding common stock under the 2018
authorization and a prior 2017 authorization. Financing cash flows in 2017 included $582 million of cash paid to repurchase an
aggregate of 11.9 million of our outstanding common stock under prior share repurchase authorizations and the repayment of
outstanding debt of $704 million, partially offset by proceeds from long-term debt of $992 million.
On February 25, 2020, our Board of Directors authorized the repurchase of up to 25 million shares of our common stock. This new
plan allows us to opportunistically repurchase shares and to continue our practice of repurchasing shares to offset the impact of
dilution from shares issued under compensation and benefit plans. The 2020 plan replaces the prior 2018 share repurchase
authorization which was utilized in 2019 and 2018 for repurchases funded, in part, by the net proceeds of $0.8 billion from the
disposition of the Tools and Test product line.
Dividend payments to shareholders totaled $18 million, $20 million and $21 million in 2019, 2018 and 2017, respectively. Dividends
received from the Finance group, which totaled $50 million in both 2019 and 2018, are included within cash flows from operating
activities for the Manufacturing group as they represent a return on investment.
Textron 2019 Annual Report 29
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
2019
$
34 $
135
(113)
2018
14 $
99
(176)
2017
(24)
140
(94)
The Finance group’s cash flows from operating activities included net tax payments of $1 million, $17 million and $48 million in
2019, 2018 and 2017, respectively. Cash flows from investing activities primarily included collections on finance receivables totaling
$277 million, $226 million and $273 million in 2019, 2018 and 2017, respectively, partially offset by finance receivable originations
of $184 million, $177 million and $174 million, respectively.
Cash flows used in financing activities included payments on long-term and nonrecourse debt of $51 million, $126 million and $137
million in 2019, 2018 and 2017, respectively. Dividend payments to the Manufacturing group totaled $50 million in both 2019 and
2018. In 2017, financing cash flows also included proceeds from long-term debt of $44 million.
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
$
2019
1,016 $
(266)
(502)
2018
1,109 $
620
(1,864)
2017
963
(645)
(360)
Consolidated cash flows from operating activities were $1,016 million in 2019, compared with $1,109 million in 2018, a decrease
of $93 million. The change in cash flows included a $333 million decrease from changes in inventories between the periods and a
$125 million decrease from other liabilities, primarily due to changes in salaries, wages and employer taxes payable, partially offset
by a $343 million increase in cash flows from changes in accounts payable.
In 2018, consolidated cash flows provided by operating activities were $1,109 million, compared with $963 million in 2017, a 15%
increase, primarily reflecting lower pension contributions of $306 million and higher earnings, partially offset by a higher use of net
working capital in 2018, reflecting a $114 million increase in net tax payments and $45 million in lower cash flows related to captive
financing activities.
Net tax payments were $121 million, $146 million and $32 million in 2019, 2018 and 2017, respectively. Pension contributions
were $51 million, $52 million and $358 million in 2019, 2018 and 2017, respectively. In 2017, pension contributions included a
$300 million discretionary contribution to fund a U.S. pension plan.
In 2019, investing cash flows included capital expenditures of $339 million. 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.
In 2019, 2018 and 2017, cash used in financing activities included share repurchases of $503 million, $1,783 million and $582
million, respectively, and the repayment of outstanding debt of $303 million, $131 million and $841 million, respectively. In 2019
and 2017, financing cash flows also included proceeds from the issuance of long-term debt of $301 million and $1,036 million,
respectively.
30 Textron 2019 Annual Report
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
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
2019
2018
2017
$
$
229
(184)
27
72
199 $
(177)
(4)
18
241
(174)
(10)
57
$
(50)
22
$
(50)
(32) $
—
57
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 2019,
2018 and 2017 to maintain compliance with the support agreement.
Contractual Obligations
Manufacturing Group
The following table summarizes the known contractual obligations, as defined by reporting regulations, of our Manufacturing group
as of January 4, 2020:
(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
3,139 $
3,376
631
405
246
293
356
8,446 $
$
$
561 $
2,570
127
27
26
62
57
3,430 $
514 $
729
182
53
46
93
88
1,705 $
More Than 5
Years
1,696
1
168
278
134
94
154
2,525
368 $
76
154
47
40
44
57
786 $
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 16 to the
Consolidated Financial Statements. Included in the above table are discounted estimated benefit payments we expect to make related
to unfunded pension and other postretirement benefit plans. Actual benefit payments are dependent on a number of factors, including
mortality assumptions, expected retirement age, rate of compensation increases and medical trend rates, which are subject to change
in future years. Our policy for funding pension plans is to make contributions annually, consistent with applicable laws and
regulations; however, future contributions to our pension plans are not included in the above table. In 2020, we expect to make
approximately $25 million of contributions to our funded pension plans and the Retirement Account Plan. Based on our current
assumptions, which may vary with changes in market conditions, our current contribution for each of the years from 2021 through
2024 is estimated to be approximately $50 million under the plan provisions in place at this time.
Textron 2019 Annual Report 31
Other Long-Term Liabilities
Other long-term liabilities consist of undiscounted amounts in the Consolidated Balance Sheets that primarily include obligations
under deferred compensation arrangements and estimated environmental remediation costs. Payments under deferred compensation
arrangements have been estimated based on management’s assumptions of expected retirement age, mortality, stock price and rates
of return on participant deferrals. The timing of cash flows associated with environmental remediation costs is largely based on
historical experience. Certain other long-term liabilities, such as deferred taxes, unrecognized tax benefits, and reserves for product
liability, warranty, product maintenance and litigation, have been excluded from the table due to the uncertainty of the timing of
payments combined with the absence of historical trends to be used as a predictor for such payments.
Purchase Obligations
Purchase obligations include undiscounted amounts committed under legally enforceable contracts or purchase orders for goods and
services with defined terms as to price, quantity and delivery dates. Approximately 39% of the purchase obligations we disclose
represent purchase orders issued for goods and services to be delivered under firm contracts with the U.S. Government for which
we have full recourse under customary contract termination clauses.
Finance Group
The following table summarizes the known contractual obligations, as defined by reporting regulations, of our Finance group as of
January 4, 2020:
(In millions)
Term debt
Subordinated debt
Interest on borrowings
Total Finance group
Critical Accounting Estimates
$
$
Total
387 $
299
269
955 $
Payments Due by Period
Year 1
Years 2-3
Years 4-5
167 $
—
22
189 $
181 $
—
33
214 $
More Than 5
Years
7
299
190
496
32 $
—
24
56 $
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 to the Consolidated Financial Statements, 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 ASC 606 as discussed in Note 1 to the Consolidated Financial Statements. With the adoption
of this standard, due to the continuous transfer of control to the U.S. Government, we recognize revenue over the time that we
perform under the contract. Selecting the method to measure progress towards completion requires judgment and is based on the
nature of the products or service to be provided. We generally use the cost-to-cost method to measure progress for 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 70% of our 2019 revenues with the U.S. Government were under fixed-price and fixed-price incentive contracts. To
the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit and
could potentially incur a loss.
32 Textron 2019 Annual Report
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.
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.
Changes in our estimate of the total expected cost or in the transaction price for a contract typically impact our profit booking rate.
We utilize the cumulative catch-up method of accounting to recognize the impact of these changes on our profit booking rate for a
contract. Under this method, the inception-to-date impact of a profit adjustment on a contract is recognized in the period the
adjustment is identified. The impact of our cumulative catch-up adjustments on revenues and segment profit recognized in prior
periods is presented below:
(In millions)
Gross favorable
Gross unfavorable
Net adjustments
$
$
2019
173 $
(82)
91 $
2018
249 $
(53)
196 $
2017
92
(87)
5
With the adoption of ASC 606 in 2018, a significant portion of our contracts with the U.S. Government converted to the cost-to-cost
method for revenue recognition from the units of delivery method. The cost-to-cost method generally results in larger cumulative
catch-up adjustments since revenue is recognized earlier on these contracts requiring the estimation of costs over longer periods of
time. Under the units of delivery method that we used for many of our contracts in 2017, we had more time to develop and refine
our estimates as we were not required to recognize revenue until our products were delivered much later in the contract term.
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.
Textron 2019 Annual Report 33
Goodwill
We evaluate the recoverability of goodwill annually in the fourth quarter or more frequently if events or changes in circumstances,
such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying 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.
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 2019, the assumed expected long-term rate of return on plan assets used in calculating pension
expense was 7.55%, compared with 7.58% in 2018. For the last seven years, the assumed rate of return for our domestic plans,
which represent approximately 90% of our total pension assets, was 7.75%. A decrease of 50 basis-points in this long-term rate of
return in 2019 would have increased pension cost for our domestic plans by approximately $36 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 2019, the weighted-
average discount rate used in calculating pension expense was 4.24%, compared with 3.67% in 2018. For our domestic plans, the
assumed discount rate was 4.35% in 2019, compared with 3.75% in 2018. A decrease of 50 basis-points in this weighted-average
discount rate in 2019 would have increased pension cost for our domestic plans by approximately $34 million.
The trend in healthcare costs is difficult to estimate and has an important effect on postretirement liabilities. The 2019 medical and
prescription drug cost trend rates represent the weighted-average annual projected rate of increase in the per capita cost of covered
benefits. In 2019, we assumed a trend rate of 7% for both medical and prescription drug cost and assumed this rate would gradually
decline to 5% by 2024 and then remain at that level.
