Textron
Annual Report 2022

Plain-text annual report

2022 ANNUAL REPORT TEXTRON’S GLOBAL NETWORK OF BUSINESSES TEXTRON AVIATION Textron Aviation is home to the Beechcraft® and Cessna® aircraft brands and is a leader in general aviation through two principal product lines: aircraft and aftermarket parts and services. Aircraft includes sales of business jets, turboprop and military trainer and defense aircraft and piston engine aircraft. Aftermarket parts and services includes commercial parts sales and maintenance, inspection and repair services. BELL Bell is a leading supplier of helicopters, tiltrotor aircraft and related spare parts and services. Bell supplies military helicopters and tiltrotors to the U.S. Government and non-U.S. military customers and supplies commercially certified helicopters to corporate, private, law enforcement, utility, public safety, emergency medical and other helicopter operators. Bell provides support and service for an installed base of approximately 13,000 helicopters. 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 develop and integrate products and services for U.S. and non-U.S. military, government and commercial customers to support defense, aerospace and other missions. Product and service offerings include unmanned aircraft systems, electronic systems and solutions, advanced marine craft, piston aircraft engines, live military air training, weapons and related components, and armored and specialty vehicles. TEXTRON eAVIATION Textron eAviation includes Pipistrel, a manufacturer of electrically powered aircraft, along with other research and development initiatives related to sustainable aviation solutions. Pipistrel offers a family of light aircraft and gliders with both electric and combustion engines. Pipistrel’s Velis Electro is the world’s first, and currently only, electric aircraft to receive full type certification from the European Union Aviation Safety Agency. 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. Citation Longitude® Citation Latitude® Bell V-280 Valor Bell-Boeing CMV-22 Osprey E-Z-GO RXV ELiTE Textron GSE Endurance Ship-to-Shore Connector (SSC) Aerosonde 4.8 HQ Pipistrel Velis Electro Pipistrel Panthera 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. Beechcraft® AT-6 Wolverine® Beechcraft® Denali® Cessna® SkyCourier® Bell 360 Invictus Bell 407 GXi Bell 429 Jacobsen Eclipse 360 ELiTE Kautex Fuel System Kautex Pentatonic Battery System RIPSAW® M3 Technology Demonstrator CottonmouthTM ATAC—Adversary Air Services SELECTED YEAR-OVER-YEAR FINANCIAL DATA (Dollars in Millions, Except Per Share Amounts) Total Revenues Total Segment Profit Income from Continuing Operations—GAAP Adjusted Income from Continuing Operations—Non-GAAP1 PER SHARE OF COMMON STOCK Common Stock Price at Year-End Diluted Income from Continuing Operations—GAAP Adjusted Diluted Income from Continuing Operations—Non-GAAP1 COMMON SHARES OUTSTANDING (In Thousands) Diluted Average Year-End FINANCIAL POSITION Total Assets Manufacturing Group Debt Finance Group Debt Shareholders’ Equity Manufacturing Group Debt-to-Capital (Net of Cash) Manufacturing Group Debt-to-Capital KEY PERFORMANCE METRICS Net Cash from Operating Activities of Continuing Operations for the Manufacturing Group—GAAP Manufacturing Cash Flow Before Pension Contributions—Non-GAAP1 2022 $12,869 1,223 862 862 $ 70.80 4.01 4.01 214,973 206,161 $16,293 3,182 375 7,113 15% 31% $ 1,461 1,178 2021 $12,382 1,134 747 748 $ 77.20 3.30 3.30 226,520 216,935 $15,827 3,185 582 6,815 16% 32% $ 1,469 1,149 1. Adjusted Income from Continuing Operations, Adjusted Diluted Earnings Per Share and Manufacturing Cash Flow Before Pension Contributions are Non-GAAP Measures. See page 7 for a Reconciliation to GAAP. Textron 2022 Annual Report 1 FELLOW SHAREHOLDERS, 2022 was a strong year for our company. We saw strong demand across our commercial products and we won a number of military program awards, most notably the U.S. Army Future Long-Range Assault Aircraft (FLRAA) program. We expanded our aircraft product portfolio, certifying and completing first deliveries of three Textron Aviation aircraft models. We acquired Pipistrel, the world’s only manufacturer of certified electric aircraft, and formed a new business segment to focus on the development of sustainable aircraft. With the talent, dedication and hard work of our 34,000 employees, we successfully executed on behalf of our customers in the face of global supply chain challenges. STRONG DEMAND ENVIRONMENT FOR TEXTRON PRODUCTS At Textron Aviation, we finished the year with a backlog of $6.4 billion, up $2.3 billion from year-end 2021. We saw broad-based demand across our portfolio of products, including Cessna Citation Jets, Beechcraft King Airs, Cessna Caravans and the new Cessna SkyCourier. The fractional and charter segments of our Aviation markets also experienced strong demand throughout the year with new orders from customers, including flyExclusive and Fly Alliance. In March, Textron Aviation celebrated FAA certification of the Cessna SkyCourier, its new clean-sheet aircraft. Following certification, Textron Aviation delivered the first aircraft to its launch customer, FedEx Express and, by the end of 2022, they had taken delivery of six SkyCouriers. We also received FAA certification and made the first deliveries of our Citation M2 Gen2 entry-level light jet and Citation XLS Gen2 midsize business jet, representing the next generation of these popular models. As Textron Aviation marked the successful certification and deliveries of our newest models, the second Beechcraft Denali prototype took to the skies as part of its flight test program. By the end of 2022, the Denali had accumulated more than 800 flight test hours. To better support our growing base of Cessna and Beechcraft customers, Textron Aviation broke ground on a 180,000-square-foot expansion of its parts distribution facility in Wichita. This additional space will allow Textron Aviation to invest in inventory to support new SCOTT C. DONNELLY Chairman and Chief Executive Officer 2022 REVENUES: $12.9 BILLION (4% increase year over year) 2022 HIGHLIGHTS JANUARY FEBRUARY MARCH Bell completes first nacelle improvement on an U.S. Air Force CV-22 Osprey Bell 505 global fleet achieves 100,000 flight hours FAA certification of the Cessna SkyCourier 2 Textron 2022 Annual Report Textron 2022 Annual Report 3 products and bolster stock levels for existing products. In response to customer demand in the Dallas-Fort Worth metro area, Textron Aviation announced a new satellite service center at Dallas Love Field. This will offer additional flexibility to our customers—both those locally based and transit customers doing business in the area. We also saw increased commercial sales activity at Bell across our product portfolio, including greater demand for our 505 Jet Ranger X for use in pilot training. During the year, South Korea ordered forty Bell 505 aircraft for use as its next military training helicopter, and the Royal Jordanian Air Force ordered ten 505s as well as a flight training device and a comprehensive computer-based training package. During the year, the Bell 505 celebrated two important milestones, achieving its 400th delivery and surpassing 100,000 flight hours. The Bell 429 also marked a milestone as it surpassed 500,000 global flight hours, continuing to showcase its versatility throughout corporate, HEMS, law enforcement and utility missions. Demand was strong for our Textron Specialized Vehicles product lineup of golf, turf maintenance and ground support equipment businesses. In response to customer demand for products that reduce the impact on the environment, we expanded our lineup of zero- emission products powered by lithium-ion battery technology. WINNING NEW CONTRACT AWARDS AND EXECUTING ON EXISTING PROGRAMS FOR OUR MILITARY CUSTOMERS In December, the U.S. Army awarded Bell the development contract for the U.S. Army’s FLRAA program. We are honored that the Army selected the Bell V-280 Valor tiltrotor to modernize its Air Assault fleet and look forward to delivering this transformational aircraft to the warfighters. Through more than 700,000 hours of operational tiltrotor flight time on the V-22 fleet, Bell demonstrated the unique capabilities of tiltrotor technology. The V-280 advances this technology, providing unmatched speed, range, payload, agility, survivability and endurance that will transform Army aviation. As Bell prepares to execute on the FLRAA contract pending a competitor’s bid protest, it also made significant progress during the year on the Bell 360 Invictus, our aircraft submission for the Army’s Future Attack Reconnaissance Aircraft (FARA) program. With the build of the 360 Invictus nearly complete, we are expecting first flight in 2023 pending delivery of the Army improved turbo engine. At Textron Systems, we advanced our weapons programs with two contract awards based on our new anti-vehicle munition system that fulfills the U.S. Army’s directive for next-generation APRIL MAY JUNE 2022 SEGMENT PROFIT: $1.2 BILLION (8% increase year over year) 2 Textron 2022 Annual Report Textron 2022 Annual Report 3 Aerosonde® SUAS has successful first flight and maritime integration on a U.S. Navy Guided Missile Destroyer Citation XLS Gen2 achieves FAA certification, begins deliveries Special Olympics Airlift by Textron Aviation takes flight 2022 TOTAL REVENUES BY SEGMENT Textron Aviation 39.4% Industrial 27.0% Bell 24.0% Textron Systems 9.1% Finance 0.4% Textron eAviation 0.1% 2022 TOTAL REVENUES BY SEGMENT 2022 TOTAL REVENUES BY CUSTOMER Textron Aviation 39.4% Industrial 27.0% Bell 24.0% Textron Systems 9.1% Finance 0.4% Textron eAviation 0.1% Commercial 78% U.S. Government 22% technology in this area. The XM204 Top Attack Munition, an anti-vehicle terrain shaping system, is a five-year contract valued at up to $354 million. The other award, also a five-year contract that is valued at $162 million, builds upon the XM204 technology by adding mission planning tools and a remote-control station that enables constant soldier-in-the-loop control. 2022 TOTAL REVENUES BY CUSTOMER 2022 TOTAL REVENUES BY REGION Textron Systems also delivered the CottonmouthTM Advanced Reconnaissance Vehicle (ARV) prototype to the U.S. Marine Corps to begin the formal government evaluation phase that will take place through 2023. Purpose-built for the Marine Corps’ ARV program, the Cottonmouth has a multi-domain command and control suite integrated into the vehicle that allows it to coordinate data and serve as the battlefield manager for the modern battlefield. Textron Systems also delivered its fifth and sixth Ship-to-Shore connector to the U.S. Navy following successful completion of acceptance trials. Our Beechcraft AT-6E Wolverine achieved Military Type Certification from the U.S. Air Force, enabling global sales of this light attack aircraft through either the U.S. government-sponsored Commercial 78% U.S. Government 22% foreign military sales program or the direct commercial sales process. Textron Aviation U.S. 68% Europe 11% Other International 21% Defense also celebrated the 1,000th delivery of the T-6 military flight trainer and five million flight hours across the global fleet. The Beechcraft T-6 aircraft is flown by 13 nations and two NATO flight schools, a testament to this multi-mission aircraft system designed to meet a wide variety of warfighter and peacekeeper needs. INNOVATION FOR A SUSTAINABLE FUTURE 2022 TOTAL REVENUES BY REGION As part of our commitment to reducing the environmental footprint of our manufacturing operations, we continued towards our five-year Achieve 2025 Energy Use and Greenhouse Gas Emission reduction goals. We also moved forward with innovations that incorporate sustainability into product design. Textron GSE announced a collaboration with GM and Powertrain Control Solutions (PCS) to electrify its diverse product line. This integrated driveline, specifically designed for Textron GSE products, utilizes GM’s lithium-ion battery systems. This is enabling Textron GSE to broaden its electric product offering across its TUG, Premier, Douglas and Safeaero brands, including the launch of the new TUG Endurance baggage/cargo tractor available with a lithium-ion electric powertrain. As we began 2023, Jacobsen introduced its new SF1 ELiTE lithium mowers as part of its expanded lithium-powered lineup. U.S. 68% Europe 11% Other International 21% Kautex announced it had received the first order from an automotive OEM for a thermoplastic composite underbody battery protection skid plate. The new skid plate design will be produced for on-and-off-road applications. It is part of Kautex’s new Pentatonic battery system product line supporting battery electric vehicle production. During the year, Kautex also continued to execute on its hybrid fuel tank programs, winning 14 hybrid electric vehicle programs. JULY AUGUST SEPTEMBER Beechcraft AT-6E Wolverine achieves Military Type Certification from the U.S. Air Force CottonmouthTM Advanced Reconnaissance Vehicle prototype build is completed Textron GSE unveils TUG Endurance baggage/cargo tractor 4 Textron 2022 Annual Report Textron 2022 Annual Report 5 All Textron Aviation-owned service centers around the world achieved certification as part of the National Air Transportation Association’s Sustainability Standard for Aviation Businesses, the first aircraft original equipment manufacturer to receive this recognition and the largest company with multiple locations to self-certify each site. ACQUISITION OF PIPISTREL SUPPORTS OUR LONG-TERM STRATEGY 2022 TOTAL REVENUES BY SEGMENT 2022 TOTAL REVENUES BY CUSTOMER FOR SUSTAINABLE AVIATION Our acquisition of Pipistrel, a pioneer and global leader in electrically powered aircraft, puts us in a uniquely strong position to develop technologies for the sustainable aviation market. Along with the formation of our Textron eAviation business segment, we can pursue our long-term strategy to offer a family of sustainable aircraft for urban air mobility, general aviation, cargo and special mission roles as well as other research and development initiatives related to sustainable aviation solutions. including the Velis Electro, the only certified electric aircraft in commercial service, now certified Pipistrel will remain a distinct aviation brand within Textron, joining Cessna, Beechcraft and Bell. Textron Aviation 39.4% Pipistrel’s products include light aircraft and gliders with both electric and combustion engines, Industrial 27.0% Bell 24.0% in more than 30 countries. This lineup of sustainable aircraft complements our existing aviation Textron Systems 9.1% Finance 0.4% product portfolio and provides our customers with additional options for aircraft depending on Textron eAviation 0.1% Commercial 78% U.S. Government 22% their needs. 2022 TOTAL REVENUES BY REGION U.S. 68% Europe 11% Other International 21% Pipistrel is working to expand its electric aircraft lineup with the introduction of the Nuuva V300, an unmanned hybrid electric aircraft designed for aerial cargo missions requiring long range, large capacity and heavy weight capabilities. Flight testing for this autonomous air vehicle is slated to begin in 2023. A SUCCESSFUL 2022 Our success in 2022 was a confluence of a strong demand environment, our broad product portfolio and successful execution by our businesses. As we navigated the challenges of the global supply chain, our teams demonstrated incredible resolve. With robust commercial activity, several significant military awards and an active pipeline of new products, we are well-positioned to continue this momentum for an even more successful 2023. Our teams across the globe are ready to seize the opportunities that are ahead. SCOTT C. DONNELLY Chairman and Chief Executive Officer OCTOBER NOVEMBER DECEMBER ATP Flight School to purchase 55 Cessna Skyhawk aircraft Pipistrel delivers first Velis Electro to Canada Bell V-280 Valor chosen as new U.S. Army Future Long-Range Assault Aircraft Textron 2022 Annual Report 5 LEADERSHIP BOARD OF DIRECTORS Scott C. Donnelly (1) Chairman, President and CEO Textron Inc. James T. Conway (1) (3) General (Retired) U.S. Marine Corps Richard F. Ambrose (2) (4) Executive Vice President, Space (Retired) Lockheed Martin Corporation Ralph D. Heath (2) (4) Executive Vice President, Aeronautics (Retired) Lockheed Martin Corporation Kathleen M. Bader (2) (3) President and CEO (Retired) NatureWorks LLC R. Kerry Clark (1) (2) (3) (5) Chairman and CEO (Retired) Cardinal Health, Inc. Deborah Lee James (2) (3) 23rd Secretary of the U.S. Air Force (Retired) Thomas A. Kennedy (2) (4) Executive Chairman (Retired) Raytheon Technologies Lionel L. Nowell III (1) (2) Senior Vice President and Treasurer (Retired) PepsiCo, Inc. 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, Lionel L. Nowell III (3) Nominating and Corporate Governance Committee: Chair, James T. Conway (4) Organization and Compensation Committee: Chair, James L. Ziemer (5) Lead Director: R. Kerry Clark 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 and Chief Human Resources Officer E. Robert Lupone Executive Vice President, General Counsel, Secretary and Chief Compliance Officer Textron Inc. SEGMENT AND BUSINESS UNIT PRESIDENTS Tom Hammoor President and CEO Textron Systems 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 Rob Scholl President and CEO Textron eAviation Mitch Snyder President and CEO Bell CORPORATE OFFICERS Mark S. Bamford Vice President and Corporate Controller Textron Inc. Janet S. Fogarty Vice President and Deputy General Counsel Textron Inc. Dana L. Goldberg Vice President – Tax Textron Inc. Scott P. Hegstrom Vice President – Mergers & Acquisitions and Strategy Textron Inc. Shannon H. Hines Senior Vice President – Government Affairs & 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. Eric Salander Vice President – Investor Relations and Treasurer Textron Inc. 6 Textron 2022 Annual Report Textron 2022 Annual Report 7 FOOTNOTE TO SELECTED YEAR-OVER-YEAR FINANCIAL DATA ADJUSTED INCOME FROM CONTINUING OPERATIONS AND ADJUSTED DILUTED EARNINGS PER SHARE Adjusted income from continuing operations and adjusted diluted earnings per share exclude special charges, net of tax. We consider items recorded in special charges, such as enterprise-wide restructuring, certain asset impairment charges, 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 disposition, net of tax is also excluded as it relates to a disposition in connection with our enterprise-wide restructuring plan, which resulted in the sale of the TRU Simulation + Training Canada Inc. business. ADJUSTED INCOME FROM CONTINUING OPERATIONS AND ADJUSTED DILUTED EARNINGS PER SHARE GAAP TO NON-GAAP RECONCILIATION (Dollars in Millions, Except Per Share Amounts) Income from continuing operations—GAAP Add: Special charges, net of tax Less: Gain on business disposition, net of tax Adjusted income from continuing operations—Non-GAAP Earnings per share: Income from continuing operations—GAAP Add: Special charges, net of tax Less: Gain on business disposition, net of tax Adjusted income from continuing operations—Non-GAAP 2022 $ 862 — — $ 862 $4.01 — — $4.01 2021 $ 747 18 (17) $ 748 $ 3.30 0.08 (0.08) $ 3.30 MANUFACTURING CASH FLOW BEFORE PENSION CONTRIBUTIONS Manufacturing cash flow before pension contributions adjusts net cash from operating activities (GAAP) for the following: • Deducts capital expenditures and includes proceeds from insurance recoveries and 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. 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) 2017 (In Millions) Net cash from operating activities—GAAP Less: Capital expenditures Add: Total pension contribution Proceeds from sale of property, plant and equipment Manufacturing cash flow before pension contributions—Non-GAAP 2022 2021 $1,461 (354)) 49 22 $1,178 $1,469 (375) 52 3 $1,149 Textron 2022 Annual Report 7 FOCUSED ON THE FUTURE PAST CELEBRATING OUR HERITAGE PRESENT PROUD OF OUR ACHIEVEMENTS FUTURE LOOKING FORWARD 8 Textron 2022 Annual Report 1923 Special Yarns Corporation established in Boston by Textron’s founder, Royal Little 1930 Company expands and moves to Providence, RI 1944 Company name changes to include “Textron” 1947 1960 1985 1992 Listed on the New York Stock Exchange Acquisitions of Bell Aircraft Corporation and E-Z-GO Car Corporation Acquisition of AVCO Corporation, doubling Textron’s size Acquisition of The Cessna Aircraft Company 1997 Acquisition of Kautex 2007 2008 2014 2015 Expansion of Textron Systems with acquisition of United Industrial Corporation Creation of Textron Systems segment Acquisition of Beechcraft Corporation; Textron Aviation segment established Established Textron Specialized Vehicles— bringing golf, consumer, turf and ground support equipment into one business 2022 Acquisition of Pipistrel, maker of world’s first certified electric aircraft; creation of Textron eAviation segment 2023 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 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) 40 Westminster Street, Providence, RI (Address of principal executive offices) 05-0315468 (I.R.S. Employer Identification No.) 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. xYes ¨ 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 x No 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. x Yes ¨ 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). x Yes ¨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 x Non-accelerated filer ☐ Smaller reporting company ☐ Accelerated filer ☐ 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Yes ¨ No Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b) ☐ The aggregate market value of the registrant’s Common Stock held by non-affiliates at July 2, 2022 was approximately $12.9 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 4, 2023, 205,216,698 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 26, 2023. Textron 2022 Annual Report 1 Textron Inc. Index to Annual Report on Form 10-K For the Fiscal (cid:44)ear Ended December 31, 2022 PART I Item 1. (cid:28)usiness Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Item 3. Item 4. PART II Item 5. Properties Legal Proceedings Mine Safety Disclosures Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. (cid:43)uantitative and (cid:43)ualitative Disclosures About Market Risk Item 8. Item 9. Financial Statements and Supplementary Data Changes In and Disagreements (cid:49)ith Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections PART III Item 10. Item 11. Directors, Executive Officers and Corporate (cid:33)overnance Executive Compensation Item 12. Security Ownership of Certain (cid:28)eneficial Owners and Management and Related Stockholder Matters Item 13. Item 14. PART I(cid:41) Item 15. Item 16. Signatures Certain Relationships and Related Transactions and Director Independence Principal Accountant Fees and Services Exhibits and Financial Statement Schedules Form 10-(cid:37) Summary 2 Textron 2022 Annual Report Page 3 10 17 17 18 18 18 20 31 32 69 69 71 71 71 71 71 71 72 75 76 2 PART I Item 1. (cid:21)usiness 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. References to “Textron Inc.,” the “Company,” “we,” “our” and “us” in this Annual Report on Form 10-(cid:37), unless otherwise indicated, refer to Textron Inc. and its consolidated subsidiaries. (cid:49)e conduct our business through six operating segments: Textron Aviation, (cid:28)ell, Textron Systems, Industrial and Textron eAviation, which represent our manufacturing businesses, and Finance, which represents our captive finance business. Our segments include operations that are unincorporated divisions of Textron Inc. and others that are separately incorporated subsidiaries. Total revenues by segment and customer type for 2022 are presented below. 2022 Total Revenues by Segment 2022 Total Revenues by Customer Type Textron Aviation 39.4(cid:2) Commercial (cid:16)8(cid:2) Industrial 2(cid:16).0(cid:2) Textron eAviation 0.1(cid:2) Finance 0.4(cid:2) Textron Systems 9.1(cid:2) (cid:21)ell 24.0(cid:2) U.S. Government 22(cid:2) The following description of our business and operating segments should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Textron Aviation Segment Textron Aviation is a leader in general aviation. Textron Aviation manufactures, sells and services (cid:28)eechcraft and Cessna aircraft, and services the (cid:34)awker 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, military trainer and defense aircraft and piston engine aircraft. Aftermarket parts and services includes commercial parts sales and maintenance, inspection and repair services. Textron Aviation markets its products worldwide through its own sales force, as well as through a network of authorized independent sales representatives. The family of jets currently offered by Textron Aviation includes the Citation M2 (cid:33)en2, Citation CJ3(cid:10), Citation CJ4 (cid:33)en2, Citation XLS (cid:33)en2, Citation Latitude and the Citation Longitude. Textron Aviation’s turboprop aircraft include the (cid:28)eechcraft (cid:37)ing Air 260, (cid:37)ing Air 360ER and (cid:37)ing Air 360, and the Cessna Caravan, (cid:33)rand Caravan EX and SkyCourier, which was certified in March 2022. In addition, 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, and the AT-6 light attack military aircraft, which achieved military type certification from the U.S. Air Force in July 2022, enabling international sales of the aircraft. Textron Aviation also offers piston engine aircraft including the (cid:28)eechcraft (cid:28)aron (cid:33)58 and (cid:28)onanza (cid:33)36, and the Cessna Skyhawk, Skylane, Turbo Skylane, and Turbo Stationair (cid:34)D. In support of its family of aircraft, Textron Aviation operates a global network of more than 20 service centers, two of which are co-located with (cid:28)ell, 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, provides component and maintenance, repair and overhaul services in support of commercial and military fixed- and rotor-wing aircraft. Product Development Programs Textron Aviation is developing the Denali, a high-performance single engine turboprop aircraft that will be powered by an engine expected to be up to 20(cid:4) more efficient than similarly sized engines. The Denali achieved its first flight in November 2021 and is currently in the flight testing process. Textron 2022 Annual Report 3 3 (cid:21)ell Segment (cid:28)ell is one of the leading suppliers of military and commercial helicopters, tiltrotor aircraft, and related spare parts and services in the world. (cid:28)ell supplies advanced military helicopters and provides parts and support services to the U.S. (cid:33)overnment and to military customers outside the United States. (cid:28)ell’s primary U.S. (cid:33)overnment programs are for the production and support of (cid:48)-22 tiltrotor aircraft, primarily for the U.S. Department of Defense, and (cid:34)-1 helicopters for the U.S. Marine Corps. (cid:28)ell is one of the leading suppliers of helicopters to the U.S. (cid:33)overnment and, in association with The (cid:28)oeing Company, the only supplier of military tiltrotor aircraft. Tiltrotor aircraft are designed to provide the benefits of both helicopters and fixed-wing aircraft. The (cid:34)-1 helicopter program includes a utility model, the U(cid:34)-1Y, and an advanced attack model, the A(cid:34)-1Z, which have 84(cid:4) parts commonality between them. Under the U.S. (cid:33)overnment-sponsored foreign military sales program, (cid:28)ell offers its (cid:48)-22 tiltrotor aircraft and (cid:34)-1 helicopter products for sale to other countries. Through its commercial business, (cid:28)ell is a leading supplier of commercially certified helicopters and support to corporate, private, law enforcement, utility, public safety and emergency medical helicopter operators, and U.S. and foreign governments. (cid:28)ell 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 commercial helicopters currently offered by (cid:28)ell include the 429, 407(cid:33)Xi, 412EPX, 412EPI, 505 Jet Ranger X and (cid:34)uey II. For both its military programs and its commercial products, (cid:28)ell provides post-sale support and service for an installed base of approximately 13,000 helicopters through a network of eight Company-operated service centers, four global parts distribution centers and approximately 85 independent service centers located in approximately 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. Product Development Programs (cid:28)ell is developing the (cid:48)-280 (cid:48)alor, a next generation vertical lift aircraft for the Future Long Range Assault Aircraft (FLRAA) program, which is part of the U.S. Army’s Future (cid:48)ertical Lift (F(cid:48)L) initiative. The (cid:48)-280 achieved its first flight in December 2017, conducted over 200 hours of flight testing, and has demonstrated all key performance objectives established by the U.S. Army, including flying in excess of 300 knots airspeed. After an extended competitive process, in December 2022, (cid:28)ell was awarded the development contract for the next stage of the FLRAA program. A competitor has filed a protest with the (cid:33)overnment Accountability Office ((cid:33)AO) regarding the award of the FLRAA contract to (cid:28)ell, and a stop-work order has been issued pending resolution of the protest. (cid:49)e expect the (cid:33)AO to issue its decision on the protest by April 7, 2023. (cid:28)ell is developing a new rotorcraft, the (cid:28)ell 360 Invictus, for the U.S. Army's Future Attack Reconnaissance Aircraft (FARA) Competitive Prototype Program, which is also part of the U.S. government's F(cid:48)L initiative. The FARA program was initiated by the U.S. Army to develop a successor to the retired (cid:28)ell O(cid:34)-58D (cid:37)iowa (cid:49)arrior helicopter. In March 2020, the U.S. Army selected the 360 Invictus to move to the second phase of the Competitive Prototype Program. (cid:28)ell continues to progress on its development of the 360 Invictus Prototype under this phase. (cid:28)ell’s first super medium commercial helicopter, the 525 Relentless, is currently in the certification process with the Federal Aviation Administration (FAA). Textron Systems Segment The businesses in our Textron Systems segment develop and integrate a variety of products and services for U.S. and international military, government and commercial customers to support defense, homeland security, aerospace, infrastructure protection and other customer missions. Product and service offerings of this segment include unmanned aircraft systems, electronic systems and solutions, advanced marine craft, piston aircraft engines, live military air-to-air and air-to-ship training, weapons and related components, and armored and specialty vehicles. Notable products developed and produced by the Textron Systems segment include the Shadow, the U.S. Army's premier tactical unmanned aircraft system(cid:26) the Aerosonde Small Unmanned Aircraft System, a multi-mission capable unmanned aircraft system for commercial and military operations(cid:26) the U.S. Navy's next generation Landing Craft Air Cushion, developed as part of the Ship-to-Shore Connector program(cid:26) and piston aircraft engines under the Lycoming brand. Notable service offerings of the segment include fee-for-service programs using unmanned aircraft systems and live military air-to-air and air-to-ship training and support services for U.S. Navy, Marine and Air Force personnel provided by Airborne Tactical Advantage Company. 4 Textron 2022 Annual Report 4 (cid:21)ell Segment the world. (cid:28)ell is one of the leading suppliers of military and commercial helicopters, tiltrotor aircraft, and related spare parts and services in (cid:28)ell supplies advanced military helicopters and provides parts and support services to the U.S. (cid:33)overnment and to military customers outside the United States. (cid:28)ell’s primary U.S. (cid:33)overnment programs are for the production and support of (cid:48)-22 tiltrotor aircraft, primarily for the U.S. Department of Defense, and (cid:34)-1 helicopters for the U.S. Marine Corps. (cid:28)ell is one of the leading suppliers of helicopters to the U.S. (cid:33)overnment and, in association with The (cid:28)oeing Company, the only supplier of military tiltrotor aircraft. Tiltrotor aircraft are designed to provide the benefits of both helicopters and fixed-wing aircraft. The (cid:34)-1 helicopter program includes a utility model, the U(cid:34)-1Y, and an advanced attack model, the A(cid:34)-1Z, which have 84(cid:4) parts commonality between them. Under the U.S. (cid:33)overnment-sponsored foreign military sales program, (cid:28)ell offers its (cid:48)-22 tiltrotor aircraft and (cid:34)-1 helicopter products for sale to other countries. Through its commercial business, (cid:28)ell is a leading supplier of commercially certified helicopters and support to corporate, private, law enforcement, utility, public safety and emergency medical helicopter operators, and U.S. and foreign governments. (cid:28)ell 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 commercial helicopters currently offered by (cid:28)ell include the 429, 407(cid:33)Xi, 412EPX, 412EPI, 505 Jet Ranger X and (cid:34)uey II. Industrial Segment Our Industrial segment designs and manufactures a variety of products within the Fuel Systems and Functional Components and Specialized (cid:48)ehicles product lines. Our Fuel Systems and Functional Components product line is produced by our (cid:37)autex business unit which is headquartered in (cid:28)onn, (cid:33)ermany. (cid:37)autex 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. (cid:37)autex 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, (cid:37)autex produces plastic tanks for selective catalytic reduction systems used to reduce emissions from diesel engines, and other fuel system components. (cid:37)autex has also developed and begun to market the Pentatonic battery system, a customizable, lightweight battery housing with thermal management capabilities, comprised of either thermoplastic composite or composite metal hybrid, for use in electric vehicles, from hybrid to full battery-powered. (cid:37)autex’s business model is focused on developing and maintaining long-term customer relationships with leading global original equipment manufacturers (OEMs). (cid:37)autex operates over 30 plants in 13 countries in close proximity to its customers, along with 9 engineering(cid:14)research and development locations around the world. For both its military programs and its commercial products, (cid:28)ell provides post-sale support and service for an installed base of approximately 13,000 helicopters through a network of eight Company-operated service centers, four global parts distribution centers and approximately 85 independent service centers located in approximately 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. Our Specialized (cid:48)ehicles product line includes products sold by the Textron Specialized (cid:48)ehicles businesses under our E-Z-(cid:33)O, Arctic Cat, TU(cid:33) 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. A significant portion of the products sold by these businesses are powered with lithium batteries, greatly reducing the products’ impact on the environment. Product Development Programs (cid:28)ell is developing the (cid:48)-280 (cid:48)alor, a next generation vertical lift aircraft for the Future Long Range Assault Aircraft (FLRAA) program, which is part of the U.S. Army’s Future (cid:48)ertical Lift (F(cid:48)L) initiative. The (cid:48)-280 achieved its first flight in December 2017, conducted over 200 hours of flight testing, and has demonstrated all key performance objectives established by the U.S. Army, including flying in excess of 300 knots airspeed. After an extended competitive process, in December 2022, (cid:28)ell was awarded the development contract for the next stage of the FLRAA program. A competitor has filed a protest with the (cid:33)overnment Accountability Office ((cid:33)AO) regarding the award of the FLRAA contract to (cid:28)ell, and a stop-work order has been issued pending resolution of the protest. (cid:49)e expect the (cid:33)AO to issue its decision on the protest by April 7, 2023. (cid:28)ell is developing a new rotorcraft, the (cid:28)ell 360 Invictus, for the U.S. Army's Future Attack Reconnaissance Aircraft (FARA) Competitive Prototype Program, which is also part of the U.S. government's F(cid:48)L initiative. The FARA program was initiated by the U.S. Army to develop a successor to the retired (cid:28)ell O(cid:34)-58D (cid:37)iowa (cid:49)arrior helicopter. In March 2020, the U.S. Army selected the 360 Invictus to move to the second phase of the Competitive Prototype Program. (cid:28)ell continues to progress on its development of the 360 Invictus Prototype under this phase. (cid:28)ell’s first super medium commercial helicopter, the 525 Relentless, is currently in the certification process with the Federal Aviation Administration (FAA). Textron Systems Segment The businesses in our Textron Systems segment develop and integrate a variety of products and services for U.S. and international military, government and commercial customers to support defense, homeland security, aerospace, infrastructure protection and other customer missions. Product and service offerings of this segment include unmanned aircraft systems, electronic systems and solutions, advanced marine craft, piston aircraft engines, live military air-to-air and air-to-ship training, weapons and related components, and armored and specialty vehicles. Notable products developed and produced by the Textron Systems segment include the Shadow, the U.S. Army's premier tactical unmanned aircraft system(cid:26) the Aerosonde Small Unmanned Aircraft System, a multi-mission capable unmanned aircraft system for commercial and military operations(cid:26) the U.S. Navy's next generation Landing Craft Air Cushion, developed as part of the Ship-to-Shore Connector program(cid:26) and piston aircraft engines under the Lycoming brand. Notable service offerings of the segment include fee-for-service programs using unmanned aircraft systems and live military air-to-air and air-to-ship training and support services for U.S. Navy, Marine and Air Force personnel provided by Airborne Tactical Advantage Company. The diversified customer base for the Specialized (cid:48)ehicles product line 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 and landscaping professionals. Sales are made through a network of independent distributors and dealers worldwide and the (cid:28)ass Pro Shops and Cabela's retail outlets, which sell our products under the Tracker Off Road brand, as well as factory direct resources. In addition, we also manufacture products for OEMs for resale to customers under the OEM’s branding. Textron eAviation Segment Textron eAviation was formed in the second quarter of 2022 following our acquisition of Pipistrel, a manufacturer of electrically powered aircraft, on April 15, 2022. Pipistrel offers a family of light aircraft and gliders with both electric and combustion engines. Pipistrel’s (cid:48)elis Electro is the world’s first, and currently only, electric aircraft to receive full type certification from the European Union Aviation Safety Agency and, in 2022, it earned U(cid:37) Civil Aviation Authority type certification. The Textron eAviation segment includes Pipistrel along with other research and development initiatives related to sustainable aviation solutions. 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 (cid:28)ell helicopters. A substantial number of the originations in our finance receivable portfolio are cross-border transactions for aircraft sold outside of the U.S. In 2022 and 2021, our Finance group paid our Manufacturing group $92 million and $100 million, respectively, related to the sale of Textron-manufactured products to third parties that were financed by the Finance group. Our Finance segment’s largest business risk is the collectability of its finance receivable portfolio. See Finance Segment section in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for information about the Finance segment’s credit performance. 4 Textron 2022 Annual Report 5 5 (cid:21)ac(cid:55)log (cid:28)acklog represents amounts allocated to contracts that we expect to recognize as revenue in future periods when we perform under the contracts. (cid:28)acklog excludes unexercised contract options and potential orders under ordering-type contracts, such as Indefinite Delivery, Indefinite (cid:43)uantity contracts. Our backlog at the end of 2022 and 2021 is summarized below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Textron Aviation (cid:28)ell Textron Systems Total backlog $ December 31, 2022 6,387 $ 4,781 2,098 13,266 $ $ (cid:29)anuary 1, 2022 4,120 3,871 2,144 10,135 U.S. Government Contracts and Other Governmental Regulation Our operations, products and services are subject to various government regulations, including regulations related to U.S. government business, international regulation of aviation products and services, and environmental regulations. Contracts with the U.S. (cid:33)overnment, including contracts under the U.S. (cid:33)overnment-sponsored foreign military sales program, generated approximately 22(cid:4) of our consolidated revenues in 2022, primarily in our (cid:28)ell and Textron Systems segments. (cid:49)e must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S. (cid:33)overnment contracts. These laws and regulations, among other things, require certification and disclosure of all cost and pricing data in connection with contract negotiation(cid:26) define allowable and unallowable costs and otherwise govern our right to reimbursement under certain cost-based U.S. (cid:33)overnment contracts(cid:26) and safeguard and restrict the use and dissemination of classified and covered defense information and the export of certain products and technical data. New laws, regulations or procurement requirements, or changes to current ones, can significantly increase our costs, reducing our profitability. Our contracts with the U.S. (cid:33)overnment generally may be terminated by the U.S. (cid:33)overnment 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. (cid:33)overnment 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. (cid:33)overnment 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. (cid:33)overnment(cid:26) (b) the U.S. (cid:33)overnment 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(cid:26) (c) the U.S. (cid:33)overnment may not be liable for assets we own and utilize to provide services under the “fee-for-service” contracts(cid:26) and (d) we may be liable for excess costs incurred by the U.S. (cid:33)overnment in procuring undelivered items from another source. See Aerospace and Defense Industry section in Item 1A. Risk Factors for additional information related to regulation of U.S. (cid:33)overnment business. Our commercial aircraft manufacturing businesses are regulated by the FAA in the U.S. and by similar aviation regulatory governing authorities internationally, including, the European Aviation Safety Agency. Maintenance facilities and aftermarket services must also comply with FAA and international regulations. These regulations address production and quality systems, airworthiness and installation approvals, repair procedures and continuing operational safety. For an aircraft to be manufactured and sold, the model must receive a type certificate from the appropriate aviation authority, and each aircraft must receive a certificate of airworthiness. Aircraft outfitting and completions also require approval by the appropriate aviation authority. See Strategic Risks section in Item 1A. Risk Factors for additional information with respect to risks related to obtaining certification of new aircraft products. Our operations are subject to numerous laws and regulations designed to protect the environment. For additional information regarding environmental matters, see Note 18 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, and (cid:28)usiness and Operational Risks and Risks Related to Regulatory, Legal and Other Matters sections in Item 1A. Risk Factors. (cid:28)ased on current information and the applicable laws and regulations currently in effect, compliance with government regulations, including environmental regulations, has not had, and we do not expect it to have, a material effect on our capital expenditures, earnings or competitive position. (cid:34)owever, laws and regulations may be changed or adopted that impose additional compliance requirements which could necessitate capital expenditures or otherwise increase our costs of doing business, reducing our profitability and negatively impacting our operating results. 6 Textron 2022 Annual Report 6 Human Capital Resources At December 31, 2022, we employed approximately 34,000 employees worldwide, with approximately 80(cid:4) located in the U.S. and the remainder located outside of the U.S. Approximately 7,300, or 27(cid:4), of our U.S. employees, most of whom work for our (cid:28)ell and Textron Aviation segments, are represented by unions under collective bargaining agreements, and certain of our non- U.S. employees are represented by organized works councils. From time to time our collective bargaining agreements expire. (cid:34)istorically, we have been successful in negotiating renewals to expiring agreements without any material disruption of operating activities, and management considers employee relations to be good. Our success is highly dependent upon our ability to hire and retain a workforce with the skills necessary for our businesses to develop and manufacture the products desired by our customers. (cid:49)e need highly skilled personnel in multiple areas including, among others, engineering, manufacturing, information technology, cybersecurity, flight operations, business development and strategy and management. In order to attract and retain highly skilled employees, we are committed to ensuring a safe and healthy work environment, offering comprehensive compensation and benefit programs, creating great career opportunities and building an engaging, inclusive environment where all employees are treated with dignity and respect. (cid:26)ealt(cid:47) and (cid:35)a(cid:45)et(cid:64) To maintain and enhance the safety of our employees, we promote a culture of continuous improvement and individual accountability to provide safe workplaces. (cid:49)e use an annual goal setting process to drive injury rate improvements, and the injury rate reduction goal is a performance metric that is tracked and reported to senior leadership and the Audit Committee of the (cid:28)oard of Directors. The health and safety of our employees has been a priority throughout the duration of the CO(cid:48)ID-19 pandemic. Our enterprise- wide pandemic response teams, formed early in the pandemic, guided our operations in the processes and procedures to comply with applicable government-imposed health and safety-related operating restrictions, to enhance the safety of our facilities to protect the health of our employees and to monitor trends. During 2022, these teams continued to operate as needed, updating response actions as government guidance and orders evolved, and we have continued to communicate with our employees as appropriate. (cid:36)alent and (cid:21)areer Development Our talent development programs are designed to prepare our employees at all levels to take on new career and growth opportunities at Textron. Leadership, professional and functional training courses are tailored for employees at each stage of their careers and include a mix of enterprise-wide and business unit-specific programs. Textron University, an internal corporate function, provides (i) facilitated face-to-face professional and leadership development programs, (ii) web-based general and specialized functional and technical courses and (iii) an online portal to access advanced skills technical training, manage recertification of existing qualifications and other career planning tools and resources. The current and future talent needs of each of our businesses are assessed annually through a formal talent review process which enables us to develop leadership succession plans and provide our employees with potential new career opportunities. In addition, leaders from functional areas within each business belong to enterprise-wide councils which conduct annual talent reviews. These processes enable us to fill talent needs by matching employees who are ready to assume significant leadership roles with opportunities that best fit their career path, which may be in other businesses within the enterprise. D(cid:48)vers(cid:48)t(cid:64) and (cid:27)nclus(cid:48)on Textron is committed to having a diverse workforce and inclusive workplaces throughout our global operations. (cid:49)e believe by employing highly talented, diverse employees, who feel valued, respected and are able to contribute fully, we will improve performance, innovation, collaboration and talent retention, all of which contributes to stronger business results and reinforces our reputation as leaders in our industries and communities. For over a decade, Textron has allocated five percent of annual incentive compensation for management-level employees toward achievement of diversity goals. (cid:28)eginning in 2020, we focused these goals specifically on hiring diversity. To improve our outreach to diverse candidates, we have increased our recruiting efforts at historically black colleges and universities, enhanced our partnerships with diverse professional organizations and participated in diverse STEM conferences. In addition, we provide inclusion and unconscious bias training to our employees and recruiters to improve diversity in recruiting. For discussion of certain risks relating to human capital management, see Risks Related to (cid:34)uman Capital section in Item 1A. Risk Factors. Textron 2022 Annual Report 7 7 Patents and Trademar(cid:55)s (cid:49)e 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. (cid:33)overnment may be subject to use by the U.S. (cid:33)overnment. (cid:49)e 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. (cid:49)hile 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. Information about our Executive Officers The following table sets forth certain information concerning our executive officers as of February 16, 2023. Name Scott C. Donnelly Frank T. Connor Julie (cid:33). Duffy E. Robert Lupone Age Current Position with Textron Inc. 61 Chairman, President and Chief Executive Officer 63 57 63 Executive (cid:48)ice President and Chief Financial Officer Executive (cid:48)ice President and Chief (cid:34)uman Resources Officer Executive (cid:48)ice President, (cid:33)eneral Counsel, Secretary and Chief Compliance Officer Mr. Donnelly joined Textron in June 2008 as Executive (cid:48)ice President and Chief Operating Officer and was promoted to President and Chief Operating Officer in January 2009. (cid:34)e was appointed to the (cid:28)oard of Directors in October 2009 and became Chief Executive Officer of Textron in December 2009. In July 2010, Mr. Donnelly was appointed Chairman of the (cid:28)oard of Directors effective September 1, 2010. Previously, Mr. Donnelly was the President and CEO of (cid:33)eneral Electric Company’s Aviation business unit, a position he had held since July 2005. (cid:33)E’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 (cid:48)ice President of (cid:33)E (cid:33)lobal Research, one of the world’s largest and most diversified industrial research organizations with facilities in the U.S., India, China and (cid:33)ermany and held various other management positions since joining (cid:33)eneral Electric in 1989. Mr. Connor joined Textron in August 2009 as Executive (cid:48)ice President and Chief Financial Officer. Previously, Mr. Connor was head of Telecom Investment (cid:28)anking at (cid:33)oldman, Sachs (cid:5) Co. from 2003 to 2008. Prior to that position, he served as Chief Operating Officer of Telecom, Technology and Media Investment (cid:28)anking at (cid:33)oldman, Sachs (cid:5) Co. from 1998 to 2003. Mr. Connor joined the Corporate Finance Department of (cid:33)oldman, Sachs (cid:5) Co. in 1986 and became a (cid:48)ice President in 1990 and a Managing Director in 1996. Ms. Duffy was named Executive (cid:48)ice President, (cid:34)uman Resources in July 2017 and Executive (cid:48)ice President and Chief (cid:34)uman Resources Officer in April 2022. 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 (cid:48)ice President and Deputy (cid:33)eneral 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 (cid:48)ice President, (cid:33)eneral 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 A(cid:33) 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 (cid:49)e make available free of charge on our Internet (cid:49)eb site (www.textron.com) our Annual Report on Form 10-(cid:37), (cid:43)uarterly Reports on Form 10-(cid:43), Current Reports on Form 8-(cid:37) 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. 8 Textron 2022 Annual Report 8 Forward-Loo(cid:55)ing Information Certain statements in this Annual Report on Form 10-(cid:37) 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. (cid:33)iven 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:81) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) Interruptions in the U.S. (cid:33)overnment’s ability to fund its activities and(cid:14)or pay its obligations(cid:26) Changing priorities or reductions in the U.S. (cid:33)overnment defense budget, including those related to military operations in foreign countries(cid:26) Our ability to perform as anticipated and to control costs under contracts with the U.S. (cid:33)overnment(cid:26) The U.S. (cid:33)overnment’s ability to unilaterally modify or terminate its contracts with us for the U.S. (cid:33)overnment’s convenience or for our failure to perform, to change applicable procurement and accounting policies, or, under certain circumstances, to withhold payment or suspend or debar us as a contractor eligible to receive future contract awards(cid:26) 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:26) (cid:48)olatility in the global economy or changes in worldwide political conditions that adversely impact demand for our products(cid:26) (cid:48)olatility in interest rates or foreign exchange rates and inflationary pressures(cid:26) Risks related to our international business, including establishing and maintaining facilities in locations around the world and relying on joint venture partners, subcontractors, suppliers, representatives, consultants and other business partners in connection with international business, including in emerging market countries(cid:26) Our Finance segment’s ability to maintain portfolio credit quality or to realize full value of receivables(cid:26) Performance issues with key suppliers or subcontractors(cid:26) Legislative or regulatory actions, both domestic and foreign, impacting our operations or demand for our products(cid:26) (cid:81) (cid:81) (cid:81) (cid:81) Our ability to control costs and successfully implement various cost-reduction activities(cid:26) (cid:81) The efficacy of research and development investments to develop new products or unanticipated expenses in connection with the launching of significant new products or programs(cid:26) The timing of our new product launches or certifications of our new aircraft products(cid:26) 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:26) Pension plan assumptions and future contributions(cid:26) Demand softness or volatility in the markets in which we do business(cid:26) Cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption(cid:26) Difficulty or unanticipated expenses in connection with integrating acquired businesses(cid:26) The risk that acquisitions do not perform as planned, including, for example, the risk that acquired businesses will not achieve revenues and profit projections(cid:26) The impact of changes in tax legislation(cid:26) Risks and uncertainties related to the ongoing impact of the CO(cid:48)ID-19 pandemic and the war between Russia and Ukraine on our business and operations(cid:26) The ability of our businesses to hire and retain the highly skilled personnel necessary for our businesses to succeed(cid:26) and Risks related to a competitor's protest of the award of the FLRAA contract to (cid:28)ell. (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) (cid:81) Textron 2022 Annual Report 9 9 Item 1A. Ris(cid:55) 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. Aerospace and Defense Industry Ris(cid:55)s 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. The demand for our aircraft products has been adversely impacted by unexpected events and may be impacted by such events in the future. Therefore, future demand for these products could be significantly and unexpectedly less than anticipated and(cid:14)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 have 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 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 2022, we derived approximately 22(cid:4) of our revenues from sales to a variety of U.S. (cid:33)overnment entities. Our revenues from the U.S. (cid:33)overnment largely result from contracts awarded to us under various U.S. (cid:33)overnment defense-related programs. The funding of these programs is subject to congressional appropriation decisions and the U.S. (cid:33)overnment 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. (cid:33)overnment 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. (cid:33)overnment 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. (cid:33)overnment contracts generally require us to continue to perform even if the U.S. (cid:33)overnment 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. (cid:33)overnment 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. (cid:33)overnment 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. (cid:33)overnment’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. (cid:33)overnment whether for convenience or default, our backlog would be reduced by the expected value of the remaining work under such contracts. (cid:49)e also enter into “fee for service” contracts with the U.S. (cid:33)overnment 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. (cid:33)overnment 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. (cid:33)overnment 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. 10 Textron 2022 Annual Report 10 (cid:10)s a U.S. Government contractor(cid:4) we are sub(cid:38)ect to procurement rules and regulations; our failure to comply with these rules and regulations could adversely affect our business. (cid:49)e must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S. (cid:33)overnment 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. (cid:33)overnment 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. (cid:33)overnment 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. (cid:33)overnment contracts contain provisions that require us to make disclosure to the Inspector (cid:33)eneral 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(cid:26) the U.S. civil False Claims Act(cid:26) or received a significant overpayment under a U.S. (cid:33)overnment contract. Failure to properly and timely make disclosures under these provisions may result in a termination for default or cause, suspension and(cid:14)or debarment, and potential fines. (cid:10)s a U.S. Government contractor(cid:4) our businesses and systems are sub(cid:38)ect to audit and review by the Defense (cid:12)ontract (cid:10)udit (cid:10)gency (cid:2)D(cid:12)(cid:10)(cid:10)(cid:3) and the Defense (cid:12)ontract (cid:19)anagement (cid:10)gency (cid:2)D(cid:12)(cid:19)(cid:10)(cid:3). (cid:49)e operate in a highly regulated environment and are routinely audited and reviewed by the U.S. (cid:33)overnment 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. (cid:33)overnment 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. (cid:49)hether or not illegal activities are alleged, the U.S. (cid:33)overnment 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. (cid:25)he use of certain contract award types by the U.S. Government and the competitive bidding process increases pricing pressure and cost and may result in delayed revenues and profit. The U.S. (cid:33)overnment relies upon competitive contract award types, including indefinite-delivery, indefinite-quantity, other transaction agreements and multi-award contracts, which have the potential to create increased pricing pressure, as well as to increase our cost by requiring that we submit multiple bids or share in costs. In addition, multi-award contracts increase our cost as they require that we make sustained efforts to compete for task orders and delivery orders under the contract. Further, the competitive bidding process is costly and demands employee and managerial time to prepare bids and proposals for contracts that may not be awarded to us or may be split among competitors. Even if we are successful in obtaining an award, we may encounter bid protests from unsuccessful bidders on new program awards, such as the protest filed by our competitor on the FLRAA program. (cid:28)id protests could result in significant expenses associated with justifying the selection or due to potential program delays and could result in contract modifications that alter schedule or scope or even cause the loss of the contract award. Even when a bid protest does not result in the loss of a contract award, the resolution could postpone commencement of contract activity, resulting in additional cost and delay in the recognition of revenue and profit. (cid:21)ur profitability and cash flow varies depending on the mi(cid:52) 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, we absorb any costs in excess of the fixed price. 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. (cid:33)overnment cost underrun savings, which are derived from total cost being less than target costs(cid:26) we also share in cost overruns, which occur when total costs exceed target costs up to a negotiated cost ceiling(cid:26) however, we 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(cid:26) 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 or schedule 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 Textron 2022 Annual Report 11 11 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. (cid:25)he mar(cid:39)et for U.S. Government defense business is highly competitive which may affect our ability to win new contracts for ma(cid:38)or government programs and result in reduced future revenues. Our defense businesses operate in highly competitive markets in which they participate in rigorous, increasingly competitive bidding processes against other defense companies for U.S. government business. The competitive bidding process is costly and, in some instances, may require significant research and development and(cid:14)or engineering efforts to participate. Despite our best efforts, the U.S. (cid:33)overnment customer may choose competitive offerings over our offerings. The competition from other government contractors, combined with the increasingly competitive nature of the government contract bidding and award process, results in an intensely competitive market environment in which there can be no assurance that our businesses will be selected for government programs with significant long-term revenues. If we are unable to continue to compete successfully against our current or future competitors, do not win government programs with significant long-term revenues or do not prevail in bid protests, we may experience declines in future revenues and profitability, which could have a material adverse effect on our financial position, results of operations or cash flows. Strategic Ris(cid:55)s Developing new products and technologies entails significant ris(cid:39)s 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 or cost overruns 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, or failure on the part of our suppliers to deliver components as agreed. (cid:49)e also could be adversely affected if our research and development efforts are less successful than expected or if these efforts require significantly more funding to achieve our goals than anticipated. In particular, the success of Textron eAviation depends in large part, on our ability to develop and certify new electric and hybrid electric aircraft products in order to achieve our long-term strategy of offering a family of sustainable aircraft for urban air mobility, general aviation, cargo and special mission roles. In addition, 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, and the market for our product offerings does not always develop or continue to expand as we anticipate. 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 contracts for our U.S. (cid:33)overnment or other customers may not result in contracts or revenues sufficient to offset such investment. (cid:49)e 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, a substantial change to schedule, a material change in an anticipated market or the failure of our products or services to achieve customer acceptance relative to our competitors’ products or services, could have an adverse effect on our financial condition and results of operations. We have made and may continue to ma(cid:39)e ac(cid:45)uisitions that increase the ris(cid:39)s of our business. (cid:49)e 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(cid:26) challenges in achieving expected strategic objectives, cost savings and other benefits(cid:26) 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(cid:26) 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(cid:26) the risk that we pay a purchase price that exceeds what the future results of operations would have merited(cid:26) the risk that the acquired business may have significant internal control deficiencies or exposure to regulatory sanctions(cid:26) and the potential loss of key customers, suppliers and employees of the acquired businesses. 12 Textron 2022 Annual Report 12 (cid:21)usiness and Operational Ris(cid:55)s (cid:21)usiness and Operational Ris(cid:55)s (cid:21)usiness and Operational Ris(cid:55)s (cid:21)usiness and Operational Ris(cid:55)s (cid:21)usiness and Operational Ris(cid:55)s (cid:21)usiness and Operational Ris(cid:55)s (cid:25)he global economic impacts of (cid:23)ussia(cid:54)s war with U(cid:39)raine could adversely affect our business(cid:4) financial condition or (cid:25)he global economic impacts of (cid:23)ussia(cid:54)s war with U(cid:39)raine could adversely affect our business(cid:4) financial condition or (cid:25)he global economic impacts of (cid:23)ussia(cid:54)s war with U(cid:39)raine could adversely affect our business(cid:4) financial condition or (cid:25)he global economic impacts of (cid:23)ussia(cid:54)s war with U(cid:39)raine could adversely affect our business(cid:4) financial condition or (cid:25)he global economic impacts of (cid:23)ussia(cid:54)s war with U(cid:39)raine could adversely affect our business(cid:4) financial condition or operating results. operating results. (cid:25)he global economic impacts of (cid:23)ussia(cid:54)s war with U(cid:39)raine could adversely affect our business(cid:4) financial condition or operating results. operating results. operating results. The war between Russia and Ukraine and the resulting economic sanctions imposed by the international community have The war between Russia and Ukraine and the resulting economic sanctions imposed by the international community have operating results. The war between Russia and Ukraine and the resulting economic sanctions imposed by the international community have The war between Russia and Ukraine and the resulting economic sanctions imposed by the international community have The war between Russia and Ukraine and the resulting economic sanctions imposed by the international community have impacted the global economy and given rise to potential global security issues that may adversely affect international business and impacted the global economy and given rise to potential global security issues that may adversely affect international business and The war between Russia and Ukraine and the resulting economic sanctions imposed by the international community have impacted the global economy and given rise to potential global security issues that may adversely affect international business and impacted the global economy and given rise to potential global security issues that may adversely affect international business and impacted the global economy and given rise to potential global security issues that may adversely affect international business and economic conditions. Certain of our direct or indirect suppliers have been negatively impacted by these events, resulting in economic conditions. Certain of our direct or indirect suppliers have been negatively impacted by these events, resulting in impacted the global economy and given rise to potential global security issues that may adversely affect international business and economic conditions. Certain of our direct or indirect suppliers have been negatively impacted by these events, resulting in economic conditions. Certain of our direct or indirect suppliers have been negatively impacted by these events, resulting in economic conditions. Certain of our direct or indirect suppliers have been negatively impacted by these events, resulting in increased costs to us for certain materials and components as well as shortages and delays of critical components for certain of our increased costs to us for certain materials and components as well as shortages and delays of critical components for certain of our economic conditions. Certain of our direct or indirect suppliers have been negatively impacted by these events, resulting in increased costs to us for certain materials and components as well as shortages and delays of critical components for certain of our increased costs to us for certain materials and components as well as shortages and delays of critical components for certain of our increased costs to us for certain materials and components as well as shortages and delays of critical components for certain of our products. These cost increases, along with increased energy and shipping costs, have and may continue to negatively impact our products. These cost increases, along with increased energy and shipping costs, have and may continue to negatively impact our increased costs to us for certain materials and components as well as shortages and delays of critical components for certain of our products. These cost increases, along with increased energy and shipping costs, have and may continue to negatively impact our products. These cost increases, along with increased energy and shipping costs, have and may continue to negatively impact our products. These cost increases, along with increased energy and shipping costs, have and may continue to negatively impact our profitability, and component shortages and delays have and may continue to result in production delays for certain of our profitability, and component shortages and delays have and may continue to result in production delays for certain of our products. These cost increases, along with increased energy and shipping costs, have and may continue to negatively impact our profitability, and component shortages and delays have and may continue to result in production delays for certain of our profitability, and component shortages and delays have and may continue to result in production delays for certain of our profitability, and component shortages and delays have and may continue to result in production delays for certain of our products. In addition, these events have caused additional disruption in the supply chains of our automotive OEM customers, products. In addition, these events have caused additional disruption in the supply chains of our automotive OEM customers, profitability, and component shortages and delays have and may continue to result in production delays for certain of our products. In addition, these events have caused additional disruption in the supply chains of our automotive OEM customers, products. In addition, these events have caused additional disruption in the supply chains of our automotive OEM customers, products. In addition, these events have caused additional disruption in the supply chains of our automotive OEM customers, already experiencing disruption due to the impacts of the CO(cid:48)ID-19 pandemic, which has caused, and may continue to cause, already experiencing disruption due to the impacts of the CO(cid:48)ID-19 pandemic, which has caused, and may continue to cause, products. In addition, these events have caused additional disruption in the supply chains of our automotive OEM customers, already experiencing disruption due to the impacts of the CO(cid:48)ID-19 pandemic, which has caused, and may continue to cause, already experiencing disruption due to the impacts of the CO(cid:48)ID-19 pandemic, which has caused, and may continue to cause, already experiencing disruption due to the impacts of the CO(cid:48)ID-19 pandemic, which has caused, and may continue to cause, reduced demand for our automotive products. The continuation of the war could lead to other supply chain disruptions, increased reduced demand for our automotive products. The continuation of the war could lead to other supply chain disruptions, increased already experiencing disruption due to the impacts of the CO(cid:48)ID-19 pandemic, which has caused, and may continue to cause, reduced demand for our automotive products. The continuation of the war could lead to other supply chain disruptions, increased reduced demand for our automotive products. The continuation of the war could lead to other supply chain disruptions, increased reduced demand for our automotive products. The continuation of the war could lead to other supply chain disruptions, increased inflationary pressures, and volatility in global markets and industries that could negatively impact our operations. Furthermore, inflationary pressures, and volatility in global markets and industries that could negatively impact our operations. Furthermore, reduced demand for our automotive products. The continuation of the war could lead to other supply chain disruptions, increased inflationary pressures, and volatility in global markets and industries that could negatively impact our operations. Furthermore, inflationary pressures, and volatility in global markets and industries that could negatively impact our operations. Furthermore, inflationary pressures, and volatility in global markets and industries that could negatively impact our operations. Furthermore, the potential for retaliatory acts of cyberwarfare from Russia against U.S. companies in response to increasing sanctions on Russia the potential for retaliatory acts of cyberwarfare from Russia against U.S. companies in response to increasing sanctions on Russia inflationary pressures, and volatility in global markets and industries that could negatively impact our operations. Furthermore, the potential for retaliatory acts of cyberwarfare from Russia against U.S. companies in response to increasing sanctions on Russia the potential for retaliatory acts of cyberwarfare from Russia against U.S. companies in response to increasing sanctions on Russia the potential for retaliatory acts of cyberwarfare from Russia against U.S. companies in response to increasing sanctions on Russia could result in increased cyber-attacks against us. The impact of any one or more of these or other factors could adversely affect could result in increased cyber-attacks against us. The impact of any one or more of these or other factors could adversely affect the potential for retaliatory acts of cyberwarfare from Russia against U.S. companies in response to increasing sanctions on Russia could result in increased cyber-attacks against us. The impact of any one or more of these or other factors could adversely affect could result in increased cyber-attacks against us. The impact of any one or more of these or other factors could adversely affect could result in increased cyber-attacks against us. The impact of any one or more of these or other factors could adversely affect our business, financial condition or operating results. our business, financial condition or operating results. could result in increased cyber-attacks against us. The impact of any one or more of these or other factors could adversely affect our business, financial condition or operating results. our business, financial condition or operating results. our business, financial condition or operating results. our business, financial condition or operating results. (cid:21)ur business could be negatively impacted by cybersecurity threats and other disruptions. (cid:21)ur business could be negatively impacted by cybersecurity threats and other disruptions. (cid:21)ur business could be negatively impacted by cybersecurity threats and other disruptions. (cid:21)ur business could be negatively impacted by cybersecurity threats and other disruptions. (cid:21)ur business could be negatively impacted by cybersecurity threats and other disruptions. Our information technology (IT) and related systems are critical to the efficient operation of our business and essential to our Our information technology (IT) and related systems are critical to the efficient operation of our business and essential to our (cid:21)ur business could be negatively impacted by cybersecurity threats and other disruptions. Our information technology (IT) and related systems are critical to the efficient operation of our business and essential to our Our information technology (IT) and related systems are critical to the efficient operation of our business and essential to our 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. As a U.S. defense contractor, we face persistent security threats, including threats to our ability to perform day to day processes. As a U.S. defense contractor, we face persistent security threats, including threats to our 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. As a U.S. defense contractor, we face persistent security threats, including threats to our ability to perform day to day processes. As a U.S. defense contractor, we face persistent security threats, including threats to our ability to perform day to day processes. As a U.S. defense contractor, we face persistent security threats, including threats to our IT infrastructure and unlawful attempts to gain access to our information via phishing(cid:14)malware campaigns and other cyberattack IT infrastructure and unlawful attempts to gain access to our information via phishing(cid:14)malware campaigns and other cyberattack ability to perform day to day processes. As a U.S. defense contractor, we face persistent security threats, including threats to our IT infrastructure and unlawful attempts to gain access to our information via phishing(cid:14)malware campaigns and other cyberattack IT infrastructure and unlawful attempts to gain access to our information via phishing(cid:14)malware campaigns and other cyberattack IT infrastructure and unlawful attempts to gain access to our information via phishing(cid:14)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 methods, as well as threats to the physical security of our facilities and employees, as do our customers, suppliers, subcontractors IT infrastructure and unlawful attempts to gain access to our information via phishing(cid:14)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 methods, as well as threats to the physical security of our facilities and employees, as do our customers, suppliers, subcontractors 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 and joint venture partners. Attempts to gain unauthorized access to our confidential, classified or otherwise proprietary 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 and joint venture partners. Attempts to gain unauthorized access to our confidential, classified or otherwise proprietary 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 information or that of our employees or customers, as well as other security breaches, are persistent, continue to evolve and 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 information or that of our employees or customers, as well as other security breaches, are persistent, continue to evolve and 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. require highly skilled IT resources. 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. require highly skilled IT resources. require highly skilled IT resources. require highly skilled IT resources. (cid:49)e maintain Information Systems Incident Management Standards applicable to all our businesses intended to ensure information (cid:49)e maintain Information Systems Incident Management Standards applicable to all our businesses intended to ensure information (cid:49)e maintain Information Systems Incident Management Standards applicable to all our businesses intended to ensure information (cid:49)e 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 (cid:49)e 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 (cid:49)e 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 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(cid:14)network protection mitigation plans, and our disclosure controls and 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(cid:14)network protection mitigation plans, and our disclosure controls and 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(cid:14)network protection mitigation plans, and our disclosure controls and enterprise risk management program includes cyber risk(cid:14)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 enterprise risk management program includes cyber risk(cid:14)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 enterprise risk management program includes cyber risk(cid:14)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 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 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 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 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 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 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 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. 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. 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. restrictions against trading while in possession of material, nonpublic information in connection with a cybersecurity incident. restrictions against trading while in possession of material, nonpublic information in connection with a cybersecurity incident. restrictions against trading while in possession of material, nonpublic information in connection with a cybersecurity incident. (cid:49)hile we have experienced cybersecurity attacks, such attacks have not resulted in a material information security breach and we (cid:49)hile we have experienced cybersecurity attacks, such attacks have not resulted in a material information security breach and we (cid:49)hile we have experienced cybersecurity attacks, such attacks have not resulted in a material information security breach and we (cid:49)hile we have experienced cybersecurity attacks, such attacks have not resulted in a material information security breach and we have not suffered any material losses relating to such attacks. (cid:49)e believe our threat detection and mitigation processes and (cid:49)hile we have experienced cybersecurity attacks, such attacks have not resulted in a material information security breach and we have not suffered any material losses relating to such attacks. (cid:49)e believe our threat detection and mitigation processes and (cid:49)hile we have experienced cybersecurity attacks, such attacks have not resulted in a material information security breach and we have not suffered any material losses relating to such attacks. (cid:49)e believe our threat detection and mitigation processes and have not suffered any material losses relating to such attacks. (cid:49)e 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 have not suffered any material losses relating to such attacks. (cid:49)e 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 have not suffered any material losses relating to such attacks. (cid:49)e 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 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 timely detecting, reporting or responding to cyber incidents. Future 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 timely detecting, reporting or responding to cyber incidents. Future 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 timely detecting, reporting or responding to cyber incidents. Future completely mitigated, and we may not always be successful in timely 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 completely mitigated, and we may not always be successful in timely 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 completely mitigated, and we may not always be successful in timely 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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. (cid:33)overnment, are increasingly requiring 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. (cid:33)overnment, are increasingly requiring 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. (cid:33)overnment, are increasingly requiring adversely affect us and our customers. In addition, our customers, including the U.S. (cid:33)overnment, are increasingly requiring cybersecurity protections and mandating cybersecurity standards in our products, and we may incur additional costs to comply adversely affect us and our customers. In addition, our customers, including the U.S. (cid:33)overnment, are increasingly requiring cybersecurity protections and mandating cybersecurity standards in our products, and we may incur additional costs to comply adversely affect us and our customers. In addition, our customers, including the U.S. (cid:33)overnment, are increasingly requiring cybersecurity protections and mandating cybersecurity standards in our products, and we may incur additional costs to comply cybersecurity protections and mandating cybersecurity standards in our products, and we may incur additional costs to comply with such demands. cybersecurity protections and mandating cybersecurity standards in our products, and we may incur additional costs to comply with such demands. cybersecurity protections and mandating cybersecurity standards in our products, and we may incur additional costs to comply with such demands. with such demands. with such demands. with such demands. (cid:15)ailure to perform by our subcontractors or suppliers could adversely affect our performance. (cid:15)ailure to perform by our subcontractors or suppliers could adversely affect our performance. (cid:15)ailure to perform by our subcontractors or suppliers could adversely affect our performance. (cid:15)ailure to perform by our subcontractors or suppliers could adversely affect our performance. (cid:15)ailure to perform by our subcontractors or suppliers could adversely affect our performance. (cid:49)e rely on other companies to provide raw materials, major components and subsystems for our products. Subcontractors also (cid:49)e rely on other companies to provide raw materials, major components and subsystems for our products. Subcontractors also (cid:15)ailure to perform by our subcontractors or suppliers could adversely affect our performance. (cid:49)e rely on other companies to provide raw materials, major components and subsystems for our products. Subcontractors also (cid:49)e rely on other companies to provide raw materials, major components and subsystems for our products. Subcontractors also (cid:49)e 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. (cid:49)e depend on these suppliers and subcontractors to perform services that we provide to our customers in certain circumstances. (cid:49)e depend on these suppliers and subcontractors to (cid:49)e 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. (cid:49)e depend on these suppliers and subcontractors to perform services that we provide to our customers in certain circumstances. (cid:49)e depend on these suppliers and subcontractors to perform services that we provide to our customers in certain circumstances. (cid:49)e 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 meet our contractual obligations to our customers and conduct our operations. Our ability to meet our obligations to our customers perform services that we provide to our customers in certain circumstances. (cid:49)e 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 meet our contractual obligations to our customers and conduct our operations. Our ability to meet our obligations to our customers 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 could be adversely affected if suppliers or subcontractors do not provide the agreed-upon supplies or perform the agreed-upon 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 could be adversely affected if suppliers or subcontractors do not provide the agreed-upon supplies or perform the agreed-upon 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 services in compliance with customer requirements and in a timely and cost-effective manner. Likewise, the quality of our 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 services in compliance with customer requirements and in a timely and cost-effective manner. Likewise, the quality of our 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 could be adversely impacted if companies to whom we delegate manufacture of major components or subsystems for our 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 could be adversely impacted if companies to whom we delegate manufacture of major components or subsystems for 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 products, or from whom we acquire such items, do not provide components or subsystems which meet required specifications and 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 products, or from whom we acquire such items, do not provide components or subsystems which meet required specifications and 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 unable to quickly recover from natural disasters and other perform to our and our customers’ expectations. Our suppliers may be unable to quickly recover from natural disasters and other 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 unable to quickly recover from natural disasters and other perform to our and our customers’ expectations. Our suppliers may be unable to quickly recover from natural disasters and other perform to our and our customers’ expectations. Our suppliers may be unable to quickly recover from natural disasters and other events beyond their control and may be subject to additional risks such as material or labor shortages, inflationary conditions or events beyond their control and may be subject to additional risks such as material or labor shortages, inflationary conditions or perform to our and our customers’ expectations. Our suppliers may be unable to quickly recover from natural disasters and other events beyond their control and may be subject to additional risks such as material or labor shortages, inflationary conditions or events beyond their control and may be subject to additional risks such as material or labor shortages, inflationary conditions or events beyond their control and may be subject to additional risks such as material or labor shortages, inflationary conditions or other financial problems that limit their ability to conduct their operations. For example, certain of our businesses have been, and other financial problems that limit their ability to conduct their operations. For example, certain of our businesses have been, and events beyond their control and may be subject to additional risks such as material or labor shortages, inflationary conditions or other financial problems that limit their ability to conduct their operations. For example, certain of our businesses have been, and other financial problems that limit their ability to conduct their operations. For example, certain of our businesses have been, and other financial problems that limit their ability to conduct their operations. For example, certain of our businesses have been, and other financial problems that limit their ability to conduct their operations. For example, certain of our businesses have been, and 13 Textron 2022 Annual Report 13 13 13 13 13 13 may continue to be, adversely impacted by suppliers which have been unable to perform as anticipated due to impacts of the may continue to be, adversely impacted by suppliers which have been unable to perform as anticipated due to impacts of the may continue to be, adversely impacted by suppliers which have been unable to perform as anticipated due to impacts of the may continue to be, adversely impacted by suppliers which have been unable to perform as anticipated due to impacts of the pandemic and(cid:14)or the war between Russia and Ukraine. The risk of these adverse effects would likely be greater in circumstances may continue to be, adversely impacted by suppliers which have been unable to perform as anticipated due to impacts of the may continue to be, adversely impacted by suppliers which have been unable to perform as anticipated due to impacts of the pandemic and(cid:14)or the war between Russia and Ukraine. The risk of these adverse effects would likely be greater in circumstances pandemic and(cid:14)or the war between Russia and Ukraine. The risk of these adverse effects would likely be greater in circumstances pandemic and(cid:14)or the war between Russia and Ukraine. 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 pandemic and(cid:14)or the war between Russia and Ukraine. The risk of these adverse effects would likely be greater in circumstances pandemic and(cid:14)or the war between Russia and Ukraine. 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 where we rely on only one or two subcontractors or suppliers for a particular raw material, product or service. In particular, in the 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 where we rely on only one or two subcontractors or suppliers for a particular raw material, product or service. In particular, in the 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 aircraft industry, most vendor parts are certified by the regulatory agencies as part of the overall Type Certificate for the aircraft 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 aircraft industry, most vendor parts are certified by the regulatory agencies as part of the overall Type Certificate for the aircraft 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 being produced by the manufacturer. If a vendor does not or cannot supply its parts, then the manufacturer’s production line may 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 being produced by the manufacturer. If a vendor does not or cannot supply its parts, then the manufacturer’s production line may 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 be stopped until the manufacturer can design, manufacture and certify a similar part itself or identify and certify another similar 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, be stopped until the manufacturer can design, manufacture and certify a similar part itself or identify and certify another similar 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, vendor’s part, resulting in significant delays in the completion of aircraft. Such events may adversely affect our financial results, 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(cid:14)or litigation. vendor’s part, resulting in significant delays in the completion of aircraft. Such events may adversely affect our financial results, 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(cid:14)or litigation. damage our reputation and relationships with our customers, and result in regulatory actions and(cid:14)or litigation. damage our reputation and relationships with our customers, and result in regulatory actions and(cid:14)or litigation. damage our reputation and relationships with our customers, and result in regulatory actions and(cid:14)or litigation. damage our reputation and relationships with our customers, and result in regulatory actions and(cid:14)or litigation. We are sub(cid:38)ect to the ris(cid:39)s of doing business in foreign countries that could adversely impact our business. We are sub(cid:38)ect to the ris(cid:39)s of doing business in foreign countries that could adversely impact our business. We are sub(cid:38)ect to the ris(cid:39)s of doing business in foreign countries that could adversely impact our business. We are sub(cid:38)ect to the ris(cid:39)s of doing business in foreign countries that could adversely impact our business. We are sub(cid:38)ect to the ris(cid:39)s of doing business in foreign countries that could adversely impact our business. During 2022, we derived approximately 32(cid:4) of our revenues from international business, including U.S. exports. Conducting We are sub(cid:38)ect to the ris(cid:39)s of doing business in foreign countries that could adversely impact our business. During 2022, we derived approximately 32(cid:4) of our revenues from international business, including U.S. exports. Conducting During 2022, we derived approximately 32(cid:4) of our revenues from international business, including U.S. exports. Conducting During 2022, we derived approximately 32(cid:4) of our revenues from international business, including U.S. exports. Conducting During 2022, we derived approximately 32(cid:4) 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. (cid:49)e maintain During 2022, we derived approximately 32(cid:4) 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. (cid:49)e maintain business internationally exposes us to additional risks than if we conducted our business solely within the U.S. (cid:49)e maintain business internationally exposes us to additional risks than if we conducted our business solely within the U.S. (cid:49)e maintain business internationally exposes us to additional risks than if we conducted our business solely within the U.S. (cid:49)e maintain manufacturing facilities, service centers, supply centers and other facilities worldwide, including in various emerging market business internationally exposes us to additional risks than if we conducted our business solely within the U.S. (cid:49)e maintain manufacturing facilities, service centers, supply centers and other facilities worldwide, including in various emerging market manufacturing facilities, service centers, supply centers and other facilities worldwide, including in various emerging market manufacturing facilities, service centers, supply centers and other facilities worldwide, including in various emerging market 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(cid:26) 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(cid:26) countries. Risks related to international operations include import, export, economic sanctions and other trade restrictions(cid:26) countries. Risks related to international operations include import, export, economic sanctions and other trade restrictions(cid:26) countries. Risks related to international operations include import, export, economic sanctions and other trade restrictions(cid:26) changing U.S. and foreign procurement policies and practices(cid:26) changes in international trade policies, including higher tariffs on countries. Risks related to international operations include import, export, economic sanctions and other trade restrictions(cid:26) changing U.S. and foreign procurement policies and practices(cid:26) changes in international trade policies, including higher tariffs on changing U.S. and foreign procurement policies and practices(cid:26) changes in international trade policies, including higher tariffs on changing U.S. and foreign procurement policies and practices(cid:26) changes in international trade policies, including higher tariffs on changing U.S. and foreign procurement policies and practices(cid:26) changes in international trade policies, including higher tariffs on imported goods and materials and renegotiation of free trade agreements(cid:26) potential retaliatory tariffs imposed by foreign countries changing U.S. and foreign procurement policies and practices(cid:26) changes in international trade policies, including higher tariffs on imported goods and materials and renegotiation of free trade agreements(cid:26) potential retaliatory tariffs imposed by foreign countries imported goods and materials and renegotiation of free trade agreements(cid:26) potential retaliatory tariffs imposed by foreign countries imported goods and materials and renegotiation of free trade agreements(cid:26) potential retaliatory tariffs imposed by foreign countries imported goods and materials and renegotiation of free trade agreements(cid:26) potential retaliatory tariffs imposed by foreign countries against U.S. goods(cid:26) impacts on our non-U.S. suppliers and customers due to acts of war occurring internationally(cid:26) restrictions on imported goods and materials and renegotiation of free trade agreements(cid:26) potential retaliatory tariffs imposed by foreign countries against U.S. goods(cid:26) impacts on our non-U.S. suppliers and customers due to acts of war occurring internationally(cid:26) restrictions on against U.S. goods(cid:26) impacts on our non-U.S. suppliers and customers due to acts of war occurring internationally(cid:26) restrictions on against U.S. goods(cid:26) impacts on our non-U.S. suppliers and customers due to acts of war occurring internationally(cid:26) restrictions on against U.S. goods(cid:26) impacts on our non-U.S. suppliers and customers due to acts of war occurring internationally(cid:26) restrictions on technology transfer(cid:26) difficulties in protecting intellectual property(cid:26) increasing complexity of employment and environmental, against U.S. goods(cid:26) impacts on our non-U.S. suppliers and customers due to acts of war occurring internationally(cid:26) restrictions on technology transfer(cid:26) difficulties in protecting intellectual property(cid:26) increasing complexity of employment and environmental, technology transfer(cid:26) difficulties in protecting intellectual property(cid:26) increasing complexity of employment and environmental, technology transfer(cid:26) difficulties in protecting intellectual property(cid:26) increasing complexity of employment and environmental, technology transfer(cid:26) difficulties in protecting intellectual property(cid:26) increasing complexity of employment and environmental, health and safety regulations(cid:26) foreign investment laws(cid:26) exchange controls(cid:26) repatriation of earnings or cash settlement challenges(cid:26) technology transfer(cid:26) difficulties in protecting intellectual property(cid:26) increasing complexity of employment and environmental, health and safety regulations(cid:26) foreign investment laws(cid:26) exchange controls(cid:26) repatriation of earnings or cash settlement challenges(cid:26) health and safety regulations(cid:26) foreign investment laws(cid:26) exchange controls(cid:26) repatriation of earnings or cash settlement challenges(cid:26) health and safety regulations(cid:26) foreign investment laws(cid:26) exchange controls(cid:26) repatriation of earnings or cash settlement challenges(cid:26) health and safety regulations(cid:26) foreign investment laws(cid:26) exchange controls(cid:26) repatriation of earnings or cash settlement challenges(cid:26) compliance with increasingly rigorous data privacy and protection laws(cid:26) competition from foreign and multinational firms with health and safety regulations(cid:26) foreign investment laws(cid:26) exchange controls(cid:26) repatriation of earnings or cash settlement challenges(cid:26) compliance with increasingly rigorous data privacy and protection laws(cid:26) competition from foreign and multinational firms with compliance with increasingly rigorous data privacy and protection laws(cid:26) competition from foreign and multinational firms with compliance with increasingly rigorous data privacy and protection laws(cid:26) competition from foreign and multinational firms with compliance with increasingly rigorous data privacy and protection laws(cid:26) competition from foreign and multinational firms with home country advantages(cid:26) economic and government instability(cid:26) acts of industrial espionage, acts of war and terrorism and related compliance with increasingly rigorous data privacy and protection laws(cid:26) competition from foreign and multinational firms with home country advantages(cid:26) economic and government instability(cid:26) acts of industrial espionage, acts of war and terrorism and related home country advantages(cid:26) economic and government instability(cid:26) acts of industrial espionage, acts of war and terrorism and related home country advantages(cid:26) economic and government instability(cid:26) acts of industrial espionage, acts of war and terrorism and related home country advantages(cid:26) economic and government instability(cid:26) acts of industrial espionage, acts of war and terrorism and related safety concerns. The impact of any one or more of these or other factors could adversely affect our business, financial condition home country advantages(cid:26) economic and government instability(cid:26) acts of industrial espionage, acts of war and terrorism and related safety concerns. The impact of any one or more of these or other factors could adversely affect our business, financial condition safety concerns. The impact of any one or more of these or other factors could adversely affect our business, financial condition safety concerns. The impact of any one or more of these or other factors could adversely affect our business, financial condition safety concerns. The impact of any one or more of these or other factors could adversely affect our business, financial condition or operating results. safety concerns. The impact of any one or more of these or other factors could adversely affect our business, financial condition or operating results. or operating results. or operating results. or operating results. or operating results. Additionally, some international government customers require contractors to agree to specific in-country purchases, technology Additionally, some international government customers require contractors to agree to specific in-country purchases, technology Additionally, some international government customers require contractors to agree to specific in-country purchases, technology 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. Additionally, some international government customers require contractors to agree to specific in-country purchases, technology 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. transfers, manufacturing agreements or financial support arrangements, known as offsets, as a condition for a contract award. 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 transfers, manufacturing agreements or financial support arrangements, known as offsets, as a condition for a contract award. 