34 Textron 2019 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 $342 million and $379 million at January 4, 2020 and December 29, 2018, 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
$
2019
(66) $
(10)
2018
57 $
1
2017
27
(1)
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 finance 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).
January 4, 2020
December 29, 2018
Carrying
Value*
Fair
Value*
Sensitivity of
Fair Value
to a 10%
Change
Carrying
Value*
Fair
Value*
Sensitivity of
Fair Value
to a 10%
Change
$
$
(210) $
(1)
(211) $
(212) $
(1)
(213) $
(21) $
20
(1) $
(197) $
(8)
(205) $
(208) $
(8)
(216) $
(21)
50
29
$
(3,097) $
(3,249) $
(21) $
(2,996) $
(2,971) $
(30)
$
493 $
(686)
527 $
(634)
9 $
1
582 $
(718)
584 $
(640)
14
1
Textron 2019 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 January 4, 2020
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended January 4, 2020
Consolidated Balance Sheets as of January 4, 2020 and December 29, 2018
Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended January 4, 2020
Consolidated Statements of Cash Flows for each of the years in the three-year period ended January 4, 2020
Notes to the Consolidated Financial Statements
Summary of Significant Accounting Policies
Business Disposition and Acquisition
Goodwill and Intangible Assets
Accounts Receivable and Finance Receivables
Inventories
Property, Plant and Equipment, Net
Other Assets
Other Current Liabilities
Leases
Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Note 10. Debt and Credit Facilities
Note 11. Derivative Instruments and Fair Value Measurements
Note 12.
Note 13.
Note 14. Revenues
Note 15.
Note 16. Retirement Plans
Note 17.
Special Charges
Note 18.
Income Taxes
Note 19. Commitments and Contingencies
Note 20.
Shareholders’ Equity
Segment and Geographic Data
Supplemental Cash Flow Information
Share-Based Compensation
Report of Independent Registered Public Accounting Firm
Supplementary Information:
Quarterly Data for 2019 and 2018 (Unaudited)
Schedule II – Valuation and Qualifying Accounts
Page
37
38
39
40
41
43
50
50
51
52
53
53
53
54
55
56
57
58
60
62
64
68
69
72
72
73
76
77
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 2019 Annual Report
Consolidated Statements of Operations
For each of the years in the three-year period ended January 4, 2020
(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
Non-service components of pension and postretirement income, net
Gain on business disposition
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
Earnings per share from continuing operations
Basic
Diluted
See Notes to the Consolidated Financial Statements.
2019
2018
2017
$ 13,564 $ 13,906
66
13,972
66
13,630
$ 14,129
69
14,198
11,406
1,152
171
72
(113)
—
12,688
942
127
815
—
815 $
11,594
1,275
166
73
(76)
(444)
12,588
1,384
162
1,222
—
1,222
3.52 $
3.50 $
4.88
4.83
11,827
1,334
174
130
(29)
—
13,436
762
456
306
1
307
1.15
1.14
$
$
$
$
$
$
Textron 2019 Annual Report 37
Consolidated Statements of Comprehensive Income
For each of the years in the three-year period ended January 4, 2020
(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
$
2019
815 $
2018
1,222 $
(84)
(4)
3
(85)
730 $
(74)
(43)
(13)
(130)
1,092 $
$
2017
307
109
107
14
230
537
See Notes to the Consolidated Financial Statements.
38 Textron 2019 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
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 (228.4 million and 238.2 million shares issued, respectively,
and 228.0 million and 235.6 million shares outstanding, respectively)
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.
January 4,
2020
December 29,
2018
$
1,181 $
921
4,069
894
7,065
2,527
2,150
2,312
14,054
987
1,024
3,818
785
6,614
2,615
2,218
1,800
13,247
120
760
137
1,017
$ 15,018 $ 14,264
176
682
106
964
$
561 $
1,378
1,907
3,846
2,288
2,563
8,697
117
686
803
9,500
258
1,099
2,149
3,506
1,932
2,808
8,246
108
718
826
9,072
29
1,674
(20)
5,682
(1,847)
5,518
30
1,646
(129)
5,407
(1,762)
5,192
$ 15,018 $ 14,264
Textron 2019 Annual Report 39
$
Accumulated
Other
Comprehensive
Loss
(1,605)
—
230
—
—
—
—
(1,375)
—
—
(130)
(257)
—
—
—
—
(1,762)
—
(85)
—
—
—
—
(1,847)
$
Total
Shareholders’
Equity
$ 5,574
307
230
(21)
139
(582)
—
5,647
90
1,222
(130)
—
(20)
166
(1,783)
—
5,192
815
(85)
(18)
117
(503)
—
$ 5,518
Consolidated Statements of Shareholders’ Equity
(In millions, except per share data)
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
Net income
Other comprehensive loss
Dividends declared ($0.08 per share)
Share-based compensation activity
Purchases of common stock
Retirement of treasury stock
Balance at January 4, 2020
Common
Stock
$
$
34
—
—
—
—
—
(1)
33
—
—
—
—
—
—
—
(3)
30
—
—
—
—
—
(1)
29
Capital
Surplus
$ 1,599
—
—
—
139
—
(69)
1,669
—
—
—
—
—
166
—
(189)
1,646
—
—
—
117
—
(89)
$ 1,674
Treasury
Stock
$ —
—
—
—
—
(582)
534
(48)
—
—
—
—
—
—
(1,783)
1,702
(129)
—
—
—
—
(503)
612
(20)
$
Retained
Earnings
$ 5,546
307
—
(21)
—
—
(464)
5,368
90
1,222
—
257
(20)
—
—
(1,510)
5,407
815
—
(18)
—
—
(522)
$ 5,682
See Notes to the Consolidated Financial Statements.
40 Textron 2019 Annual Report
Consolidated Statements of Cash Flows
For each of the years in the three-year period ended January 4, 2020
(In millions)
Cash flows from operating activities
Net income
Less: Income from discontinued operations, net of income taxes
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
Capital expenditures
Net proceeds from corporate-owned life insurance policies
Net proceeds from business disposition
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
2019
2018
$
815 $
—
815
1,222 $
—
1,222
416
—
89
15
79
99
(292)
(37)
280
(348)
(83)
(62)
45
—
1,016
(2)
1,014
(339)
2
—
(2)
48
25
(266)
437
(444)
49
48
102
50
41
(88)
(63)
(223)
(33)
(14)
22
3
1,109
(2)
1,107
(369)
110
807
(23)
27
68
620
2017
307
1
306
447
—
346
47
90
(236)
412
(44)
(156)
(113)
78
(277)
67
(4)
963
(27)
936
(423)
17
—
(331)
32
60
(645)
301
(303)
(503)
24
(18)
(3)
(502)
4
250
1,107
1,357 $
—
(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
$
Textron 2019 Annual Report 41
Manufacturing Group
2019
2018
2017
Finance Group
2019
2018
2017
$
793 $ 1,198
—
—
1,198
793
$
248 $
1
247
22 $
—
22
24 $
—
24
59
—
59
410
—
91
15
79
99
(319)
(34)
280
(352)
(90)
(62)
50
—
960
(2)
958
(339)
2
—
(2)
—
—
10
(329)
429
(444)
54
48
97
50
45
(87)
(63)
(219)
(20)
(14)
50
3
1,127
(2)
1,125
(369)
110
807
(23)
—
—
14
539
435
—
390
47
94
(236)
422
(43)
(156)
(108)
119
(277)
—
(4)
930
(27)
903
(423)
17
—
(331)
—
—
9
(728)
301
(252)
(503)
24
(18)
9
(439)
4
194
987
$ 1,181 $
—
(5)
(1,783)
74
(20)
(4)
(1,738)
(18)
(92)
1,079
987
992
(704)
(582)
52
(21)
(3)
(266)
33
(58)
1,137
$ 1,079 $
6
—
(2)
—
—
—
—
(3)
—
4
7
—
—
—
34
—
34
—
—
—
—
277
(184)
42
135
—
(51)
—
—
(50)
(12)
(113)
—
56
120
176 $
8
—
(5)
—
5
—
—
(1)
—
(4)
(13)
—
—
—
14
—
14
—
—
—
—
226
(177)
50
99
—
(126)
—
—
(50)
—
(176)
—
(63)
183
120 $
12
—
(44)
—
(4)
—
—
(1)
—
(5)
(41)
—
—
—
(24)
—
(24)
—
—
—
—
273
(174)
41
140
44
(137)
—
—
—
(1)
(94)
—
22
161
183
Consolidated Statements of Cash Flows continued
For each of the years in the three-year period ended January 4, 2020
(In millions)
Cash flows from operating activities
Net income
Less: Income from discontinued operations, net of income taxes
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
Capital expenditures
Net proceeds from corporate-owned life insurance policies
Net proceeds from business disposition
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 2019 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.
At the beginning of 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (ASC Topic 842), which requires
lessees to recognize all leases with a term greater than 12 months on the balance sheet as right-of-use assets and lease liabilities.
Upon adoption, the most significant impact was the recognition of $307 million in right-of-use assets and lease liabilities for
operating leases, while our accounting for finance leases remained unchanged. We applied the provisions of this standard to our
existing leases at the adoption date using a retrospective transition method and did not adjust comparative periods. The cumulative
transition adjustment to retained earnings was not significant and the adoption had no impact on our earnings or cash flows. We
elected the practical expedients permitted under the transition guidance, which allowed us to carryforward the historical lease
classification and to apply hindsight when evaluating options within a contract, resulting in the extension of the lease term for certain
of our existing leases.