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 These contracts generally extend over several years and may include penalties if we fail to perform in accordance with the offset 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. (cid:49)e also are exposed to risks associated with using foreign representatives and These contracts generally extend over several years and may include penalties if we fail to perform in accordance with the offset 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. (cid:49)e also are exposed to risks associated with using foreign representatives and requirements which are often subjective. (cid:49)e also are exposed to risks associated with using foreign representatives and requirements which are often subjective. (cid:49)e 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 requirements which are often subjective. (cid:49)e also are exposed to risks associated with using foreign representatives and requirements which are often subjective. (cid:49)e 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 consultants for international sales and operations and teaming with international subcontractors and suppliers in connection with 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 consultants for international sales and operations and teaming with international subcontractors and suppliers in connection with 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 international programs. In many foreign countries, particularly in those with developing economies, it is common to engage in 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. international programs. In many foreign countries, particularly in those with developing economies, it is common to engage in 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. business practices that are prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act. 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 business practices that are prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act. 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 Although we maintain policies and procedures designed to facilitate compliance with these laws, a violation of such laws by any 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 Although we maintain policies and procedures designed to facilitate compliance with these laws, a violation of such laws by any 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 of our international representatives, consultants, joint ventures, business partners, subcontractors or suppliers, even if prohibited 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. of our international representatives, consultants, joint ventures, business partners, subcontractors or suppliers, even if prohibited 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. by our policies, could have an adverse effect on our business and reputation. by our policies, could have an adverse effect on our business and reputation. by our policies, could have an adverse effect on our business and reputation. by our policies, could have an adverse effect on our business and reputation. (cid:21)ur business was adversely impacted(cid:4) and may again be adversely impacted(cid:4) by the coronavirus (cid:2)(cid:12)(cid:21)(cid:27)(cid:17)D(cid:5)(cid:7)(cid:8)(cid:3) pandemic. (cid:21)ur business was adversely impacted(cid:4) and may again be adversely impacted(cid:4) by the coronavirus (cid:2)(cid:12)(cid:21)(cid:27)(cid:17)D(cid:5)(cid:7)(cid:8)(cid:3) pandemic. (cid:21)ur business was adversely impacted(cid:4) and may again be adversely impacted(cid:4) by the coronavirus (cid:2)(cid:12)(cid:21)(cid:27)(cid:17)D(cid:5)(cid:7)(cid:8)(cid:3) pandemic. (cid:21)ur business was adversely impacted(cid:4) and may again be adversely impacted(cid:4) by the coronavirus (cid:2)(cid:12)(cid:21)(cid:27)(cid:17)D(cid:5)(cid:7)(cid:8)(cid:3) pandemic. Our businesses have experienced and continue to experience various degrees of disruption due to the unprecedented conditions (cid:21)ur business was adversely impacted(cid:4) and may again be adversely impacted(cid:4) by the coronavirus (cid:2)(cid:12)(cid:21)(cid:27)(cid:17)D(cid:5)(cid:7)(cid:8)(cid:3) pandemic. (cid:21)ur business was adversely impacted(cid:4) and may again be adversely impacted(cid:4) by the coronavirus (cid:2)(cid:12)(cid:21)(cid:27)(cid:17)D(cid:5)(cid:7)(cid:8)(cid:3) pandemic. Our businesses have experienced and continue to experience various degrees of disruption due to the unprecedented conditions Our businesses have experienced and continue to experience various degrees of disruption due to the unprecedented conditions Our businesses have experienced and continue to experience various degrees of disruption due to the unprecedented conditions surrounding the CO(cid:48)ID-19 pandemic. Economic and other impacts from the pandemic initially resulted in, and could again result Our businesses have experienced and continue to experience various degrees of disruption due to the unprecedented conditions Our businesses have experienced and continue to experience various degrees of disruption due to the unprecedented conditions surrounding the CO(cid:48)ID-19 pandemic. Economic and other impacts from the pandemic initially resulted in, and could again result surrounding the CO(cid:48)ID-19 pandemic. Economic and other impacts from the pandemic initially resulted in, and could again result surrounding the CO(cid:48)ID-19 pandemic. Economic and other impacts from the pandemic initially resulted in, and could again result in, reduced demand for our aviation and commercial helicopter products and services, the delay or cancellation of existing orders surrounding the CO(cid:48)ID-19 pandemic. Economic and other impacts from the pandemic initially resulted in, and could again result surrounding the CO(cid:48)ID-19 pandemic. Economic and other impacts from the pandemic initially resulted in, and could again result in, reduced demand for our aviation and commercial helicopter products and services, the delay or cancellation of existing orders in, reduced demand for our aviation and commercial helicopter products and services, the delay or cancellation of existing orders in, reduced demand for our aviation and commercial helicopter products and services, the delay or cancellation of existing orders by our customers and lower flight hours, and consequently, lower demand for parts and maintenance. The effects of CO(cid:48)ID-19 in, reduced demand for our aviation and commercial helicopter products and services, the delay or cancellation of existing orders in, reduced demand for our aviation and commercial helicopter products and services, the delay or cancellation of existing orders by our customers and lower flight hours, and consequently, lower demand for parts and maintenance. The effects of CO(cid:48)ID-19 by our customers and lower flight hours, and consequently, lower demand for parts and maintenance. The effects of CO(cid:48)ID-19 by our customers and lower flight hours, and consequently, lower demand for parts and maintenance. The effects of CO(cid:48)ID-19 have included and could continue to include disruption of the operation of certain of our facilities or the facilities of our by our customers and lower flight hours, and consequently, lower demand for parts and maintenance. The effects of CO(cid:48)ID-19 by our customers and lower flight hours, and consequently, lower demand for parts and maintenance. The effects of CO(cid:48)ID-19 have included and could continue to include disruption of the operation of certain of our facilities or the facilities of our have included and could continue to include disruption of the operation of certain of our facilities or the facilities of our have included and could continue to include disruption of the operation of certain of our facilities or the facilities of our customers, suppliers or business partners, as well as other disruptions in our supply chains or our customers’ supply chains. In have included and could continue to include disruption of the operation of certain of our facilities or the facilities of our have included and could continue to include disruption of the operation of certain of our facilities or the facilities of our customers, suppliers or business partners, as well as other disruptions in our supply chains or our customers’ supply chains. In customers, suppliers or business partners, as well as other disruptions in our supply chains or our customers’ supply chains. In customers, suppliers or business partners, as well as other disruptions in our supply chains or our customers’ supply chains. In addition, disruptions in our automotive OEM supply chains have caused and may continue to cause reduced demand for our customers, suppliers or business partners, as well as other disruptions in our supply chains or our customers’ supply chains. In customers, suppliers or business partners, as well as other disruptions in our supply chains or our customers’ supply chains. In addition, disruptions in our automotive OEM supply chains have caused and may continue to cause reduced demand for our addition, disruptions in our automotive OEM supply chains have caused and may continue to cause reduced demand for our addition, disruptions in our automotive OEM supply chains have caused and may continue to cause reduced demand for our automotive products. (cid:49)e have experienced and may continue to experience lower revenues and(cid:14)or increased costs as a result of addition, disruptions in our automotive OEM supply chains have caused and may continue to cause reduced demand for our addition, disruptions in our automotive OEM supply chains have caused and may continue to cause reduced demand for our automotive products. (cid:49)e have experienced and may continue to experience lower revenues and(cid:14)or increased costs as a result of automotive products. (cid:49)e have experienced and may continue to experience lower revenues and(cid:14)or increased costs as a result of automotive products. (cid:49)e have experienced and may continue to experience lower revenues and(cid:14)or increased costs as a result of these business and production disruptions. automotive products. (cid:49)e have experienced and may continue to experience lower revenues and(cid:14)or increased costs as a result of automotive products. (cid:49)e have experienced and may continue to experience lower revenues and(cid:14)or increased costs as a result of these business and production disruptions. these business and production disruptions. these business and production disruptions. these business and production disruptions. these business and production disruptions. The extent to which the pandemic could continue to impact our business, results of operations, financial condition and liquidity is The extent to which the pandemic could continue to impact our business, results of operations, financial condition and liquidity is The extent to which the pandemic could continue to impact our business, results of operations, financial condition and liquidity is The extent to which the pandemic could continue to impact our business, results of operations, financial condition and liquidity is highly uncertain and also will depend on future developments, most of which are outside our control. Such developments may The extent to which the pandemic could continue to impact our business, results of operations, financial condition and liquidity is The extent to which the pandemic could continue to impact our business, results of operations, financial condition and liquidity is highly uncertain and also will depend on future developments, most of which are outside our control. Such developments may highly uncertain and also will depend on future developments, most of which are outside our control. Such developments may highly uncertain and also will depend on future developments, most of which are outside our control. Such developments may include the geographic spread and duration of the virus, the emergence of variants of the virus that cause severe illness and(cid:14)or are highly uncertain and also will depend on future developments, most of which are outside our control. Such developments may highly uncertain and also will depend on future developments, most of which are outside our control. Such developments may include the geographic spread and duration of the virus, the emergence of variants of the virus that cause severe illness and(cid:14)or are include the geographic spread and duration of the virus, the emergence of variants of the virus that cause severe illness and(cid:14)or are include the geographic spread and duration of the virus, the emergence of variants of the virus that cause severe illness and(cid:14)or are resistant to the developed vaccines, the development of and access to effective treatments, the acceptance of, and access to, include the geographic spread and duration of the virus, the emergence of variants of the virus that cause severe illness and(cid:14)or are include the geographic spread and duration of the virus, the emergence of variants of the virus that cause severe illness and(cid:14)or are resistant to the developed vaccines, the development of and access to effective treatments, the acceptance of, and access to, resistant to the developed vaccines, the development of and access to effective treatments, the acceptance of, and access to, resistant to the developed vaccines, the development of and access to effective treatments, the acceptance of, and access to, effective vaccines, and the effects of actions that have been or may be taken by various governmental authorities and other third resistant to the developed vaccines, the development of and access to effective treatments, the acceptance of, and access to, resistant to the developed vaccines, the development of and access to effective treatments, the acceptance of, and access to, effective vaccines, and the effects of actions that have been or may be taken by various governmental authorities and other third effective vaccines, and the effects of actions that have been or may be taken by various governmental authorities and other third effective vaccines, and the effects of actions that have been or may be taken by various governmental authorities and other third parties in response to the outbreak. effective vaccines, and the effects of actions that have been or may be taken by various governmental authorities and other third effective vaccines, and the effects of actions that have been or may be taken by various governmental authorities and other third parties in response to the outbreak. parties in response to the outbreak. parties in response to the outbreak. parties in response to the outbreak. parties in response to the outbreak. (cid:20)atural disasters or other events outside of our control may disrupt our operations(cid:4) adversely affect our results of operations (cid:20)atural disasters or other events outside of our control may disrupt our operations(cid:4) adversely affect our results of operations (cid:20)atural disasters or other events outside of our control may disrupt our operations(cid:4) adversely affect our results of operations (cid:20)atural disasters or other events outside of our control may disrupt our operations(cid:4) adversely affect our results of operations (cid:20)atural disasters or other events outside of our control may disrupt our operations(cid:4) adversely affect our results of operations and financial condition(cid:4) and may not be fully covered by insurance. (cid:20)atural disasters or other events outside of our control may disrupt our operations(cid:4) adversely affect our results of operations and financial condition(cid:4) and may not be fully covered by insurance. and financial condition(cid:4) and may not be fully covered by insurance. and financial condition(cid:4) and may not be fully covered by insurance. and financial condition(cid:4) 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 and financial condition(cid:4) 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 Natural disasters, including hurricanes, fires, tornados, floods and other forms of severe weather, the intensity and frequency of Natural disasters, including hurricanes, fires, tornados, floods and other forms of severe weather, the intensity and frequency of 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, along with other impacts of climate change, such as rising sea waters, as well as 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, along with other impacts of climate change, such as rising sea waters, as well as which are being exacerbated by climate change, along with other impacts of climate change, such as rising sea waters, as well as which are being exacerbated by climate change, along with other impacts of climate change, such as rising sea waters, as well as which are being exacerbated by climate change, along with other impacts of climate change, such as rising sea waters, as well as other events outside of our control including public health crises, pandemics, power outages and industrial accidents, have in the which are being exacerbated by climate change, along with other impacts of climate change, such as rising sea waters, as well as other events outside of our control including public health crises, pandemics, power outages and industrial accidents, have in the other events outside of our control including public health crises, pandemics, power outages and industrial accidents, have in the other events outside of our control including public health crises, pandemics, power outages and industrial accidents, have in the other events outside of our control including public health crises, pandemics, power outages and industrial 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 other events outside of our control including public health crises, pandemics, power outages and industrial 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 past and could in the future disrupt our operations and adversely affect our business. Any of these events could result in physical past and could in the future disrupt our operations and adversely affect our business. Any of these events could result in physical 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(cid:14)or complete or partial closure of one or more of our facilities and temporary or long-term disruption of our 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(cid:14)or complete or partial closure of one or more of our facilities and temporary or long-term disruption of our damage to and(cid:14)or complete or partial closure of one or more of our facilities and temporary or long-term disruption of our damage to and(cid:14)or complete or partial closure of one or more of our facilities and temporary or long-term disruption of our damage to and(cid:14)or complete or partial closure of one or more of our facilities and temporary or long-term disruption of our damage to and(cid:14)or complete or partial closure of one or more of our facilities and temporary or long-term disruption of our 14 Textron 2022 Annual Report 14 14 14 14 14 14 operations or the operations of our suppliers by causing business interruptions or by impacting the availability and cost of operations or the operations of our suppliers by causing business interruptions or by impacting the availability and cost of operations or the operations of our suppliers by causing business interruptions or by impacting the availability and cost of 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 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 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 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 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 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 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 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 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 these events could materially increase our costs and expenses and have a material adverse effect on our business, financial condition and results of operations. these events could materially increase our costs and expenses and have a material adverse effect on our business, financial condition and results of operations. these events could materially increase our costs and expenses and have a material adverse effect on our business, financial condition and results of operations. condition and results of operations. condition and results of operations. condition and results of operations. Financial Ris(cid:55)s Financial Ris(cid:55)s Financial Ris(cid:55)s Financial Ris(cid:55)s Financial Ris(cid:55)s Financial Ris(cid:55)s (cid:17)f our (cid:15)inance segment has difficulty collecting on its finance receivables(cid:4) our financial performance could be adversely (cid:17)f our (cid:15)inance segment has difficulty collecting on its finance receivables(cid:4) our financial performance could be adversely (cid:17)f our (cid:15)inance segment has difficulty collecting on its finance receivables(cid:4) our financial performance could be adversely (cid:17)f our (cid:15)inance segment has difficulty collecting on its finance receivables(cid:4) our financial performance could be adversely affected. (cid:17)f our (cid:15)inance segment has difficulty collecting on its finance receivables(cid:4) our financial performance could be adversely affected. (cid:17)f our (cid:15)inance segment has difficulty collecting on its finance receivables(cid:4) our financial performance could be adversely affected. affected. The financial performance of our Finance segment depends on the quality of loans, leases and other assets in its portfolio. affected. The financial performance of our Finance segment depends on the quality of loans, leases and other assets in its portfolio. affected. The financial performance of our Finance segment depends on the quality of loans, leases and other assets in its portfolio. The financial performance of our Finance segment depends on the quality of loans, leases and other assets in its portfolio. Portfolio quality can be adversely affected by several factors, including finance receivable underwriting procedures, collateral The financial performance of our Finance segment depends on the quality of loans, leases and other assets in its portfolio. Portfolio quality can be adversely affected by several factors, including finance receivable underwriting procedures, collateral The financial performance of our Finance segment depends on the quality of loans, leases and other assets in its portfolio. Portfolio quality can be adversely affected by several factors, including finance receivable underwriting procedures, collateral 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 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 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 value, geographic or industry concentrations, and the effect of general economic conditions. In addition, a substantial number of the originations in our finance receivable portfolio are cross-border transactions for aircraft sold outside of the U.S. Cross-border value, geographic or industry concentrations, and the effect of general economic conditions. In addition, a substantial number of the originations in our finance receivable portfolio are cross-border transactions for aircraft sold outside of the U.S. Cross-border value, geographic or industry concentrations, and the effect of general economic conditions. In addition, a substantial number of the originations in our finance receivable portfolio are cross-border transactions for aircraft sold outside of the U.S. Cross-border the 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 the event of borrower default, which can result in difficulty or delay in the 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 the event of borrower default, which can result in difficulty or delay in the 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 the event of borrower default, which can result in difficulty or delay in transactions present additional challenges and risks 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 on its finance receivable transactions present additional challenges and risks 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 on its finance receivable transactions present additional challenges and risks 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 on its finance receivable collecting on the related finance receivables. If our Finance segment has difficulty successfully collecting on its finance receivable portfolio, our cash flow, results of operations and financial condition could be adversely affected. collecting on the related finance receivables. If our Finance segment has difficulty successfully collecting on its finance receivable portfolio, our cash flow, results of operations and financial condition could be adversely affected. collecting on the related finance receivables. If our Finance segment has difficulty successfully collecting on its finance receivable portfolio, our cash flow, results of operations and financial condition could be adversely affected. portfolio, our cash flow, results of operations and financial condition could be adversely affected. portfolio, our cash flow, results of operations and financial condition could be adversely affected. 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(cid:4) if at all. We periodically need to obtain financing and such financing may not be available to us on satisfactory terms(cid:4) if at all. We periodically need to obtain financing and such financing may not be available to us on satisfactory terms(cid:4) if at all. We periodically need to obtain financing and such financing may not be available to us on satisfactory terms(cid:4) if at all. We periodically need to obtain financing and such financing may not be available to us on satisfactory terms(cid:4) if at all. (cid:49)e periodically need to obtain financing in order to meet our debt obligations as they come due, to support our operations and(cid:14)or (cid:49)e periodically need to obtain financing in order to meet our debt obligations as they come due, to support our operations and(cid:14)or We periodically need to obtain financing and such financing may not be available to us on satisfactory terms(cid:4) if at all. (cid:49)e periodically need to obtain financing in order to meet our debt obligations as they come due, to support our operations and(cid:14)or (cid:49)e periodically need to obtain financing in order to meet our debt obligations as they come due, to support our operations and(cid:14)or (cid:49)e periodically need to obtain financing in order to meet our debt obligations as they come due, to support our operations and(cid:14)or to make acquisitions. Our access to the debt capital markets and the cost of borrowings are affected by a number of factors to make acquisitions. Our access to the debt capital markets and the cost of borrowings are affected by a number of factors (cid:49)e periodically need to obtain financing in order to meet our debt obligations as they come due, to support our operations and(cid:14)or to make acquisitions. Our access to the debt capital markets and the cost of borrowings are affected by a number of factors to make acquisitions. Our access to the debt capital markets and the cost of borrowings are affected by a number of factors 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 including market conditions and the strength of our credit ratings. If we cannot obtain adequate sources of credit on favorable 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 including market conditions and the strength of our credit ratings. If we cannot obtain adequate sources of credit on favorable 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. terms, or at all, our business, operating results, and financial condition could be adversely affected. 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. terms, or at all, our business, operating results, and financial condition could be adversely affected. terms, or at all, our business, operating results, and financial condition could be adversely affected. terms, or at all, our business, operating results, and financial condition could be adversely affected. Unanticipated changes in our ta(cid:52) rates or e(cid:52)posure to additional income ta(cid:52) liabilities could affect our profitability. Unanticipated changes in our ta(cid:52) rates or e(cid:52)posure to additional income ta(cid:52) liabilities could affect our profitability. Unanticipated changes in our ta(cid:52) rates or e(cid:52)posure to additional income ta(cid:52) liabilities could affect our profitability. Unanticipated changes in our ta(cid:52) rates or e(cid:52)posure to additional income ta(cid:52) liabilities could affect our profitability. (cid:49)e are subject to income taxes in the U.S. and various non-U.S. jurisdictions, and our domestic and international tax liabilities are Unanticipated changes in our ta(cid:52) rates or e(cid:52)posure to additional income ta(cid:52) liabilities could affect our profitability. (cid:49)e are subject to income taxes in the U.S. and various non-U.S. jurisdictions, and our domestic and international tax liabilities are Unanticipated changes in our ta(cid:52) rates or e(cid:52)posure to additional income ta(cid:52) liabilities could affect our profitability. (cid:49)e are subject to income taxes in the U.S. and various non-U.S. jurisdictions, and our domestic and international tax liabilities are (cid:49)e 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 (cid:49)e 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 (cid:49)e 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 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, 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, 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, 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, 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, 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, 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 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 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 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 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 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 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. 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. 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. subject to audits in various jurisdictions, and a material assessment by a tax authority could affect our profitability. subject to audits in various jurisdictions, and a material assessment by a tax authority could affect our profitability. subject to audits in various jurisdictions, and a material assessment by a tax authority could affect our profitability. Ris(cid:55)s Related to Regulatory, Legal and Other Matters Ris(cid:55)s Related to Regulatory, Legal and Other Matters Ris(cid:55)s Related to Regulatory, Legal and Other Matters Ris(cid:55)s Related to Regulatory, Legal and Other Matters Ris(cid:55)s Related to Regulatory, Legal and Other Matters Ris(cid:55)s Related to Regulatory, Legal and Other Matters We are sub(cid:38)ect to increasing compliance ris(cid:39)s that could adversely affect our operating results. We are sub(cid:38)ect to increasing compliance ris(cid:39)s that could adversely affect our operating results. We are sub(cid:38)ect to increasing compliance ris(cid:39)s that could adversely affect our operating results. We are sub(cid:38)ect to increasing compliance ris(cid:39)s 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 We are sub(cid:38)ect to increasing compliance ris(cid:39)s 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 We are sub(cid:38)ect to increasing compliance ris(cid:39)s 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 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 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 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 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, 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, 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, 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. (cid:33)overnment agencies before we are permitted to 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. (cid:33)overnment agencies before we are permitted to 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. (cid:33)overnment agencies before we are permitted to we sometimes initially must obtain licenses and authorizations from various U.S. (cid:33)overnment 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 we sometimes initially must obtain licenses and authorizations from various U.S. (cid:33)overnment 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 we sometimes initially must obtain licenses and authorizations from various U.S. (cid:33)overnment 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 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. (cid:28)oth U.S. and foreign laws and regulations applicable to us have been increasing in scope and 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. (cid:28)oth U.S. and foreign laws and regulations applicable to us have been increasing in scope and 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. (cid:28)oth U.S. and foreign laws and regulations applicable to us have been increasing in scope and authorizations in a timely manner. (cid:28)oth 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 authorizations in a timely manner. (cid:28)oth 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 authorizations in a timely manner. (cid:28)oth 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 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. 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. 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. have previously and may in the future impose new regulations for additional aircraft security or other requirements or restrictions. New or changing laws and regulations or related interpretation and policies could increase our costs of doing business, affect how have previously and may in the future impose new regulations for additional aircraft security or other requirements or restrictions. New or changing laws and regulations or related interpretation and policies could increase our costs of doing business, affect how have previously and may in the future impose new regulations for additional aircraft security or other requirements or restrictions. New or changing laws and regulations or related interpretation and policies could increase our costs of doing business, affect how 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(cid:14)or limit our ability to sell our products and services. 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(cid:14)or limit our ability to sell our products and services. 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(cid:14)or limit our ability to sell our products and services. we conduct our operations, adversely impact demand for our products, and(cid:14)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 business environment we conduct our operations, adversely impact demand for our products, and(cid:14)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 business environment we conduct our operations, adversely impact demand for our products, and(cid:14)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 business environment Compliance with laws and regulations of increasing scope and complexity is even more challenging in our business environment in which reducing our operating costs is often necessary to remain competitive. In addition, a violation of U.S. and(cid:14)or foreign laws Compliance with laws and regulations of increasing scope and complexity is even more challenging in our business environment in which reducing our operating costs is often necessary to remain competitive. In addition, a violation of U.S. and(cid:14)or foreign laws Compliance with laws and regulations of increasing scope and complexity is even more challenging in our business environment in which reducing our operating costs is often necessary to remain competitive. In addition, a violation of U.S. and(cid:14)or foreign laws in which reducing our operating costs is often necessary to remain competitive. In addition, a violation of U.S. and(cid:14)or foreign laws by one of our employees or business partners could subject us or our employees to civil or criminal penalties, including material in which reducing our operating costs is often necessary to remain competitive. In addition, a violation of U.S. and(cid:14)or foreign laws by one of our employees or business partners could subject us or our employees to civil or criminal penalties, including material in which reducing our operating costs is often necessary to remain competitive. In addition, a violation of U.S. and(cid:14)or foreign laws by one of our employees or business partners could subject us or our employees to civil or criminal penalties, including material 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(cid:14)or debarment as a government 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(cid:14)or debarment as a government 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(cid:14)or debarment as a government monetary fines, or other adverse actions, such as denial of import or export privileges and(cid:14)or debarment as a government contractor which could damage our reputation and have an adverse effect on our business. monetary fines, or other adverse actions, such as denial of import or export privileges and(cid:14)or debarment as a government contractor which could damage our reputation and have an adverse effect on our business. monetary fines, or other adverse actions, such as denial of import or export privileges and(cid:14)or debarment as a government contractor which could damage our reputation and have an adverse effect on our business. contractor which could damage our reputation and have an adverse effect on our business. contractor which could damage our reputation and have an adverse effect on our business. contractor which could damage our reputation and have an adverse effect on our business. (cid:12)ertain of our products are sub(cid:38)ect to laws regulating consumer products and could be sub(cid:38)ect to repurchase or recall as a (cid:12)ertain of our products are sub(cid:38)ect to laws regulating consumer products and could be sub(cid:38)ect to repurchase or recall as a (cid:12)ertain of our products are sub(cid:38)ect to laws regulating consumer products and could be sub(cid:38)ect to repurchase or recall as a (cid:12)ertain of our products are sub(cid:38)ect to laws regulating consumer products and could be sub(cid:38)ect to repurchase or recall as a (cid:12)ertain of our products are sub(cid:38)ect to laws regulating consumer products and could be sub(cid:38)ect to repurchase or recall as a result of safety issues. result of safety issues. (cid:12)ertain of our products are sub(cid:38)ect to laws regulating consumer products and could be sub(cid:38)ect to repurchase or recall as a result of safety issues. result of safety issues. 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 As a distributor of consumer products in the U.S., certain of our products are subject to the Consumer Product Safety Act, which 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 As a distributor of consumer products in the U.S., certain of our products are subject to the Consumer Product Safety Act, which 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 empowers the U.S. Consumer Product Safety Commission (CPSC) to exclude from the market products that are found to be 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 empowers the U.S. Consumer Product Safety Commission (CPSC) to exclude from the market products that are found to be 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 unsafe or hazardous. Under certain circumstances, the CPSC could require us to repair, replace or refund the purchase price of one 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 unsafe or hazardous. Under certain circumstances, the CPSC could require us to repair, replace or refund the purchase price of one 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. (cid:49)e also may voluntarily take such action and, from or more of our products, or potentially even discontinue entire product lines. (cid:49)e also may voluntarily take such action and, from 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. (cid:49)e also may voluntarily take such action and, from or more of our products, or potentially even discontinue entire product lines. (cid:49)e also may voluntarily take such action and, from or more of our products, or potentially even discontinue entire product lines. (cid:49)e 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 time to time, have done so, but within strictures recommended by the CPSC. The CPSC also can impose fines or penalties on a or more of our products, or potentially even discontinue entire product lines. (cid:49)e 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 time to time, have done so, but within strictures recommended by the CPSC. The CPSC also can impose fines or penalties on a 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 manufacturer for non-compliance with its requirements. Furthermore, failure to timely notify the CPSC of a potential safety 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 manufacturer for non-compliance with its requirements. Furthermore, failure to timely notify the CPSC of a potential safety 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 hazard can result in significant fines being assessed against us. Any repurchases or recalls of our products or an imposition of 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 hazard can result in significant fines being assessed against us. Any repurchases or recalls of our products or an imposition of hazard can result in significant fines being assessed against us. Any repurchases or recalls of our products or an imposition of hazard can result in significant fines being assessed against us. Any repurchases or recalls of our products or an imposition of 15 Textron 2022 Annual Report 15 15 15 15 15 15 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. (cid:17)ncreased regulation and sta(cid:39)eholder e(cid:52)pectations related to global climate change could negatively affect our operating results. Increased worldwide public awareness and concern regarding global climate change has resulted and is likely to continue to result in more legislative and regulatory efforts to address the negative impacts of climate change. Such laws and regulations are likely to include more prescriptive reporting on environmental metrics, climate change related risks and associated financial impacts, as well as increased oversight of and reporting on our supply chain and other compliance requirements. Stricter limits on greenhouse gas emissions generated by our facilities or by our products that produce carbon emissions could also be imposed. (cid:49)e expect that compliance with such laws and regulations will require additional internal resources and may necessitate larger investment in product development and manufacturing equipment and(cid:14)or facilities, as well as sourcing from new suppliers and(cid:14)or higher costs from existing suppliers, all of which would increase our direct and indirect costs and negatively impact our business, results of operations, financial condition and competitive position. Our failure to adequately comply with such laws and regulations could jeopardize our ability to receive contract awards from the U.S. government and other customers. Moreover, our investors, customers, employees and other stakeholders increasingly expect us to reduce greenhouse gas emissions generated by our operations by implementing more efficient manufacturing technologies and increasing the amount of renewable energy used within our facilities. (cid:49)hile we are engaged in efforts to transition to a lower carbon economy by reducing the emissions generated by our operations and increasing our use of renewable energy, these efforts take time and resources and may increase our energy acquisition and other costs and require capital investment. In addition, our stakeholders expect us to reduce greenhouse gas emissions from the use of our products, including by developing and incorporating sustainable technologies into our products. Our businesses are expected to require significant research and development investment to succeed in developing the new technologies and products that will enable us to significantly reduce such emissions from the use of our products and successfully compete in a lower carbon economy. (cid:49)e may not realize the anticipated benefits of our investments and actions for a variety of reasons, including technological challenges, evolving government and customer requirements and our ability to anticipate them and develop the desired technologies and products on a timely basis. Our competitors may develop these technologies and products before we do and they may be deemed by our customers to be superior to technologies and products we may develop, and they may otherwise gain industry acceptance in advance of, or instead of, our products. In addition, as we and our competitors develop increasingly sustainable technologies, demand for our existing offerings may decrease or become nonexistent. We are sub(cid:38)ect to legal proceedings and other claims. (cid:49)e 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(cid:26) government contracts(cid:26) alleged lack of compliance with applicable laws and regulations(cid:26) disputes with suppliers, production partners or other third parties(cid:26) product liability(cid:26) patent and trademark infringement(cid:26) employment disputes(cid:26) 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. (cid:17)ntellectual 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. Infringement claims also have resulted in legal restrictions on our businesses engaging in sales of allegedly infringing products. If such a restriction were imposed upon a material product line, our business and results of operations could be adversely impacted. In addition, we own the rights to many patents, trademarks, brand names, trade names and trade secrets that are important to our business. Our 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. 16 Textron 2022 Annual Report 16 Ris(cid:55)s Related to Human Capital (cid:21)ur success is highly dependent on our ability to hire and retain a (cid:45)ualified wor(cid:39)force. Our success is highly dependent upon our ability to hire and retain a workforce with the skills necessary for our businesses to develop and manufacture the products desired by our customers. (cid:49)e need highly skilled personnel in multiple areas including, among others, engineering, manufacturing, information technology, cybersecurity, flight operations, business development and strategy and management. (cid:28)ecause many of our businesses experience cyclical market demand, they face challenges in maintaining their workforce at levels aligned with market demand which in the past has necessitated workforce reductions at some of our businesses as demand decreased. Conversely, our businesses sometimes need to increase the size of their workforce in order to keep pace with production needs due to increased customer demand. Furthermore, for our defense businesses the uncertainty of being awarded follow-on contracts and the related timing can also present difficulties in matching workforce size with contract needs. Such challenges in aligning the size of our businesses’ workforces with current or future business needs have resulted and may, in the future result in increased costs, production delays or other adverse impacts on our business and results of operations. In addition, from time to time we face challenges that may impact employee retention, such as workforce reductions and facility consolidations and closures, and some of our most experienced employees are retirement-eligible which may adversely impact retention. To the extent that we lose experienced personnel through 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(cid:14)or training costs in order to attract and retain employees with the requisite skills. (cid:49)e may not be successful in hiring or retaining such employees which could adversely impact our business and results of operations. (cid:25)he 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(cid:14) 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. (cid:21)ur business could be adversely affected by stri(cid:39)es or wor(cid:39) stoppages and other labor issues. Approximately 7,300, or 27(cid:4), 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 revenues and(cid:14)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. (cid:49)ork stoppages or strikes at the plants of our key suppliers could disrupt our manufacturing processes(cid:26) 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. Item 1(cid:21). Unresolved Staff Comments None. Item 2. Properties On December 31, 2022, we operated a total of 54 plants located throughout the U.S. and 44 plants outside the U.S. (cid:49)e own 58 plants and lease the remainder for a total manufacturing space of approximately 23.6 million square feet. (cid:49)e consider the productive capacity of the plants operated by each of our business segments to be adequate. (cid:49)e 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 2022 Annual Report 17 17 Item 3. Legal Proceedings As previously reported in Textron’s Annual Report on Form 10-(cid:37) for the fiscal year ended January 4, 2020, on August 22, 2019, a purported shareholder class action lawsuit was filed in the United States District Court in the Southern District of New York against Textron, its Chairman and Chief Executive Officer and its Chief Financial Officer. The suit, filed by (cid:28)uilding Trades Pension Fund of (cid:49)estern 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 I(cid:49)A Forest Industry Pension Fund (I(cid:49)A) as the sole lead plaintiff in the case. On December 24, 2019, I(cid:49)A filed an Amended Complaint in the now entitled In re Textron Inc. Securities Litigation. On February 14, 2020, I(cid:49)A filed a Second Amended Complaint, and on March 6, 2020, Textron filed a motion to dismiss the Second Amended Complaint. On July 20, 2020, the Court granted Textron’s motion to dismiss and closed the case. On August 18, 2020, plaintiffs filed a notice of appeal contesting the dismissal, which Textron opposed. On September 17, 2021, the Second Circuit Court of Appeals narrowed the case, unanimously upholding dismissal of most of the Second Amended Complaint, but reversing dismissal of one aspect of the Second Amended Complaint and remanding that remaining portion back to the District Court for further proceedings. On June 23, 2022, as a result of a mediation process overseen by an independent mediator, the Parties entered into a settlement agreement to settle plaintiff’s claims for an amount not material to Textron. On November 21, 2022, the Court entered an order giving final approval of the settlement and final judgment in the case. Neither Textron nor any of the other defendants admitted any wrongdoing with respect to the allegations in the case. (cid:49)e 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(cid:26) government contracts(cid:26) alleged lack of compliance with applicable laws and regulations(cid:26) disputes with suppliers, production partners or other third parties(cid:26) product liability(cid:26) patent and trademark infringement(cid:26) employment disputes(cid:26) 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. (cid:33)overnment could result in our suspension or debarment from U.S. (cid:33)overnment 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. PART II Item 5. Mar(cid:55)et for Registrant(cid:72)s Common E(cid:61)uity, Related Stoc(cid:55)holder Matters and Issuer Purchases of E(cid:61)uity Securities The principal market on which our common stock is traded is the New York Stock Exchange under the symbol (cid:2)TXT.(cid:2) At December 31, 2022, there were approximately 5,500 record holders of Textron common stock. Issuer Repurchases of E(cid:61)uity Securities The following provides information about our fourth quarter 2022 repurchases of equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended: Period (cid:3)s(cid:47)ares (cid:48)n t(cid:47)ousands(cid:4) October 2, 2022 (cid:82) November 5, 2022 November 6, 2022 (cid:82) December 3, 2022 December 4, 2022 (cid:82) December 31, 2022 Total Total Number of Shares Purchased (cid:5) Average Price Paid per Share (excluding commissions) 64.62 69.67 70.12 68.66 Total Number of Shares Purchased as part of Publicly Announced Plan (cid:5) 750 1,635 940 3,325 Maximum Number of Shares that may yet be Purchased under the Plan 14,500 12,865 11,925 750 $ 1,635 940 3,325 $ (cid:5) (cid:36)(cid:47)ese s(cid:47)ares (cid:62)ere purc(cid:47)ased pursuant to a plan aut(cid:47)or(cid:48)(cid:65)(cid:48)ng t(cid:47)e repurc(cid:47)ase o(cid:45) up to (cid:12)(cid:15) m(cid:48)ll(cid:48)on s(cid:47)ares o(cid:45) (cid:36)e(cid:63)tron common stoc(cid:50) t(cid:47)at (cid:62)as announced on (cid:28)anuar(cid:64) (cid:12)(cid:15)(cid:6)(cid:12)(cid:10)(cid:12)(cid:12) and (cid:47)as no e(cid:63)p(cid:48)rat(cid:48)on date(cid:8) 18 Textron 2022 Annual Report 18 Stoc(cid:55) 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, 2017 with the Standard (cid:5) Poor’s (S(cid:5)P) 500 Stock Index, the S(cid:5)P 500 Aerospace (cid:5) Defense (A(cid:5)D) Index and the S(cid:5)P 500 Industrials Index, all of which include Textron. The values calculated assume dividend reinvestment. Textron Inc. S(cid:5)P 500 S(cid:5)P 500 A(cid:5)D S(cid:5)P 500 Industrials $200.00 $150.00 $100.00 $50.00 Textron Inc. S(cid:5)P 500 S(cid:5)P 500 A(cid:5)D S(cid:5)P 500 Industrials $ 201(cid:16) 100.00 $ 100.00 100.00 100.00 2018 80.77 $ 94.80 90.72 96.09 2019 79.29 $ 2020 85.86 $ 125.91 124.44 128.30 148.85 100.56 157.60 2021 137.31 $ 191.58 113.86 201.56 2022 126.08 156.88 133.64 162.45 Textron 2022 Annual Report 19 19 Item (cid:16). Management(cid:72)s Discussion and Analysis of Financial Condition and Results of Operations Overview In 2022, Textron’s revenues increased 4(cid:4) and segment profit increased 8(cid:4), compared with 2021, reflecting the impact of higher pricing and higher volume and mix at both the Textron Aviation and Industrial segments, partially offset by lower volume and mix at the (cid:28)ell and Textron Systems segments. Our backlog increased 31(cid:4), to $13.3 billion by the end of 2022, reflecting increased demand in many of our businesses, including a 55(cid:4) increase in backlog at the Textron Aviation segment. During 2022, we continued to manage through the impacts of ongoing global supply chain shortages(cid:14)delays and labor shortages, in order to meet customer demand. In December 2022, (cid:28)ell was awarded the development contract for the U.S. Army’s Future Long-Range Assault Aircraft (FLRAA) program as discussed in Item 1. (cid:28)usiness. Financial highlights for 2022 also include: (cid:81) (cid:81) (cid:81) (cid:33)enerated $1.5 billion of net cash from operating activities from our manufacturing businesses. Invested $601 million in research and development projects and $354 million in capital expenditures. Returned $867 million to our shareholders through the repurchase of 13.1 million shares of our common stock. For an overview of our business segments, including a discussion of our major products and services, refer to Item 1. (cid:28)usiness. A discussion of our financial condition and operating results for 2022 compared with 2021 is provided below, while a discussion of 2021 compared with 2020 can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-(cid:37) for the year ended January 1, 2022. 