We adopted ASU No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606) and its related amendments, collectively
referred to as ASC 606 at the beginning of 2018. We adopted ASC 606 using the modified retrospective transition method applied
to contracts that were not substantially complete at the end of 2017. We recorded a $90 million adjustment to increase retained
earnings to reflect the cumulative impact of adopting this standard at the beginning of 2018, primarily related to certain long-term
contracts our Bell segment has with the U.S. Government that converted to the cost-to-cost method for revenue recognition. The
comparative information for 2017 included in our financial statements and notes was not restated and is reported under the accounting
standards in effect at that time based on the policies described in this note.
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 2019 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 2019 and 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.
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 2019. 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 2019 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 70% of our 2019 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
Prior to the adoption of ASC 606, we generally recognized revenue for the sale of products, which were not under long-term
contracts, upon delivery. Commercial aircraft were considered to be delivered upon completion of manufacturing, customer
acceptance, and the transfer of the risk and rewards of ownership. When a sale arrangement involved multiple deliverables, such as
sales of products that include customization and other services, we evaluated the arrangement to determine whether there were
separate items that were required to be delivered under the arrangement that qualify as separate units of accounting. These
arrangements typically involved the customization services we offer to customers who purchase Bell helicopters, with the services
generally provided within the first six months after customer acceptance of the aircraft and risk of loss assumption. The aircraft and
the customization services were considered to be separate units of accounting and we allocated contract price between the two on a
relative selling price basis using the best evidence of selling price for each of the deliverables, typically by reference to the price
charged when the same or similar items were sold separately by us. Revenue was then recognized when the recognition criteria for
each unit of accounting was met.
Revenues under long-term contracts were accounted for under the percentage-of-completion method of accounting. Under this
method, we estimated profit as the difference between the total estimated revenues and cost of a contract. We then recognized that
estimated profit over the contract term based on either the units-of-delivery method or the cost-to-cost method (which typically was
used for development effort as costs were incurred), as appropriate under the circumstances. Revenues under fixed-price contracts
generally were recorded using the units-of-delivery method. Revenues under cost-reimbursement contracts were recorded using the
cost-to-cost method.
Textron 2019 Annual Report 45
Finance Revenues
Finance revenues primarily include interest on finance receivables, finance 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 2019, 2018 and 2017, our cumulative catch-up adjustments increased segment profit by $91 million, $196 million and $5 million,
respectively, and net income by $69 million, $149 million and $3 million, respectively ($0.30, $0.59 and $0.01 per diluted share,
respectively). In 2019 and 2018, we recognized revenue from performance obligations satisfied in prior periods of $97 million and
$190 million, which related to changes in profit booking rates that impacted revenue.
For 2019, 2018 and 2017, gross favorable adjustments totaled $173 million, $249 million and $92 million, respectively. The 2018
favorable adjustments included $145 million, largely related to overhead rate improvements and risk retirements associated with
contracts in the Bell segment. In 2019, 2018 and 2017, gross unfavorable adjustments totaled $82 million, $53 million and $87
million, respectively.
Contract Assets and Liabilities
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 and 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.
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.
46 Textron 2019 Annual Report
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 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. 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. The fair value of our indefinite-lived intangible assets is primarily determined using the relief of royalty method based on
forecasted revenues and royalty rates. 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 85% 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.
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.
Textron 2019 Annual Report 47
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.
Leases
We identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated
period of time in exchange for consideration. Specifically, we consider whether we can control the underlying asset and have the
right to obtain substantially all of the economic benefits or outputs from the asset. For our contracts that contain both lease
components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common-
area maintenance costs, other goods/services), we allocate the consideration in the contract to each component based on its standalone
price. Leases with terms greater than 12 months are classified as either operating or finance leases at the commencement date. For
these leases, we capitalize the lesser of a) the present value of the minimum lease payments over the lease term, or b) the fair value
of the asset, as a right-of-use asset with an offsetting lease liability. The discount rate used to calculate the present value of the
minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the lease is generally not known or
determinable. The lease term includes any noncancelable period for which we have the right to use the asset and may include options
to extend or terminate the lease when it is reasonably certain that we will exercise the option. Operating leases are recognized as a
single lease cost on a straight-line basis over the lease term, while finance lease cost is recognized separately as amortization and
interest expense.
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.
48 Textron 2019 Annual Report
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
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 $647 million, $643 million and $634 million in 2019, 2018 and 2017, 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.
Accounting Pronouncements Not Yet Adopted
In 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. For most financial assets, such as trade and
other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected
credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for
our company at the beginning of 2020. Entities are required to apply the provisions of the standard through a cumulative-effect
adjustment to retained earnings as of the effective date. We completed our evaluation of the standard and determined that the impact
on our consolidated financial statements is not significant.
Textron 2019 Annual Report 49
Note 2. Business Disposition and Acquisition
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.
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 have been included in the Consolidated Statements of Operations since
the closing date.
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 30, 2017
Disposition
Acquisition
Foreign currency translation
Balance at December 29, 2018
Disposition*
Acquisition
Foreign currency translation
Balance at January 4, 2020
*See Note 7 for additional information.
Intangible Assets
Our intangible assets are summarized below:
Textron
Aviation
614 $
—
—
—
614
—
—
—
614 $
$
$
Bell
31 $
—
—
—
31
—
—
—
31 $
Textron
Systems
Industrial
1,087 $
—
13
—
1,100
(71)
4
—
1,033 $
632 $
(153)
—
(6)
473
—
—
(1)
472 $
Total
2,364
(153)
13
(6)
2,218
(71)
4
(1)
2,150
(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
January 4, 2020
Gross
Carrying
Amount
Accumulated
Amortization
$
501 $
223
(242) $
(8)
December 29, 2018
Gross
Carrying
Amount
514
224
Net
259 $
215
Accumulated
Amortization
$
(211) $
(7)
15
4
413
6
1,143 $
(298)
(6)
(554) $
115
—
589 $
413
6
1,157
$
(275)
(6)
(499) $
$
Net
303
217
138
—
658
Trade names and trademarks in the table above include $208 million of indefinite-lived intangible assets at both January 4, 2020 and
December 29, 2018. Amortization expense totaled $59 million, $66 million and $69 million in 2019, 2018 and 2017, respectively.
Amortization expense is estimated to be approximately $55 million, $53 million, $54 million, $37 million and $32 million in 2020,
2021, 2022, 2023 and 2024, respectively.
50 Textron 2019 Annual Report
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
Finance Receivables
Finance receivables are presented in the following table:
(In millions)
Finance receivables
Allowance for losses
Total finance receivables, net
January 4,
2020
835 $
115
950
(29)
921 $
December 29,
2018
885
166
1,051
(27)
1,024
$
$
January 4,
2020
707 $
(25)
682 $
December 29,
2018
789
(29)
760
$
$
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 January 4, 2020. Loans generally require the customer to pay a significant
down payment, along with periodic scheduled principal payments that reduce the outstanding balance through the term of the loan.
Our finance receivables are diversified across geographic region and borrower industry. At both January 4, 2020 and December 29,
2018, 59% of our finance receivables were distributed internationally and 41% throughout the U.S. At January 4, 2020 and December
29, 2018 finance receivables of $148 million and $201 million, respectively, have been pledged as collateral for TFC’s debt of $87
million and $119 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.
Textron 2019 Annual Report 51
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
$
$
January 4,
2020
664
4
39
5.52%
637
53
7
10
2.40%
$
December 29,
2018
704
45
40
5.07%
719
56
5
9
1.77%
$
On a quarterly basis, we evaluate individual larger balance accounts for impairment. A finance receivable is considered impaired
when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based
on our review of the credit quality indicators described above. Impaired finance receivables include both nonaccrual accounts and
accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are
expected to be, significantly modified. If the modification specifies an interest rate equal to or greater than a market rate for a finance
receivable with comparable risk, the account is not considered impaired in years subsequent to the modification.
A summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment is provided below:
(In millions)
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
January 4,
2020
December 29,
2018
$
$
$
$
$
$
17
22
39
50
3
40
15
43
58
67
5
61
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 $104 million and $101 million of
leveraged leases at January 4, 2020 and December 29, 2018, 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
Total
$
January 4,
2020
22
3
564
39
$
December 29,
2018
24
5
630
58
January 4,
2020
1,557
1,616
896
4,069
$
$
$
December 29,
2018
1,662
1,356
800
3,818
$
Inventories valued by the LIFO method totaled $2.5 billion and $2.2 billion at January 4, 2020 and December 29, 2018, respectively,
and the carrying values of these inventories would have been higher by approximately $475 million and $457 million, respectively,
had our LIFO inventories been valued at current costs.
52 Textron 2019 Annual Report
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
(in years)
3–40
2–20
January 4,
2020
December 29,
2018
1,927
4,891
6,818
(4,203)
2,615
1,991 $
4,941
6,932
(4,405)
2,527 $
$
$
The Manufacturing group’s depreciation expense, which included amortization expense on finance leases, totaled $346 million, $358
million and $362 million in 2019, 2018 and 2017, respectively.
Note 7. Other Assets
On April 1, 2019, TRU Simulation + Training Inc., a business within our Textron Systems segment, contributed assets associated
with its training business into FlightSafety Textron Aviation Training LLC, a company formed by FlightSafety International Inc.
and TRU to provide training solutions for Textron Aviation’s commercial business and general aviation aircraft. We have a 30%
interest in this newly formed company and our investment is accounted for under the equity method of accounting. We contributed
assets with a carrying value of $69 million to the company, which primarily included property, plant and equipment. In addition,
$71 million of the Textron Systems segment’s goodwill was allocated to this transaction. Based on the fair value of our share of the
business, we recorded a pre-tax net gain of $18 million in 2019 to cost of sales in our Consolidated Statements of Operations.
Note 8. Other Current Liabilities
The other current liabilities of our Manufacturing group are summarized below:
(In millions)
Contract liabilities
Salaries, wages and employer taxes
Current portion of warranty and product maintenance liabilities
Other
Total
Changes in our warranty liability are as follows:
January 4,
2020
715 $
362
147
683
1,907 $
December 29,
2018
876
381
177
715
2,149
$
$
(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.
2019
149 $
68
(70)
—
(6)
141 $
2018
164 $
72
(78)
1
(10)
149 $
$
$
2017
138
81
(69)
35
(21)
164
Textron 2019 Annual Report 53
Note 9. Leases
We primarily lease certain manufacturing plants, offices, warehouses, training and service centers at various locations worldwide
that are classified as either operating or finance leases. Our leases have remaining lease terms up to 30 years, which include options
to extend the lease term for periods up to 25 years when it is reasonably certain the option will be exercised. In 2019, our operating
lease cost totaled $64 million. Our finance lease cost and our variable and short-term lease costs were not significant. Cash paid for
operating lease liabilities during 2019 totaled $62 million, which is classified in cash flows from operating activities. Balance sheet
and other information related to our leases is as follows:
(Dollars in millions)
Operating leases:
Other assets
Other current liabilities
Other liabilities
Finance leases:
Property, plant and equipment, less accumulated amortization of $8 million
Current portion of long-term debt
Long-term debt
Weighted-average remaining lease term (in years)
Finance leases
Operating leases
Weighted-average discount rate
Finance leases
Operating leases
January 4,
2020
$
$
277
48
233
39
2
40
17.9
10.2
4.37%
4.42%
At December 29, 2018, assets under finance leases totaled $168 million and had accumulated amortization of $47 million.
Maturities of our lease liabilities at January 4, 2020 are as follows:
Operating
Leases
$
$
57 $
48
40
32
25
154
356
(75)
281 $
Finance
Leases
4
4
4
4
5
46
67
(25)
42
(In millions)
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: interest
Total lease liabilities
54 Textron 2019 Annual Report
Note 10. 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 (2.45% and 3.17%, 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
3.90% due 2029
Other (weighted-average rate of 3.01% and 2.63%, respectively)
Total Manufacturing group debt
Less: Current portion of long-term debt
Total Long-term debt
Finance group
Variable-rate note due 2020 (2.87% and 3.57%, respectively)
2.88% note due 2022
Fixed-rate notes due 2019-2028 (weighted-average rate of 3.20% and 3.17%, respectively) (a) (b)
Variable-rate notes due 2019-2027 (weighted-average rate of 3.31% and 3.99%, respectively) (a) (b)
Fixed-to-Floating Rate Junior Subordinated Notes (3.64% and 4.35%, respectively)
Total Finance group debt
(a) Notes amortize on a quarterly or semi-annual basis.
(b) Notes are secured by finance receivables as described in Note 4.
January 4,
2020
December 29,
2018
$
$
$
$
$
— $
199
350
250
250
350
350
350
350
300
300
75
3,124 $
(561)
2,563 $
150 $
150
65
22
299
686 $
250
190
350
250
250
350
350
350
350
300
—
76
3,066
(258)
2,808
150
150
84
35
299
718
The following table shows required payments during the next five years on debt outstanding at January 4, 2020:
(In millions)
Manufacturing group
Finance group
Total
$
$
2020
561 $
167
728 $
2021
507 $
14
521 $
2022
7 $
167
174 $
2023
7 $
17
24 $
2024
361
15
376
On October 18, 2019, Textron entered into a senior unsecured revolving credit facility for an aggregate principal amount of $1.0
billion, of which up to $100 million is available for the issuance of letters of credit. Textron may elect to increase the aggregate
amount of commitments under the facility to up to $1.3 billion by designating an additional lender or by an existing lender agreeing
to increase its commitment. The facility expires in October 2024, subject to up to two one-year extensions at Textron’s option with
the consent of lenders representing a majority of the commitments under the facility. This new facility replaced the prior 5-year
facility, which was scheduled to expire in September 2021. At January 4, 2020 and December 29, 2018, there were no amounts
borrowed against either facility. At January 4, 2020, there were $10 million of outstanding letters of credit issued under the new
facility and at December 29, 2018, there were $10 million of outstanding letters of credit issued under the prior facility.
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 2019, 2018 and 2017 to maintain compliance with the support agreement.
Textron 2019 Annual Report 55
Note 11. Derivative Instruments and Fair Value Measurements
We measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. We prioritize the assumptions that market participants would use in pricing
the asset or liability into a three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted
prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no
market data exist, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of Level
1, which include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in
markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect our estimates about the assumptions
market participants would use in pricing the asset or liability based on the best information available in the circumstances. Valuation
techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the
income approach or the cost approach and may use unobservable inputs such as projections, estimates and management’s
interpretation of current market data. These unobservable inputs are utilized only to the extent that observable inputs are not available
or cost effective to obtain.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
We manufacture and sell our products in a number of countries throughout the world, and, therefore, we are exposed to movements
in foreign currency exchange rates. We primarily utilize foreign currency exchange contracts with maturities of no more than three
years to manage this volatility. These contracts qualify as cash flow hedges and are intended to offset the effect of exchange rate
fluctuations on forecasted sales, inventory purchases and overhead expenses. Net gains and losses recognized in earnings and
Accumulated other comprehensive loss on cash flow hedges, including gains and losses related to hedge ineffectiveness, were not
significant in the periods presented.
Our foreign currency exchange contracts are measured at fair value using the market method valuation technique. The inputs to this
technique utilize current foreign currency exchange forward market rates published by third-party leading financial news and data
providers. These are observable data that represent the rates that the financial institution uses for contracts entered into at that date;
however, they are not based on actual transactions so they are classified as Level 2. At January 4, 2020 and December 29, 2018, we
had foreign currency exchange contracts with notional amounts upon which the contracts were based of $342 million and $379
million, respectively. At January 4, 2020, the fair value amounts of our foreign currency exchange contracts were a $2 million asset
and a $2 million liability. At December 29, 2018, the fair value amounts of our foreign currency exchange contracts were a $2 million
asset and a $10 million liability.
We hedge our net investment position in certain major currencies and generate foreign currency interest payments that offset other
transactional exposures in these currencies. To accomplish this, we borrow directly in the foreign currency and designate a portion
of the debt as a hedge of the net investment. We record changes in 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
January 4, 2020
Carrying
Value
Estimated
Fair Value
December 29, 2018
Carrying
Value
Estimated
Fair Value
$
(3,097) $
(3,249) $
(2,996) $
(2,971)
493
(686)
527
(634)
582
(718)
584
(640)
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 2019 Annual Report
Note 12. 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
2019
2018
235,621
(10,011)
2,346
227,956
261,471
(29,094)
3,244
235,621
2017
270,287
(11,917)
3,101
261,471
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
2019
231,315
1,394
232,709
2018
250,196
3,041
253,237
2017
266,380
2,370
268,750
In 2019, 2018 and 2017, stock options to purchase 4.3 million, 1.3 million and 1.6 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 30, 2017
Other comprehensive loss before reclassifications
Reclassified from Accumulated other comprehensive loss
Reclassification of stranded tax effects
Balance at December 29, 2018
Other comprehensive loss before reclassifications
Reclassified from Accumulated other comprehensive loss
Balance at January 4, 2020
Pension and
Postretirement
Benefits
Adjustments
$
$
$
(1,396) $
(198)
124
(257)
(1,727) $
(166)
82
(1,811) $
$
$
Foreign
Currency
Translation
Adjustments
11
(49)
6
—
(32) $
(4)
—
(36) $
Deferred
Gains (Losses)
on Hedge
Contracts
10
(8)
(5)
—
(3) $
5
(2)
—
Accumulated
Other
Comprehensive
Loss
(1,375)
(255)
125
(257)
(1,762)
(165)
80
(1,847)
$
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 from accumulated other comprehensive loss to retained earnings. The stranded tax effects
are comprised of the tax amounts included in accumulated other comprehensive loss at the previous U.S. federal corporate tax rate
of 35%, for which the related deferred tax asset or liability was remeasured at the new U.S. federal corporate tax rate of 21% in the
fourth quarter of 2017. The adoption of this standard resulted in an increase to accumulated other comprehensive loss of $257 million,
with an offsetting increase to retained earnings.