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. Consolidated Results of Operations (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Revenues Cost of sales (cid:33)ross margin as a percentage of Manufacturing revenues Selling and administrative expense Interest expense, net Non-service components of pension and postretirement income, net (cid:2) Change $ 2022 12,869 $ 10,800 15.7(cid:4) 1,186 107 2021 12,382 $ 10,297 16.5(cid:4) 1,221 142 2020 11,651 10,094 13.0(cid:4) 1,045 166 2022 4 (cid:4) 5 (cid:4) (3) (cid:4) (25) (cid:4) 2021 6 (cid:4) 2 (cid:4) 17 (cid:4) (14) (cid:4) 240 159 83 51 (cid:4) 92 (cid:4) Revenues Revenues increased $487 million, 4(cid:4), in 2022, compared with 2021. The revenue increase primarily included the following factors: (cid:81) (cid:34)igher Textron Aviation revenues of $507 million, reflecting higher volume and mix of $302 million and higher pricing of $205 million. (cid:34)igher Industrial revenues of $335 million due to a favorable impact from pricing of $227 million, principally in the Specialized (cid:48)ehicles product line, and higher volume and mix of $203 million in both product lines, partially offset by an unfavorable impact from exchange rate fluctuations of $95 million. Lower (cid:28)ell revenues of $273 million due to lower military revenues of $333 million, primarily in the (cid:34)-1 program due to lower aircraft and spares production volume reflecting lower demand, partially offset by higher commercial revenues of $60 million, largely due to higher pricing. Lower Textron Systems revenues of $101 million, largely due to lower volume of $121 million, which included an $88 million decrease from our Afghanistan fee-for-service and aircraft support contracts. (cid:81) (cid:81) (cid:81) Cost of Sales and Selling and Administrative Expense Cost of sales includes cost of products and services sold for the Manufacturing group. In 2022, cost of sales increased $503 million, 5(cid:4), compared with 2021, largely due to an unfavorable impact from inflation of $385 million, principally reflecting higher material costs in the Industrial and Textron Aviation segments. (cid:33)ross margin as a percentage of Manufacturing revenues decreased 80 basis points in 2022, compared with 2021, as higher margin at the Textron Aviation segment, reflecting higher volume and mix and pricing, was more than offset by lower margin at the other Manufacturing segments, primarily at the (cid:28)ell segment due to lower volume and mix. Selling and administrative expense decreased $35 million, 3(cid:4), in 2022, compared with 2021, primarily reflecting lower share- based compensation expense. 20 Textron 2022 Annual Report 20 Interest Expense, Net Interest Expense, Net Interest expense, net includes interest expense for both the Finance and Manufacturing borrowing groups, with interest on Interest expense, net includes interest expense for both the Finance and Manufacturing borrowing groups, with interest on intercompany borrowings eliminated, and interest income earned on cash and equivalents. In 2022, interest expense, net decreased intercompany borrowings eliminated, and interest income earned on cash and equivalents. In 2022, interest expense, net decreased $35 million, 25(cid:4), compared with 2021, primarily due to an increase in interest income of $22 million and lower average debt $35 million, 25(cid:4), compared with 2021, primarily due to an increase in interest income of $22 million and lower average debt outstanding. For 2022, 2021 and 2020, gross interest expense totaled $129 million, $142 million and $166 million, respectively. outstanding. For 2022, 2021 and 2020, gross interest expense totaled $129 million, $142 million and $166 million, respectively. Non-service Components of Pension and Postretirement Income, Net Non-service Components of Pension and Postretirement Income, Net Non-service components of pension and postretirement income, net increased by $81 million, 51(cid:4), in 2022, compared with 2021. Non-service components of pension and postretirement income, net increased by $81 million, 51(cid:4), in 2022, compared with 2021. The increase is based on our annual valuation at the end of 2021 and is primarily driven by an increase in the discount rate utilized The increase is based on our annual valuation at the end of 2021 and is primarily driven by an increase in the discount rate utilized for our domestic qualified pension plans and the impact of actual pension asset returns that exceeded our expected return on plan for our domestic qualified pension plans and the impact of actual pension asset returns that exceeded our expected return on plan assets. assets. Special Charges Special Charges Special charges of $25 million in 2021, primarily include restructuring activities as described in Note 16 to the Consolidated Special charges of $25 million in 2021, primarily include restructuring activities as described in Note 16 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. There were no special charges recorded in 2022. Financial Statements in Item 8. Financial Statements and Supplementary Data. There were no special charges recorded in 2022. Income Taxes Income Taxes Effective tax rate Effective tax rate 2022 2022 15.2(cid:4) 15.2(cid:4) 2021 2021 14.4(cid:4) 14.4(cid:4) 2020 2020 (9.6(cid:4)) (9.6(cid:4)) In 2022, the effective tax rate of 15.2(cid:4) was lower than the U.S. federal statutory tax rate of 21(cid:4), largely due to the favorable In 2022, the effective tax rate of 15.2(cid:4) was lower than the U.S. federal statutory tax rate of 21(cid:4), largely due to the favorable impact of research and development credits and tax deductions for foreign-derived intangible income. In 2021, the effective tax impact of research and development credits and tax deductions for foreign-derived intangible income. In 2021, the effective tax rate of 14.4(cid:4) was lower than the U.S. federal statutory tax rate of 21(cid:4), largely due to the favorable impact of research and rate of 14.4(cid:4) was lower than the U.S. federal statutory tax rate of 21(cid:4), largely due to the favorable impact of research and development credits, which included a $12 million benefit recognized for additional credits related to prior years. development credits, which included a $12 million benefit recognized for additional credits related to prior years. For a full reconciliation of our effective tax rate to the U.S. federal statutory tax rate, see Note 17 to the Consolidated Financial For a full reconciliation of our effective tax rate to the U.S. federal statutory tax rate, see Note 17 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. Statements in Item 8. Financial Statements and Supplementary Data. Segment Analysis Segment Analysis (cid:49)e conduct our business through six operating segments: Textron Aviation, (cid:28)ell, Textron Systems, Industrial and Textron (cid:49)e conduct our business through six operating segments: Textron Aviation, (cid:28)ell, Textron Systems, Industrial and Textron eAviation, which represent our manufacturing businesses, and Finance, which represents our captive finance business. Segment eAviation, which represent our manufacturing businesses, and Finance, which represents our captive finance business. Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments includes non-service components of net periodic benefit cost(cid:14)(income) and excludes interest expense, manufacturing segments includes non-service components of net periodic benefit cost(cid:14)(income) and excludes interest expense, net(cid:26) certain corporate expenses(cid:26) gains(cid:14)losses on major business dispositions(cid:26) special charges(cid:26) and an inventory charge related to net(cid:26) certain corporate expenses(cid:26) gains(cid:14)losses on major business dispositions(cid:26) special charges(cid:26) and an inventory charge related to the 2020 CO(cid:48)ID-19 restructuring plan, as discussed in Note 16 to the Consolidated Financial Statements in Item 8. Financial the 2020 CO(cid:48)ID-19 restructuring plan, as discussed in Note 16 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. The measurement for the Finance segment includes interest income and expense along with Statements and Supplementary Data. 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 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(cid:14)(income), and exclude certain corporate administrative expense and other non-service components of net periodic benefit cost(cid:14)(income), and exclude certain corporate expenses and special charges. expenses and special charges. In our discussion of comparative results for the Manufacturing group, changes in revenues and segment profit for our commercial 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 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 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(cid:14)or services sold. For segment profit, volume and mix units delivered or services provided and the composition of products and(cid:14)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(cid:14)or services represents a change due to the number of units delivered or services provided and the composition of products and(cid:14)or services sold at different profit margins. Pricing represents changes in unit pricing. Foreign exchange is the change resulting from 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 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 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, 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, 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(cid:14)scrap, labor efficiency, overhead, non-service pension cost(cid:14) selling and administrative costs, warranty, product liability, quality(cid:14)scrap, labor efficiency, overhead, non-service pension cost(cid:14) (income), product line profitability, start-up, ramp up and cost-reduction initiatives or other manufacturing inputs. (income), product line profitability, start-up, ramp up and cost-reduction initiatives or other manufacturing inputs. Approximately 22(cid:4) of our 2022 revenues were derived from contracts with the U.S. (cid:33)overnment, including those under the U.S. Approximately 22(cid:4) of our 2022 revenues were derived from contracts with the U.S. (cid:33)overnment, including those under the U.S. (cid:33)overnment-sponsored foreign military sales program. For our segments that contract with the U.S. (cid:33)overnment, changes in (cid:33)overnment-sponsored foreign military sales program. For our segments that contract with the U.S. (cid:33)overnment, changes in revenues related to these contracts are expressed in terms of volume. Changes in segment profit for these contracts are typically 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(cid:26) these include cumulative catch-up adjustments associated with a) expressed in terms of volume and mix and performance(cid:26) 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 revisions to the transaction price that may reflect contract modifications or changes in assumptions related to award fees and other Textron 2022 Annual Report 21 21 21 variable consideration or b) changes in the total estimated costs at completion due to improved or deteriorated operating performance. Textron Aviation (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Revenues: Aircraft Aftermarket parts and services Total revenues Operating expenses Segment profit Profit margin (cid:28)acklog 2022 2021 2020 $ $ $ 3,387 $ 1,686 5,073 4,489 584 $ 11.5(cid:4) 6,387 $ 3,116 $ 1,450 4,566 4,188 378 $ 8.3(cid:4) 4,120 $ 2,714 1,260 3,974 3,958 16 0.4(cid:4) 1,603 (cid:2) Change 2022 9 (cid:4) 16 (cid:4) 11 (cid:4) 7 (cid:4) 54 (cid:4) 55 (cid:4) 2021 15 (cid:4) 15 (cid:4) 15 (cid:4) 6 (cid:4) 2,263 (cid:4) 157 (cid:4) Textron Aviation Revenues and Operating Expenses Factors contributing to the 2022 year-over-year revenue change are provided below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:48)olume and mix Pricing Total change 2022 versus 2021 302 205 507 $ $ Textron Aviation’s revenues increased $507 million, 11(cid:4), in 2022, compared with 2021, reflecting higher volume and mix of $302 million and higher pricing of $205 million. The increase in volume and mix was largely due to higher Citation jet and aftermarket volume, partially offset by lower pre-owned volume. The higher aftermarket volume reflected increased aircraft utilization. (cid:49)e delivered 178 Citation jets and 146 commercial turboprops in 2022, compared with 167 Citation jets and 125 commercial turboprops in 2021. Textron Aviation’s operating expenses increased $301 million, 7(cid:4), in 2022, compared with 2021, largely due to higher volume and mix described above and inflation of $114 million. Textron Aviation Segment Profit Factors contributing to 2022 year-over-year segment profit change are provided below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:48)olume and mix Pricing, net of inflation Performance Total change 2022 versus 2021 101 91 14 206 $ $ Textron Aviation’s segment profit increased $206 million, 54(cid:4), in 2022, compared with 2021, primarily due to the impact from higher volume and mix described above and favorable pricing, net of inflation of $91 million. Textron Aviation (cid:21)ac(cid:55)log Textron Aviation’s backlog increased $2.3 billion in 2022 as a result of orders in excess of deliveries. 22 Textron 2022 Annual Report 22 (cid:21)ell (cid:21)ell (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Revenues: Revenues: Military aircraft and support programs Military aircraft and support programs Commercial helicopters, parts and services Commercial helicopters, parts and services Total revenues Total revenues Operating expenses Operating expenses Segment profit Segment profit Profit margin Profit margin (cid:28)acklog (cid:28)acklog 2022 2022 2021 2021 2020 2020 2022 2022 2021 2021 (cid:2) Change (cid:2) Change $ $ $ $ $ $ 1,740 $ 1,740 $ 1,351 1,351 3,091 3,091 2,774 2,774 317 $ 317 $ 10.3(cid:4) 10.3(cid:4) 4,781 $ 4,781 $ 2,073 $ 2,073 $ 1,291 1,291 3,364 3,364 2,956 2,956 408 $ 408 $ 12.1(cid:4) 12.1(cid:4) 3,871 $ 3,871 $ 2,213 2,213 1,096 1,096 3,309 3,309 2,847 2,847 462 462 14.0(cid:4) 14.0(cid:4) 5,342 5,342 (16) (cid:4) (16) (cid:4) 5 (cid:4) 5 (cid:4) (8) (cid:4) (8) (cid:4) (6) (cid:4) (6) (cid:4) (22) (cid:4) (22) (cid:4) 24 (cid:4) 24 (cid:4) (6) (cid:4) (6) (cid:4) 18 (cid:4) 18 (cid:4) 2 (cid:4) 2 (cid:4) 4 (cid:4) 4 (cid:4) (12) (cid:4) (12) (cid:4) (28) (cid:4) (28) (cid:4) A significant portion of (cid:28)ell’s military aircraft and support program revenues is from the U.S. (cid:33)overnment for the (cid:48)-22 tiltrotor A significant portion of (cid:28)ell’s military aircraft and support program revenues is from the U.S. (cid:33)overnment for the (cid:48)-22 tiltrotor aircraft and the (cid:34)-1 helicopter platforms, which are transitioning from production to the support stage over the next few years. aircraft and the (cid:34)-1 helicopter platforms, which are transitioning from production to the support stage over the next few years. Under the current contracts, production is expected to end by 2023 for the (cid:34)-1 helicopter and 2025 for the (cid:48)-22 tiltrotor. In Under the current contracts, production is expected to end by 2023 for the (cid:34)-1 helicopter and 2025 for the (cid:48)-22 tiltrotor. In December 2022, (cid:28)ell was awarded the development contract for the next stage of the FLRAA program, as discussed in Item 1 December 2022, (cid:28)ell was awarded the development contract for the next stage of the FLRAA program, as discussed in Item 1 (cid:28)usiness. (cid:28)usiness. (cid:21)ell Revenues and Operating Expenses (cid:21)ell Revenues and Operating Expenses Factors contributing to the 2022 year-over-year revenue change are provided below: Factors contributing to the 2022 year-over-year revenue change are provided below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:48)olume and mix (cid:48)olume and mix Pricing Pricing Total change Total change 2022 versus 2022 versus 2021 2021 (332) (332) 59 59 (273) (273) $ $ $ $ (cid:28)ell’s revenues decreased $273 million, 8(cid:4), in 2022, compared with 2021, largely due to lower military revenues of $333 (cid:28)ell’s revenues decreased $273 million, 8(cid:4), in 2022, compared with 2021, largely due to lower military revenues of $333 million, primarily in the (cid:34)-1 program due to lower aircraft and spares production volume reflecting lower demand. Commercial million, primarily in the (cid:34)-1 program due to lower aircraft and spares production volume reflecting lower demand. Commercial revenues increased $60 million, largely due to higher pricing. (cid:49)e delivered 179 commercial helicopters in 2022, compared with revenues increased $60 million, largely due to higher pricing. (cid:49)e delivered 179 commercial helicopters in 2022, compared with 156 commercial helicopters in 2021. 156 commercial helicopters in 2021. (cid:28)ell’s operating expenses decreased $182 million, 6(cid:4), in 2022, compared with 2021, primarily due to lower net volume and mix (cid:28)ell’s operating expenses decreased $182 million, 6(cid:4), in 2022, compared with 2021, primarily due to lower net volume and mix described above. described above. (cid:21)ell Segment Profit (cid:21)ell Segment Profit Factors contributing to 2022 year-over-year segment profit change are provided below: Factors contributing to 2022 year-over-year segment profit change are provided below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:48)olume and mix (cid:48)olume and mix Performance Performance Inflation, net of pricing Inflation, net of pricing Total change Total change 2022 versus 2022 versus 2021 2021 (135) (135) 45 45 (1) (1) (91) (91) $ $ $ $ (cid:28)ell’s segment profit decreased $91 million, 22(cid:4), in 2022, compared with 2021, largely reflecting lower volume and mix (cid:28)ell’s segment profit decreased $91 million, 22(cid:4), in 2022, compared with 2021, largely reflecting lower volume and mix described above, partially offset by a favorable impact from performance of $45 million. Performance included lower research described above, partially offset by a favorable impact from performance of $45 million. Performance included lower research and development costs, pension costs and selling and administrative expense of $113 million, partially offset by an unfavorable and development costs, pension costs and selling and administrative expense of $113 million, partially offset by an unfavorable change in net program adjustments. change in net program adjustments. (cid:21)ell (cid:21)ac(cid:55)log (cid:21)ell (cid:21)ac(cid:55)log (cid:28)ell’s backlog increased $910 million, 24(cid:4), in 2022, largely due to new orders in excess of deliveries and revenues recognized. (cid:28)ell’s backlog increased $910 million, 24(cid:4), in 2022, largely due to new orders in excess of deliveries and revenues recognized. (cid:28)ell was awarded a $1.4 billion 5-year contract with the U.S. (cid:33)overnment for spares and logistic support for the (cid:48)-22 tiltrotor (cid:28)ell was awarded a $1.4 billion 5-year contract with the U.S. (cid:33)overnment for spares and logistic support for the (cid:48)-22 tiltrotor aircraft in the first quarter of 2022. aircraft in the first quarter of 2022. Textron 2022 Annual Report 23 23 23 Textron Systems (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Revenues Operating expenses Segment profit Profit margin (cid:28)acklog 2022 1,172 $ 1,020 152 $ 13.0(cid:4) 2,098 $ 2021 1,273 $ 1,084 189 $ 14.8(cid:4) 2,144 $ 2020 1,313 1,161 152 11.6(cid:4) 2,556 $ $ $ (cid:2) Change 2022 (8) (cid:4) (6) (cid:4) (20) (cid:4) 2021 (3) (cid:4) (7) (cid:4) 24 (cid:4) (2) (cid:4) (16) (cid:4) Textron Systems Revenues and Operating Expenses Factors contributing to the 2022 year-over-year revenue change are provided below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:48)olume and mix Pricing Total change 2022 versus 2021 (121) 20 (101) $ $ Revenues at Textron Systems decreased $101 million, 8(cid:4), in 2022, compared with 2021. Lower volume of $121 million included an $88 million decrease from our Afghanistan fee-for-service and aircraft support contracts, primarily reflecting the impact from the U.S. Army’s withdrawal from Afghanistan. Textron Systems’ operating expenses decreased $64 million, 6(cid:4), in 2022, compared with 2021, primarily related to lower volume described above. Textron Systems Segment Profit Factors contributing to 2022 year-over-year segment profit change are provided below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:48)olume and mix Performance Pricing, net of inflation Total change 2022 versus 2021 (25) (20) 8 (37) $ $ Textron Systems’ segment profit decreased $37 million, 20(cid:4), in 2022, compared with 2021, due to lower volume and mix of $25 million described above and an unfavorable impact from performance of $20 million, partially offset by favorable pricing, net of inflation of $8 million. Industrial (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Revenues: Fuel Systems and Functional Components Specialized (cid:48)ehicles Total revenues Operating expenses Segment profit Profit margin 2022 2021 2020 $ $ 1,771 $ 1,694 3,465 3,300 165 $ 4.8(cid:4) 1,735 $ 1,395 3,130 2,990 140 $ 4.5(cid:4) 1,751 1,249 3,000 2,889 111 3.7(cid:4) (cid:2) Change 2022 2 (cid:4) 21 (cid:4) 11 (cid:4) 10 (cid:4) 18 (cid:4) 2021 (1) (cid:4) 12 (cid:4) 4 (cid:4) 3 (cid:4) 26 (cid:4) 24 Textron 2022 Annual Report 24 Industrial Revenues and Operating Expenses Factors contributing to the 2022 year-over-year revenue change are provided below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Pricing (cid:48)olume and mix Foreign exchange Total change 2022 versus 2021 227 203 (95) 335 $ $ Industrial segment revenues increased $335 million, 11(cid:4), in 2022, compared with 2021, due to a favorable impact of $227 million from pricing, principally in the Specialized (cid:48)ehicles product line, and higher volume and mix of $203 million in both product lines, partially offset by an unfavorable impact of $95 million from foreign exchange rate fluctuations. Operating expenses for the Industrial segment increased $310 million, 10(cid:4), in 2022 compared with 2021, primarily reflecting inflation of $226 million, largely in material costs, and higher volume and mix described above, partially offset by a favorable impact of $85 million from foreign exchange rate fluctuations. Industrial Segment Profit Factors contributing to 2022 year-over-year segment profit change are provided below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:48)olume and mix Foreign exchange Performance Pricing, net of inflation Total change 2022 versus 2021 44 (10) (10) 1 25 $ $ Segment profit for the Industrial segment increased $25 million, 18(cid:4), in 2022, compared with 2021, primarily due to higher volume and mix of $44 million as described above, partially offset by an unfavorable impact from foreign exchange rate fluctuations of $10 million and performance of $10 million. Textron eAviation Textron eAviation was formed upon the acquisition of Pipistrel, a manufacturer of electrically powered aircraft, on April 15, 2022, as discussed in Note 2 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. This segment includes the operating results of Pipistrel, along with research and development costs for initiatives related to the development of sustainable aviation solutions. In 2022, Textron eAviation segment revenues totaled $16 million and segment loss totaled $26 million. Finance (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Revenues Segment profit $ 2022 52 $ 31 2021 49 $ 19 2020 55 10 Finance segment revenues increased $3 million and segment profit increased $12 million in 2022, compared with 2021. The following table reflects information about the Finance segment’s credit performance related to finance receivables. (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Finance receivables Allowance for credit losses Ratio of allowance for credit losses to finance receivables Nonaccrual finance receivables Ratio of nonaccrual finance receivables to finance receivables 60(cid:10) days contractual delinquency 60(cid:10) days contractual delinquency as a percentage of finance receivables $ December 31, 2022 587 $ 24 4.09 (cid:4) 46 7.84 (cid:4) 1 0.17 (cid:4) (cid:29)anuary 1, 2022 630 25 3.97 (cid:4) 94 14.92 (cid:4) 1 0.16 (cid:4) Textron 2022 Annual Report 25 25 Li(cid:61)uidity and Capital Resources Li(cid:61)uidity and Capital Resources Li(cid:61)uidity and Capital Resources Li(cid:61)uidity and Capital Resources Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron consolidated Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron consolidated Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron consolidated 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, (cid:28)ell, Textron Systems, Industrial and Textron eAviation with its majority-owned subsidiaries that operate in the Textron Aviation, (cid:28)ell, Textron Systems, Industrial and Textron eAviation with its majority-owned subsidiaries that operate in the Textron Aviation, (cid:28)ell, Textron Systems, Industrial and Textron eAviation with its majority-owned subsidiaries that operate in the Textron Aviation, (cid:28)ell, Textron Systems, Industrial and Textron eAviation segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated subsidiaries. (cid:49)e designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing subsidiaries. (cid:49)e designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing subsidiaries. (cid:49)e designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing subsidiaries. (cid:49)e 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 products and services, while our Finance group group operations include the development, production and delivery of tangible products and services, while our Finance group group operations include the development, production and delivery of tangible products and services, while our Finance group group operations include the development, production and delivery of tangible products and services, while our Finance group provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating 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 agencies and analysts use different measures to evaluate each group’s performance. To support those evaluations, we present agencies and analysts use different measures to evaluate each group’s performance. To support those evaluations, we present 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. balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements. balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements. balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements. Assessment of Li(cid:61)uidity and Significant Future Cash Re(cid:61)uirements Assessment of Li(cid:61)uidity and Significant Future Cash Re(cid:61)uirements Assessment of Li(cid:61)uidity and Significant Future Cash Re(cid:61)uirements Assessment of Li(cid:61)uidity and Significant Future Cash Re(cid:61)uirements (cid:37)ey information that is utilized in assessing our liquidity is summarized below: (cid:37)ey information that is utilized in assessing our liquidity is summarized below: (cid:37)ey information that is utilized in assessing our liquidity is summarized below: (cid:37)ey information that is utilized in assessing our liquidity is summarized below: are summarized below: are summarized below: are summarized below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Operating activities Operating activities Operating activities Operating activities Investing activities Investing activities Investing activities Investing activities Financing activities Financing activities Financing activities Financing activities (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Manufacturing group Manufacturing group Manufacturing group Manufacturing group Cash and equivalents Cash and equivalents Cash and equivalents Cash and equivalents Debt Debt Debt Debt Shareholders’ equity Shareholders’ equity Shareholders’ equity Shareholders’ equity Capital (debt plus shareholders’ equity) Capital (debt plus shareholders’ equity) Capital (debt plus shareholders’ equity) Capital (debt plus shareholders’ equity) Net debt (net of cash and equivalents) to capital Net debt (net of cash and equivalents) to capital Net debt (net of cash and equivalents) to capital Net debt (net of cash and equivalents) to capital Debt to capital Debt to capital Debt to capital Debt to capital Finance group Finance group Finance group Finance group Cash and equivalents Cash and equivalents Cash and equivalents Cash and equivalents Debt Debt Debt Debt December 31, December 31, December 31, December 31, 2022 2022 2022 2022 (cid:29)anuary 1, (cid:29)anuary 1, (cid:29)anuary 1, (cid:29)anuary 1, 2022 2022 2022 2022 $ $ $ $ $ $ $ $ 1,963 $ 1,963 $ 1,963 $ 1,963 $ 3,182 3,182 3,182 3,182 7,113 7,113 7,113 7,113 10,295 10,295 10,295 10,295 15(cid:4) 15(cid:4) 15(cid:4) 15(cid:4) 31(cid:4) 31(cid:4) 31(cid:4) 31(cid:4) 72 $ 72 $ 72 $ 72 $ 375 375 375 375 1,922 1,922 1,922 1,922 3,185 3,185 3,185 3,185 6,815 6,815 6,815 6,815 10,000 10,000 10,000 10,000 16(cid:4) 16(cid:4) 16(cid:4) 16(cid:4) 32(cid:4) 32(cid:4) 32(cid:4) 32(cid:4) 195 195 195 195 582 582 582 582 (cid:49)e believe that our calculations of debt to capital and net debt to capital are useful measures as they provide a summary (cid:49)e believe that our calculations of debt to capital and net debt to capital are useful measures as they provide a summary (cid:49)e believe that our calculations of debt to capital and net debt to capital are useful measures as they provide a summary (cid:49)e 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 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 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 level of debt financing (i.e., leverage) that is in place to support our capital structure, as well as to provide an indication of our capacity to add further leverage. indication of our capacity to add further leverage. indication of our capacity to add further leverage. indication of our capacity to add further leverage. (cid:49)e expect to have sufficient cash to meet our needs based on our existing cash balances, the cash we expect to generate from our (cid:49)e expect to have sufficient cash to meet our needs based on our existing cash balances, the cash we expect to generate from our (cid:49)e expect to have sufficient cash to meet our needs based on our existing cash balances, the cash we expect to generate from our (cid:49)e expect to have sufficient cash to meet our needs based on our existing cash balances, the cash we expect to generate from our manufacturing operations and the availability of our existing credit facility. In addition to our manufacturing operating cash manufacturing operations and the availability of our existing credit facility. In addition to our manufacturing operating cash manufacturing operations and the availability of our existing credit facility. In addition to our manufacturing operating cash manufacturing operations and the availability of our existing credit facility. In addition to our manufacturing operating cash requirements, future material cash outlays include our contractual combined debt and interest payments for the Manufacturing requirements, future material cash outlays include our contractual combined debt and interest payments for the Manufacturing requirements, future material cash outlays include our contractual combined debt and interest payments for the Manufacturing requirements, future material cash outlays include our contractual combined debt and interest payments for the Manufacturing group of $119 million in 2023, $461 million in 2024, $446 million in 2025 and $2.7 billion thereafter, and for the Finance (cid:33)roup group of $119 million in 2023, $461 million in 2024, $446 million in 2025 and $2.7 billion thereafter, and for the Finance (cid:33)roup group of $119 million in 2023, $461 million in 2024, $446 million in 2025 and $2.7 billion thereafter, and for the Finance (cid:33)roup group of $119 million in 2023, $461 million in 2024, $446 million in 2025 and $2.7 billion thereafter, and for the Finance (cid:33)roup of $35 million in 2023, $32 million in 2024, $49 million in 2025 and $611 million thereafter. of $35 million in 2023, $32 million in 2024, $49 million in 2025 and $611 million thereafter. of $35 million in 2023, $32 million in 2024, $49 million in 2025 and $611 million thereafter. of $35 million in 2023, $32 million in 2024, $49 million in 2025 and $611 million thereafter. For the Manufacturing (cid:33)roup, we also have purchase obligations that require material future cash outlays totaling $2.9 billion in For the Manufacturing (cid:33)roup, we also have purchase obligations that require material future cash outlays totaling $2.9 billion in For the Manufacturing (cid:33)roup, we also have purchase obligations that require material future cash outlays totaling $2.9 billion in For the Manufacturing (cid:33)roup, we also have purchase obligations that require material future cash outlays totaling $2.9 billion in 2023, $383 million in 2024 and $149 million thereafter. Purchase obligations include undiscounted amounts committed under 2023, $383 million in 2024 and $149 million thereafter. Purchase obligations include undiscounted amounts committed under 2023, $383 million in 2024 and $149 million thereafter. Purchase obligations include undiscounted amounts committed under 2023, $383 million in 2024 and $149 million thereafter. 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, legally enforceable contracts or purchase orders for goods and services with defined terms as to price, quantity and delivery dates, legally enforceable contracts or purchase orders for goods and services with defined terms as to price, quantity and delivery dates, legally enforceable contracts or purchase orders for goods and services with defined terms as to price, quantity and delivery dates, as well as property, plant and equipment. Approximately 18(cid:4) of our purchase obligations represent purchase orders issued for as well as property, plant and equipment. Approximately 18(cid:4) of our purchase obligations represent purchase orders issued for as well as property, plant and equipment. Approximately 18(cid:4) of our purchase obligations represent purchase orders issued for as well as property, plant and equipment. Approximately 18(cid:4) of our purchase obligations represent purchase orders issued for goods and services to be delivered under firm contracts with the U.S. (cid:33)overnment for which we have full recourse under goods and services to be delivered under firm contracts with the U.S. (cid:33)overnment for which we have full recourse under goods and services to be delivered under firm contracts with the U.S. (cid:33)overnment for which we have full recourse under goods and services to be delivered under firm contracts with the U.S. (cid:33)overnment for which we have full recourse under customary contract termination clauses. customary contract termination clauses. customary contract termination clauses. customary contract termination clauses. Effective at the beginning of 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development Effective at the beginning of 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development Effective at the beginning of 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development Effective at the beginning of 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. (cid:49)ithout the expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. (cid:49)ithout the expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. (cid:49)ithout the expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. (cid:49)ithout the option to deduct these expenses in the year incurred, our tax payments increased by $284 million in 2022. Under the assumption option to deduct these expenses in the year incurred, our tax payments increased by $284 million in 2022. Under the assumption option to deduct these expenses in the year incurred, our tax payments increased by $284 million in 2022. Under the assumption option to deduct these expenses in the year incurred, our tax payments increased by $284 million in 2022. Under the assumption that this legislation is not modified or repealed, the impact will continue over the five-year amortization period, but will decrease that this legislation is not modified or repealed, the impact will continue over the five-year amortization period, but will decrease that this legislation is not modified or repealed, the impact will continue over the five-year amortization period, but will decrease that this legislation is not modified or repealed, the impact will continue over the five-year amortization period, but will decrease each year. each year. each year. each year. Credit Facilities and Other Sources of Capital Credit Facilities and Other Sources of Capital Credit Facilities and Other Sources of Capital Credit Facilities and Other Sources of Capital On October 21, 2022, Textron entered into a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 On October 21, 2022, Textron entered into a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 On October 21, 2022, Textron entered into a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 On October 21, 2022, Textron entered into a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 billion, of which $100 million is available for the issuance of letters of credit. (cid:49)e may elect to increase the aggregate amount of billion, of which $100 million is available for the issuance of letters of credit. (cid:49)e may elect to increase the aggregate amount of billion, of which $100 million is available for the issuance of letters of credit. (cid:49)e may elect to increase the aggregate amount of billion, of which $100 million is available for the issuance of letters of credit. (cid:49)e 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 commitments under the facility to up to $1.3 billion by designating an additional lender or by an existing lender agreeing to commitments under the facility to up to $1.3 billion by designating an additional lender or by an existing lender agreeing to 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 2027 and provides for two one-year extensions at our option with the increase its commitment. The facility expires in October 2027 and provides for two one-year extensions at our option with the increase its commitment. The facility expires in October 2027 and provides for two one-year extensions at our option with the increase its commitment. The facility expires in October 2027 and provides for two one-year extensions at our option with the consent of lenders representing a majority of the commitments under the facility. This new facility replaces the existing 5-year consent of lenders representing a majority of the commitments under the facility. This new facility replaces the existing 5-year consent of lenders representing a majority of the commitments under the facility. This new facility replaces the existing 5-year consent of lenders representing a majority of the commitments under the facility. This new facility replaces the existing 5-year facility, which was scheduled to expire in October 2024. At December 31, 2022 and January 1, 2022, there were no amounts facility, which was scheduled to expire in October 2024. At December 31, 2022 and January 1, 2022, there were no amounts facility, which was scheduled to expire in October 2024. At December 31, 2022 and January 1, 2022, there were no amounts facility, which was scheduled to expire in October 2024. At December 31, 2022 and January 1, 2022, there were no amounts borrowed against either facility. At December 31, 2022, there were $9 million of outstanding letters of credit issued under the new borrowed against either facility. At December 31, 2022, there were $9 million of outstanding letters of credit issued under the new borrowed against either facility. At December 31, 2022, there were $9 million of outstanding letters of credit issued under the new borrowed against either facility. At December 31, 2022, there were $9 million of outstanding letters of credit issued under the new facility, and at January 1, 2022, there were $9 million of outstanding letters of credit issued under the prior facility. facility, and at January 1, 2022, there were $9 million of outstanding letters of credit issued under the prior facility. facility, and at January 1, 2022, there were $9 million of outstanding letters of credit issued under the prior facility. facility, and at January 1, 2022, there were $9 million of outstanding letters of credit issued under the prior facility. 26 Textron 2022 Annual Report 26 26 26 26 (cid:49)e also maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to (cid:49)e also maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to (cid:49)e also maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to (cid:49)e 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. issue an unlimited amount of public debt and other securities. issue an unlimited amount of public debt and other securities. issue an unlimited amount of public debt and other securities. Manufacturing Group Cash Flows Manufacturing Group Cash Flows Manufacturing Group Cash Flows Manufacturing Group Cash Flows Cash flows from continuing operations for the Manufacturing group as presented in our Consolidated Statements of Cash Flows Cash flows from continuing operations for the Manufacturing group as presented in our Consolidated Statements of Cash Flows Cash flows from continuing operations for the Manufacturing group as presented in our Consolidated Statements of Cash Flows Cash flows from continuing operations for the Manufacturing group as presented in our Consolidated Statements of Cash Flows are summarized below: $ $ $ $ 2022 2022 2022 2022 1,461 $ 1,461 $ 1,461 $ 1,461 $ (511) (511) (511) (511) (875) (875) (875) (875) 2021 2021 2021 2021 1,469 $ 1,469 $ 1,469 $ 1,469 $ (335) (335) (335) (1,349) (335) (1,349) (1,349) (1,349) 2020 2020 2020 833 2020 833 833 833 (277) (277) (277) (277) 393 393 393 393 Cash flows from operating activities in 2022 were essentially unchanged from 2021 as an increase in net income tax payments of Cash flows from operating activities in 2022 were essentially unchanged from 2021 as an increase in net income tax payments of Cash flows from operating activities in 2022 were essentially unchanged from 2021 as an increase in net income tax payments of Cash flows from operating activities in 2022 were essentially unchanged from 2021 as an increase in net income tax payments of $260 million, largely resulting from a change in tax legislation discussed above, was mostly offset by changes in working capital $260 million, largely resulting from a change in tax legislation discussed above, was mostly offset by changes in working capital $260 million, largely resulting from a change in tax legislation discussed above, was mostly offset by changes in working capital $260 million, largely resulting from a change in tax legislation discussed above, was mostly offset by changes in working capital and higher earnings. Net income tax payments were $332 million and $72 million in 2022 and 2021, respectively. Pension and higher earnings. Net income tax payments were $332 million and $72 million in 2022 and 2021, respectively. Pension and higher earnings. Net income tax payments were $332 million and $72 million in 2022 and 2021, respectively. Pension and higher earnings. Net income tax payments were $332 million and $72 million in 2022 and 2021, respectively. Pension contributions were $49 million and $52 million in 2022 and 2021, respectively. contributions were $49 million and $52 million in 2022 and 2021, respectively. contributions were $49 million and $52 million in 2022 and 2021, respectively. contributions were $49 million and $52 million in 2022 and 2021, respectively. In 2022 and 2021, investing cash flows primarily included capital expenditures of $354 million and $375 million, respectively. In 2022 and 2021, investing cash flows primarily included capital expenditures of $354 million and $375 million, respectively. In 2022 and 2021, investing cash flows primarily included capital expenditures of $354 million and $375 million, respectively. Investing cash flows in 2022 also included $202 million of net cash paid for business acquisitions, largely related to the Pipistrel In 2022 and 2021, investing cash flows primarily included capital expenditures of $354 million and $375 million, respectively. Investing cash flows in 2022 also included $202 million of net cash paid for business acquisitions, largely related to the Pipistrel Investing cash flows in 2022 also included $202 million of net cash paid for business acquisitions, largely related to the Pipistrel acquisition discussed in Note 2 to the Consolidated Financial Statements included in Item 8. Financial Statements and Investing cash flows in 2022 also included $202 million of net cash paid for business acquisitions, largely related to the Pipistrel acquisition discussed in Note 2 to the Consolidated Financial Statements included in Item 8. Financial Statements and acquisition discussed in Note 2 to the Consolidated Financial Statements included in Item 8. Financial Statements and acquisition discussed in Note 2 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. Supplementary Data. Supplementary Data. Supplementary Data. Cash flows used by financing activities in 2022 included $867 million of cash paid to repurchase an aggregate of 13.1 million Cash flows used by financing activities in 2022 included $867 million of cash paid to repurchase an aggregate of 13.1 million Cash flows used by financing activities in 2022 included $867 million of cash paid to repurchase an aggregate of 13.1 million shares of our common stock under the 2022 share repurchase plan described below. In 2021, cash flows used by financing Cash flows used by financing activities in 2022 included $867 million of cash paid to repurchase an aggregate of 13.1 million shares of our common stock under the 2022 share repurchase plan described below. In 2021, cash flows used by financing shares of our common stock under the 2022 share repurchase plan described below. In 2021, cash flows used by financing activities included $921 million of cash paid to repurchase an aggregate of 13.5 million shares of our common stock under a 2020 shares of our common stock under the 2022 share repurchase plan described below. In 2021, cash flows used by financing activities included $921 million of cash paid to repurchase an aggregate of 13.5 million shares of our common stock under a 2020 activities included $921 million of cash paid to repurchase an aggregate of 13.5 million shares of our common stock under a 2020 activities included $921 million of cash paid to repurchase an aggregate of 13.5 million shares of our common stock under a 2020 share repurchase plan, and $524 million of payments on long-term debt. share repurchase plan, and $524 million of payments on long-term debt. share repurchase plan, and $524 million of payments on long-term debt. share repurchase plan, and $524 million of payments on long-term debt. On January 25, 2022, we announced the authorization of the repurchase of up to 25 million shares of our common stock. This On January 25, 2022, we announced the authorization of the repurchase of up to 25 million shares of our common stock. This On January 25, 2022, we announced the authorization of the repurchase of up to 25 million shares of our common stock. This plan allows us to continue our practice of repurchasing shares to offset the impact of dilution from stock-based compensation and On January 25, 2022, we announced the authorization of the repurchase of up to 25 million shares of our common stock. This plan allows us to continue our practice of repurchasing shares to offset the impact of dilution from stock-based compensation and plan allows us to continue our practice of repurchasing shares to offset the impact of dilution from stock-based compensation and benefit plans and for opportunistic capital management purposes. The 2022 plan has no expiration date and replaced the prior plan allows us to continue our practice of repurchasing shares to offset the impact of dilution from stock-based compensation and benefit plans and for opportunistic capital management purposes. The 2022 plan has no expiration date and replaced the prior benefit plans and for opportunistic capital management purposes. The 2022 plan has no expiration date and replaced the prior 2020 share repurchase authorization, which was utilized in 2021 for repurchases. benefit plans and for opportunistic capital management purposes. The 2022 plan has no expiration date and replaced the prior 2020 share repurchase authorization, which was utilized in 2021 for repurchases. 2020 share repurchase authorization, which was utilized in 2021 for repurchases. 