Textron 2019 Annual Report 57
Other Comprehensive Income (Loss)
The before and after-tax components of other comprehensive income (loss) are presented below:
2019
2018
2017
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
76
6
—
—
(23)
(2)
—
—
99
8
—
—
$ (218) $ 52 $ (166) $ (248) $ 58 $ (190) $ 18 $
152
9
(20)
7
(In millions)
Pension and postretirement benefits
adjustments:
Unrealized gains (losses)
Amortization of net actuarial loss*
Amortization of prior service cost*
Recognition of prior service 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 16 for additional information.
14
$ (111) $ 26 $ (85) $ (155) $ 25 $ (130) $ 277 $ (47) $ 230
(1) $ 17
88
5
(1)
—
(48)
(2)
—
—
(35)
(2)
5
—
136
7
(1)
—
117
7
(15)
7
(3)
—
(3)
100
—
100
7
—
7
(6)
—
(6)
2
—
2
(4)
—
(4)
107
—
107
—
2
(3)
—
(46)
6
(40)
(49)
6
(43)
10
7
(8)
(7)
(2)
(1)
(8)
(5)
8
(2)
(100)
(111)
160
5
(2)
109
(51)
(74)
(15)
(13)
(84)
27
26
17
8
6
(3)
(3)
6
2
3
Note 13. 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 trainer and
defense aircraft, and aftermarket part sales and services sold to a diverse base of corporate and individual buyers.
Bell products include military and commercial helicopters, tiltrotor aircraft and related spare parts and services. Bell supplies
military helicopters and, in association with The Boeing Company, military tiltrotor aircraft, and aftermarket services to the U.S.
and non-U.S. governments. Bell also supplies commercial helicopters and aftermarket services to corporate, offshore petroleum
exploration and development, utility, charter, police, fire, rescue and emergency medical helicopter operators, and foreign
governments.
Textron Systems products include unmanned aircraft and surface systems, marine craft, armored vehicles and specialty vehicles,
advanced flight training devices and other defense and aviation mission support products and services primarily for U.S. and non-
U.S. governments.
Industrial products and markets include the following:
(cid:120) Kautex products consist of blow-molded plastic fuel systems, including conventional plastic fuel tanks and pressurized fuel
tanks for hybrid applications, clear-vision systems and plastic tanks for selective catalytic reduction systems that are
marketed primarily to automobile OEMs; and
(cid:120) Specialized Vehicles products include golf cars, off-road utility vehicles, recreational side-by-side and all-terrain vehicles,
snowmobiles, light transportation vehicles, aviation ground support equipment, professional turf-maintenance equipment
and turf-care vehicles that are marketed primarily to golf courses and resorts, government agencies and municipalities,
consumers, outdoor enthusiasts, and commercial and industrial users.
On July 2, 2018, we sold our Tools and Test Equipment businesses that were previously included in the Industrial segment as
discussed in Note 2.
58 Textron 2019 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:
2019
$ 5,187
3,254
1,325
3,798
66
$ 13,630
Revenues
2018
$ 4,971
3,180
1,464
4,291
66
$ 13,972
2017
$ 4,686
3,317
1,840
4,286
69
$ 14,198
(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:
Segment Profit
$
2019
449
435
141
217
28
$ 1,270
(110)
(146)
(72)
—
942
$
$
2018
445
425
156
218
23
$ 1,267
(119)
(135)
(73)
444
$ 1,384
$
2017
303
415
139
290
22
$ 1,169
(132)
(145)
(130)
—
762
$
(In millions)
Textron Aviation
Bell
Textron Systems
Industrial
Finance
Corporate
Total
Assets
Capital Expenditures
Depreciation and Amortization
$
January 4,
2020
4,692
2,783
2,352
2,781
964
1,446
$ 15,018
$
December 29,
2018
4,290
2,652
2,254
2,815
1,017
1,236
$ 14,264
2019
122
81
38
97
—
1
339
$
$
2018
132
65
39
132
—
1
369
$
$
2017
128
73
60
158
—
4
423
$
$
2019
137
107
48
108
6
10
416
$
$
2018
145
108
54
112
8
10
437
$
$
2017
139
117
65
105
12
9
447
$
$
Geographic Data
Presented below is selected financial information of our continuing operations by geographic area:
(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.
$
2019
8,963
1,986
1,070
1,611
$ 13,630
Revenues*
$
2018
8,667
2,187
1,253
1,865
$ 13,972
$
2017
8,786
1,962
1,206
2,244
$ 14,198
Property, Plant
and Equipment, net**
January 4,
2020
2,054
244
97
132
2,527
December 29,
2018
2,115
267
88
145
2,615
$
$
$
$
Textron 2019 Annual Report 59
Note 14. 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
2019
2018
$
2017
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
$ 13,630 $ 13,972 $ 14,198
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
3,592 $
1,595
5,187
1,988
1,266
3,254
572
208
545
1,325
2,237
1,561
—
3,798
66
Our 2019 and 2018 revenues for our segments by customer type and geographic location are presented below:
(In millions)
2019
Customer type:
Commercial
U.S. Government
Total revenues
Geographic location:
United States
Europe
Asia and Australia
Other international
Total revenues
2018
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
$ 4,956 $
231
$
5,187 $
1,238 $
2,016
3,254 $
359 $
966
1,325 $
3,775 $
23
3,798 $
66 $ 10,394
—
3,236
66 $ 13,630
$
$
$
$
$
$
3,708 $
678
244
557
5,187 $
2,440 $
142
348
324
3,254 $
1,083 $
73
103
66
1,325 $
1,698 $
1,091
374
635
3,798 $
34 $
8,963
2
1,986
1
1,070
1,611
29
66 $ 13,630
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, our revenues included sales to the U.S. Government of approximately $3.1 billion, primarily in the Bell and Textron Systems
segments.
60 Textron 2019 Annual Report
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 January 4, 2020, we had $9.8 billion in remaining performance obligations of which we expect to
recognize revenues of approximately 75% through 2021, an additional 20% through 2023, and the balance thereafter.
Contract Assets and Liabilities
Assets and liabilities related to our contracts with customers are reported on a contract-by-contract basis at the end of each reporting
period. At January 4, 2020 and December 29, 2018, contract assets totaled $567 million and $461 million, respectively, and contract
liabilities totaled $830 million and $974 million, respectively. The changes in these balances in 2019 resulted from timing differences
between revenue recognized, billings and payments from customers, largely related to the V-22 program in the Bell segment. During
2019 and 2018, we recognized revenues of $590 million and $817 million, respectively, that were included in the contract liability
balance at the beginning of each year.
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 accounting standard as
discussed in Note 1 is presented below:
(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
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 2019 Annual Report 61
Note 15. 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 and non-employee directors in the form of stock options, restricted stock,
restricted stock units, stock appreciation rights, performance stock, performance share units and other awards. A maximum of 17
million shares is authorized for issuance for all purposes under the Plan plus any shares that become available upon cancellation,
forfeiture or expiration of awards granted under the 2007 Long-Term Incentive Plan. No more than 17 million shares may be
awarded pursuant to incentive stock options, and no more than 4.25 million shares may be issued pursuant to awards of restricted
stock, restricted stock units, performance stock or other awards that are payable in shares. For 2019, 2018 and 2017, the awards
granted under this Plan primarily included stock options, restricted stock units and performance share units.
Through our Deferred Income Plan for Textron Executives, we provide certain executives the opportunity to voluntarily defer up to
80% of their base salary, along with incentive compensation. Elective deferrals may be put into either a stock unit account or an
interest-bearing account. Participants cannot move amounts between the two accounts while actively employed by us and cannot
receive distributions until termination of employment. The intrinsic value of amounts paid under this deferred income plan was not
significant in 2019, 2018 and 2017.
Share-based compensation costs are reflected primarily in selling and administrative expense. Compensation expense included in
net income for our share-based compensation plans is as follows:
(In millions)
Compensation expense
Income tax benefit
Total compensation expense included in net income
$
$
2019
52
(12)
40
$
$
2018
35 $
(8)
27 $
2017
77
(28)
49
Compensation cost for awards subject only to service conditions that vest ratably is recognized on a straight-line basis over the
requisite service period for each separately vesting portion of the award. Our awards include continued vesting provisions for
retirement eligible employees. Upon reaching retirement eligibility, the service requirement for these individuals is considered to
have been satisfied and compensation expense for future awards is recognized on the date of the grant.
As of January 4, 2020, we had not recognized $27 million of total compensation costs associated with unvested awards subject only
to service conditions. We expect to recognize compensation expense for these awards over a weighted-average period of
approximately two years.
Stock Options
Stock option compensation expense was $22 million, $23 million and $20 million in 2019, 2018 and 2017, respectively. Options to
purchase our shares have a maximum term of ten years and generally vest ratably over a three-year period. Stock option compensation
cost is calculated under the fair value approach using the Black-Scholes option-pricing model to determine the fair value of options
granted on the date of grant. The expected volatility used in this model is based on 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 and the assumptions used in our option-pricing model for such grants are as
follows:
2019
14.62
$
2018
15.83
$
$
0.2%
26.6%
2.5%
4.7
0.1%
26.6%
2.6%
4.7
2017
13.80
0.2%
29.2%
1.9%
4.7
Fair value of options at grant date
Dividend yield
Expected volatility
Risk-free interest rate
Expected term (in years)
62 Textron 2019 Annual Report
The stock option activity during 2019 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
Number of
Options
8,284
1,618
(877)
(281)
8,744
5,937
Weighted-
Average
Exercise Price
40.58
$
54.27
(27.84)
(52.76)
44.00
38.95
$
$
At January 4, 2020, our outstanding options had an aggregate intrinsic value of $45 million and a weighted-average remaining
contractual life of 5.7 years. Our exercisable options had an aggregate intrinsic value of $45 million and a weighted-average
remaining contractual life of 4.5 years at January 4, 2020. The total intrinsic value of options exercised during 2019, 2018 and 2017
was $22 million, $62 million and $29 million, respectively.