2020 share repurchase authorization, which was utilized in 2021 for repurchases. Dividend payments to shareholders totaled $17 million and $18 million in 2022 and 2021, respectively. Dividend payments to shareholders totaled $17 million and $18 million in 2022 and 2021, respectively. Dividend payments to shareholders totaled $17 million and $18 million in 2022 and 2021, respectively. Dividend payments to shareholders totaled $17 million and $18 million in 2022 and 2021, respectively. Finance Group Cash Flows The cash flows from continuing operations for the Finance group as presented in our Consolidated Statements of Cash Flows are The cash flows from continuing operations for the Finance group as presented in our Consolidated Statements of Cash Flows are The cash flows from continuing operations for the Finance group as presented in our Consolidated Statements of Cash Flows are The cash flows from continuing operations for the Finance group as presented in our Consolidated Statements of Cash Flows are summarized below: The Finance group’s cash flows from investing activities primarily included collections on finance receivables totaling $147 The Finance group’s cash flows from investing activities primarily included collections on finance receivables totaling $147 The Finance group’s cash flows from investing activities primarily included collections on finance receivables totaling $147 The Finance group’s cash flows from investing activities primarily included collections on finance receivables totaling $147 million and $250 million in 2022 and 2021, respectively, partially offset by finance receivable originations of $92 million and million and $250 million in 2022 and 2021, respectively, partially offset by finance receivable originations of $92 million and million and $250 million in 2022 and 2021, respectively, partially offset by finance receivable originations of $92 million and million and $250 million in 2022 and 2021, respectively, partially offset by finance receivable originations of $92 million and $100 million, respectively. Cash flows provided by investing activities in 2022 also included $45 million of other investing $100 million, respectively. Cash flows provided by investing activities in 2022 also included $45 million of other investing $100 million, respectively. Cash flows provided by investing activities in 2022 also included $45 million of other investing $100 million, respectively. Cash flows provided by investing activities in 2022 also included $45 million of other investing activities, largely related to proceeds from the sale of operating lease assets. Cash flows used in financing activities included activities, largely related to proceeds from the sale of operating lease assets. Cash flows used in financing activities included activities, largely related to proceeds from the sale of operating lease assets. Cash flows used in financing activities included activities, largely related to proceeds from the sale of operating lease assets. Cash flows used in financing activities included payments on long-term and nonrecourse debt of $216 million and $97 million in 2022 and 2021, respectively. payments on long-term and nonrecourse debt of $216 million and $97 million in 2022 and 2021, respectively. payments on long-term and nonrecourse debt of $216 million and $97 million in 2022 and 2021, respectively. payments on long-term and nonrecourse debt of $216 million and $97 million in 2022 and 2021, respectively. Consolidated Cash Flows The consolidated cash flows from continuing operations, after elimination of activity between the borrowing groups, are The consolidated cash flows from continuing operations, after elimination of activity between the borrowing groups, are The consolidated cash flows from continuing operations, after elimination of activity between the borrowing groups, are The consolidated cash flows from continuing operations, after elimination of activity between the borrowing groups, are summarized below: Finance Group Cash Flows Finance Group Cash Flows Finance Group Cash Flows summarized below: summarized below: summarized below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Operating activities Operating activities Operating activities Operating activities Investing activities Investing activities Investing activities Investing activities Financing activities Financing activities Financing activities Financing activities Consolidated Cash Flows Consolidated Cash Flows Consolidated Cash Flows summarized below: summarized below: summarized below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Operating activities Operating activities Operating activities Operating activities Investing activities Investing activities Investing activities Investing activities Financing activities Financing activities Financing activities Financing activities $ $ $ $ 2022 2022 2022 2022 (7) $ (7) $ (7) $ (7) $ 100 100 100 100 (216) (216) (216) (216) 2021 2021 2021 2021 (1) $ (1) $ (1) $ (1) $ 185 185 185 185 (97) (97) (97) (97) 2020 2020 2020 2020 13 13 13 13 (48) (48) (48) (48) (33) (33) (33) (33) $ $ $ $ 2022 2022 2022 2022 1,490 $ 1,490 $ 1,490 $ 1,490 $ (447) (447) (447) (1,091) (447) (1,091) (1,091) (1,091) 2021 2021 2021 2021 1,599 $ 1,599 $ 1,599 $ 1,599 $ (281) (281) (281) (1,446) (281) (1,446) (1,446) (1,446) 2020 2020 2020 769 2020 769 769 769 (248) (248) (248) (248) 360 360 360 360 27 27 27 27 Consolidated cash flows from operating activities were $1,490 million in 2022, compared with $1,599 million in 2021. The $109 Consolidated cash flows from operating activities were $1,490 million in 2022, compared with $1,599 million in 2021. The $109 Consolidated cash flows from operating activities were $1,490 million in 2022, compared with $1,599 million in 2021. The $109 Consolidated cash flows from operating activities were $1,490 million in 2022, compared with $1,599 million in 2021. The $109 million year-over-year decrease in net cash inflow was primarily due to an increase in net income tax payments of $263 million, million year-over-year decrease in net cash inflow was primarily due to an increase in net income tax payments of $263 million, million year-over-year decrease in net cash inflow was primarily due to an increase in net income tax payments of $263 million, million year-over-year decrease in net cash inflow was primarily due to an increase in net income tax payments of $263 million, $ $ $ $ 2020 2020 2020 833 2020 833 833 833 (277) (277) (277) (277) 393 393 393 393 2022 2022 2022 1,461 $ 2022 1,461 $ 1,461 $ 1,461 $ (511) (511) (511) (511) (875) (875) (875) (875) 2021 2021 2021 1,469 $ 2021 1,469 $ 1,469 $ 1,469 $ (335) (335) (335) (335) (1,349) (1,349) (1,349) (1,349) (cid:49)e also maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to (cid:49)e also maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to (cid:49)e 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. (cid:49)e 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. issue an unlimited amount of public debt and other securities. issue an unlimited amount of public debt and other securities. Manufacturing Group Cash Flows Manufacturing Group Cash Flows Manufacturing Group Cash Flows Cash flows from continuing operations for the Manufacturing group as presented in our Consolidated Statements of Cash Flows Manufacturing Group Cash Flows Cash flows from continuing operations for the Manufacturing group as presented in our Consolidated Statements of Cash Flows Cash flows from continuing operations for the Manufacturing group as presented in our Consolidated Statements of Cash Flows are summarized below: Cash flows from continuing operations for the Manufacturing group as presented in our Consolidated Statements of Cash Flows are summarized below: are summarized below: are summarized below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Operating activities (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Operating activities Operating activities Operating activities Investing activities Investing activities Investing activities Investing activities Financing activities Financing activities Financing activities Financing activities Cash flows from operating activities in 2022 were essentially unchanged from 2021 as an increase in net income tax payments of Cash flows from operating activities in 2022 were essentially unchanged from 2021 as an increase in net income tax payments of Cash flows from operating activities in 2022 were essentially unchanged from 2021 as an increase in net income tax payments of Cash flows from operating activities in 2022 were essentially unchanged from 2021 as an increase in net income tax payments of $260 million, largely resulting from a change in tax legislation discussed above, was mostly offset by changes in working capital $260 million, largely resulting from a change in tax legislation discussed above, was mostly offset by changes in working capital $260 million, largely resulting from a change in tax legislation discussed above, was mostly offset by changes in working capital $260 million, largely resulting from a change in tax legislation discussed above, was mostly offset by changes in working capital and higher earnings. Net income tax payments were $332 million and $72 million in 2022 and 2021, respectively. Pension and higher earnings. Net income tax payments were $332 million and $72 million in 2022 and 2021, respectively. Pension and higher earnings. Net income tax payments were $332 million and $72 million in 2022 and 2021, respectively. Pension contributions were $49 million and $52 million in 2022 and 2021, respectively. and higher earnings. Net income tax payments were $332 million and $72 million in 2022 and 2021, respectively. Pension contributions were $49 million and $52 million in 2022 and 2021, respectively. contributions were $49 million and $52 million in 2022 and 2021, respectively. contributions were $49 million and $52 million in 2022 and 2021, respectively. In 2022 and 2021, investing cash flows primarily included capital expenditures of $354 million and $375 million, respectively. In 2022 and 2021, investing cash flows primarily included capital expenditures of $354 million and $375 million, respectively. In 2022 and 2021, investing cash flows primarily included capital expenditures of $354 million and $375 million, respectively. Investing cash flows in 2022 also included $202 million of net cash paid for business acquisitions, largely related to the Pipistrel In 2022 and 2021, investing cash flows primarily included capital expenditures of $354 million and $375 million, respectively. Investing cash flows in 2022 also included $202 million of net cash paid for business acquisitions, largely related to the Pipistrel Investing cash flows in 2022 also included $202 million of net cash paid for business acquisitions, largely related to the Pipistrel acquisition discussed in Note 2 to the Consolidated Financial Statements included in Item 8. Financial Statements and Investing cash flows in 2022 also included $202 million of net cash paid for business acquisitions, largely related to the Pipistrel acquisition discussed in Note 2 to the Consolidated Financial Statements included in Item 8. Financial Statements and acquisition discussed in Note 2 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. acquisition discussed in Note 2 to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. Supplementary Data. Supplementary Data. Cash flows used by financing activities in 2022 included $867 million of cash paid to repurchase an aggregate of 13.1 million Cash flows used by financing activities in 2022 included $867 million of cash paid to repurchase an aggregate of 13.1 million Cash flows used by financing activities in 2022 included $867 million of cash paid to repurchase an aggregate of 13.1 million shares of our common stock under the 2022 share repurchase plan described below. In 2021, cash flows used by financing Cash flows used by financing activities in 2022 included $867 million of cash paid to repurchase an aggregate of 13.1 million shares of our common stock under the 2022 share repurchase plan described below. In 2021, cash flows used by financing shares of our common stock under the 2022 share repurchase plan described below. In 2021, cash flows used by financing activities included $921 million of cash paid to repurchase an aggregate of 13.5 million shares of our common stock under a 2020 shares of our common stock under the 2022 share repurchase plan described below. In 2021, cash flows used by financing activities included $921 million of cash paid to repurchase an aggregate of 13.5 million shares of our common stock under a 2020 activities included $921 million of cash paid to repurchase an aggregate of 13.5 million shares of our common stock under a 2020 share repurchase plan, and $524 million of payments on long-term debt. activities included $921 million of cash paid to repurchase an aggregate of 13.5 million shares of our common stock under a 2020 share repurchase plan, and $524 million of payments on long-term debt. share repurchase plan, and $524 million of payments on long-term debt. share repurchase plan, and $524 million of payments on long-term debt. On January 25, 2022, we announced the authorization of the repurchase of up to 25 million shares of our common stock. This On January 25, 2022, we announced the authorization of the repurchase of up to 25 million shares of our common stock. This On January 25, 2022, we announced the authorization of the repurchase of up to 25 million shares of our common stock. This plan allows us to continue our practice of repurchasing shares to offset the impact of dilution from stock-based compensation and On January 25, 2022, we announced the authorization of the repurchase of up to 25 million shares of our common stock. This plan allows us to continue our practice of repurchasing shares to offset the impact of dilution from stock-based compensation and plan allows us to continue our practice of repurchasing shares to offset the impact of dilution from stock-based compensation and benefit plans and for opportunistic capital management purposes. The 2022 plan has no expiration date and replaced the prior plan allows us to continue our practice of repurchasing shares to offset the impact of dilution from stock-based compensation and benefit plans and for opportunistic capital management purposes. The 2022 plan has no expiration date and replaced the prior benefit plans and for opportunistic capital management purposes. The 2022 plan has no expiration date and replaced the prior 2020 share repurchase authorization, which was utilized in 2021 for repurchases. benefit plans and for opportunistic capital management purposes. The 2022 plan has no expiration date and replaced the prior 2020 share repurchase authorization, which was utilized in 2021 for repurchases. 2020 share repurchase authorization, which was utilized in 2021 for repurchases. 2020 share repurchase authorization, which was utilized in 2021 for repurchases. Dividend payments to shareholders totaled $17 million and $18 million in 2022 and 2021, respectively. Dividend payments to shareholders totaled $17 million and $18 million in 2022 and 2021, respectively. Dividend payments to shareholders totaled $17 million and $18 million in 2022 and 2021, respectively. Dividend payments to shareholders totaled $17 million and $18 million in 2022 and 2021, respectively. Finance Group Cash Flows Finance Group Cash Flows Finance Group Cash Flows The cash flows from continuing operations for the Finance group as presented in our Consolidated Statements of Cash Flows are Finance Group Cash Flows The cash flows from continuing operations for the Finance group as presented in our Consolidated Statements of Cash Flows are The cash flows from continuing operations for the Finance group as presented in our Consolidated Statements of Cash Flows are The cash flows from continuing operations for the Finance group as presented in our Consolidated Statements of Cash Flows are summarized below: summarized below: summarized below: summarized below: 2020 (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) 2020 (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) 2020 (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) 13 Operating activities 2020 (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) 13 Operating activities 13 Operating activities 13 Operating activities (48) Investing activities (48) Investing activities (48) Investing activities (48) Investing activities (33) Financing activities (33) Financing activities (33) Financing activities Financing activities (33) The Finance group’s cash flows from investing activities primarily included collections on finance receivables totaling $147 The Finance group’s cash flows from investing activities primarily included collections on finance receivables totaling $147 The Finance group’s cash flows from investing activities primarily included collections on finance receivables totaling $147 The Finance group’s cash flows from investing activities primarily included collections on finance receivables totaling $147 million and $250 million in 2022 and 2021, respectively, partially offset by finance receivable originations of $92 million and million and $250 million in 2022 and 2021, respectively, partially offset by finance receivable originations of $92 million and million and $250 million in 2022 and 2021, respectively, partially offset by finance receivable originations of $92 million and $100 million, respectively. Cash flows provided by investing activities in 2022 also included $45 million of other investing million and $250 million in 2022 and 2021, respectively, partially offset by finance receivable originations of $92 million and $100 million, respectively. Cash flows provided by investing activities in 2022 also included $45 million of other investing $100 million, respectively. Cash flows provided by investing activities in 2022 also included $45 million of other investing $100 million, respectively. Cash flows provided by investing activities in 2022 also included $45 million of other investing activities, largely related to proceeds from the sale of operating lease assets. Cash flows used in financing activities included activities, largely related to proceeds from the sale of operating lease assets. Cash flows used in financing activities included activities, largely related to proceeds from the sale of operating lease assets. Cash flows used in financing activities included payments on long-term and nonrecourse debt of $216 million and $97 million in 2022 and 2021, respectively. activities, largely related to proceeds from the sale of operating lease assets. Cash flows used in financing activities included payments on long-term and nonrecourse debt of $216 million and $97 million in 2022 and 2021, respectively. payments on long-term and nonrecourse debt of $216 million and $97 million in 2022 and 2021, respectively. payments on long-term and nonrecourse debt of $216 million and $97 million in 2022 and 2021, respectively. Consolidated Cash Flows Consolidated Cash Flows Consolidated Cash Flows Consolidated Cash Flows The consolidated cash flows from continuing operations, after elimination of activity between the borrowing groups, are The consolidated cash flows from continuing operations, after elimination of activity between the borrowing groups, are The consolidated cash flows from continuing operations, after elimination of activity between the borrowing groups, are summarized below: The consolidated cash flows from continuing operations, after elimination of activity between the borrowing groups, are summarized below: summarized below: summarized below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Operating activities (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Operating activities Operating activities Operating activities Investing activities Investing activities Investing activities Investing activities Financing activities Financing activities Financing activities Financing activities Consolidated cash flows from operating activities were $1,490 million in 2022, compared with $1,599 million in 2021. The $109 Consolidated cash flows from operating activities were $1,490 million in 2022, compared with $1,599 million in 2021. The $109 Consolidated cash flows from operating activities were $1,490 million in 2022, compared with $1,599 million in 2021. The $109 million year-over-year decrease in net cash inflow was primarily due to an increase in net income tax payments of $263 million, Consolidated cash flows from operating activities were $1,490 million in 2022, compared with $1,599 million in 2021. The $109 million year-over-year decrease in net cash inflow was primarily due to an increase in net income tax payments of $263 million, million year-over-year decrease in net cash inflow was primarily due to an increase in net income tax payments of $263 million, million year-over-year decrease in net cash inflow was primarily due to an increase in net income tax payments of $263 million, Textron 2022 Annual Report 27 27 27 27 27 2022 2022 2022 1,490 $ 2022 1,490 $ 1,490 $ 1,490 $ (447) (447) (447) (447) (1,091) (1,091) (1,091) (1,091) 2021 2021 2021 1,599 $ 2021 1,599 $ 1,599 $ 1,599 $ (281) (281) (281) (281) (1,446) (1,446) (1,446) (1,446) 2021 2021 2021 (1) $ 2021 (1) $ (1) $ (1) $ 185 185 185 185 (97) (97) (97) (97) 2022 2022 2022 2022 100 100 100 100 (216) (216) (216) (216) 2020 2020 2020 769 2020 769 769 769 (248) (248) (248) (248) 360 360 360 360 (7) $ (7) $ (7) $ (7) $ $ $ $ $ $ $ $ $ largely resulting from a change in tax legislation discussed above, and a decrease in cash inflows from captive finance receivables of $96 million, partially offset changes in working capital and higher earnings. Net income tax payments were $356 million and $93 million in 2022 and 2021, respectively. Pension contributions were $49 million and $52 million in 2022 and 2021, respectively. In 2022 and 2021, investing cash flows included capital expenditures of $354 million and $375 million, respectively. Investing cash flows in 2022 also included $202 million of net cash paid for business acquisitions, largely related to the Pipistrel acquisition. Cash flows used by financing activities in 2022 primarily included $867 million of share repurchases and $234 million of payments on long-term debt. In 2021, cash flows used by financing activities included $921 million of share repurchases and $621 million of payments on long-term debt. Captive Financing and Other Intercompany Transactions The Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell 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. (cid:34)owever, 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: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Reclassification adjustments from investing activities to operating activities: Cash received from customers Finance receivable originations for Manufacturing group inventory sales Other Total reclassification adjustments from investing activities to operating activities 2022 2021 2020 $ $ 127 $ (92) 1 36 $ 231 $ (100) — 131 $ 106 (195) 12 (77) 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(cid:4) and consolidated shareholders' equity of no less than $125 million. There were no cash contributions required to be paid to TFC in 2022 and 2021 to maintain compliance with the support agreement. Goodwill Critical Accounting Estimates 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. (cid:49)e 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 in Item 8. Financial Statements and Supplementary Data, which includes other significant accounting policies. Revenue Recognition A substantial portion of our revenues is related to long-term contracts with the U.S. (cid:33)overnment, including those under the U.S. (cid:33)overnment-sponsored foreign military sales program, for the design, development, manufacture or modification of aerospace and defense products as well as related services. (cid:49)e generally use the cost-to-cost method to measure progress for these contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts. Under this measure, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion of the performance obligation, and revenue is recorded proportionally as costs are incurred. Due to the number of years it may take to complete these contracts and the scope and nature of the work required to be performed on the 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(cid:26) engineering requirements(cid:26) product performance(cid:26) subcontractor performance(cid:26) availability and cost of materials(cid:26) labor productivity, availability and cost(cid:26) overhead and capital costs(cid:26) manufacturing efficiencies(cid:26) the length of time to complete the contract (to estimate increases in wages and prices for materials)(cid:26) 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. (cid:49)e review and update our cost projections quarterly or more frequently when circumstances significantly change. (cid:49)hen our estimate of the total costs to be incurred on a contract exceeds the estimated total transaction price, a provision for the entire loss 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(cid:26) 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. (cid:49)e utilize the cumulative catch-up method of accounting to recognize the impact of these changes on our profit booking rate for a contract. Under this method, the inception-to-date impact of a profit adjustment on a contract is recognized in the period the adjustment is identified. The impact of our cumulative catch-up adjustments on segment profit recognized in prior periods is presented below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:33)ross favorable (cid:33)ross unfavorable Net adjustments 2022 101 $ (117) (16) $ $ $ 2021 154 $ (73) 81 $ 2020 148 (76) 72 Due to the significance of judgment in the estimation process described above, it is likely that materially different revenues and(cid:14)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. (cid:49)e evaluate the recoverability of goodwill annually in the fourth quarter or more frequently if events or changes in circumstances indicate a potential impairment of a reporting unit. (cid:49)e calculate the fair value of each reporting unit using discounted cash flows. These cash flows incorporate assumptions for revenue growth rates and operating margins that are based on our strategic plans and long-range planning forecasts, which include our best estimates of current and forecasted market conditions, cost structure and anticipated net cost reductions. The long-term revenue 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. The discount rates utilized in this analysis are based on each reporting unit’s weighted average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of the respective reporting unit. (cid:49)e 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. (cid:28)ased on our annual impairment review, the fair value calculated using the estimates discussed above exceeded the carrying value by an adequate amount for each reporting group. Accordingly, we do not believe that there is a reasonable possibility that any units might fail the impairment test in the foreseeable future. 28 Textron 2022 Annual Report 28 29 Due to the number of years it may take to complete these contracts and the scope and nature of the work required to be performed on the 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(cid:26) engineering requirements(cid:26) product performance(cid:26) subcontractor performance(cid:26) availability and cost of materials(cid:26) labor productivity, availability and cost(cid:26) overhead and capital costs(cid:26) manufacturing efficiencies(cid:26) the length of time to complete the contract (to estimate increases in wages and prices for materials)(cid:26) 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. (cid:49)e review and update our cost projections quarterly or more frequently when circumstances significantly change. (cid:49)hen our estimate of the total costs to be incurred on a contract exceeds the estimated total transaction price, a provision for the entire loss 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(cid:26) 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. (cid:49)e utilize the cumulative catch-up method of accounting to recognize the impact of these changes on our profit booking rate for a contract. Under this method, the inception-to-date impact of a profit adjustment on a contract is recognized in the period the adjustment is identified. The impact of our cumulative catch-up adjustments on segment profit recognized in prior periods is presented below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:33)ross favorable (cid:33)ross unfavorable Net adjustments 2022 101 $ (117) (16) $ $ $ 2021 154 $ (73) 81 $ 2020 148 (76) 72 Due to the significance of judgment in the estimation process described above, it is likely that materially different revenues and(cid:14)or cost of sales amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Our earnings could be reduced by a material amount resulting in a charge to earnings if (a) total estimated contract costs are significantly higher than expected due to changes in customer specifications prior to contract amendment, (b) total estimated contract costs are significantly higher than previously estimated due to cost overruns or inflation, (c) there is a change in engineering efforts required during the development stage of the contract or (d) we are unable to meet contract milestones. Goodwill (cid:49)e evaluate the recoverability of goodwill annually in the fourth quarter or more frequently if events or changes in circumstances indicate a potential impairment of a reporting unit. (cid:49)e calculate the fair value of each reporting unit using discounted cash flows. These cash flows incorporate assumptions for revenue growth rates and operating margins that are based on our strategic plans and long-range planning forecasts, which include our best estimates of current and forecasted market conditions, cost structure and anticipated net cost reductions. The long-term revenue 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. The discount rates utilized in this analysis are based on each reporting unit’s weighted average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of the respective reporting unit. (cid:49)e 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. (cid:28)ased on our annual impairment review, the fair value calculated using the estimates discussed above exceeded the carrying value by an adequate amount for each reporting group. Accordingly, we do not believe that there is a reasonable possibility that any units might fail the impairment test in the foreseeable future. Textron 2022 Annual Report 29 29 Retirement (cid:21)enefits (cid:49)e sponsor funded and unfunded domestic and international pension plans for certain of our employees. (cid:28)eginning on January 1, 2010, we initiated actions to commence the closure of the pension plans to new entrants. (cid:49)e provide employees hired subsequent to these closures with defined contribution benefits. Our pension benefit obligations are calculated based on actuarial valuations. (cid:37)ey assumptions used in determining these obligations and related expenses or benefits include the expected long-term rates of return on plan assets and discount rates. (cid:49)e also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases. (cid:49)e 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 decrease pension income. For both 2022 and 2021, the assumed expected long-term rate of return on plan assets used in calculating pension income was 7.10(cid:4). For 2022, the assumed rate of return for our domestic plans, which represent approximately 91(cid:4) of our total pension assets, was 7.25(cid:4). 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 decreases pension income. In 2022, the weighted- average discount rate used in calculating pension income was 2.99(cid:4), compared with 2.62(cid:4) in 2021. For our domestic plans, the assumed discount rate was 3.05(cid:4) in 2022, compared with 2.70(cid:4) in 2021. A decrease of 50 basis-points in this weighted-average discount rate in 2022 would have decreased pension income for our domestic plans by approximately $20 million. Item (cid:16)A. (cid:36)uantitative and (cid:36)ualitative Disclosures About Mar(cid:55)et Ris(cid:55) Foreign Currency Exchange Ris(cid:55) Our financial results are affected by changes in foreign currency exchange rates in the various countries in which our products are manufactured and(cid:14)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 $354 million and $272 million at December 31, 2022 and January 1, 2022, respectively. (cid:49)e also may hedge exposures to certain of our foreign currency assets and earnings by funding those asset positions with debt in the same foreign currency so the exposures are naturally offset. Interest Rate Ris(cid:55) 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. (cid:49)e 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. This strategy includes the use of interest rate swap agreements. (cid:49)e had interest rate swap agreements with a total notional amount of $297 million at December 31, 2022 and $289 million at January 1, 2022, which effectively converted certain floating-rate debt to a fixed-rate equivalent. (cid:36)uantitative Ris(cid:55) 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(cid:4) decrease in interest rates and a 10(cid:4) 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. ((cid:27)n m(cid:48)ll(cid:48)ons) Manufacturing group (cid:24)ore(cid:48)gn currenc(cid:64) e(cid:63)c(cid:47)ange r(cid:48)s(cid:50) Debt Foreign currency exchange contracts (cid:27)nterest rate r(cid:48)s(cid:50) Debt Finance group (cid:27)nterest rate r(cid:48)s(cid:50) Finance receivables Debt (cid:5) (cid:36)(cid:47)e value represents an asset or (cid:3)l(cid:48)a(cid:41)(cid:48)l(cid:48)t(cid:64)(cid:4)(cid:8) $ $ $ $ December 31, 2022 (cid:29)anuary 1, 2022 Carrying (cid:41)alue(cid:5) Fair (cid:41)alue(cid:5) Carrying (cid:41)alue(cid:5) Fair (cid:41)alue(cid:5) Sensitivity of Fair (cid:41)alue to a 10(cid:2) Change Sensitivity of Fair (cid:41)alue to a 10(cid:2) Change (6) $ (11) (17) $ (6) $ (11) (17) $ (1) $ 28 27 $ (6) $ 1 (5) $ (6) $ 1 (5) $ (1) 21 20 (3,175) $ (2,872) $ (51) $ (3,181) $ (3,346) $ (24) 390 $ (375) 369 $ (294) 10 $ (1) 413 $ (582) 444 $ (546) 7 — 30 Textron 2022 Annual Report 30 31 Item (cid:16)A. (cid:36)uantitative and (cid:36)ualitative Disclosures About Mar(cid:55)et Ris(cid:55) Foreign Currency Exchange Ris(cid:55) Our financial results are affected by changes in foreign currency exchange rates in the various countries in which our products are manufactured and(cid:14)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 $354 million and $272 million at December 31, 2022 and January 1, 2022, respectively. (cid:49)e also may hedge exposures to certain of our foreign currency assets and earnings by funding those asset positions with debt in the same foreign currency so the exposures are naturally offset. Interest Rate Ris(cid:55) 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. (cid:49)e 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. This strategy includes the use of interest rate swap agreements. (cid:49)e had interest rate swap agreements with a total notional amount of $297 million at December 31, 2022 and $289 million at January 1, 2022, which effectively converted certain floating-rate debt to a fixed-rate equivalent. (cid:36)uantitative Ris(cid:55) 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(cid:4) decrease in interest rates and a 10(cid:4) 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. ((cid:27)n m(cid:48)ll(cid:48)ons) Manufacturing group (cid:24)ore(cid:48)gn currenc(cid:64) e(cid:63)c(cid:47)ange r(cid:48)s(cid:50) Debt Foreign currency exchange contracts (cid:27)nterest rate r(cid:48)s(cid:50) Debt Finance group (cid:27)nterest rate r(cid:48)s(cid:50) Finance receivables Debt (cid:5) (cid:36)(cid:47)e value represents an asset or (cid:3)l(cid:48)a(cid:41)(cid:48)l(cid:48)t(cid:64)(cid:4)(cid:8) $ $ $ $ December 31, 2022 (cid:29)anuary 1, 2022 Carrying (cid:41)alue(cid:5) Fair (cid:41)alue(cid:5) Sensitivity of Fair (cid:41)alue to a 10(cid:2) Change Carrying (cid:41)alue(cid:5) Fair (cid:41)alue(cid:5) Sensitivity of Fair (cid:41)alue to a 10(cid:2) Change (6) $ (11) (17) $ (6) $ (11) (17) $ (1) $ 28 27 $ (6) $ 1 (5) $ (6) $ 1 (5) $ (1) 21 20 (3,175) $ (2,872) $ (51) $ (3,181) $ (3,346) $ (24) 390 $ (375) 369 $ (294) 10 $ (1) 413 $ (582) 444 $ (546) 7 — Textron 2022 Annual Report 31 31 Item 8. Financial Statements and Supplementary Data Consolidated Statements of Operations 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-(cid:37) on the pages indicated below: For each of the years in the three-year period ended December 31, 2022 Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2022 Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 31, 2022 Consolidated (cid:28)alance Sheets as of December 31, 2022 and January 1, 2022 Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended December 31, 2022 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2022 Notes to the Consolidated Financial Statements Note 1. Note 2. Note 3. Note 4. Note 5. Note 6. Note 7. Note 8. Note 9. Note 10. Note 11. Note 12. Note 13. Note 14. Note 15. Note 16. Note 17. Note 18. Note 19. Summary of Significant Accounting Policies (cid:28)usiness Acquisition and Disposition (cid:33)oodwill and Intangible Assets Accounts Receivable and Finance Receivables Inventories Property, Plant and Equipment, Net Other Current Liabilities Leases Debt and Credit Facilities Derivative Instruments and Fair (cid:48)alue Measurements Shareholders’ Equity Segment and (cid:33)eographic Data Revenues Share-(cid:28)ased Compensation Retirement Plans Special Charges Income Taxes Commitments and Contingencies Supplemental Cash Flow Information Report of Independent Registered Public Accounting Firm Supplementary Information: Schedule II (cid:82) (cid:48)aluation and (cid:43)ualifying Accounts Page 33 34 35 36 37 39 45 45 46 48 48 48 49 49 50 51 53 55 56 58 62 63 66 66 67 69 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. (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:6) e(cid:63)cept per s(cid:47)are data(cid:4) Revenues Manufacturing product revenues Manufacturing service revenues Finance revenues Total revenues Costs, expenses and other Cost of products sold Cost of services sold Selling and administrative expense Interest expense, net Special charges (cid:33)ain on business disposition Total costs, expenses and other Income tax expense (benefit) Income from continuing operations Loss from discontinued operations Net income (cid:21)asic Earnings per share Continuing operations Diluted Earnings per share Continuing operations See Notes to the Consolidated Financial Statements. Non-service components of pension and postretirement income, net Income from continuing operations before income taxes 2022 2021 2020 $ 10,945 $ 10,541 $ 9,720 1,876 55 11,651 8,715 1,379 1,045 166 147 (83) — 282 (27) 309 — 309 1,792 49 12,382 8,955 1,342 1,221 142 25 (159) (17) 1,872 52 12,869 9,380 1,420 1,186 107 — (240) — 11,853 1,016 11,509 11,369 154 862 $ (1) 861 $ 873 126 747 $ (1) 746 $ 4.05 $ 3.33 $ 1.35 4.01 $ 3.30 $ 1.35 $ $ $ $ 32 Textron 2022 Annual Report 32 33 Consolidated Statements of Operations For each of the years in the three-year period ended December 31, 2022 (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:6) e(cid:63)cept per s(cid:47)are data(cid:4) Revenues Manufacturing product revenues Manufacturing service revenues Finance revenues Total revenues Costs, expenses and other Cost of products sold Cost of services sold Selling and administrative expense Interest expense, net Special charges Non-service components of pension and postretirement income, net (cid:33)ain on business disposition Total costs, expenses and other Income from continuing operations before income taxes Income tax expense (benefit) Income from continuing operations Loss from discontinued operations Net income (cid:21)asic Earnings per share Continuing operations Diluted Earnings per share Continuing operations See Notes to the Consolidated Financial Statements. 2022 2021 2020 $ 10,945 $ 1,872 52 12,869 10,541 $ 1,792 49 12,382 9,720 1,876 55 11,651 9,380 1,420 1,186 107 — (240) — 11,853 1,016 154 862 $ (1) 861 $ 8,955 1,342 1,221 142 25 (159) (17) 11,509 873 126 747 $ (1) 746 $ 8,715 1,379 1,045 166 147 (83) — 11,369 282 (27) 309 — 309 4.05 $ 3.33 $ 1.35 4.01 $ 3.30 $ 1.35 $ $ $ $ Textron 2022 Annual Report 33 33 Consolidated Statements of Comprehensive Income For each of the years in the three-year period ended December 31, 2022 (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Net income Other comprehensive income, net of tax Pension and postretirement benefits adjustments, net of reclassifications Foreign currency translation adjustments, net of reclassifications Deferred gains (losses) on hedge contracts, net of reclassifications Total other comprehensive income, net of tax Comprehensive income See Notes to the Consolidated Financial Statements. 2022 861 $ 2021 746 $ 283 (103) (3) 177 1,038 $ 981 (37) 2 946 1,692 $ $ $ 2020 309 31 78 (1) 108 417 34 Textron 2022 Annual Report 34 Consolidated (cid:21)alance Sheets (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:6) e(cid:63)cept s(cid:47)are data(cid:4) Assets Manufacturing group Cash and equivalents Accounts receivable, net Inventories Other current assets Total current assets Property, plant and equipment, net (cid:33)oodwill 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(cid:72) e(cid:61)uity 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(cid:72) e(cid:61)uity Common stock (207.4 million and 219.2 million shares issued, respectively, and 206.2 million and 216.9 million shares outstanding, respectively) Capital surplus Treasury stock Retained earnings Accumulated other comprehensive loss Total shareholders(cid:72) e(cid:61)uity Total liabilities and shareholders(cid:72) e(cid:61)uity See Notes to the Consolidated Financial Statements. December 31, 2022 (cid:29)anuary 1, 2022 $ $ $ 1,963 $ 855 3,550 1,033 7,401 2,523 2,283 3,422 15,629 72 563 29 664 16,293 $ 7 $ 1,018 2,645 3,670 1,879 3,175 8,724 81 375 456 9,180 1,922 838 3,468 1,018 7,246 2,538 2,149 3,027 14,960 195 605 67 867 15,827 6 786 2,344 3,136 2,005 3,179 8,320 110 582 692 9,012 26 1,880 (84) 5,903 (612) 7,113 16,293 $ 28 1,863 (157) 5,870 (789) 6,815 15,827 $ Textron 2022 Annual Report 35 35 Consolidated Statements of Shareholders(cid:72) E(cid:61)uity Consolidated Statements of Cash Flows (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:6) e(cid:63)cept per s(cid:47)are data(cid:4) (cid:28)alance at January 4, 2020 Net income Other comprehensive income Dividends declared ($0.08 per share) Share-based compensation activity Purchases of common stock (cid:28)alance at January 2, 2021 Net income Other comprehensive income Dividends declared ($0.08 per share) Share-based compensation activity Purchases of common stock Retirement of treasury stock Other (cid:28)alance at January 1, 2022 Net income Other comprehensive income Dividends declared ($0.08 per share) Share-based compensation activity Purchases of common stock Retirement of treasury stock (cid:28)alance at December 31, 2022 Common Stoc(cid:55) 29 $ — — — — — 29 — — — 1 — (2) — 28 — — — — — (2) 26 $ $ $ Capital Surplus 1,674 $ — — — 111 — 1,785 — — — 212 — (134) — 1,863 — — — 144 — (127) 1,880 $ Treasury Stoc(cid:55) (20) $ — — — — (183) (203) — — — — (921) 967 — (157) — — — — (867) 940 (84) $ See Notes to the Consolidated Financial Statements. Retained Earnings Accumulated Other Comprehensive Loss (1,847) $ — 108 — — — (1,739) — 946 — — — — 4 (789) — 177 — — — — (612) $ 5,682 $ 309 — (18) — — 5,973 746 — (18) — — (831) — 5,870 861 — (17) — — (811) 5,903 $ Total Shareholders(cid:72) E(cid:61)uity 5,518 309 108 (18) 111 (183) 5,845 746 946 (18) 213 (921) — 4 6,815 861 177 (17) 144 (867) — 7,113 36 Textron 2022 Annual Report 36 For each of the years in the three-year period ended December 31, 2022 (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Cash flows from operating activities Income from continuing operations Adjustments to reconcile income from continuing operations to net cash provided by operating activities of continuing operations: Consolidated 2022 2021 2020 $ 862 $ 747 $ 309 Asset impairments and TRU inventory charge Non-cash items: Depreciation and amortization Deferred income taxes (cid:33)ain on business disposition 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 cash used in acquisitions Net proceeds from business disposition Finance receivables repaid Other investing activities, net Net cash used in investing activities Cash flows from financing activities Decrease in short-term debt Net proceeds from long-term debt Net proceeds (payments) from corporate-owned life insurance policies Proceeds from sale of property, plant and equipment and an insurance recovery Principal payments on long-term debt and nonrecourse debt Proceeds from borrowings against corporate-owned life insurance policies Payments on borrowings against corporate-owned life insurance policies Purchases of Textron common stock Proceeds from exercise of stock options Dividends paid Other financing activities, net Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and equivalents Net increase (decrease) in cash and e(cid:61)uivalents Cash and equivalents at beginning of year Cash and equivalents at end of year See Notes to the Consolidated Financial Statements. 397 (220) 2 — 94 (26) (55) 35 235 270 18 (165) 35 8 1,490 (2) 1,488 (354) (202) 23 22 — 20 44 (14) — (234) — — (867) 44 (17) (3) (32) (82) 2,117 390 23 13 (17) 88 (58) 45 (112) 13 405 11 (82) 131 2 1,599 (1) 1,598 (375) — (2) 3 38 19 36 (621) (1) — — — (921) 116 (18) (1) (8) (137) (447) (281) (248) (1,091) (1,446) $ 2,035 $ 2,254 2,117 $ 1,357 2,254 391 (7) 116 — 79 149 434 66 (613) (5) (62) (15) (89) 16 769 (1) 768 (317) (15) 22 33 — 22 7 — 1,137 (593) 377 (377) (183) 22 (18) (5) 360 17 897 37 Consolidated Statements of Cash Flows For each of the years in the three-year period ended December 31, 2022 (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Cash flows from operating activities Income from continuing operations Adjustments to reconcile income from continuing operations to net cash provided by Consolidated 2022 2021 2020 $ 862 $ 747 $ 309 operating activities of continuing operations: Non-cash items: Depreciation and amortization Deferred income taxes Asset impairments and TRU inventory charge (cid:33)ain on business disposition 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 cash used in acquisitions Net proceeds (payments) from corporate-owned life insurance policies Proceeds from sale of property, plant and equipment and an insurance recovery Net proceeds from business disposition Finance receivables repaid Other investing activities, net Net cash used in investing activities Cash flows from financing activities Decrease in short-term debt Net proceeds from long-term debt Principal payments on long-term debt and nonrecourse debt Proceeds from borrowings against corporate-owned life insurance policies Payments on borrowings against corporate-owned life insurance policies Purchases of Textron common stock Proceeds from exercise of stock options Dividends paid Other financing activities, net Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and equivalents Net increase (decrease) in cash and e(cid:61)uivalents Cash and equivalents at beginning of year Cash and equivalents at end of year See Notes to the Consolidated Financial Statements. 397 (220) 2 — 94 (26) (55) 35 235 270 18 (165) 35 8 1,490 (2) 1,488 (354) (202) 23 22 — 20 44 (447) 390 23 13 (17) 88 (58) 45 (112) 13 405 11 (82) 131 2 1,599 (1) 1,598 (375) — (2) 3 38 19 36 (281) (14) — (234) — — (867) 44 (17) (3) (1,091) (32) (82) 2,117 2,035 $ (1) — (621) — — (921) 116 (18) (1) (1,446) (8) (137) 2,254 2,117 $ $ 391 (7) 116 — 79 149 434 66 (613) (5) (62) (15) (89) 16 769 (1) 768 (317) (15) 22 33 — 22 7 (248) — 1,137 (593) 377 (377) (183) 22 (18) (5) 360 17 897 1,357 2,254 Textron 2022 Annual Report 37 37 Consolidated Statements of Cash Flows continued Consolidated Statements of Cash Flows continued Consolidated Statements of Cash Flows continued Consolidated Statements of Cash Flows continued For each of the years in the three-year period ended December 31, 2022 For each of the years in the three-year period ended December 31, 2022 For each of the years in the three-year period ended December 31, 2022 For each of the years in the three-year period ended December 31, 2022 (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Cash flows from operating activities Cash flows from operating activities Cash flows from operating activities Cash flows from operating activities Income from continuing operations Income from continuing operations Income from continuing operations Income from continuing operations Adjustments to reconcile income from continuing operations to net cash Adjustments to reconcile income from continuing operations to net cash Adjustments to reconcile income from continuing operations to net cash Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities of continuing operations: provided by (used in) operating activities of continuing operations: provided by (used in) operating activities of continuing operations: provided by (used in) operating activities of continuing operations: Non-cash items: Non-cash items: Non-cash items: Non-cash items: Depreciation and amortization Depreciation and amortization Depreciation and amortization Depreciation and amortization Deferred income taxes Deferred income taxes Deferred income taxes Deferred income taxes Asset impairments and TRU inventory charge Asset impairments and TRU inventory charge Asset impairments and TRU inventory charge Asset impairments and TRU inventory charge (cid:33)ain on business disposition (cid:33)ain on business disposition (cid:33)ain on business disposition (cid:33)ain on business disposition Other, net Other, net Other, net Other, net Changes in assets and liabilities: Changes in assets and liabilities: Changes in assets and liabilities: Changes in assets and liabilities: Accounts receivable, net Accounts receivable, net Accounts receivable, net Accounts receivable, net Inventories Inventories Inventories Inventories Other assets Other assets Other assets Other assets Accounts payable Accounts payable Accounts payable Accounts payable Other liabilities Other liabilities Other liabilities Other liabilities Income taxes, net Income taxes, net Income taxes, net Income taxes, net Pension, net Pension, net Pension, net Pension, net Other operating activities, net Other operating activities, net Other operating activities, net Other operating activities, net Net cash provided by (used in) operating activities of continuing operations Net cash provided by (used in) operating activities of continuing operations Net cash provided by (used in) operating activities of continuing operations Net cash provided by (used in) operating activities of continuing operations Net cash used in operating activities of discontinued operations Net cash used in operating activities of discontinued operations Net cash used in operating activities of discontinued operations Net cash used in operating activities of discontinued operations Net cash provided by (used in) operating activities Net cash provided by (used in) operating activities Net cash provided by (used in) operating activities Net cash provided by (used in) operating activities Cash flows from investing activities Cash flows from investing activities Cash flows from investing activities Cash flows from investing activities Capital expenditures Capital expenditures Capital expenditures Capital expenditures Net cash used in acquisitions Net cash used in acquisitions Net cash used in acquisitions Net cash used in acquisitions Net proceeds (payments) from corporate-owned life insurance policies Net proceeds (payments) from corporate-owned life insurance policies Net proceeds (payments) from corporate-owned life insurance policies Net proceeds (payments) from corporate-owned life insurance policies Proceeds from sale of property, plant and equipment and an insurance recovery Proceeds from sale of property, plant and equipment and an insurance recovery Proceeds from sale of property, plant and equipment and an insurance recovery Proceeds from sale of property, plant and equipment and an insurance recovery Net proceeds from business disposition Net proceeds from business disposition Net proceeds from business disposition Net proceeds from business disposition Finance receivables repaid Finance receivables repaid Finance receivables repaid Finance receivables repaid Finance receivables originated Finance receivables originated Finance receivables originated Finance receivables originated Other investing activities, net Other investing activities, net Other investing activities, net Other investing activities, net Net cash provided by (used in) investing activities Net cash provided by (used in) investing activities Net cash provided by (used in) investing activities Net cash provided by (used in) investing activities Cash flows from financing activities Cash flows from financing activities Cash flows from financing activities Cash flows from financing activities Decrease in short-term debt Decrease in short-term debt Decrease in short-term debt Decrease in short-term debt Net proceeds from long-term debt Net proceeds from long-term debt Net proceeds from long-term debt Net proceeds from long-term debt Principal payments on long-term debt and nonrecourse debt Principal payments on long-term debt and nonrecourse debt Principal payments on long-term debt and nonrecourse debt Principal payments on long-term debt and nonrecourse debt Proceeds from borrowings against corporate-owned life insurance policies Proceeds from borrowings against corporate-owned life insurance policies Proceeds from borrowings against corporate-owned life insurance policies Proceeds from borrowings against corporate-owned life insurance policies Payments on borrowings against corporate-owned life insurance policies Payments on borrowings against corporate-owned life insurance policies Payments on borrowings against corporate-owned life insurance policies Payments on borrowings against corporate-owned life insurance policies Purchases of Textron common stock Purchases of Textron common stock Purchases of Textron common stock Purchases of Textron common stock Proceeds from exercise of stock options Proceeds from exercise of stock options Proceeds from exercise of stock options Proceeds from exercise of stock options Dividends paid Dividends paid Dividends paid Dividends paid Other financing activities, net Other financing activities, net Other financing activities, net Other financing activities, net Net cash provided by (used in) financing activities Net cash provided by (used in) financing activities Net cash provided by (used in) financing activities Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and equivalents Effect of exchange rate changes on cash and equivalents Effect of exchange rate changes on cash and equivalents Effect of exchange rate changes on cash and equivalents Net increase (decrease) in cash and e(cid:61)uivalents Net increase (decrease) in cash and e(cid:61)uivalents Net increase (decrease) in cash and e(cid:61)uivalents Net increase (decrease) in cash and e(cid:61)uivalents Cash and equivalents at beginning of year Cash and equivalents at beginning of year Cash and equivalents at beginning of year Cash and equivalents at beginning of year Cash and equivalents at end of year Cash and equivalents at end of year Cash and equivalents at end of year Cash and equivalents at end of year Manufacturing Group Manufacturing Group Manufacturing Group Manufacturing Group 2022 2022 2022 2022 2021 2021 2021 2021 2020 2020 2020 2020 Finance Group Finance Group Finance Group Finance Group 2021 2021 2021 2021 2022 2022 2022 2022 2020 2020 2020 2020 $ $ $ $ 835 $ 835 $ 835 $ 835 $ 740 $ 740 $ 740 $ 740 $ 301 $ 301 $ 301 $ 301 $ 27 $ 27 $ 27 $ 27 $ 7 $ 7 $ 7 $ 7 $ 8 8 8 8 396 396 396 396 (200) (200) (200) (200) 2 2 2 2 — — — — 103 103 103 103 (26) (26) (26) (26) (55) (55) (55) (55) 34 34 34 34 235 235 235 235 277 277 277 277 18 18 18 18 (165) (165) (165) (165) 7 7 7 7 1,461 1,461 1,461 1,461 (2) (2) (2) (2) 1,459 1,459 1,459 1,459 (354) (354) (354) (354) (202) (202) (202) (202) 23 23 23 23 22 22 22 22 — — — — — — — — — — — — — — — — (511) (511) (511) (511) 380 380 380 380 27 27 27 27 13 13 13 13 (17) (17) (17) (17) 97 97 97 97 (58) (58) (58) (58) 45 45 45 45 (111) (111) (111) (111) 13 13 13 13 404 404 404 404 16 16 16 16 (82) (82) (82) (82) 2 2 2 2 1,469 1,469 1,469 1,469 (1) (1) (1) (1) 1,468 1,468 1,468 1,468 (375) (375) (375) (375) — — — — (2) (2) (2) (2) 3 3 3 3 38 38 38 38 — — — — — — — — 1 1 1 1 (335) (335) (335) (335) 386 386 386 386 (2) (2) (2) (2) 116 116 116 116 — — — — 69 69 69 69 149 149 149 149 434 434 434 434 68 68 68 68 (613) (613) (613) (613) (15) (15) (15) (15) (61) (61) (61) (61) (15) (15) (15) (15) 16 16 16 16 833 833 833 833 (1) (1) (1) (1) 832 832 832 832 (317) (317) (317) (317) (15) (15) (15) (15) 22 22 22 22 33 33 33 33 — — — — — — — — — — — — — — — — (277) (277) (277) (277) (14) (14) (14) (14) — — — — (18) (18) (18) (18) — — — — — — — — (867) (867) (867) (867) 44 44 44 44 (17) (17) (17) (17) (3) (3) (3) (3) (875) (875) (875) (875) (32) (32) (32) (32) 41 41 41 41 1,922 1,922 1,922 1,922 (1) (1) (1) (1) — — — — (524) (524) (524) (524) — — — — — — — — (921) (921) (921) (921) 116 116 116 116 (18) (18) (18) (18) (1) (1) (1) (1) (1,349) (1,349) (1,349) (1,349) (8) (8) (8) (8) (224) (224) (224) (224) 2,146 2,146 2,146 2,146 $ 1,963 $ 1,922 $ 2,146 $ $ 1,963 $ 1,922 $ 2,146 $ $ 1,963 $ 1,922 $ 2,146 $ $ 1,963 $ 1,922 $ 2,146 $ — — — — 1,137 1,137 1,137 1,137 (548) (548) (548) (548) 377 377 377 377 (377) (377) (377) (377) (183) (183) (183) (183) 22 22 22 22 (18) (18) (18) (18) (17) (17) (17) (17) 393 393 393 393 17 17 17 17 965 965 965 965 1,181 1,181 1,181 1,181 1 1 1 1 (20) (20) (20) (20) — — — — — — — — (9) (9) (9) (9) — — — — — — — — 1 1 1 1 — — — — (7) (7) (7) (7) — — — — — — — — — — — — (7) (7) (7) (7) — — — — (7) (7) (7) (7) — — — — — — — — — — — — — — — — — — — — 147 147 147 147 (92) (92) (92) (92) 45 45 45 45 100 100 100 100 10 10 10 10 (4) (4) (4) (4) — — — — — — — — (9) (9) (9) (9) — — — — — — — — (1) (1) (1) (1) — — — — 1 1 1 1 (5) (5) (5) (5) — — — — — — — — (1) (1) (1) (1) — — — — (1) (1) (1) (1) — — — — — — — — — — — — — — — — — — — — 250 250 250 250 (100) (100) (100) (100) 35 35 35 35 185 185 185 185 — — — — — — — — (216) (216) (216) (216) — — — — — — — — — — — — — — — — — — — — — — — — (216) (216) (216) (216) — — — — (123) (123) (123) (123) 195 195 195 195 72 $ 72 $ 72 $ 72 $ — — — — — — — — (97) (97) (97) (97) — — — — — — — — — — — — — — — — — — — — — — — — (97) (97) (97) (97) — — — — 87 87 87 87 108 108 108 108 195 $ 195 $ 195 $ 195 $ 5 5 5 5 (5) (5) (5) (5) — — — — — — — — 10 10 10 10 — — — — — — — — (2) (2) (2) (2) — — — — (2) (2) (2) (2) (1) (1) (1) (1) — — — — — — — — 13 13 13 13 — — — — 13 13 13 13 — — — — — — — — — — — — — — — — — — — — 128 128 128 128 (195) (195) (195) (195) 19 19 19 19 (48) (48) (48) (48) — — — — — — — — (45) (45) (45) (45) — — — — — — — — — — — — — — — — — — — — 12 12 12 12 (33) (33) (33) (33) — — — — (68) (68) (68) (68) 176 176 176 176 108 108 108 108 See Notes to the Consolidated Financial Statements. See Notes to the Consolidated Financial Statements. See Notes to the Consolidated Financial Statements. See Notes to the Consolidated Financial Statements. 38 Textron 2022 Annual Report 38 38 38 38 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies Note 1. Summary of Significant Accounting Policies Note 1. Summary of Significant Accounting Policies Note 1. Summary of Significant Accounting Policies Note 1. Summary of Significant Accounting Policies Note 1. Summary of Significant Accounting Policies Principles of Consolidation and Financial Statement Presentation Principles of Consolidation and Financial Statement Presentation Principles of Consolidation and Financial Statement Presentation Principles of Consolidation and Financial Statement Presentation Principles of Consolidation and Financial Statement Presentation Principles of Consolidation and Financial Statement Presentation Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings 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 are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its 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, (cid:28)ell, Textron Systems and Industrial segments, and the Textron majority-owned subsidiaries that operate in the Textron Aviation, (cid:28)ell, Textron Systems and Industrial segments, and the Textron majority-owned subsidiaries that operate in the Textron Aviation, (cid:28)ell, Textron Systems and Industrial segments, and the Textron majority-owned subsidiaries that operate in the Textron Aviation, (cid:28)ell, Textron Systems and Industrial segments, and the Textron majority-owned subsidiaries that operate in the Textron Aviation, (cid:28)ell, Textron Systems and Industrial segments, and the Textron majority-owned subsidiaries that operate in the Textron Aviation, (cid:28)ell, Textron Systems and Industrial segments, and the Textron eAviation segment, which was formed in the second quarter of 2022 upon the acquisition of Pipistrel, a manufacturer of eAviation segment, which was formed in the second quarter of 2022 upon the acquisition of Pipistrel, a manufacturer of eAviation segment, which was formed in the second quarter of 2022 upon the acquisition of Pipistrel, a manufacturer of eAviation segment, which was formed in the second quarter of 2022 upon the acquisition of Pipistrel, a manufacturer of eAviation segment, which was formed in the second quarter of 2022 upon the acquisition of Pipistrel, a manufacturer of eAviation segment, which was formed in the second quarter of 2022 upon the acquisition of Pipistrel, a manufacturer of electrically powered aircraft as discussed in Note 2. The Finance group, which also is the Finance segment, consists of Textron electrically powered aircraft as discussed in Note 2. The Finance group, which also is the Finance segment, consists of Textron electrically powered aircraft as discussed in Note 2. The Finance group, which also is the Finance segment, consists of Textron electrically powered aircraft as discussed in Note 2. The Finance group, which also is the Finance segment, consists of Textron electrically powered aircraft as discussed in Note 2. The Finance group, which also is the Finance segment, consists of Textron electrically powered aircraft as discussed in Note 2. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation (TFC) and its consolidated subsidiaries. (cid:49)e designed this framework to enhance our borrowing power by Financial Corporation (TFC) and its consolidated subsidiaries. (cid:49)e designed this framework to enhance our borrowing power by Financial Corporation (TFC) and its consolidated subsidiaries. (cid:49)e designed this framework to enhance our borrowing power by Financial Corporation (TFC) and its consolidated subsidiaries. (cid:49)e designed this framework to enhance our borrowing power by Financial Corporation (TFC) and its consolidated subsidiaries. (cid:49)e designed this framework to enhance our borrowing power by Financial Corporation (TFC) and its consolidated subsidiaries. (cid:49)e 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 separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible 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 goods and services, while our Finance group provides financial services. Due to the fundamental differences between each goods and services, while our Finance group provides financial services. Due to the fundamental differences between each goods and services, while our Finance group provides financial services. Due to the fundamental differences between each goods and services, while our Finance group provides financial services. Due to the fundamental differences between each 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. borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. 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 To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements. Consolidated Financial Statements. Consolidated Financial Statements. Consolidated Financial Statements. Consolidated Financial Statements. Consolidated Financial Statements. Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of 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. (cid:34)owever, in the Cash Flows, cash received from customers is reflected as operating activities when received from third parties. (cid:34)owever, in the Cash Flows, cash received from customers is reflected as operating activities when received from third parties. (cid:34)owever, in the Cash Flows, cash received from customers is reflected as operating activities when received from third parties. (cid:34)owever, in the Cash Flows, cash received from customers is reflected as operating activities when received from third parties. (cid:34)owever, in the Cash Flows, cash received from customers is reflected as operating activities when received from third parties. (cid:34)owever, in the cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected 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 based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is 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 financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in 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 the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received 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 from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is 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 transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of 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 the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or eliminated in consolidation. eliminated in consolidation. eliminated in consolidation. eliminated in consolidation. eliminated in consolidation. eliminated in consolidation. Collaborative Arrangements Collaborative Arrangements Collaborative Arrangements Collaborative Arrangements Collaborative Arrangements Collaborative Arrangements Our (cid:28)ell segment has a strategic alliance agreement with The (cid:28)oeing Company ((cid:28)oeing) to provide engineering, development Our (cid:28)ell segment has a strategic alliance agreement with The (cid:28)oeing Company ((cid:28)oeing) to provide engineering, development Our (cid:28)ell segment has a strategic alliance agreement with The (cid:28)oeing Company ((cid:28)oeing) to provide engineering, development Our (cid:28)ell segment has a strategic alliance agreement with The (cid:28)oeing Company ((cid:28)oeing) to provide engineering, development Our (cid:28)ell segment has a strategic alliance agreement with The (cid:28)oeing Company ((cid:28)oeing) to provide engineering, development Our (cid:28)ell segment has a strategic alliance agreement with The (cid:28)oeing Company ((cid:28)oeing) to provide engineering, development and test services related to the (cid:48)-22 aircraft, as well as to produce the (cid:48)-22 aircraft, under a number of separate contracts with the and test services related to the (cid:48)-22 aircraft, as well as to produce the (cid:48)-22 aircraft, under a number of separate contracts with the and test services related to the (cid:48)-22 aircraft, as well as to produce the (cid:48)-22 aircraft, under a number of separate contracts with the and test services related to the (cid:48)-22 aircraft, as well as to produce the (cid:48)-22 aircraft, under a number of separate contracts with the and test services related to the (cid:48)-22 aircraft, as well as to produce the (cid:48)-22 aircraft, under a number of separate contracts with the and test services related to the (cid:48)-22 aircraft, as well as to produce the (cid:48)-22 aircraft, under a number of separate contracts with the U.S. (cid:33)overnment ((cid:48)-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets U.S. (cid:33)overnment ((cid:48)-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets U.S. (cid:33)overnment ((cid:48)-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets U.S. (cid:33)overnment ((cid:48)-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets U.S. (cid:33)overnment ((cid:48)-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets U.S. (cid:33)overnment ((cid:48)-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 and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity interest. (cid:49)e account for this alliance as a collaborative arrangement with (cid:28)ell and (cid:28)oeing reporting costs incurred and revenues interest. (cid:49)e account for this alliance as a collaborative arrangement with (cid:28)ell and (cid:28)oeing reporting costs incurred and revenues interest. (cid:49)e account for this alliance as a collaborative arrangement with (cid:28)ell and (cid:28)oeing reporting costs incurred and revenues interest. (cid:49)e account for this alliance as a collaborative arrangement with (cid:28)ell and (cid:28)oeing reporting costs incurred and revenues interest. (cid:49)e account for this alliance as a collaborative arrangement with (cid:28)ell and (cid:28)oeing reporting costs incurred and revenues interest. (cid:49)e account for this alliance as a collaborative arrangement with (cid:28)ell and (cid:28)oeing reporting costs incurred and revenues generated from transactions with the U.S. (cid:33)overnment in each company’s respective income statement. Neither (cid:28)ell nor (cid:28)oeing generated from transactions with the U.S. (cid:33)overnment in each company’s respective income statement. Neither (cid:28)ell nor (cid:28)oeing generated from transactions with the U.S. (cid:33)overnment in each company’s respective income statement. Neither (cid:28)ell nor (cid:28)oeing generated from transactions with the U.S. (cid:33)overnment in each company’s respective income statement. Neither (cid:28)ell nor (cid:28)oeing generated from transactions with the U.S. (cid:33)overnment in each company’s respective income statement. Neither (cid:28)ell nor (cid:28)oeing generated from transactions with the U.S. (cid:33)overnment in each company’s respective income statement. Neither (cid:28)ell nor (cid:28)oeing is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are allocated between (cid:28)ell and (cid:28)oeing on a 50(cid:4)-50(cid:4) basis. Negotiated profits on fixed-price contracts are also allocated 50(cid:4)-50(cid:4)(cid:26) allocated between (cid:28)ell and (cid:28)oeing on a 50(cid:4)-50(cid:4) basis. Negotiated profits on fixed-price contracts are also allocated 50(cid:4)-50(cid:4)(cid:26) allocated between (cid:28)ell and (cid:28)oeing on a 50(cid:4)-50(cid:4) basis. Negotiated profits on fixed-price contracts are also allocated 50(cid:4)-50(cid:4)(cid:26) allocated between (cid:28)ell and (cid:28)oeing on a 50(cid:4)-50(cid:4) basis. Negotiated profits on fixed-price contracts are also allocated 50(cid:4)-50(cid:4)(cid:26) allocated between (cid:28)ell and (cid:28)oeing on a 50(cid:4)-50(cid:4) basis. Negotiated profits on fixed-price contracts are also allocated 50(cid:4)-50(cid:4)(cid:26) allocated between (cid:28)ell and (cid:28)oeing on a 50(cid:4)-50(cid:4) basis. Negotiated profits on fixed-price contracts are also allocated 50(cid:4)-50(cid:4)(cid:26) however, (cid:28)ell and (cid:28)oeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. (cid:28)ased on however, (cid:28)ell and (cid:28)oeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. (cid:28)ased on however, (cid:28)ell and (cid:28)oeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. (cid:28)ased on however, (cid:28)ell and (cid:28)oeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. (cid:28)ased on however, (cid:28)ell and (cid:28)oeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. (cid:28)ased on however, (cid:28)ell and (cid:28)oeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. (cid:28)ased on the contractual arrangement established under the alliance, (cid:28)ell accounts for its rights and obligations under the specific the contractual arrangement established under the alliance, (cid:28)ell accounts for its rights and obligations under the specific the contractual arrangement established under the alliance, (cid:28)ell accounts for its rights and obligations under the specific the contractual arrangement established under the alliance, (cid:28)ell accounts for its rights and obligations under the specific the contractual arrangement established under the alliance, (cid:28)ell accounts for its rights and obligations under the specific the contractual arrangement established under the alliance, (cid:28)ell accounts for its rights and obligations under the specific requirements of the (cid:48)-22 Contracts allocated to (cid:28)ell under the work breakdown structure. (cid:49)e account for all of our rights and requirements of the (cid:48)-22 Contracts allocated to (cid:28)ell under the work breakdown structure. (cid:49)e account for all of our rights and requirements of the (cid:48)-22 Contracts allocated to (cid:28)ell under the work breakdown structure. (cid:49)e account for all of our rights and requirements of the (cid:48)-22 Contracts allocated to (cid:28)ell under the work breakdown structure. (cid:49)e account for all of our rights and requirements of the (cid:48)-22 Contracts allocated to (cid:28)ell under the work breakdown structure. (cid:49)e account for all of our rights and requirements of the (cid:48)-22 Contracts allocated to (cid:28)ell under the work breakdown structure. (cid:49)e account for all of our rights and obligations, including warranty, product and any contingent liabilities, under the specific requirements of the (cid:48)-22 Contracts obligations, including warranty, product and any contingent liabilities, under the specific requirements of the (cid:48)-22 Contracts obligations, including warranty, product and any contingent liabilities, under the specific requirements of the (cid:48)-22 Contracts obligations, including warranty, product and any contingent liabilities, under the specific requirements of the (cid:48)-22 Contracts obligations, including warranty, product and any contingent liabilities, under the specific requirements of the (cid:48)-22 Contracts obligations, including warranty, product and any contingent liabilities, under the specific requirements of the (cid:48)-22 Contracts allocated to us under the agreement. Revenues and cost of sales reflect our performance under the (cid:48)-22 Contracts with revenues allocated to us under the agreement. Revenues and cost of sales reflect our performance under the (cid:48)-22 Contracts with revenues allocated to us under the agreement. Revenues and cost of sales reflect our performance under the (cid:48)-22 Contracts with revenues allocated to us under the agreement. Revenues and cost of sales reflect our performance under the (cid:48)-22 Contracts with revenues allocated to us under the agreement. Revenues and cost of sales reflect our performance under the (cid:48)-22 Contracts with revenues allocated to us under the agreement. Revenues and cost of sales reflect our performance under the (cid:48)-22 Contracts with revenues recognized using the cost-to-cost method. (cid:49)e include all assets used in performance of the (cid:48)-22 Contracts that we own and all recognized using the cost-to-cost method. (cid:49)e include all assets used in performance of the (cid:48)-22 Contracts that we own and all recognized using the cost-to-cost method. (cid:49)e include all assets used in performance of the (cid:48)-22 Contracts that we own and all recognized using the cost-to-cost method. (cid:49)e include all assets used in performance of the (cid:48)-22 Contracts that we own and all recognized using the cost-to-cost method. (cid:49)e include all assets used in performance of the (cid:48)-22 Contracts that we own and all recognized using the cost-to-cost method. (cid:49)e include all assets used in performance of the (cid:48)-22 Contracts that we own and all liabilities arising from our obligations under the (cid:48)-22 Contracts in our Consolidated (cid:28)alance Sheets. liabilities arising from our obligations under the (cid:48)-22 Contracts in our Consolidated (cid:28)alance Sheets. liabilities arising from our obligations under the (cid:48)-22 Contracts in our Consolidated (cid:28)alance Sheets. liabilities arising from our obligations under the (cid:48)-22 Contracts in our Consolidated (cid:28)alance Sheets. liabilities arising from our obligations under the (cid:48)-22 Contracts in our Consolidated (cid:28)alance Sheets. liabilities arising from our obligations under the (cid:48)-22 Contracts in our Consolidated (cid:28)alance Sheets. Use of Estimates Use of Estimates Use of Estimates Use of Estimates Use of Estimates Use of Estimates (cid:49)e prepare our financial statements in conformity with generally accepted accounting principles, which require us to make (cid:49)e prepare our financial statements in conformity with generally accepted accounting principles, which require us to make (cid:49)e prepare our financial statements in conformity with generally accepted accounting principles, which require us to make (cid:49)e prepare our financial statements in conformity with generally accepted accounting principles, which require us to make (cid:49)e prepare our financial statements in conformity with generally accepted accounting principles, which require us to make (cid:49)e 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 and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those 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 estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the 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. Consolidated Statements of Operations in the period that they are determined. Consolidated Statements of Operations in the period that they are determined. Consolidated Statements of Operations in the period that they are determined. Consolidated Statements of Operations in the period that they are determined. Consolidated Statements of Operations in the period that they are determined. Revenue Recognition Revenue Recognition Revenue Recognition Revenue Recognition Revenue Recognition Revenue Recognition Revenue is recognized when control of the product or service promised under the contract is transferred to the customer either at a Revenue is recognized when control of the product or service promised under the contract is transferred to the customer either at a Revenue is recognized when control of the product or service promised under the contract is transferred to the customer either at a Revenue is recognized when control of the product or service promised under the contract is transferred to the customer either at a Revenue is recognized when control of the product or service promised under the contract is transferred to the customer either at a Revenue is recognized when control of the product or service 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). (cid:49)e account for a contract when it has point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). (cid:49)e account for a contract when it has point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). (cid:49)e account for a contract when it has point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). (cid:49)e account for a contract when it has point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). (cid:49)e account for a contract when it has point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). (cid:49)e 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 approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract has approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract has approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract has approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract 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 commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or 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 product or service to a customer multiple performance obligations. A performance obligation is a promise to transfer a distinct product or service to a customer multiple performance obligations. A performance obligation is a promise to transfer a distinct product or service to a customer multiple performance obligations. A performance obligation is a promise to transfer a distinct product or service to a customer multiple performance obligations. A performance obligation is a promise to transfer a distinct product or service to a customer multiple performance obligations. A performance obligation is a promise to transfer a distinct product or service to a customer and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected 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 consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative 39 39 39 39 39 39 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies Note 1. Summary of Significant Accounting Policies Note 1. Summary of Significant Accounting Policies Note 1. Summary of Significant Accounting Policies Note 1. Summary of Significant Accounting Policies Note 1. Summary of Significant Accounting Policies Principles of Consolidation and Financial Statement Presentation Principles of Consolidation and Financial Statement Presentation Principles of Consolidation and Financial Statement Presentation Principles of Consolidation and Financial Statement Presentation Principles of Consolidation and Financial Statement Presentation Principles of Consolidation and Financial Statement Presentation Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings 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 are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its 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, (cid:28)ell, Textron Systems and Industrial segments, and the Textron majority-owned subsidiaries that operate in the Textron Aviation, (cid:28)ell, Textron Systems and Industrial segments, and the Textron majority-owned subsidiaries that operate in the Textron Aviation, (cid:28)ell, Textron Systems and Industrial segments, and the Textron majority-owned subsidiaries that operate in the Textron Aviation, (cid:28)ell, Textron Systems and Industrial segments, and the Textron majority-owned subsidiaries that operate in the Textron Aviation, (cid:28)ell, Textron Systems and Industrial segments, and the Textron majority-owned subsidiaries that operate in the Textron Aviation, (cid:28)ell, Textron Systems and Industrial segments, and the Textron eAviation segment, which was formed in the second quarter of 2022 upon the acquisition of Pipistrel, a manufacturer of eAviation segment, which was formed in the second quarter of 2022 upon the acquisition of Pipistrel, a manufacturer of eAviation segment, which was formed in the second quarter of 2022 upon the acquisition of Pipistrel, a manufacturer of eAviation segment, which was formed in the second quarter of 2022 upon the acquisition of Pipistrel, a manufacturer of eAviation segment, which was formed in the second quarter of 2022 upon the acquisition of Pipistrel, a manufacturer of eAviation segment, which was formed in the second quarter of 2022 upon the acquisition of Pipistrel, a manufacturer of electrically powered aircraft as discussed in Note 2. The Finance group, which also is the Finance segment, consists of Textron electrically powered aircraft as discussed in Note 2. The Finance group, which also is the Finance segment, consists of Textron electrically powered aircraft as discussed in Note 2. The Finance group, which also is the Finance segment, consists of Textron electrically powered aircraft as discussed in Note 2. The Finance group, which also is the Finance segment, consists of Textron electrically powered aircraft as discussed in Note 2. The Finance group, which also is the Finance segment, consists of Textron electrically powered aircraft as discussed in Note 2. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation (TFC) and its consolidated subsidiaries. (cid:49)e designed this framework to enhance our borrowing power by Financial Corporation (TFC) and its consolidated subsidiaries. (cid:49)e designed this framework to enhance our borrowing power by Financial Corporation (TFC) and its consolidated subsidiaries. (cid:49)e designed this framework to enhance our borrowing power by Financial Corporation (TFC) and its consolidated subsidiaries. (cid:49)e designed this framework to enhance our borrowing power by Financial Corporation (TFC) and its consolidated subsidiaries. (cid:49)e designed this framework to enhance our borrowing power by Financial Corporation (TFC) and its consolidated subsidiaries. (cid:49)e 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 separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible 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 goods and services, while our Finance group provides financial services. Due to the fundamental differences between each goods and services, while our Finance group provides financial services. Due to the fundamental differences between each goods and services, while our Finance group provides financial services. Due to the fundamental differences between each goods and services, while our Finance group provides financial services. Due to the fundamental differences between each 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. borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. 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 To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements. Consolidated Financial Statements. Consolidated Financial Statements. Consolidated Financial Statements. Consolidated Financial Statements. Consolidated Financial Statements. Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of 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. (cid:34)owever, in the Cash Flows, cash received from customers is reflected as operating activities when received from third parties. (cid:34)owever, in the Cash Flows, cash received from customers is reflected as operating activities when received from third parties. (cid:34)owever, in the Cash Flows, cash received from customers is reflected as operating activities when received from third parties. (cid:34)owever, in the Cash Flows, cash received from customers is reflected as operating activities when received from third parties. (cid:34)owever, in the Cash Flows, cash received from customers is reflected as operating activities when received from third parties. (cid:34)owever, in the cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected 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 based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is 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 financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in 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 the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received 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 from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is 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 transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of 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 the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or eliminated in consolidation. eliminated in consolidation. eliminated in consolidation. eliminated in consolidation. eliminated in consolidation. eliminated in consolidation. Collaborative Arrangements Collaborative Arrangements Collaborative Arrangements Collaborative Arrangements Collaborative Arrangements Collaborative Arrangements Our (cid:28)ell segment has a strategic alliance agreement with The (cid:28)oeing Company ((cid:28)oeing) to provide engineering, development Our (cid:28)ell segment has a strategic alliance agreement with The (cid:28)oeing Company ((cid:28)oeing) to provide engineering, development Our (cid:28)ell segment has a strategic alliance agreement with The (cid:28)oeing Company ((cid:28)oeing) to provide engineering, development Our (cid:28)ell segment has a strategic alliance agreement with The (cid:28)oeing Company ((cid:28)oeing) to provide engineering, development Our (cid:28)ell segment has a strategic alliance agreement with The (cid:28)oeing Company ((cid:28)oeing) to provide engineering, development Our (cid:28)ell segment has a strategic alliance agreement with The (cid:28)oeing Company ((cid:28)oeing) to provide engineering, development and test services related to the (cid:48)-22 aircraft, as well as to produce the (cid:48)-22 aircraft, under a number of separate contracts with the and test services related to the (cid:48)-22 aircraft, as well as to produce the (cid:48)-22 aircraft, under a number of separate contracts with the and test services related to the (cid:48)-22 aircraft, as well as to produce the (cid:48)-22 aircraft, under a number of separate contracts with the and test services related to the (cid:48)-22 aircraft, as well as to produce the (cid:48)-22 aircraft, under a number of separate contracts with the and test services related to the (cid:48)-22 aircraft, as well as to produce the (cid:48)-22 aircraft, under a number of separate contracts with the and test services related to the (cid:48)-22 aircraft, as well as to produce the (cid:48)-22 aircraft, under a number of separate contracts with the U.S. (cid:33)overnment ((cid:48)-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets U.S. (cid:33)overnment ((cid:48)-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets U.S. (cid:33)overnment ((cid:48)-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets U.S. (cid:33)overnment ((cid:48)-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets U.S. (cid:33)overnment ((cid:48)-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets U.S. (cid:33)overnment ((cid:48)-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 and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity interest. (cid:49)e account for this alliance as a collaborative arrangement with (cid:28)ell and (cid:28)oeing reporting costs incurred and revenues interest. (cid:49)e account for this alliance as a collaborative arrangement with (cid:28)ell and (cid:28)oeing reporting costs incurred and revenues interest. (cid:49)e account for this alliance as a collaborative arrangement with (cid:28)ell and (cid:28)oeing reporting costs incurred and revenues interest. (cid:49)e account for this alliance as a collaborative arrangement with (cid:28)ell and (cid:28)oeing reporting costs incurred and revenues interest. (cid:49)e account for this alliance as a collaborative arrangement with (cid:28)ell and (cid:28)oeing reporting costs incurred and revenues interest. (cid:49)e account for this alliance as a collaborative arrangement with (cid:28)ell and (cid:28)oeing reporting costs incurred and revenues generated from transactions with the U.S. (cid:33)overnment in each company’s respective income statement. Neither (cid:28)ell nor (cid:28)oeing generated from transactions with the U.S. (cid:33)overnment in each company’s respective income statement. Neither (cid:28)ell nor (cid:28)oeing generated from transactions with the U.S. (cid:33)overnment in each company’s respective income statement. Neither (cid:28)ell nor (cid:28)oeing generated from transactions with the U.S. (cid:33)overnment in each company’s respective income statement. Neither (cid:28)ell nor (cid:28)oeing generated from transactions with the U.S. (cid:33)overnment in each company’s respective income statement. Neither (cid:28)ell nor (cid:28)oeing generated from transactions with the U.S. (cid:33)overnment in each company’s respective income statement. Neither (cid:28)ell nor (cid:28)oeing is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are allocated between (cid:28)ell and (cid:28)oeing on a 50(cid:4)-50(cid:4) basis. Negotiated profits on fixed-price contracts are also allocated 50(cid:4)-50(cid:4)(cid:26) allocated between (cid:28)ell and (cid:28)oeing on a 50(cid:4)-50(cid:4) basis. Negotiated profits on fixed-price contracts are also allocated 50(cid:4)-50(cid:4)(cid:26) allocated between (cid:28)ell and (cid:28)oeing on a 50(cid:4)-50(cid:4) basis. Negotiated profits on fixed-price contracts are also allocated 50(cid:4)-50(cid:4)(cid:26) allocated between (cid:28)ell and (cid:28)oeing on a 50(cid:4)-50(cid:4) basis. Negotiated profits on fixed-price contracts are also allocated 50(cid:4)-50(cid:4)(cid:26) allocated between (cid:28)ell and (cid:28)oeing on a 50(cid:4)-50(cid:4) basis. Negotiated profits on fixed-price contracts are also allocated 50(cid:4)-50(cid:4)(cid:26) allocated between (cid:28)ell and (cid:28)oeing on a 50(cid:4)-50(cid:4) basis. Negotiated profits on fixed-price contracts are also allocated 50(cid:4)-50(cid:4)(cid:26) however, (cid:28)ell and (cid:28)oeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. (cid:28)ased on however, (cid:28)ell and (cid:28)oeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. (cid:28)ased on however, (cid:28)ell and (cid:28)oeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. (cid:28)ased on however, (cid:28)ell and (cid:28)oeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. (cid:28)ased on however, (cid:28)ell and (cid:28)oeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. (cid:28)ased on however, (cid:28)ell and (cid:28)oeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. (cid:28)ased on the contractual arrangement established under the alliance, (cid:28)ell accounts for its rights and obligations under the specific the contractual arrangement established under the alliance, (cid:28)ell accounts for its rights and obligations under the specific the contractual arrangement established under the alliance, (cid:28)ell accounts for its rights and obligations under the specific the contractual arrangement established under the alliance, (cid:28)ell accounts for its rights and obligations under the specific the contractual arrangement established under the alliance, (cid:28)ell accounts for its rights and obligations under the specific the contractual arrangement established under the alliance, (cid:28)ell accounts for its rights and obligations under the specific requirements of the (cid:48)-22 Contracts allocated to (cid:28)ell under the work breakdown structure. (cid:49)e account for all of our rights and requirements of the (cid:48)-22 Contracts allocated to (cid:28)ell under the work breakdown structure. (cid:49)e account for all of our rights and requirements of the (cid:48)-22 Contracts allocated to (cid:28)ell under the work breakdown structure. (cid:49)e account for all of our rights and requirements of the (cid:48)-22 Contracts allocated to (cid:28)ell under the work breakdown structure. (cid:49)e account for all of our rights and requirements of the (cid:48)-22 Contracts allocated to (cid:28)ell under the work breakdown structure. (cid:49)e account for all of our rights and requirements of the (cid:48)-22 Contracts allocated to (cid:28)ell under the work breakdown structure. (cid:49)e account for all of our rights and obligations, including warranty, product and any contingent liabilities, under the specific requirements of the (cid:48)-22 Contracts obligations, including warranty, product and any contingent liabilities, under the specific requirements of the (cid:48)-22 Contracts obligations, including warranty, product and any contingent liabilities, under the specific requirements of the (cid:48)-22 Contracts obligations, including warranty, product and any contingent liabilities, under the specific requirements of the (cid:48)-22 Contracts obligations, including warranty, product and any contingent liabilities, under the specific requirements of the (cid:48)-22 Contracts obligations, including warranty, product and any contingent liabilities, under the specific requirements of the (cid:48)-22 Contracts allocated to us under the agreement. Revenues and cost of sales reflect our performance under the (cid:48)-22 Contracts with revenues allocated to us under the agreement. Revenues and cost of sales reflect our performance under the (cid:48)-22 Contracts with revenues allocated to us under the agreement. Revenues and cost of sales reflect our performance under the (cid:48)-22 Contracts with revenues allocated to us under the agreement. Revenues and cost of sales reflect our performance under the (cid:48)-22 Contracts with revenues allocated to us under the agreement. Revenues and cost of sales reflect our performance under the (cid:48)-22 Contracts with revenues allocated to us under the agreement. Revenues and cost of sales reflect our performance under the (cid:48)-22 Contracts with revenues recognized using the cost-to-cost method. (cid:49)e include all assets used in performance of the (cid:48)-22 Contracts that we own and all recognized using the cost-to-cost method. (cid:49)e include all assets used in performance of the (cid:48)-22 Contracts that we own and all recognized using the cost-to-cost method. (cid:49)e include all assets used in performance of the (cid:48)-22 Contracts that we own and all recognized using the cost-to-cost method. (cid:49)e include all assets used in performance of the (cid:48)-22 Contracts that we own and all recognized using the cost-to-cost method. (cid:49)e include all assets used in performance of the (cid:48)-22 Contracts that we own and all recognized using the cost-to-cost method. (cid:49)e include all assets used in performance of the (cid:48)-22 Contracts that we own and all liabilities arising from our obligations under the (cid:48)-22 Contracts in our Consolidated (cid:28)alance Sheets. liabilities arising from our obligations under the (cid:48)-22 Contracts in our Consolidated (cid:28)alance Sheets. liabilities arising from our obligations under the (cid:48)-22 Contracts in our Consolidated (cid:28)alance Sheets. liabilities arising from our obligations under the (cid:48)-22 Contracts in our Consolidated (cid:28)alance Sheets. liabilities arising from our obligations under the (cid:48)-22 Contracts in our Consolidated (cid:28)alance Sheets. liabilities arising from our obligations under the (cid:48)-22 Contracts in our Consolidated (cid:28)alance Sheets. Use of Estimates Use of Estimates Use of Estimates Use of Estimates Use of Estimates Use of Estimates (cid:49)e prepare our financial statements in conformity with generally accepted accounting principles, which require us to make (cid:49)e prepare our financial statements in conformity with generally accepted accounting principles, which require us to make (cid:49)e prepare our financial statements in conformity with generally accepted accounting principles, which require us to make (cid:49)e prepare our financial statements in conformity with generally accepted accounting principles, which require us to make (cid:49)e prepare our financial statements in conformity with generally accepted accounting principles, which require us to make (cid:49)e 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 and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those 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 estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the 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. Consolidated Statements of Operations in the period that they are determined. Consolidated Statements of Operations in the period that they are determined. Consolidated Statements of Operations in the period that they are determined. Consolidated Statements of Operations in the period that they are determined. Consolidated Statements of Operations in the period that they are determined. Revenue Recognition Revenue Recognition Revenue Recognition Revenue Recognition Revenue Recognition Revenue Recognition Revenue is recognized when control of the product or service promised under the contract is transferred to the customer either at a Revenue is recognized when control of the product or service promised under the contract is transferred to the customer either at a Revenue is recognized when control of the product or service promised under the contract is transferred to the customer either at a Revenue is recognized when control of the product or service promised under the contract is transferred to the customer either at a Revenue is recognized when control of the product or service promised under the contract is transferred to the customer either at a Revenue is recognized when control of the product or service 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). (cid:49)e account for a contract when it has point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). (cid:49)e account for a contract when it has point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). (cid:49)e account for a contract when it has point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). (cid:49)e account for a contract when it has point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). (cid:49)e account for a contract when it has point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). (cid:49)e 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 approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract has approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract has approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract has approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract 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 commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or 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 product or service to a customer multiple performance obligations. A performance obligation is a promise to transfer a distinct product or service to a customer multiple performance obligations. A performance obligation is a promise to transfer a distinct product or service to a customer multiple performance obligations. A performance obligation is a promise to transfer a distinct product or service to a customer multiple performance obligations. A performance obligation is a promise to transfer a distinct product or service to a customer multiple performance obligations. A performance obligation is a promise to transfer a distinct product or service to a customer and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected 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 consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative Textron 2022 Annual Report 39 39 39 39 39 39 39 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 product or service 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. Revenue is classified as product or service revenue based on the predominant attributes of each performance obligation. (cid:21)ommerc(cid:48)al (cid:21)ontracts The majority of our contracts with commercial customers have a single performance obligation as there is only one product or service promised or the promise to transfer the product or service 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 products 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. (cid:49)e 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. (cid:49)e primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from one year to five years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation. (cid:37)(cid:8)(cid:35)(cid:8) (cid:25)overnment (cid:21)ontracts Our contracts with the U.S. (cid:33)overnment 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. (cid:33)overnment-sponsored foreign military sales program, accounted for approximately 22(cid:4) of total revenues in 2022. 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. (cid:49)hen 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. Our contracts are frequently modified for changes in contract specifications and requirements. Most of our contract modifications with the U.S. (cid:33)overnment are for products 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. (cid:33)overnment 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. (cid:33)overnment, 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. (cid:49)e 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. 40 Textron 2022 Annual Report 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. (cid:49)e 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. (cid:49)e review and update our projections of costs quarterly or more frequently when circumstances significantly change. Approximately 73(cid:4) of our 2022 revenues with the U.S. (cid:33)overnment 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(cid:4) 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(cid:4) of costs incurred as the work progresses. (cid:28)ecause 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 (cid:28)alance 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. Finance Revenues Finance revenues primarily include interest on finance receivables, finance lease earnings and portfolio gains(cid:14)losses. Portfolio gains(cid:14)losses include impairment charges related to repossessed assets and properties and gains(cid:14)losses on the sale or early termination of finance assets. (cid:49)e 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 2022, our cumulative catch-up adjustments decreased segment profit by $16 million and net income by $12 million, ($0.06 per diluted share). In 2021 and 2020, our cumulative catch-up adjustments increased segment profit by $81 million and $72 million, respectively, and net income by $62 million and $55 million, respectively ($0.27 and $0.24 per diluted share, respectively). Revenue was reduced by $25 million in 2022 and increased by $93 million and $77 million in 2021 and 2020, respectively, related to changes in profit booking rates for performance obligations satisfied in prior periods. 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 (cid:28)alance Sheets. 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. 40 41 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. (cid:49)e 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. (cid:49)e review and update our projections of costs quarterly or more frequently when circumstances significantly change. Approximately 73(cid:4) of our 2022 revenues with the U.S. (cid:33)overnment 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(cid:4) 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(cid:4) of costs incurred as the work progresses. (cid:28)ecause 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 (cid:28)alance 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. Finance Revenues Finance revenues primarily include interest on finance receivables, finance lease earnings and portfolio gains(cid:14)losses. Portfolio gains(cid:14)losses include impairment charges related to repossessed assets and properties and gains(cid:14)losses on the sale or early termination of finance assets. (cid:49)e 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 2022, our cumulative catch-up adjustments decreased segment profit by $16 million and net income by $12 million, ($0.06 per diluted share). In 2021 and 2020, our cumulative catch-up adjustments increased segment profit by $81 million and $72 million, respectively, and net income by $62 million and $55 million, respectively ($0.27 and $0.24 per diluted share, respectively). Revenue was reduced by $25 million in 2022 and increased by $93 million and $77 million in 2021 and 2020, respectively, related to changes in profit booking rates for performance obligations satisfied in prior periods. 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 (cid:28)alance Sheets. 