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. 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 2019 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
598
173
(166)
(62)
543
$
Weighted-
Average Grant
Date Fair Value
45.22
54.22
(39.34)
(49.16)
49.44
$
Number of
Units
1,143
332
(299)
(72)
1,104
Weighted-
Average Grant
Date Fair Value
45.48
$
54.31
(39.27)
(48.72)
49.61
$
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
$
2019
23 $
16
2018
25
18
$
2017
27
19
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 units is based on the trading price of our common stock and is remeasured at each reporting period date.
The 2019 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
404 $
262
(196)
(59)
411 $
Weighted-
Average Grant
Date Fair Value
53.63
54.43
(49.58)
(53.94)
56.03
Textron 2019 Annual Report 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
Note 16. Retirement Plans
$
2019
9 $
10
2018
12
11
$
2017
15
15
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 $130 million, $125 million and $123
million in 2019, 2018 and 2017, respectively, which included $13 million in contributions to the RAP for each year. 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
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
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
2019
2018
2017
2019
2018
2017
$
$
91 $ 104 $ 100 $
326
(556)
14
101
(24) $
306
(553)
15
153
25 $
323
3 $
10
3 $
10
3
12
(507) — — —
(8)
(1)
6
(6)
(2)
5 $
(6)
(1)
6 $
15
137
68 $
11 $
(11) $
(22) $
$ 207 $ 270 $
—
20
(101)
(153)
(14)
(15)
(7)
—
92 $ 115 $ (162) $
(94) $
68 $ 140 $
(7)
1 — — —
1
(137)
(15)
8
— — — —
2
8
(15) $
(9) $
19 $
24 $
1
6
2
6
$
$
In 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 of $(29) million for 2017 was reclassified from Cost of sales and Selling and
administrative expense to Non-service components of pension and postretirement income, net in the Consolidated Statements of
Operations.
64 Textron 2019 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:
(In millions)
Change in projected benefit obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Actuarial losses (gains)
Benefits paid
Plan amendment
Business disposition
Foreign exchange rate changes and other
Projected benefit obligation at end of year
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
Funded status at end of year
Pension Benefits
Postretirement Benefits
Other than Pensions
2019
2018
2019
2018
$
$
$
$
$
7,901 $
91
326
—
1,001
(421)
—
—
40
8,938 $
7,122 $
1,350
38
(421)
40
8,129 $
(809) $
8,563 $
104
306
—
(615)
(422)
20
(15)
(40)
7,901 $
7,877
(335)
39
(422)
(37)
7,122
(779) $
250
3
10
5
11
(33)
—
—
—
246
$
$
289
3
10
5
(22)
(35)
—
—
—
250
(246) $
(250)
Actuarial losses (gains) reflected in the table above for both 2019 and 2018 were largely the result of changes in the discount rate
utilized.
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
2019
152 $
(27)
(934)
2018
112 $
(27)
(864)
2,271
55
2,157
69
Postretirement Benefits
Other than Pensions
$
2019
—
(26)
(220)
(21)
(20)
2018
—
(28)
(222)
(34)
(27)
The accumulated benefit obligation for all defined benefit pension plans was $8.5 billion and $7.5 billion at January 4, 2020 and
December 29, 2018, respectively, which included $404 million and $369 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
$
2019
8,050
7,500
$
2019
8,462
7,500
$
$
2018
7,137
6,589
2018
7,481
6,589
Textron 2019 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
2019
2018
2017
2019
2018
2017
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
4.24%
7.55%
3.50%
3.36%
3.50%
5.25%
3.67%
7.58%
3.50%
4.24%
3.50%
5.25%
4.13%
7.57%
3.50%
3.66%
3.50%
5.25%
4.25%
3.50%
4.00%
3.20%
4.25%
3.50%
Our assumed healthcare cost trend rate for both the medical and prescription drug cost was 7.00% in both 2019 and 2018. We expect
this rate to gradually decline to 5% by 2024 where we assume it will remain.
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%
51% to 75%
25% to 45%
0% to 13%
U.S. Plan Assets
Domestic equity securities
International equity securities
Global equities
Debt securities
Real estate
Private investment partnerships
Non-U.S. Plan Assets
Equity securities
Debt securities
Real estate
66 Textron 2019 Annual Report
The fair value of our pension plan assets by major category and valuation method is as follows:
January 4, 2020
December 29, 2018
(In millions)
Cash and equivalents
Equity securities:
Domestic
International
Mutual funds
Debt securities:
National, state and local governments
Corporate debt
Asset-backed securities
Private investment partnerships
Real estate
Total
Level 1
Level 2
Level 3
Not
Subject to
Leveling
Level 1
$
18 $
12 $ — $ 174 $
19 $
Not
Subject to
Leveling
19 $ — $ 113
Level 3
Level 2
1,257
929
176
828
— — 1,160 1,256 — —
835 — —
— —
450
780
266 — — —
— — —
56
53
414
220
14
104
—
650
—
—
285
$ 2,808 $ 1,382 $ 473 $ 3,466 $ 2,742 $ 1,217 $ 460 $ 2,703
290 —
908 —
18 — — —
745 — — —
460
293 — —
308 —
1,062 —
— —
— —
473
—
366
240 —
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, net
Realized gains, net
Purchases, sales and settlements, net
Balance at end of year
$
$
2019
460 $
7
5
1
473 $
2018
460
13
12
(25)
460
Textron 2019 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 2020, 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 2019. 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
Postretirement benefits other than pensions
$
2020
426
26
$
2021
433
25
$
2022
441
24
$
2023
450
23
$
2024
460
22
$
2025-2029
2,426
88
Note 17. Special Charges
Special charges recorded by segment and type of cost are as follows:
(In millions)
2019
Industrial
Textron Aviation
Corporate
Total special charges
2018
Industrial
2017
Industrial
Textron Aviation
Bell
Textron Systems
Total special charges
Severance
Costs
Contract
Terminations
and Other
Asset
Impairments
Acquisition
Integration and
Transaction
Costs
$
$
$
$
$
21
25
—
46
8
26
11
3
6
46
$
$
$
$
$
11
—
—
11
18
19
—
8
(1)
26
$
$
$
$
$
6
4
—
10
47
1
17
12
16
46
$
$
$
$
$
—
—
5
5
—
12
—
—
—
12
$
$
$
$
$
Total
38
29
5
72
73
58
28
23
21
130
In December 2019, we recorded $72 million in special charges, primarily in connection with a restructuring plan that was designed
to reduce costs and improve overall operating efficiency through headcount reductions, facility consolidations and other actions in
the Industrial and Textron Aviation segments. In the Industrial segment, in connection with the strategic review of our Kautex
business, cost reduction and other measures were initiated to maximize its operating margin, and we took further cost cutting actions
in our Textron Specialized Vehicles business. In the Textron Aviation segment, we conducted a review of our ongoing workforce
requirements, resulting in targeted headcount reductions and other actions to realign our cost structure. Headcount reductions totaled
approximately 1,000 positions and included business support and administrative functions within both segments. The headcount
reductions at Textron Aviation were primarily related to engineering positions, reflecting completion of the Longitude certification
activities and reduced requirements for ongoing development programs. This plan was substantially completed at the end of 2019.
In the fourth quarter of 2018, we recorded $73 million in special charges in connection with a plan to restructure the Textron
Specialized Vehicles businesses within our Industrial segment. Under this plan, we 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. This plan was substantially completed at the end of 2018.
In 2017, special charges totaled $130 million, largely reflecting $90 million related to an enterprise-wide restructuring plan initiated
in 2016 and $28 million for a restructuring plan initiated in the first quarter of 2017 in connection with the acquisition of Arctic Cat
discussed in Note 2. Both of these plans were completed in 2017.
Acquisition integration and transaction costs include $5 million in 2019 related to the strategic review of the Kautex business and
$12 million in 2017 related to the Arctic Cat acquisition.
68 Textron 2019 Annual Report
Restructuring Reserve
Our restructuring reserve activity is summarized below:
(In millions)
Balance at December 30, 2017
Provision for 2018 plan
Cash paid
(Reversals)/provision for prior plans
Balance at December 29, 2018
Provision for 2019 plan
Cash paid
Foreign currency translation
Balance at January 4, 2020
Severance
Costs
Contract
Terminations
and Other
$
$
24 $
8
(21)
(3)
8
46
(8)
—
46 $
20 $
18
(9)
3
32
11
(23)
(1)
19 $
Total
44
26
(30)
—
40
57
(31)
(1)
65
The majority of the remaining cash outlays of $65 million is expected to be paid in the first half of 2020. Severance costs generally
are paid on a lump-sum basis and include outplacement costs, which are paid in accordance with normal payment terms.
Note 18. 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
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
2019
668 $
274
942 $
2018
557 $
827
1,384 $
2017
428
334
762
2019
2018
2017
(48) $
16
70
38
112
(20)
(3)
89
127 $
3 $
9
101
113
60
(5)
(6)
49
162 $
29
(9)
79
99
358
(14)
13
357
456
$
$
$
$
Textron 2019 Annual Report 69
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:
Research and development tax credits
U.S. amended returns tax rate differential
State income taxes (net of federal impact)
Non-U.S. tax rate differential and foreign tax credits
U.S. tax reform enactment impact
Domestic manufacturing deduction
Gain on business disposition, primarily in non-U.S. jurisdictions
Other, net
Effective income tax rate
2019
21.0%
(7.6)
(1.2)
0.3
1.4
—
—
—
(0.4)
13.5%
2018
21.0%
(2.9)
—
(0.1)
1.3
(1.0)
—
(5.0)
(1.6)
11.7%
2017
35.0%
(2.6)
—
(1.9)
(2.9)
34.9
(1.1)
—
(1.6)
59.8%
In 2019, the effective tax rate was favorably impacted by $61 million in benefits recognized for additional tax credits related to prior
years as a result of the completion of a research and development tax credit analysis. In 2018, the effective tax rate was favorably
impacted by a $25 million upon the reassessment of reserves for uncertain tax positions related to research and development tax
credits.
The Tax Cuts and Jobs Act (the Tax Act) was enacted on December 22, 2017. Among other things, the Tax Act reduced the U.S.
federal corporate tax rate from 35% to 21% and required companies to pay a one-time transition tax on earnings of certain foreign
subsidiaries that were previously tax deferred. We reasonably estimated the effects of the Tax Act and recorded provisional amounts
in the fourth quarter of 2017 totaling $266 million. Our provisional estimate included a $154 million charge to remeasure our U.S.
federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally
21%. In addition, the provisional estimate included $112 million in expense for the one-time transition tax. This tax was based on
approximately $1.6 billion of our post-1986 earnings and profits that were previously deferred from U.S. income taxes, and on the
amount of those earnings held in cash and other specified net assets. In 2018, we finalized the 2017 impacts of the Tax Act,
specifically the remeasurement of our U.S. Federal deferred tax assets and liabilities and the post-1986 earnings and profits transition
tax, which resulted in a $14 million benefit.
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. At the end of 2019, 2018 and 2017, if our unrecognized tax benefits were recognized in future
periods, they would favorably impact our effective tax rate. A reconciliation of these unrecognized tax benefits is as follows:
(In millions)
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
$
$
2019
141 $
9
74
(1)
(2)
221 $
2018
182 $
5
13
(22)
(37)
141 $
2017
186
12
16
(17)
(15)
182
In 2019, additional tax positions primarily reflect the completion of a research and development tax credit analysis for tax credits
related to prior years. In 2018, certain tax positions related to research and development tax credits were reduced by $25 million
based on new information, including interactions with the tax authorities and recent audit settlements.
In the normal course of business, we are subject to examination by tax authorities throughout the world. We are generally no longer
subject to U.S. federal tax examinations for years before 2014, state and local income tax examinations for years before 2012, and
non-U.S. income tax examinations for years before 2011. In 2019, we filed U.S. federal amended returns for 2012 and 2013 for
additional research and development tax credits that are subject to examination.
70 Textron 2019 Annual Report
Deferred Taxes
The significant components of our net deferred tax assets/(liabilities) are provided below:
$
(In millions)
Obligation for pension and postretirement benefits
U.S. operating loss and tax credit carryforwards (a)
Accrued liabilities (b)
Deferred compensation
Operating lease liabilities (c)
Non-U.S. operating loss and tax credit carryforwards (d)
Valuation allowance on deferred tax assets
Amortization of goodwill and other intangibles
Property, plant and equipment, principally depreciation
Operating lease right-of-use assets (c)
Other leasing transactions, principally leveraged leases
Prepaid pension benefits
Other, net
Deferred taxes, net
(a) At January 4, 2020, U.S. operating loss and tax credit carryforward benefits of $206 million expire through 2039 if not utilized and $29 million may be carried
January 4,
2020
289 $
235
214
95
70
52
(145)
(160)
(153)
(68)
(80)
(29)
(51)
269 $
December 29,
2018
272
212
236
96
—
69
(157)
(143)
(142)
—
(77)
(21)
(23)
322
$
forward indefinitely.
(b) Accrued liabilities include warranty reserves, self-insured liabilities and interest.
(c) With the adoption of ASC 842 in 2019, as discussed in Note 1, we established a deferred tax asset for the operating lease liabilities and a deferred tax liability
for the right-of-use assets.
(d) At January 4, 2020, non-U.S. operating loss and tax credit carryforward benefits of $20 million expire through 2039 if not utilized and $32 million may be
carried forward indefinitely.
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
January 4,
2020
December 29,
2018
$
$
341
(4)
(68)
269
$
$
397
(5)
(70)
322
Non-U.S. and U.S. state income taxes have not been provided for on basis differences in certain investments, primarily as a result of
unremitted earnings in foreign subsidiaries totaling $1.7 billion at January 4, 2020 and $1.6 billion at December 29, 2018, which are
indefinitely 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.
Textron 2019 Annual Report 71
Note 19. 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 $247 million and $333 million at January 4, 2020 and December 29, 2018, 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 $40
million to $150 million. At January 4, 2020, environmental reserves of approximately $76 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, $13 million and $18 million in 2019, 2018 and 2017, respectively.
Note 20. Supplemental Cash Flow Information
Our cash payments and receipts are as follows:
(In millions)
Interest paid:
Manufacturing group
Finance group
Net taxes paid/(received):
Manufacturing group
Finance group
2019
2018
$
138 $
23
120
1
$
132
25
129
17
2017
133
29
(16)
48
72 Textron 2019 Annual Report
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Textron Inc.
Opinion on the Financial Statements
We have audited the accompanying Consolidated Balance Sheets of Textron Inc. (the Company) as of January 4, 2020 and December
29, 2018, the related Consolidated Statements of Operations, Comprehensive Income, Shareholders’ Equity and Cash Flows for each
of the three years in the period ended January 4, 2020, and the related notes and financial statement schedule contained on page 77
(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 January 4, 2020 and December 29, 2018 and the results of
its operations and its cash flows for each of the three years in the period ended January 4, 2020, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of January 4, 2020, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
Framework) and our report dated February 25, 2020 expressed an unqualified opinion thereon.
Adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606)
As discussed in Note 1 to the consolidated financial statements, the Company changed its method for recognizing revenue as a result
of the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), and its related amendments effective
December 31, 2017.
Basis for 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Textron 2019 Annual Report 73
Description of the
Matter
Long Term Contracts
As described in Note 1 to the consolidated financial statements, revenues under long-term contracts with the
U.S. Government are generally recognized over time using the cost-to-cost method of accounting. Under this
method, the extent of progress towards completion is measured based on the ratio of costs incurred to date
to the estimated costs at completion, and revenue is recorded proportionally as costs are incurred. Contract
costs, which are estimated utilizing current contract specifications and expected engineering requirements,
typically are incurred over a period of several years, and the estimation of these costs at completion requires
substantial judgment. The Company’s cost estimation process is based on professional knowledge and
experience of engineers and program managers along with finance professionals. The Company updates its
projections of costs quarterly or more frequently when circumstances significantly change. When
adjustments are required, any changes from prior estimates are recognized using the cumulative catch-up
method with the impact of the change from inception-to-date of the contract recorded in the current period
and required disclosure is provided in the consolidated financial statements. Anticipated losses on contracts
are recognized in full in the period in which losses become probable and estimable.
Auditing the Company’s estimated costs at completion was challenging and complex due to the judgement
involved in evaluating management’s assumptions and key estimates over the duration of long-term
contracts. The estimated costs at completion consider risks surrounding the Company’s ability to achieve
the technical requirements and specifications of the contract, schedule, and other cost elements of the
contract, and depend on whether the Company is able to successfully retire risks surrounding such aspects
of the contract.
How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls
related to the Company’s revenue recognition process, including controls over management’s review of the
estimated costs at completion and related key assumptions and management’s review that the data underlying
the estimated costs at completion was complete and accurate.
To test the accuracy of the Company’s estimated costs at completion, our audit procedures included, among
others, evaluating the key assumptions used by management to determine such estimate. This included
evaluating the historical accuracy of management’s estimates by comparing planned costs to actual costs
incurred to date. We also tested the completeness and accuracy of the underlying data back to source
documents and contracts.
Defined Benefit Pension Obligations
Description of the
Matter
As described in Note 16 to the consolidated financial statements, at January 4, 2020, the aggregate qualified
defined benefit pension obligation was $8.9 billion and exceeded the fair value of pension plan assets of $8.1
billion, resulting in an unfunded defined benefit pension obligation of $809 million. As explained in Note 1
to the consolidated financial statements, the Company updates the estimates used to measure the defined
benefit pension obligation and plan assets annually in the fourth quarter or upon a remeasurement event to
reflect the actual return on plan assets and updated actuarial assumptions.
Auditing the defined benefit pension obligations was complex due to the highly judgmental nature of the
actuarial assumptions (e.g., discount rate, mortality rate, longevity, expected return on plan assets) used in
the measurement process. These assumptions have a significant effect on the projected benefit obligation.
74 Textron 2019 Annual Report
How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls
that address the risks of material misstatement relating to the measurement and valuation of the defined
benefit pension obligation. For example, we tested controls over management’s review of the defined benefit
pension obligation actuarial calculations, the significant actuarial assumptions, and the data inputs provided
to the actuaries.
To test the defined benefit pension obligation, our audit procedures included, among others, evaluating the
methodology used, the significant actuarial assumptions discussed above, and the underlying data used by
management and its actuaries. We compared the actuarial assumptions used by management to historical
trends and evaluated the change in the defined benefit pension obligation from the prior year due to the
change in service cost, interest cost, benefit payments, actuarial gains and losses, contributions, new
longevity assumptions and plan amendments, as applicable. In addition, we involved an actuarial specialist
to assist in evaluating management’s methodology for determining the discount rate that reflects the
maturity and duration of the benefit payments and is used to measure the defined benefit pension obligation.
As part of this assessment, we compared the projected cash flows to prior year and compared the current
year benefits paid to the prior year projected cash flows. To evaluate the mortality rate and the longevity,
we assessed whether the information is consistent with publicly available information and entity-specific
data. We also tested the completeness and accuracy of the underlying data, including the participant data
provided to the Company’s actuaries. Lastly, to evaluate the expected return on plan assets, we assessed
whether management’s assumption is consistent with a range of returns for a portfolio of comparative
investments.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1957.
Boston, Massachusetts
February 25, 2020
Textron 2019 Annual Report 75
Quarterly Data
(Unaudited)
(Dollars in millions, except per share amounts)
Revenues
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 (a)
Gain on business disposition (b)
Income tax expense
Net income
Earnings per share from continuing operations
Basic
Diluted
Basic average shares outstanding (in thousands)
Diluted average shares outstanding (in thousands)
Segment profit margins
Textron Aviation
Bell
Textron Systems
Industrial
Finance
Segment profit margin
(a)
Q1
2019
Q2
Q3
Q4
Q1
2018
Q2
Q3
Q4
$ 1,134 $ 1,123 $ 1,201 $ 1,729 $ 1,010 $ 1,276 $ 1,133 $ 1,552
827
345
1,008
18
19
$ 3,109 $ 3,227 $ 3,259 $ 4,035 $ 3,296 $ 3,726 $ 3,200 $ 3,750
831
752
961
399
380
387
927 1,131 1,222
17
16
771
739
307
308
912 1,009
16
783
311
950
14
770
352
930
15
17
$
$
106 $
104
28
50
6
294
(47)
(35)
—
—
(33)
179 $
105 $
103
49
76
6
339
(24)
(36)
—
—
(62)
217 $
104 $
110
31
47
5
297
(17)
(39)
—
—
(21)
220 $
134 $
118
33
44
11
340
(22)
(36)
(72)
—
(11)
199 $
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
0.76
$ 0.76 $ 0.94 $ 0.96 $ 0.87 $ 0.73 $ 0.88 $ 2.29 $ 1.02
1.02
240,248
242,569
2.26
234,839 232,013 229,755 228,653 260,497 253,904 246,136
236,437 233,545 231,097 229,790 263,672 257,177 249,378
0.87
0.95
0.87
0.72
0.93
9.3%
9.4%
8.7%
7.8%
7.1%
8.2%
8.7%
13.4
15.9
7.5
37.5
10.5%
In the fourth quarter of 2019, special charges of $72 million were recorded under a restructuring plan, principally impacting the Industrial and Textron Aviation
segments. Special charges of $73 million were recorded in the fourth quarter of 2018 under a restructuring plan for the Textron Specialized Vehicles businesses
within our Industrial segment that was initiated in December 2018.
14.7
8.2
0.1
20.0
12.3
8.3
4.7
57.9
14.1
10.5
6.5
29.4
11.6
12.9
5.7
37.5
14.1
9.1
5.5
35.3
14.0
10.0
4.9
35.7
8.4%
7.7%
9.3%
8.5%
9.1%
9.5%
11.0%
13.1
10.7
7.2
50.0
10.6%
(b) On July 2, 2018, we completed the sale of the Tools & Test Equipment product line which resulted in an after-tax gain of $419 million.
76 Textron 2019 Annual Report
Schedule II — Valuation and Qualifying Accounts
2017
2018
2019
$
(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.
31 $
(3)
(4)
5
29 $
29 $
(6)
(4)
6
25 $
280 $
58
(29)
309 $
262 $
56
(38)
280 $
27 $
7
(5)
29 $
27 $
5
(5)
27 $
41
(11)
(6)
7
31
231
63
(32)
262
27
3
(3)
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 January 4, 2020. The evaluation
was performed with the participation of senior management of each business segment and key Corporate functions, under the
supervision of our Chairman, President and Chief Executive Officer (CEO) and our Executive Vice President and Chief Financial
Officer (CFO). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were operating
and effective as of January 4, 2020.
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 January 4,
2020.
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 January 4, 2020, as
stated in its report, which is included herein.
Textron 2019 Annual Report 77
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Textron Inc.
Opinion on Internal Control over Financial Reporting
We have audited Textron Inc.’s internal control over financial reporting as of January 4, 2020, based on criteria established in Internal
Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
Framework), (the COSO criteria). In our opinion, Textron, Inc. (the Company) maintained, in all material respects, effective internal
control over financial reporting as of January 4, 2020, 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 January 4, 2020 and December 29, 2018, 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 January 4, 2020, and the related notes and financial statement schedule contained on page 77, of the Company
and our report dated February 25, 2020 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 25, 2020
78 Textron 2019 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,” and “— Board Committees — Audit Committee,” in the Proxy
Statement for our Annual Meeting of Shareholders to be held on April 29, 2020 is incorporated by reference into this Annual Report
on Form 10-K.
Information regarding our executive officers is contained in Part I of this Annual Report on Form 10-K.
Item 11. Executive 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 29, 2020 is incorporated by reference into this Annual
Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder 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 29, 2020 is incorporated by
reference into this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions and Director Independence
The
information appearing under “CORPORATE GOVERNANCE — Director Independence” and “EXECUTIVE
COMPENSATION — Transactions with Related Persons” in the Proxy Statement for our Annual Meeting of Shareholders to be
held on April 29, 2020 is incorporated by reference into this Annual Report on Form 10-K.
Item 14. Principal Accountant Fees and 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 29, 2020 is incorporated by reference into this Annual Report on Form 10-K.
Textron 2019 Annual Report 79
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
4.6
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.
Description of registrant’s securities.
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 10.17 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)
80 Textron 2019 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 2019 Annual Report 81
10.7C
10.7D
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.
10.7E
Amendment No. 4 to Deferred Income Plan for Non-Employee Directors, as Amended and Restated Effective
January 1, 2009.
10.8A
10.8B
10.8C
10.9
10.10
10.11A
10.11B
10.11C
10.11D
10.12A
10.12B
10.13
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.
Aircraft Dry Lease Agreement, made and entered into as of December 18, 2018, between Mr. Donnelly’s
limited liability company and Textron Inc. Incorporated by reference to Exhibit 10.11D to Textron’s Annual
Report on Form 10-K for the fiscal year ended December 29, 2018.
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.
82 Textron 2019 Annual Report
10.14A
10.14B
10.15
10.16
10.17
10.18
21
23
24
31.1
31.2
32.1
32.2
101
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)
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)
Textron Inc. 2015 Long-Term Incentive Plan Equity Program for Non-Employee Directors.
Director Compensation.
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 October 18, 2019, among Textron, the Lenders listed therein, JPMorgan Chase
Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citibank, N.A., as Syndication Agents, and
MUFG Bank, Ltd., as Documentation Agent. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly
Report on Form 10-Q for the fiscal quarter ended September 28, 2019.
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 January 4, 2020,
formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of
Operations, (ii) the Consolidated Statements of Comprehensive Income (iii) the Consolidated Balance Sheets,
(iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, (vi)
the Notes to the Consolidated Financial Statements, and (vii) Schedule II – Valuation and Qualifying Accounts.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
Item 16. Form 10-K Summary
Not applicable.
Textron 2019 Annual Report 83
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 25th day of February 2020.
TEXTRON INC.
Registrant
By:
/s/ Frank T. Connor
Frank T. Connor
Executive Vice President and Chief Financial Officer
84 Textron 2019 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 25th day of February 2020 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
*
Lionel L. Nowell III
*
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
Director
Executive Vice President and Chief Financial Officer
(principal financial officer)
Vice President and Corporate Controller
(principal accounting officer)
Textron 2019 Annual Report 85
NOTES
86 Textron 2019 Annual Report
NOTES
Textron 2019 Annual Report 87
NOTES
88 Textron 2019 Annual Report
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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 29, 2020, at 11 a.m.
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
at Textron Inc., 40 Westminster Street, 18th Floor,
For more information, visit our website at
Providence, RI 02903.
www.textron.com.
Transfer Agent, Registrar and
Dividend Paying Agent
Company Publications and
General Information
For shareholder services such as change of address,
To receive a copy of Textron’s Forms 10-K and
lost certificates or dividend checks, change in
10-Q, Proxy Statement or Annual Report without
registered ownership or the Dividend Reinvestment
charge, visit our website at www.textron.com or send
Plan, write or call:
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Company, LLC
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
phone: (866) 621-2790
email: info@amstock.com
Stock Exchange Information
(Symbol: TXT)
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.,
Textron common stock is listed on the New York
40 Westminster Street, Providence, RI 02903;
Stock Exchange.
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.
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© 2020 Textron Inc.