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. Textron 2022 Annual Report 41 41 Accounts Receivable, Net Accounts Receivable, Net Accounts Receivable, Net Accounts Receivable, Net Accounts Receivable, Net Accounts Receivable, Net Accounts Receivable, Net Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. (cid:49)e maintain an Accounts Receivable, Net Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. (cid:49)e maintain an Accounts Receivable, Net Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. (cid:49)e maintain an Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. (cid:49)e maintain an Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. (cid:49)e maintain an Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. (cid:49)e maintain an Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. (cid:49)e maintain an allowance for credit losses for our commercial accounts receivable to provide for the estimated amount that will not be collected, Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. (cid:49)e maintain an allowance for credit losses for our commercial accounts receivable to provide for the estimated amount that will not be collected, Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. (cid:49)e maintain an allowance for credit losses for our commercial accounts receivable to provide for the estimated amount that will not be collected, allowance for credit losses for our commercial accounts receivable to provide for the estimated amount that will not be collected, allowance for credit losses for our commercial accounts receivable to provide for the estimated amount that will not be collected, allowance for credit losses for our commercial accounts receivable to provide for the estimated amount that will not be collected, allowance for credit losses for our commercial accounts receivable to provide for the estimated amount that will not be collected, even when the risk of loss is remote. The allowance is measured on a collective pool basis when similar risk characteristics exist allowance for credit losses for our commercial accounts receivable to provide for the estimated amount that will not be collected, even when the risk of loss is remote. The allowance is measured on a collective pool basis when similar risk characteristics exist allowance for credit losses for our commercial accounts receivable to provide for the estimated amount that will not be collected, even when the risk of loss is remote. The allowance is measured on a collective pool basis when similar risk characteristics exist even when the risk of loss is remote. The allowance is measured on a collective pool basis when similar risk characteristics exist even when the risk of loss is remote. The allowance is measured on a collective pool basis when similar risk characteristics exist even when the risk of loss is remote. The allowance is measured on a collective pool basis when similar risk characteristics exist even when the risk of loss is remote. The allowance is measured on a collective pool basis when similar risk characteristics exist and is established as a percentage of accounts receivable. (cid:49)e have identified pools with similar risk characteristics, based on even when the risk of loss is remote. The allowance is measured on a collective pool basis when similar risk characteristics exist and is established as a percentage of accounts receivable. (cid:49)e have identified pools with similar risk characteristics, based on even when the risk of loss is remote. The allowance is measured on a collective pool basis when similar risk characteristics exist and is established as a percentage of accounts receivable. (cid:49)e have identified pools with similar risk characteristics, based on and is established as a percentage of accounts receivable. (cid:49)e have identified pools with similar risk characteristics, based on and is established as a percentage of accounts receivable. (cid:49)e have identified pools with similar risk characteristics, based on and is established as a percentage of accounts receivable. (cid:49)e have identified pools with similar risk characteristics, based on and is established as a percentage of accounts receivable. (cid:49)e have identified pools with similar risk characteristics, based on customer and industry type and geographic location. The percentage is based on all available and relevant information including and is established as a percentage of accounts receivable. (cid:49)e have identified pools with similar risk characteristics, based on customer and industry type and geographic location. The percentage is based on all available and relevant information including and is established as a percentage of accounts receivable. (cid:49)e have identified pools with similar risk characteristics, based on customer and industry type and geographic location. The percentage is based on all available and relevant information including customer and industry type and geographic location. The percentage is based on all available and relevant information including customer and industry type and geographic location. The percentage is based on all available and relevant information including customer and industry type and geographic location. The percentage is based on all available and relevant information including customer and industry type and geographic location. The percentage is based on all available and relevant information including age of outstanding receivables and collateral value, if any, historical payment experience and loss history, current economic customer and industry type and geographic location. The percentage is based on all available and relevant information including age of outstanding receivables and collateral value, if any, historical payment experience and loss history, current economic customer and industry type and geographic location. The percentage is based on all available and relevant information including age of outstanding receivables and collateral value, if any, historical payment experience and loss history, current economic age of outstanding receivables and collateral value, if any, historical payment experience and loss history, current economic age of outstanding receivables and collateral value, if any, historical payment experience and loss history, current economic age of outstanding receivables and collateral value, if any, historical payment experience and loss history, current economic age of outstanding receivables and collateral value, if any, historical payment experience and loss history, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For age of outstanding receivables and collateral value, if any, historical payment experience and loss history, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For age of outstanding receivables and collateral value, if any, historical payment experience and loss history, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For amounts due from the U.S. (cid:33)overnment, we have not established an allowance for credit losses as we have zero loss expectation conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For amounts due from the U.S. (cid:33)overnment, we have not established an allowance for credit losses as we have zero loss expectation conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For amounts due from the U.S. (cid:33)overnment, we have not established an allowance for credit losses as we have zero loss expectation amounts due from the U.S. (cid:33)overnment, we have not established an allowance for credit losses as we have zero loss expectation amounts due from the U.S. (cid:33)overnment, we have not established an allowance for credit losses as we have zero loss expectation amounts due from the U.S. (cid:33)overnment, we have not established an allowance for credit losses as we have zero loss expectation amounts due from the U.S. (cid:33)overnment, we have not established an allowance for credit losses as we have zero loss expectation based on a long history of no credit losses and the explicit guarantee of a sovereign entity. amounts due from the U.S. (cid:33)overnment, we have not established an allowance for credit losses as we have zero loss expectation based on a long history of no credit losses and the explicit guarantee of a sovereign entity. amounts due from the U.S. (cid:33)overnment, we have not established an allowance for credit losses as we have zero loss expectation based on a long history of no credit losses and the explicit guarantee of a sovereign entity. based on a long history of no credit losses and the explicit guarantee of a sovereign entity. based on a long history of no credit losses and the explicit guarantee of a sovereign entity. based on a long history of no credit losses and the explicit guarantee of a sovereign entity. based on a long history of no credit losses and the explicit guarantee of a sovereign entity. based on a long history of no credit losses and the explicit guarantee of a sovereign entity. based on a long history of no credit losses and the explicit guarantee of a sovereign entity. Cash and E(cid:61)uivalents Cash and E(cid:61)uivalents Cash and E(cid:61)uivalents Cash and E(cid:61)uivalents Cash and E(cid:61)uivalents Cash and E(cid:61)uivalents Cash and E(cid:61)uivalents Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less. Cash and E(cid:61)uivalents Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less. Cash and E(cid:61)uivalents Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less. Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less. Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less. Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less. Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less. Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less. Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less. Inventories Inventories Inventories Inventories Inventories Inventories Inventories Inventories are stated at the lower of cost or estimated realizable value. The majority of our inventories are valued using the last- Inventories Inventories are stated at the lower of cost or estimated realizable value. The majority of our inventories are valued using the last- Inventories Inventories are stated at the lower of cost or estimated realizable value. The majority of our inventories are valued using the last- Inventories are stated at the lower of cost or estimated realizable value. The majority of our inventories are valued using the last- Inventories are stated at the lower of cost or estimated realizable value. The majority of our inventories are valued using the last- Inventories are stated at the lower of cost or estimated realizable value. The majority of our inventories are valued using the last- Inventories are stated at the lower of cost or estimated realizable value. The majority of our inventories are valued using the last- in, first-out (LIFO) method, while the remaining inventories are generally valued using the first-in, first-out (FIFO) method. Inventories are stated at the lower of cost or estimated realizable value. The majority of our inventories are valued using the last- in, first-out (LIFO) method, while the remaining inventories are generally valued using the first-in, first-out (FIFO) method. Inventories are stated at the lower of cost or estimated realizable value. The majority of our inventories are valued using the last- in, first-out (LIFO) method, while the remaining inventories are generally valued using the first-in, first-out (FIFO) method. in, first-out (LIFO) method, while the remaining inventories are generally valued using the first-in, first-out (FIFO) method. in, first-out (LIFO) method, while the remaining inventories are generally valued using the first-in, first-out (FIFO) method. in, first-out (LIFO) method, while the remaining inventories are generally valued using the first-in, first-out (FIFO) method. in, first-out (LIFO) method, while the remaining inventories are generally valued using the first-in, first-out (FIFO) method. in, first-out (LIFO) method, while the remaining inventories are generally valued using the first-in, first-out (FIFO) method. in, first-out (LIFO) method, while the remaining inventories are generally valued using the first-in, first-out (FIFO) method. Property, Plant and E(cid:61)uipment Property, Plant and E(cid:61)uipment Property, Plant and E(cid:61)uipment Property, Plant and E(cid:61)uipment Property, Plant and E(cid:61)uipment Property, Plant and E(cid:61)uipment Property, Plant and E(cid:61)uipment Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. (cid:49)e capitalize Property, Plant and E(cid:61)uipment Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. (cid:49)e capitalize Property, Plant and E(cid:61)uipment Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. (cid:49)e capitalize Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. (cid:49)e capitalize Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. (cid:49)e capitalize Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. (cid:49)e capitalize Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. (cid:49)e capitalize expenditures for improvements that increase asset values and extend useful lives. Property, plant and equipment are reviewed for Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. (cid:49)e capitalize expenditures for improvements that increase asset values and extend useful lives. Property, plant and equipment are reviewed for Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. (cid:49)e capitalize expenditures for improvements that increase asset values and extend useful lives. Property, plant and equipment are reviewed for expenditures for improvements that increase asset values and extend useful lives. Property, plant and equipment are reviewed for expenditures for improvements that increase asset values and extend useful lives. Property, plant and equipment are reviewed for expenditures for improvements that increase asset values and extend useful lives. Property, plant and equipment are reviewed for 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 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 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 impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If 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 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 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 the carrying value of the asset exceeds the sum of the undiscounted expected future cash flows, the asset is written down to fair the carrying value of the asset exceeds the sum of the undiscounted expected future cash flows, the asset is written down to fair the carrying value of the asset exceeds the sum of the undiscounted expected future cash flows, the asset is written down to fair the carrying value of the asset exceeds the sum of the undiscounted expected future cash flows, the asset is written down to fair value. the carrying value of the asset exceeds the sum of the undiscounted expected future cash flows, the asset is written down to fair value. the carrying value of the asset exceeds the sum of the undiscounted expected future cash flows, the asset is written down to fair value. value. value. value. value. value. value. Goodwill and Intangible Assets Goodwill and Intangible Assets Goodwill and Intangible Assets Goodwill and Intangible Assets Goodwill and Intangible Assets Goodwill and Intangible Assets Goodwill and Intangible Assets (cid:33)oodwill represents the excess of the consideration paid for the acquisition of a business over the fair values assigned to Goodwill and Intangible Assets (cid:33)oodwill represents the excess of the consideration paid for the acquisition of a business over the fair values assigned to Goodwill and Intangible Assets (cid:33)oodwill represents the excess of the consideration paid for the acquisition of a business over the fair values assigned to (cid:33)oodwill represents the excess of the consideration paid for the acquisition of a business over the fair values assigned to (cid:33)oodwill represents the excess of the consideration paid for the acquisition of a business over the fair values assigned to (cid:33)oodwill represents the excess of the consideration paid for the acquisition of a business over the fair values assigned to (cid:33)oodwill 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. (cid:33)oodwill and intangible assets deemed to have indefinite lives are not (cid:33)oodwill 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. (cid:33)oodwill and intangible assets deemed to have indefinite lives are not (cid:33)oodwill 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. (cid:33)oodwill and intangible assets deemed to have indefinite lives are not intangible and other net assets of the acquired business. (cid:33)oodwill and intangible assets deemed to have indefinite lives are not intangible and other net assets of the acquired business. (cid:33)oodwill and intangible assets deemed to have indefinite lives are not intangible and other net assets of the acquired business. (cid:33)oodwill and intangible assets deemed to have indefinite lives are not intangible and other net assets of the acquired business. (cid:33)oodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to an annual impairment test. (cid:49)e evaluate the recoverability of these assets in the fourth quarter of each intangible and other net assets of the acquired business. (cid:33)oodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to an annual impairment test. (cid:49)e evaluate the recoverability of these assets in the fourth quarter of each intangible and other net assets of the acquired business. (cid:33)oodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to an annual impairment test. (cid:49)e evaluate the recoverability of these assets in the fourth quarter of each amortized but are subject to an annual impairment test. (cid:49)e evaluate the recoverability of these assets in the fourth quarter of each amortized but are subject to an annual impairment test. (cid:49)e evaluate the recoverability of these assets in the fourth quarter of each amortized but are subject to an annual impairment test. (cid:49)e evaluate the recoverability of these assets in the fourth quarter of each amortized but are subject to an annual impairment test. (cid:49)e 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 amortized but are subject to an annual impairment test. (cid:49)e 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 amortized but are subject to an annual impairment test. (cid:49)e 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 year or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material year or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material year or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material 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. 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. 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. adverse changes in the business climate, indicate a potential impairment. adverse changes in the business climate, indicate a potential impairment. adverse changes in the business climate, indicate a potential impairment. adverse changes in the business climate, indicate a potential impairment. adverse changes in the business climate, indicate a potential impairment. adverse changes in the business climate, indicate a potential impairment. For our goodwill impairment test, we calculate the fair value of each reporting unit using discounted cash flows. A reporting unit For our goodwill impairment test, we calculate the fair value of each reporting unit using discounted cash flows. A reporting unit For our goodwill impairment test, we calculate the fair value of each reporting unit using discounted cash flows. A reporting unit For our goodwill impairment test, we calculate the fair value of each reporting unit using discounted cash flows. A reporting unit For our goodwill impairment test, we calculate the fair value of each reporting unit using discounted cash flows. A reporting unit For our goodwill impairment test, we calculate the fair value of each reporting unit using discounted cash flows. A reporting unit For our goodwill 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 For our goodwill 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 For our goodwill 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 represents the operating segment unless discrete financial information is prepared and reviewed by segment management for represents the operating segment unless discrete financial information is prepared and reviewed by segment management for represents the operating segment unless discrete financial information is prepared and reviewed by segment management for 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 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 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 businesses one level below that operating segment, in which case such component is the reporting unit. In certain instances, we businesses one level below that operating segment, in which case such component is the reporting unit. In certain instances, we businesses one level below that operating segment, in which case such component is the reporting unit. In certain instances, we 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 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 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 have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics. The have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics. The have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics. The 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 rates, operating margins and discount rates that represent our 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 rates, operating margins and discount rates that represent our 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 rates, operating margins and discount rates that represent our discounted cash flows incorporate assumptions for revenue growth rates, operating margins and discount rates that represent our discounted cash flows incorporate assumptions for revenue growth rates, operating margins and discount rates that represent our discounted cash flows incorporate assumptions for revenue growth rates, operating margins and discount rates that represent our discounted cash flows incorporate assumptions for 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 discounted cash flows incorporate assumptions for 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 discounted cash flows incorporate assumptions for 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 best estimates of current and forecasted market conditions, cost structure, anticipated net cost reductions, and the implied rate of best estimates of current and forecasted market conditions, cost structure, anticipated net cost reductions, and the implied rate of best estimates of current and forecasted market conditions, cost structure, anticipated net cost reductions, and the implied rate of 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 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 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 return that we believe a market participant would require for an investment in a business having similar risks and characteristics to return that we believe a market participant would require for an investment in a business having similar risks and characteristics to return that we believe a market participant would require for an investment in a business having similar risks and characteristics to 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 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 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 the reporting unit being assessed. The fair value of our indefinite-lived intangible assets is primarily determined using the relief of the reporting unit being assessed. The fair value of our indefinite-lived intangible assets is primarily determined using the relief of the reporting unit being assessed. The fair value of our indefinite-lived intangible assets is primarily determined using the relief of 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 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 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 royalty method based on forecasted revenues and royalty rates. If the estimated fair value of the reporting unit or indefinite-lived royalty method based on forecasted revenues and royalty rates. If the estimated fair value of the reporting unit or indefinite-lived royalty method based on forecasted revenues and royalty rates. If the estimated fair value of the reporting unit or indefinite-lived 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 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 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 intangible asset exceeds the carrying value, there is no impairment. Otherwise, an impairment loss is recognized for the amount intangible asset exceeds the carrying value, there is no impairment. Otherwise, an impairment loss is recognized for the amount intangible asset exceeds the carrying value, there is no impairment. Otherwise, an impairment loss is recognized for the amount 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. 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. 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. by which the carrying value exceeds the estimated fair value. by which the carrying value exceeds the estimated fair value. by which the carrying value exceeds the estimated fair value. by which the carrying value exceeds the estimated fair value. by which the carrying value exceeds the estimated fair value. 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 Acquired intangible assets with finite lives are subject to amortization. These assets are reviewed for impairment whenever events Acquired intangible assets with finite lives are subject to amortization. These assets are reviewed for impairment whenever events Acquired intangible assets with finite lives are subject to amortization. These assets are reviewed for impairment whenever events Acquired intangible assets with finite lives are subject to amortization. These assets are reviewed for impairment whenever events Acquired intangible assets with finite lives are subject to amortization. These assets are reviewed for impairment whenever events 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 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 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 or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Amortization of these or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Amortization of these or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Amortization of these 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 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 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 intangible assets is recognized over their estimated useful lives using a method that reflects the pattern in which the economic intangible assets is recognized over their estimated useful lives using a method that reflects the pattern in which the economic intangible assets is recognized over their estimated useful lives using a method that reflects the pattern in which the economic 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 81(cid:4) of our gross intangible assets are 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 81(cid:4) of our gross intangible assets are 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 81(cid:4) of our gross intangible assets are benefits of the intangible assets are consumed or otherwise realized. Approximately 81(cid:4) of our gross intangible assets are benefits of the intangible assets are consumed or otherwise realized. Approximately 81(cid:4) of our gross intangible assets are benefits of the intangible assets are consumed or otherwise realized. Approximately 81(cid:4) of our gross intangible assets are benefits of the intangible assets are consumed or otherwise realized. Approximately 81(cid:4) 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 benefits of the intangible assets are consumed or otherwise realized. Approximately 81(cid:4) 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 benefits of the intangible assets are consumed or otherwise realized. Approximately 81(cid:4) 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 amortized based on the cash flow streams used to value the assets, with the remaining assets amortized using the straight-line amortized based on the cash flow streams used to value the assets, with the remaining assets amortized using the straight-line amortized based on the cash flow streams used to value the assets, with the remaining assets amortized using the straight-line amortized based on the cash flow streams used to value the assets, with the remaining assets amortized using the straight-line method. amortized based on the cash flow streams used to value the assets, with the remaining assets amortized using the straight-line method. amortized based on the cash flow streams used to value the assets, with the remaining assets amortized using the straight-line method. method. method. method. method. method. method. Finance Receivables Finance Receivables Finance Receivables Finance Receivables Finance Receivables Finance Receivables Finance Receivables Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Finance Receivables Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Finance Receivables Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for credit losses. Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for credit losses. Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for credit losses. helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for credit losses. helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for credit losses. helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for credit losses. helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for credit losses. helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for credit losses. helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for credit losses. (cid:49)e establish an allowance for credit losses to cover probable but specifically unknown losses existing in the portfolio. This (cid:49)e establish an allowance for credit losses to cover probable but specifically unknown losses existing in the portfolio. This (cid:49)e establish an allowance for credit losses to cover probable but specifically unknown losses existing in the portfolio. This (cid:49)e establish an allowance for credit losses to cover probable but specifically unknown losses existing in the portfolio. This (cid:49)e establish an allowance for credit losses to cover probable but specifically unknown losses existing in the portfolio. This (cid:49)e establish an allowance for credit losses to cover probable but specifically unknown losses existing in the portfolio. This (cid:49)e establish an allowance for credit losses to cover probable but specifically unknown losses existing in the portfolio. This allowance is established as a percentage of finance receivables categorized by pools with similar risk characteristics, such as (cid:49)e establish an allowance for credit losses to cover probable but specifically unknown losses existing in the portfolio. This allowance is established as a percentage of finance receivables categorized by pools with similar risk characteristics, such as (cid:49)e establish an allowance for credit losses to cover probable but specifically unknown losses existing in the portfolio. This allowance is established as a percentage of finance receivables categorized by pools with similar risk characteristics, such as allowance is established as a percentage of finance receivables categorized by pools with similar risk characteristics, such as allowance is established as a percentage of finance receivables categorized by pools with similar risk characteristics, such as allowance is established as a percentage of finance receivables categorized by pools with similar risk characteristics, such as allowance is established as a percentage of finance receivables categorized by pools with similar risk characteristics, such as collateral or customer type and geographic location. The percentage is based on a combination of factors, including historical loss allowance is established as a percentage of finance receivables categorized by pools with similar risk characteristics, such as collateral or customer type and geographic location. The percentage is based on a combination of factors, including historical loss allowance is established as a percentage of finance receivables categorized by pools with similar risk characteristics, such as collateral or customer type and geographic location. The percentage is based on a combination of factors, including historical loss collateral or customer type and geographic location. The percentage is based on a combination of factors, including historical loss collateral or customer type and geographic location. The percentage is based on a combination of factors, including historical loss collateral or customer type and geographic location. The percentage is based on a combination of factors, including historical loss collateral or customer type and geographic location. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values, current economic conditions, and, when reasonable and collateral or customer type and geographic location. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values, current economic conditions, and, when reasonable and collateral or customer type and geographic location. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values, current economic conditions, and, when reasonable and experience, current delinquency and default trends, collateral values, current economic conditions, and, when reasonable and experience, current delinquency and default trends, collateral values, current economic conditions, and, when reasonable and experience, current delinquency and default trends, collateral values, current economic conditions, and, when reasonable and experience, current delinquency and default trends, collateral values, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. experience, current delinquency and default trends, collateral values, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. experience, current delinquency and default trends, collateral values, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. supportable factors exist, management’s expectation of future economic conditions. supportable factors exist, management’s expectation of future economic conditions. supportable factors exist, management’s expectation of future economic conditions. supportable factors exist, management’s expectation of future economic conditions. supportable factors exist, management’s expectation of future economic conditions. supportable factors exist, management’s expectation of future economic conditions. 42 Textron 2022 Annual Report 42 42 42 42 42 42 42 42 42 For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's 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 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 effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying 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(cid:26) financial performance and liquidity of our borrower(cid:26) existence 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(cid:26) financial performance and liquidity of our borrower(cid:26) existence amount. The expected future cash flows consider collateral value(cid:26) financial performance and liquidity of our borrower(cid:26) existence amount. The expected future cash flows consider collateral value(cid:26) financial performance and liquidity of our borrower(cid:26) existence amount. The expected future cash flows consider collateral value(cid:26) financial performance and liquidity of our borrower(cid:26) existence amount. The expected future cash flows consider collateral value(cid:26) financial performance and liquidity of our borrower(cid:26) existence amount. The expected future cash flows consider collateral value(cid:26) financial performance and liquidity of our borrower(cid:26) existence and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the amount. The expected future cash flows consider collateral value(cid:26) financial performance and liquidity of our borrower(cid:26) existence and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the repossession and eventual disposal of collateral. (cid:49)hen there is a range of potential outcomes, we perform multiple discounted and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the repossession and eventual disposal of collateral. (cid:49)hen there is a range of potential outcomes, we perform multiple discounted repossession and eventual disposal of collateral. (cid:49)hen there is a range of potential outcomes, we perform multiple discounted repossession and eventual disposal of collateral. (cid:49)hen there is a range of potential outcomes, we perform multiple discounted repossession and eventual disposal of collateral. (cid:49)hen there is a range of potential outcomes, we perform multiple discounted repossession and eventual disposal of collateral. (cid:49)hen there is a range of potential outcomes, we perform multiple discounted repossession and eventual disposal of collateral. (cid:49)hen 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 repossession and eventual disposal of collateral. (cid:49)hen 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 cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our 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 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 portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be 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 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 received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results. (cid:49)hile our analysis is specific to each individual account, critical factors included in this analysis include industry received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results. (cid:49)hile our analysis is specific to each individual account, critical factors included in this analysis include industry results. (cid:49)hile our analysis is specific to each individual account, critical factors included in this analysis include industry results. (cid:49)hile our analysis is specific to each individual account, critical factors included in this analysis include industry results. (cid:49)hile our analysis is specific to each individual account, critical factors included in this analysis include industry results. (cid:49)hile our analysis is specific to each individual account, critical factors included in this analysis include industry results. (cid:49)hile 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. results. (cid:49)hile 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. valuation guides, age and physical condition of the collateral, payment history, and existence and financial strength of guarantors. valuation guides, age and physical condition of the collateral, payment history, and existence and financial strength of guarantors. valuation guides, age and physical condition of the collateral, payment history, and existence and financial strength of guarantors. valuation guides, age and physical condition of the collateral, payment history, and existence and financial strength of guarantors. valuation guides, age and physical condition of the collateral, payment history, and existence and financial strength of guarantors. valuation guides, age and physical condition of the collateral, payment history, and existence and financial strength of guarantors. Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. Pension and Postretirement (cid:21)enefit Obligations Pension and Postretirement (cid:21)enefit Obligations Pension and Postretirement (cid:21)enefit Obligations Pension and Postretirement (cid:21)enefit Obligations Pension and Postretirement (cid:21)enefit Obligations Pension and Postretirement (cid:21)enefit Obligations Pension and Postretirement (cid:21)enefit Obligations Pension and Postretirement (cid:21)enefit Obligations (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit obligations, which are calculated based on actuarial valuations. (cid:37)ey assumptions used in determining these obligations and (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit obligations, which are calculated based on actuarial valuations. (cid:37)ey assumptions used in determining these obligations and obligations, which are calculated based on actuarial valuations. (cid:37)ey assumptions used in determining these obligations and obligations, which are calculated based on actuarial valuations. (cid:37)ey assumptions used in determining these obligations and obligations, which are calculated based on actuarial valuations. (cid:37)ey assumptions used in determining these obligations and obligations, which are calculated based on actuarial valuations. (cid:37)ey assumptions used in determining these obligations and obligations, which are calculated based on actuarial valuations. (cid:37)ey 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. (cid:49)e obligations, which are calculated based on actuarial valuations. (cid:37)ey 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. (cid:49)e related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. (cid:49)e related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. (cid:49)e related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. (cid:49)e related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. (cid:49)e related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. (cid:49)e evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. (cid:49)e evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases. increases. increases. increases. increases. increases. increases. increases. For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to 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. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the 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. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the our fiscal year-end. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the our fiscal year-end. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the our fiscal year-end. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the our fiscal year-end. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the our fiscal year-end. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income our fiscal year-end. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of the inactive participants. This determination is made on a plan-by-plan basis. the inactive participants. This determination is made on a plan-by-plan basis. the inactive participants. This determination is made on a plan-by-plan basis. the inactive participants. This determination is made on a plan-by-plan basis. the inactive participants. This determination is made on a plan-by-plan basis. the inactive participants. This determination is made on a plan-by-plan basis. the inactive participants. This determination is made on a plan-by-plan basis. the inactive participants. This determination is made on a plan-by-plan basis. Derivatives and Hedging Activities Derivatives and Hedging Activities Derivatives and Hedging Activities Derivatives and Hedging Activities Derivatives and Hedging Activities Derivatives and Hedging Activities Derivatives and Hedging Activities Derivatives and Hedging Activities (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net 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 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 these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various 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 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 derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. Credit risk related derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. Credit risk related derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. Credit risk related derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. Credit risk related 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 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 to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through periodic settlements of positions. through periodic settlements of positions. through periodic settlements of positions. through periodic settlements of positions. through periodic settlements of positions. through periodic settlements of positions. through periodic settlements of positions. through periodic settlements of positions. All derivative instruments are reported at fair value in the Consolidated (cid:28)alance Sheets. Designation to support hedge accounting All derivative instruments are reported at fair value in the Consolidated (cid:28)alance Sheets. Designation to support hedge accounting All derivative instruments are reported at fair value in the Consolidated (cid:28)alance Sheets. Designation to support hedge accounting All derivative instruments are reported at fair value in the Consolidated (cid:28)alance Sheets. Designation to support hedge accounting All derivative instruments are reported at fair value in the Consolidated (cid:28)alance Sheets. Designation to support hedge accounting All derivative instruments are reported at fair value in the Consolidated (cid:28)alance Sheets. Designation to support hedge accounting All derivative instruments are reported at fair value in the Consolidated (cid:28)alance 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 All derivative instruments are reported at fair value in the Consolidated (cid:28)alance 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 is performed on a specific exposure basis. For financial instruments qualifying as cash flow hedges, we record changes in the fair is performed on a specific exposure basis. For financial instruments qualifying as cash flow hedges, we record changes in the fair is performed on a specific exposure basis. For financial instruments qualifying as cash flow hedges, we record changes in the fair is performed on a specific exposure basis. For financial instruments qualifying as cash flow hedges, we record changes in the fair 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 other comprehensive income (loss), net of deferred taxes. 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 other comprehensive income (loss), net of deferred taxes. value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. 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 Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are 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 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 recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or substantially liquidated. Leases (cid:49)e identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated (cid:49)e identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated (cid:49)e identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated (cid:49)e identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated (cid:49)e identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated (cid:49)e identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated (cid:49)e 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 (cid:49)e 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 period of time in exchange for consideration. Specifically, we consider whether we can control the underlying asset and have the period of time in exchange for consideration. Specifically, we consider whether we can control the underlying asset and have the period of time in exchange for consideration. Specifically, we consider whether we can control the underlying asset and have the period of time in exchange for consideration. Specifically, we consider whether we can control the underlying asset and have the 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 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 right to obtain substantially all of the economic benefits or outputs from the asset. For our contracts that contain both lease right to obtain substantially all of the economic benefits or outputs from the asset. For our contracts that contain both lease right to obtain substantially all of the economic benefits or outputs from the asset. For our contracts that contain both lease right to obtain substantially all of the economic benefits or outputs from the asset. For our contracts that contain both lease 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- 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- components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common- components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common- components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common- components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common- components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common- area maintenance costs or other goods(cid:14)services), we allocate the consideration in the contract to each component based on its components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common- area maintenance costs or other goods(cid:14)services), we allocate the consideration in the contract to each component based on its area maintenance costs or other goods(cid:14)services), we allocate the consideration in the contract to each component based on its area maintenance costs or other goods(cid:14)services), we allocate the consideration in the contract to each component based on its area maintenance costs or other goods(cid:14)services), we allocate the consideration in the contract to each component based on its area maintenance costs or other goods(cid:14)services), we allocate the consideration in the contract to each component based on its area maintenance costs or other goods(cid:14)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 area maintenance costs or other goods(cid:14)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 standalone price. Leases with terms greater than 12 months are classified as either operating or finance leases at the standalone price. Leases with terms greater than 12 months are classified as either operating or finance leases at the standalone price. Leases with terms greater than 12 months are classified as either operating or finance leases at the standalone price. Leases with terms greater than 12 months are classified as either operating or finance leases at the 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 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 commencement date. For these leases, we capitalize the lesser of a) the present value of the minimum lease payments over the commencement date. For these leases, we capitalize the lesser of a) the present value of the minimum lease payments over the commencement date. For these leases, we capitalize the lesser of a) the present value of the minimum lease payments over the commencement date. For these leases, we capitalize the lesser of a) the present value of the minimum lease payments over 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 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 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 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 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 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 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 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 calculate the present value of the minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the calculate the present value of the minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the calculate the present value of the minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the calculate the present value of the minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the 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 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 lease is generally not known or determinable. The lease term includes any noncancelable period for which we have the right to lease is generally not known or determinable. The lease term includes any noncancelable period for which we have the right to lease is generally not known or determinable. The lease term includes any noncancelable period for which we have the right to lease is generally not known or determinable. The lease term includes any noncancelable period for which we have the right to 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 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 use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the substantially liquidated. substantially liquidated. substantially liquidated. substantially liquidated. substantially liquidated. substantially liquidated. substantially liquidated. Leases Leases Leases Leases Leases Leases Leases 43 43 43 43 43 43 43 43 For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's 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 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 effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying 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(cid:26) financial performance and liquidity of our borrower(cid:26) existence 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(cid:26) financial performance and liquidity of our borrower(cid:26) existence amount. The expected future cash flows consider collateral value(cid:26) financial performance and liquidity of our borrower(cid:26) existence amount. The expected future cash flows consider collateral value(cid:26) financial performance and liquidity of our borrower(cid:26) existence amount. The expected future cash flows consider collateral value(cid:26) financial performance and liquidity of our borrower(cid:26) existence amount. The expected future cash flows consider collateral value(cid:26) financial performance and liquidity of our borrower(cid:26) existence amount. The expected future cash flows consider collateral value(cid:26) financial performance and liquidity of our borrower(cid:26) existence and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the amount. The expected future cash flows consider collateral value(cid:26) financial performance and liquidity of our borrower(cid:26) existence and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the repossession and eventual disposal of collateral. (cid:49)hen there is a range of potential outcomes, we perform multiple discounted and financial strength of guarantors(cid:26) estimated recovery costs, including legal expenses(cid:26) and costs associated with the repossession and eventual disposal of collateral. (cid:49)hen there is a range of potential outcomes, we perform multiple discounted repossession and eventual disposal of collateral. (cid:49)hen there is a range of potential outcomes, we perform multiple discounted repossession and eventual disposal of collateral. (cid:49)hen there is a range of potential outcomes, we perform multiple discounted repossession and eventual disposal of collateral. (cid:49)hen there is a range of potential outcomes, we perform multiple discounted repossession and eventual disposal of collateral. (cid:49)hen there is a range of potential outcomes, we perform multiple discounted repossession and eventual disposal of collateral. (cid:49)hen 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 repossession and eventual disposal of collateral. (cid:49)hen 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 cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our 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 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 portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be 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 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 received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results. (cid:49)hile our analysis is specific to each individual account, critical factors included in this analysis include industry received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results. (cid:49)hile our analysis is specific to each individual account, critical factors included in this analysis include industry results. (cid:49)hile our analysis is specific to each individual account, critical factors included in this analysis include industry results. (cid:49)hile our analysis is specific to each individual account, critical factors included in this analysis include industry results. (cid:49)hile our analysis is specific to each individual account, critical factors included in this analysis include industry results. (cid:49)hile our analysis is specific to each individual account, critical factors included in this analysis include industry results. (cid:49)hile 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. results. (cid:49)hile 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. valuation guides, age and physical condition of the collateral, payment history, and existence and financial strength of guarantors. valuation guides, age and physical condition of the collateral, payment history, and existence and financial strength of guarantors. valuation guides, age and physical condition of the collateral, payment history, and existence and financial strength of guarantors. valuation guides, age and physical condition of the collateral, payment history, and existence and financial strength of guarantors. valuation guides, age and physical condition of the collateral, payment history, and existence and financial strength of guarantors. valuation guides, age and physical condition of the collateral, payment history, and existence and financial strength of guarantors. Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell. Pension and Postretirement (cid:21)enefit Obligations Pension and Postretirement (cid:21)enefit Obligations Pension and Postretirement (cid:21)enefit Obligations Pension and Postretirement (cid:21)enefit Obligations Pension and Postretirement (cid:21)enefit Obligations Pension and Postretirement (cid:21)enefit Obligations Pension and Postretirement (cid:21)enefit Obligations (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit Pension and Postretirement (cid:21)enefit Obligations (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit obligations, which are calculated based on actuarial valuations. (cid:37)ey assumptions used in determining these obligations and (cid:49)e maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit obligations, which are calculated based on actuarial valuations. (cid:37)ey assumptions used in determining these obligations and obligations, which are calculated based on actuarial valuations. (cid:37)ey assumptions used in determining these obligations and obligations, which are calculated based on actuarial valuations. (cid:37)ey assumptions used in determining these obligations and obligations, which are calculated based on actuarial valuations. (cid:37)ey assumptions used in determining these obligations and obligations, which are calculated based on actuarial valuations. (cid:37)ey assumptions used in determining these obligations and obligations, which are calculated based on actuarial valuations. (cid:37)ey 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. (cid:49)e obligations, which are calculated based on actuarial valuations. (cid:37)ey 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. (cid:49)e related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. (cid:49)e related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. (cid:49)e related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. (cid:49)e related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. (cid:49)e related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. (cid:49)e evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. (cid:49)e evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. (cid:49)e also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases. assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases. increases. increases. increases. increases. increases. increases. For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to 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. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the 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. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the our fiscal year-end. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the our fiscal year-end. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the our fiscal year-end. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the our fiscal year-end. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the our fiscal year-end. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income our fiscal year-end. (cid:49)e recognize the overfunded or underfunded status of our pension and postretirement plans in the Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related Consolidated (cid:28)alance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10(cid:4) of the higher of the market-related value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of the inactive participants. This determination is made on a plan-by-plan basis. plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of the inactive participants. This determination is made on a plan-by-plan basis. the inactive participants. This determination is made on a plan-by-plan basis. the inactive participants. This determination is made on a plan-by-plan basis. the inactive participants. This determination is made on a plan-by-plan basis. the inactive participants. This determination is made on a plan-by-plan basis. the inactive participants. This determination is made on a plan-by-plan basis. the inactive participants. This determination is made on a plan-by-plan basis. Derivatives and Hedging Activities Derivatives and Hedging Activities Derivatives and Hedging Activities Derivatives and Hedging Activities Derivatives and Hedging Activities Derivatives and Hedging Activities Derivatives and Hedging Activities (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue Derivatives and Hedging Activities (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net (cid:49)e are exposed to market risk primarily from changes in currency exchange rates and interest rates. (cid:49)e do not hold or issue derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net 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 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 these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various 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 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 derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. Credit risk related derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. Credit risk related derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. Credit risk related derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. Credit risk related 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 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 to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through periodic settlements of positions. to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through periodic settlements of positions. through periodic settlements of positions. through periodic settlements of positions. through periodic settlements of positions. through periodic settlements of positions. through periodic settlements of positions. through periodic settlements of positions. All derivative instruments are reported at fair value in the Consolidated (cid:28)alance Sheets. Designation to support hedge accounting All derivative instruments are reported at fair value in the Consolidated (cid:28)alance Sheets. Designation to support hedge accounting All derivative instruments are reported at fair value in the Consolidated (cid:28)alance Sheets. Designation to support hedge accounting All derivative instruments are reported at fair value in the Consolidated (cid:28)alance Sheets. Designation to support hedge accounting All derivative instruments are reported at fair value in the Consolidated (cid:28)alance Sheets. Designation to support hedge accounting All derivative instruments are reported at fair value in the Consolidated (cid:28)alance Sheets. Designation to support hedge accounting All derivative instruments are reported at fair value in the Consolidated (cid:28)alance 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 All derivative instruments are reported at fair value in the Consolidated (cid:28)alance 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 is performed on a specific exposure basis. For financial instruments qualifying as cash flow hedges, we record changes in the fair is performed on a specific exposure basis. For financial instruments qualifying as cash flow hedges, we record changes in the fair is performed on a specific exposure basis. For financial instruments qualifying as cash flow hedges, we record changes in the fair is performed on a specific exposure basis. For financial instruments qualifying as cash flow hedges, we record changes in the fair 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 other comprehensive income (loss), net of deferred taxes. 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 other comprehensive income (loss), net of deferred taxes. value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings. 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 Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are 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 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 recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or substantially liquidated. recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or substantially liquidated. substantially liquidated. substantially liquidated. substantially liquidated. substantially liquidated. substantially liquidated. substantially liquidated. Leases Leases Leases Leases Leases Leases Leases (cid:49)e identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated Leases (cid:49)e identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated (cid:49)e identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated (cid:49)e identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated (cid:49)e identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated (cid:49)e identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated (cid:49)e 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 (cid:49)e 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 period of time in exchange for consideration. Specifically, we consider whether we can control the underlying asset and have the period of time in exchange for consideration. Specifically, we consider whether we can control the underlying asset and have the period of time in exchange for consideration. Specifically, we consider whether we can control the underlying asset and have the period of time in exchange for consideration. Specifically, we consider whether we can control the underlying asset and have the 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 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 right to obtain substantially all of the economic benefits or outputs from the asset. For our contracts that contain both lease right to obtain substantially all of the economic benefits or outputs from the asset. For our contracts that contain both lease right to obtain substantially all of the economic benefits or outputs from the asset. For our contracts that contain both lease right to obtain substantially all of the economic benefits or outputs from the asset. For our contracts that contain both lease 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- 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- components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common- components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common- components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common- components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common- components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common- area maintenance costs or other goods(cid:14)services), we allocate the consideration in the contract to each component based on its components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common- area maintenance costs or other goods(cid:14)services), we allocate the consideration in the contract to each component based on its area maintenance costs or other goods(cid:14)services), we allocate the consideration in the contract to each component based on its area maintenance costs or other goods(cid:14)services), we allocate the consideration in the contract to each component based on its area maintenance costs or other goods(cid:14)services), we allocate the consideration in the contract to each component based on its area maintenance costs or other goods(cid:14)services), we allocate the consideration in the contract to each component based on its area maintenance costs or other goods(cid:14)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 area maintenance costs or other goods(cid:14)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 standalone price. Leases with terms greater than 12 months are classified as either operating or finance leases at the standalone price. Leases with terms greater than 12 months are classified as either operating or finance leases at the standalone price. Leases with terms greater than 12 months are classified as either operating or finance leases at the standalone price. Leases with terms greater than 12 months are classified as either operating or finance leases at the 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 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 commencement date. For these leases, we capitalize the lesser of a) the present value of the minimum lease payments over the commencement date. For these leases, we capitalize the lesser of a) the present value of the minimum lease payments over the commencement date. For these leases, we capitalize the lesser of a) the present value of the minimum lease payments over the commencement date. For these leases, we capitalize the lesser of a) the present value of the minimum lease payments over 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 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 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 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 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 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 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 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 calculate the present value of the minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the calculate the present value of the minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the calculate the present value of the minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the calculate the present value of the minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the 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 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 lease is generally not known or determinable. The lease term includes any noncancelable period for which we have the right to lease is generally not known or determinable. The lease term includes any noncancelable period for which we have the right to lease is generally not known or determinable. The lease term includes any noncancelable period for which we have the right to lease is generally not known or determinable. The lease term includes any noncancelable period for which we have the right to 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 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 use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the Textron 2022 Annual Report 43 43 43 43 43 43 43 43 43 option. Operating leases are recognized as a single lease cost on a straight-line basis over the lease term, while finance lease cost option. Operating leases are recognized as a single lease cost on a straight-line basis over the lease term, while finance lease cost option. Operating leases are recognized as a single lease cost on a straight-line basis over the lease term, while finance lease cost option. Operating leases are recognized as a single lease cost on a straight-line basis over the lease term, while finance lease cost option. Operating leases are recognized as a single lease cost on a straight-line basis over the lease term, while finance lease cost 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. option. Operating leases are recognized as a single lease cost on a straight-line basis over the lease term, while finance lease cost 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. 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. is recognized separately as amortization and interest expense. is recognized separately as amortization and interest expense. is recognized separately as amortization and interest expense. is recognized separately as amortization and interest expense. is recognized separately as amortization and interest expense. is recognized separately as amortization and interest expense. Product Liabilities Product Liabilities Product Liabilities Product Liabilities Product Liabilities Product Liabilities Product Liabilities (cid:49)e accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. Our estimates Product Liabilities (cid:49)e accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. Our estimates Product Liabilities (cid:49)e accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. Our estimates (cid:49)e accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. Our estimates (cid:49)e accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. Our estimates (cid:49)e accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. Our estimates (cid:49)e 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 (cid:49)e 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 (cid:49)e 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 are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience. are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience. are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience. experience. experience. experience. experience. experience. experience. Environmental Liabilities and Asset Retirement Obligations Environmental Liabilities and Asset Retirement Obligations Environmental Liabilities and Asset Retirement Obligations Environmental Liabilities and Asset Retirement Obligations Environmental Liabilities and Asset Retirement Obligations Environmental Liabilities and Asset Retirement Obligations 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 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 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 Liabilities for environmental matters are recorded on a site-by-site basis when it is probable that an obligation has been incurred Liabilities for environmental matters are recorded on a site-by-site basis when it is probable that an obligation has been incurred Liabilities for environmental matters are recorded on a site-by-site basis when it is probable that an obligation has been incurred 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. (cid:49)e estimate our accrued environmental liabilities using currently available facts, 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. (cid:49)e estimate our accrued environmental liabilities using currently available facts, 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. (cid:49)e estimate our accrued environmental liabilities using currently available facts, and the cost can be reasonably estimated. (cid:49)e estimate our accrued environmental liabilities using currently available facts, and the cost can be reasonably estimated. (cid:49)e estimate our accrued environmental liabilities using currently available facts, and the cost can be reasonably estimated. (cid:49)e estimate our accrued environmental liabilities using currently available facts, and the cost can be reasonably estimated. (cid:49)e 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. and the cost can be reasonably estimated. (cid:49)e 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. and the cost can be reasonably estimated. (cid:49)e 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. existing technology, and presently enacted laws and regulations, all of which are subject to a number of factors and uncertainties. existing technology, and presently enacted laws and regulations, all of which are subject to a number of factors and uncertainties. existing technology, and presently enacted laws and regulations, all of which are subject to a number of factors and uncertainties. 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 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 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 Our environmental liabilities are not discounted and do not take into consideration possible future insurance proceeds or Our environmental liabilities are not discounted and do not take into consideration possible future insurance proceeds or Our environmental liabilities are not discounted and do not take into consideration possible future insurance proceeds or 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. 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. 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. significant amounts from claims against other third parties. significant amounts from claims against other third parties. significant amounts from claims against other third parties. significant amounts from claims against other third parties. significant amounts from claims against other third parties. significant amounts from claims against other third parties. (cid:49)e have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and (cid:49)e have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and (cid:49)e have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and (cid:49)e have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and (cid:49)e have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and (cid:49)e 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. Currently, there is no legal requirement to remove these items (cid:49)e 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. Currently, there is no legal requirement to remove these items (cid:49)e have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and (cid:49)e 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. Currently, there is no legal requirement to remove these items asbestos materials used in insulation, adhesive fillers and floor tiles. Currently, there is no legal requirement to remove these items asbestos materials used in insulation, adhesive fillers and floor tiles. Currently, there is no legal requirement to remove these items asbestos materials used in insulation, adhesive fillers and floor tiles. Currently, there is no legal requirement to remove these items and there is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset asbestos materials used in insulation, adhesive fillers and floor tiles. Currently, there is no legal requirement to remove these items and there is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset asbestos materials used in insulation, adhesive fillers and floor tiles. Currently, there is no legal requirement to remove these items asbestos materials used in insulation, adhesive fillers and floor tiles. Currently, there is no legal requirement to remove these items and there is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset and there is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset and there is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset and there is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset retirement obligations are not probable, there is no related liability recorded in the Consolidated (cid:28)alance Sheets. and there is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset retirement obligations are not probable, there is no related liability recorded in the Consolidated (cid:28)alance Sheets. and there is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset and there is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset retirement obligations are not probable, there is no related liability recorded in the Consolidated (cid:28)alance Sheets. retirement obligations are not probable, there is no related liability recorded in the Consolidated (cid:28)alance Sheets. retirement obligations are not probable, there is no related liability recorded in the Consolidated (cid:28)alance Sheets. retirement obligations are not probable, there is no related liability recorded in the Consolidated (cid:28)alance Sheets. retirement obligations are not probable, there is no related liability recorded in the Consolidated (cid:28)alance Sheets. retirement obligations are not probable, there is no related liability recorded in the Consolidated (cid:28)alance Sheets. retirement obligations are not probable, there is no related liability recorded in the Consolidated (cid:28)alance Sheets. Warranty Liabilities Warranty Liabilities Warranty Liabilities Warranty Liabilities Warranty Liabilities Warranty Liabilities 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 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 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 For our assurance-type warranty programs, we estimate the costs that may be incurred and record a liability in the amount of such For our assurance-type warranty programs, we estimate the costs that may be incurred and record a liability in the amount of such For our assurance-type warranty programs, we estimate the costs that may be incurred and record a liability in the amount of such 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 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 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 at the time product revenues are recognized. Factors that affect this liability include the number of products sold, historical costs at the time product revenues are recognized. Factors that affect this liability include the number of products sold, historical costs at the time product revenues are recognized. Factors that affect this liability include the number of products sold, historical 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 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 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 costs per claim, length of warranty period, contractual recoveries from vendors and historical and anticipated rates of warranty costs per claim, length of warranty period, contractual recoveries from vendors and historical and anticipated rates of warranty costs per claim, length of warranty period, contractual recoveries from vendors and historical and anticipated rates of warranty 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. (cid:49)e assess the adequacy of our recorded warranty liability 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. (cid:49)e assess the adequacy of our recorded warranty liability 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. (cid:49)e assess the adequacy of our recorded warranty liability claims, including production and warranty patterns for new models. (cid:49)e assess the adequacy of our recorded warranty liability claims, including production and warranty patterns for new models. (cid:49)e assess the adequacy of our recorded warranty liability claims, including production and warranty patterns for new models. (cid:49)e assess the adequacy of our recorded warranty liability claims, including production and warranty patterns for new models. (cid:49)e 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 claims, including production and warranty patterns for new models. (cid:49)e 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 claims, including production and warranty patterns for new models. (cid:49)e 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 periodically and adjust the amounts as necessary. Additionally, we may establish a warranty liability related to the issuance of periodically and adjust the amounts as necessary. Additionally, we may establish a warranty liability related to the issuance of periodically and adjust the amounts as necessary. Additionally, we may establish a warranty liability related to the issuance of 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. 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. 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. aircraft service bulletins for aircraft no longer covered under the limited warranty programs. aircraft service bulletins for aircraft no longer covered under the limited warranty programs. aircraft service bulletins for aircraft no longer covered under the limited warranty programs. aircraft service bulletins for aircraft no longer covered under the limited warranty programs. aircraft service bulletins for aircraft no longer covered under the limited warranty programs. aircraft service bulletins for aircraft no longer covered under the limited warranty programs. Research and Development Costs Research and Development Costs Research and Development Costs Research and Development Costs Research and Development Costs Research and Development Costs Research and Development Costs Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. Research and Development Costs Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. Research and Development Costs Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. (cid:33)overnment contracts. In accordance with government regulations, we recover a portion of company-funded research and Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. (cid:33)overnment contracts. In accordance with government regulations, we recover a portion of company-funded research and Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. (cid:33)overnment contracts. In accordance with government regulations, we recover a portion of company-funded research and (cid:33)overnment contracts. In accordance with government regulations, we recover a portion of company-funded research and (cid:33)overnment contracts. In accordance with government regulations, we recover a portion of company-funded research and (cid:33)overnment contracts. In accordance with government regulations, we recover a portion of company-funded research and (cid:33)overnment 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. (cid:33)overnment contracts. Research and development costs that are not (cid:33)overnment 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. (cid:33)overnment contracts. Research and development costs that are not (cid:33)overnment 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. (cid:33)overnment contracts. Research and development costs that are not development costs through overhead rate charges on our U.S. (cid:33)overnment contracts. Research and development costs that are not development costs through overhead rate charges on our U.S. (cid:33)overnment contracts. Research and development costs that are not development costs through overhead rate charges on our U.S. (cid:33)overnment contracts. Research and development costs that are not development costs through overhead rate charges on our U.S. (cid:33)overnment contracts. Research and development costs that are not reimbursable under a contract with the U.S. (cid:33)overnment or another customer are charged to expense as incurred. Company- development costs through overhead rate charges on our U.S. (cid:33)overnment contracts. Research and development costs that are not reimbursable under a contract with the U.S. (cid:33)overnment or another customer are charged to expense as incurred. Company- development costs through overhead rate charges on our U.S. (cid:33)overnment contracts. Research and development costs that are not reimbursable under a contract with the U.S. (cid:33)overnment or another customer are charged to expense as incurred. Company- reimbursable under a contract with the U.S. (cid:33)overnment or another customer are charged to expense as incurred. Company- reimbursable under a contract with the U.S. (cid:33)overnment or another customer are charged to expense as incurred. Company- reimbursable under a contract with the U.S. (cid:33)overnment or another customer are charged to expense as incurred. Company- reimbursable under a contract with the U.S. (cid:33)overnment or another customer are charged to expense as incurred. Company- funded research and development costs were $601 million, $619 million and $549 million in 2022, 2021 and 2020, respectively, reimbursable under a contract with the U.S. (cid:33)overnment or another customer are charged to expense as incurred. Company- funded research and development costs were $601 million, $619 million and $549 million in 2022, 2021 and 2020, respectively, reimbursable under a contract with the U.S. (cid:33)overnment or another customer are charged to expense as incurred. Company- funded research and development costs were $601 million, $619 million and $549 million in 2022, 2021 and 2020, respectively, funded research and development costs were $601 million, $619 million and $549 million in 2022, 2021 and 2020, respectively, funded research and development costs were $601 million, $619 million and $549 million in 2022, 2021 and 2020, respectively, funded research and development costs were $601 million, $619 million and $549 million in 2022, 2021 and 2020, respectively, funded research and development costs were $601 million, $619 million and $549 million in 2022, 2021 and 2020, respectively, and are included in cost of sales. funded research and development costs were $601 million, $619 million and $549 million in 2022, 2021 and 2020, respectively, and are included in cost of sales. funded research and development costs were $601 million, $619 million and $549 million in 2022, 2021 and 2020, respectively, and are included in cost of sales. and are included in cost of sales. and are included in cost of sales. and are included in cost of sales. and are included in cost of sales. and are included in cost of sales. and are included in cost of sales. Income Taxes Income Taxes Income Taxes Income Taxes Income Taxes Income Taxes Income Taxes The provision for income tax expense is calculated on reported income before income taxes based on current tax law and includes, Income Taxes The provision for income tax expense is calculated on reported income before income taxes based on current tax law and includes, Income Taxes The provision for income tax expense is calculated on reported income before income taxes based on current tax law and includes, The provision for income tax expense is calculated on reported income before income taxes based on current tax law and includes, The provision for income tax expense is calculated on reported income before income taxes based on current tax law and includes, The provision for income tax expense is calculated on reported income before income taxes based on current tax law and includes, The provision for income tax expense is calculated on reported income 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 The provision for income tax expense is calculated on reported income 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 The provision for income tax expense is calculated on reported income 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 in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax 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 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 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 assets and liabilities. Tax laws may require items to be included in the determination of taxable income at different times from assets and liabilities. Tax laws may require items to be included in the determination of taxable income at different times from assets and liabilities. Tax laws may require items to be included in the determination of taxable income at different times from 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 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 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 when the items are reflected in the financial statements. Deferred tax balances reflect the effects of temporary differences between when the items are reflected in the financial statements. Deferred tax balances reflect the effects of temporary differences between when the items are reflected in the financial statements. Deferred tax balances reflect the effects of temporary differences between 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 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 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 the financial reporting carrying amounts of assets and liabilities and their tax bases, as well as from net operating losses and tax the financial reporting carrying amounts of assets and liabilities and their tax bases, as well as from net operating losses and tax the financial reporting carrying amounts of assets and liabilities and their tax bases, as well as from net operating losses and tax 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. 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. 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. credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered. credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered. credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered. credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered. credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered. 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 Deferred tax assets represent tax benefits for tax deductions or credits available in future years and require certain estimates and Deferred tax assets represent tax benefits for tax deductions or credits available in future years and require certain estimates and Deferred tax assets represent tax benefits for tax deductions or credits available in future years and require certain estimates and Deferred tax assets represent tax benefits for tax deductions or credits available in future years and require certain estimates and 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 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 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 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 assumptions to determine whether it is more likely than not that all or a portion of the benefit will not be realized. The 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 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 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 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 recoverability of these future tax deductions and credits is determined by assessing the adequacy of future expected taxable 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 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 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 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 income from all sources, including the future reversal of existing taxable temporary differences, taxable income in carryback 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 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 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 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 years, estimated future taxable income and available tax planning strategies. Should a change in facts or circumstances lead to a 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 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 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 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 change in judgment about the ultimate recoverability of a deferred tax asset, we record or adjust the related valuation allowance in 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 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 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 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 the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in income tax the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in income tax expense. the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in income tax expense. the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in income tax expense. the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in income tax expense. expense. expense. expense. expense. expense. (cid:49)e record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the (cid:49)e record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the (cid:49)e record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the (cid:49)e record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the (cid:49)e record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the (cid:49)e 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 (cid:49)e 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 (cid:49)e 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 (cid:49)e 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 reporting date. To be recognized in the financial statements, the tax position must meet the more-likely-than-not threshold that 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 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 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 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 the position will be sustained upon examination by the tax authority based on technical merits assuming the tax authority has full 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 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 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 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 knowledge of all relevant information. For positions meeting this recognition threshold, the benefit is measured as the largest 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. (cid:49)e periodically evaluate these tax positions 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. (cid:49)e periodically evaluate these tax positions 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. (cid:49)e periodically evaluate these tax positions 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. (cid:49)e periodically evaluate these tax positions amount of benefit that meets the more-likely-than-not threshold to be sustained. (cid:49)e periodically evaluate these tax positions amount of benefit that meets the more-likely-than-not threshold to be sustained. (cid:49)e 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- amount of benefit that meets the more-likely-than-not threshold to be sustained. (cid:49)e 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- amount of benefit that meets the more-likely-than-not threshold to be sustained. (cid:49)e 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- amount of benefit that meets the more-likely-than-not threshold to be sustained. (cid:49)e 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- based on the latest available information. For tax positions that do not meet the threshold requirement, we recognize net tax- 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. 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. 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. 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. related interest and penalties for continuing operations in income tax expense. related interest and penalties for continuing operations in income tax expense. related interest and penalties for continuing operations in income tax expense. related interest and penalties for continuing operations in income tax expense. related interest and penalties for continuing operations in income tax expense. 44 Textron 2022 Annual Report 44 44 44 44 44 44 44 44 44 Note 2. (cid:21)usiness Ac(cid:61)uisition and Disposition 2022 (cid:21)usiness Ac(cid:61)uisition On April 15, 2022, we acquired Pipistrel, a manufacturer of electrically powered aircraft, for a cash purchase price of $239 million, which included the assumption of $35 million of debt and other contractual obligations under the agreement and a final fixed payment of $21 million due in 2024. (cid:28)eginning in the second quarter of 2022, this business is included in a new reporting segment, Textron eAviation, which combines the operating results of Pipistrel along with other research and development initiatives related to sustainable aviation solutions. (cid:49)e allocated the purchase price for this business to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date and recorded $141 million in goodwill, related to expected synergies and the value of the assembled workforce, and $76 million in intangible assets, primarily developed technologies. The intangible assets were primarily valued using the relief-from-royalty method. This method utilizes significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy and requires us to make estimates and assumptions about sales, growth rates, royalty rates and discount rates based on marketplace data. 2021 (cid:21)usiness Disposition On January 25, 2021, we completed the sale of TRU Simulation (cid:10) Training Canada Inc. (TRU Canada) within our Textron Systems segment for net cash proceeds of $38 million and recorded an after-tax gain of $17 million. Note 3. Goodwill and Intangible Assets Goodwill The changes in the carrying amount of goodwill by segment are as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:28)alance at January 2, 2021 Foreign currency translation (cid:28)alance at January 1, 2022 Acquisitions Foreign currency translation (cid:28)alance at December 31, 2022 Intangible Assets Our intangible assets are summarized below: $ 631 $ 35 $ 1,009 $ 482 $ — $ Textron Aviation — 631 3 (1) (cid:21)ell — 35 2 — Textron Systems 1 1,010 — — Industrial Textron eAviation (9) 473 — (8) — — 141 (3) Total 2,157 (8) 2,149 146 (12) $ 633 $ 37 $ 1,010 $ 465 $ 138 $ 2,283 (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Patents and technology Trade names and trademarks Customer relationships and contractual agreements Other Total 15 18 15 — December 31, 2022 Weighted-Average Amorti(cid:70)ation Period (in years) Gross Carrying Accumulated Amount Amorti(cid:70)ation $ 527 $ 199 (319) $ (8) (cid:29)anuary 1, 2022 Gross Carrying Accumulated Amount Amorti(cid:70)ation 481 $ 181 (289) $ (8) Net 208 $ 191 392 — (330) — 62 — 382 3 (309) (3) $ 1,118 $ (657) $ 461 $ 1,047 $ (609) $ Trade names and trademarks in the table above include $169 million of indefinite-lived intangible assets at both December 31, 2022 and January 1, 2022. In 2022, 2021 and 2020, amortization expense totaled $52 million, $51 million and $54 million, respectively. Amortization expense is estimated to be approximately $39 million, $37 million, $34 million, $31 million and $29 million in 2023, 2024, 2025, 2026 and 2027, respectively. Net 192 173 73 — 438 45 Note 2. (cid:21)usiness Ac(cid:61)uisition and Disposition 2022 (cid:21)usiness Ac(cid:61)uisition On April 15, 2022, we acquired Pipistrel, a manufacturer of electrically powered aircraft, for a cash purchase price of $239 million, which included the assumption of $35 million of debt and other contractual obligations under the agreement and a final fixed payment of $21 million due in 2024. (cid:28)eginning in the second quarter of 2022, this business is included in a new reporting segment, Textron eAviation, which combines the operating results of Pipistrel along with other research and development initiatives related to sustainable aviation solutions. (cid:49)e allocated the purchase price for this business to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date and recorded $141 million in goodwill, related to expected synergies and the value of the assembled workforce, and $76 million in intangible assets, primarily developed technologies. The intangible assets were primarily valued using the relief-from-royalty method. This method utilizes significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy and requires us to make estimates and assumptions about sales, growth rates, royalty rates and discount rates based on marketplace data. 2021 (cid:21)usiness Disposition On January 25, 2021, we completed the sale of TRU Simulation (cid:10) Training Canada Inc. (TRU Canada) within our Textron Systems segment for net cash proceeds of $38 million and recorded an after-tax gain of $17 million. Note 3. Goodwill and Intangible Assets Goodwill The changes in the carrying amount of goodwill by segment are as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:28)alance at January 2, 2021 Foreign currency translation (cid:28)alance at January 1, 2022 Acquisitions Foreign currency translation (cid:28)alance at December 31, 2022 Intangible Assets Our intangible assets are summarized below: Textron Aviation 631 $ — 631 3 (1) 633 $ $ $ (cid:21)ell 35 $ — 35 2 — 37 $ Textron Systems 1,009 $ 1 1,010 — — 1,010 $ Industrial Textron eAviation 482 $ (9) 473 — (8) 465 $ — $ — — 141 (3) 138 $ Total 2,157 (8) 2,149 146 (12) 2,283 (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Patents and technology Trade names and trademarks Customer relationships and contractual agreements Other Total Weighted-Average Amorti(cid:70)ation Period (in years) 15 18 15 — December 31, 2022 Gross Carrying Amount Accumulated Amorti(cid:70)ation 527 $ 199 (319) $ (8) 392 — 1,118 $ (330) — (657) $ $ $ (cid:29)anuary 1, 2022 Gross Carrying Amount Accumulated Amorti(cid:70)ation 481 $ 181 382 3 1,047 $ (289) $ (8) (309) (3) (609) $ Net 208 $ 191 62 — 461 $ Net 192 173 73 — 438 Trade names and trademarks in the table above include $169 million of indefinite-lived intangible assets at both December 31, 2022 and January 1, 2022. In 2022, 2021 and 2020, amortization expense totaled $52 million, $51 million and $54 million, respectively. Amortization expense is estimated to be approximately $39 million, $37 million, $34 million, $31 million and $29 million in 2023, 2024, 2025, 2026 and 2027, respectively. Textron 2022 Annual Report 45 45 $ $ $ $ December 31, 2022 587 $ (24) 563 $ December 31, 2022 755 $ 124 879 (24) 855 $ Note 4. Accounts Receivable and Finance Receivables Accounts Receivable Accounts receivable is composed of the following: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Commercial U.S. (cid:33)overnment contracts Allowance for credit losses Total Finance Receivables Finance receivables are presented in the following table: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Finance receivables Allowance for credit losses Total finance receivables, net follows: (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Performing (cid:49)atchlist Nonaccrual Nonaccrual as a percentage of finance receivables Current and less than 31 days past due 31-60 days past due 61-90 days past due Over 90 days past due (cid:29)anuary 1, 2022 704 158 862 (24) 838 (cid:29)anuary 1, 2022 630 (25) 605 Finance receivables categorized based on the credit quality indicators and by delinquency aging category are summarized as 60(cid:10) days contractual delinquency as a percentage of finance receivables 0.17 (cid:4) 0.16 (cid:4) At December 31, 2022, 43(cid:4) of our performing finance receivables were originated since the beginning of 2020 and 24(cid:4) were originated from 2017 to 2019. For finance receivables categorized as watchlist, 94(cid:4) were originated since the beginning of 2020 and for nonaccrual, 82(cid:4) were originated from 2017 to 2019. On a quarterly basis, we evaluate individual larger balance accounts for impairment. A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators described above. Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified. If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification. A summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment is provided below: Impaired finance receivables with specific allowance for credit losses Impaired finance receivables with no specific allowance for credit losses (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Recorded investment: Total Unpaid principal balance Allowance for credit losses on impaired finance receivables Average recorded investment of impaired finance receivables A summary of the allowance for credit 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 exclude $91 million and $95 million of leveraged leases at December 31, 2022 and January 1, 2022, respectively, in accordance with U.S. generally accepted accounting December 31, (cid:29)anuary 1, $ 2022 515 $ 7.84 (cid:4) 14.92 (cid:4) $ 579 $ 2022 536 — 94 624 5 — 1 26 46 7 — 1 $ $ $ $ December 31, (cid:29)anuary 1, 2022 2022 33 61 94 109 4 117 15 $ 31 46 $ 60 $ 3 67 December 31, (cid:29)anuary 1, 2022 21 $ 3 450 46 2022 21 4 441 94 Finance receivables primarily includes loans provided to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell helicopters. These loans have initial terms ranging from five years to twelve years, amortization terms ranging from eight years to fifteen years and an average balance of $1.8 million at December 31, 2022. Loans generally require the customer to pay a significant down payment, along with periodic scheduled principal payments that reduce the outstanding balance through the term of the loan. Our finance receivables are diversified across geographic region and borrower industry. At December 31, 2022, 58(cid:4) of our finance receivables were distributed internationally and 42(cid:4) throughout the U.S., compared with 56(cid:4) and 44(cid:4), respectively, at January 1, 2022. At December 31, 2022 and January 1, 2022, finance receivables of $73 million and $93 million, respectively, have been pledged as collateral for TFC’s debt of $28 million and $43 million, respectively. (cid:24)(cid:48)nance (cid:34)ece(cid:48)va(cid:41)le Port(cid:45)ol(cid:48)o (cid:33)ual(cid:48)t(cid:64) (cid:49)e 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. (cid:28)ecause 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. (cid:49)e 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. principles. (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:49)e measure delinquency based on the contractual payment terms of our finance receivables. In determining the delinquency aging category of an account, any(cid:14)all principal and interest received is applied to the most past-due principal and(cid:14)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. Allowance for credit losses based on collective evaluation Allowance for credit losses based on individual evaluation Finance receivables evaluated collectively Finance receivables evaluated individually 46 Textron 2022 Annual Report 46 47 Finance receivables categorized based on the credit quality indicators and by delinquency aging category are summarized as follows: (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Performing (cid:49)atchlist Nonaccrual Nonaccrual as a percentage of finance receivables Current and less than 31 days past due 31-60 days past due 61-90 days past due Over 90 days past due 60(cid:10) days contractual delinquency as a percentage of finance receivables $ December 31, 2022 515 $ 26 46 7.84 (cid:4) (cid:29)anuary 1, 2022 536 — 94 14.92 (cid:4) $ 579 $ 7 — 1 624 5 — 1 0.17 (cid:4) 0.16 (cid:4) At December 31, 2022, 43(cid:4) of our performing finance receivables were originated since the beginning of 2020 and 24(cid:4) were originated from 2017 to 2019. For finance receivables categorized as watchlist, 94(cid:4) were originated since the beginning of 2020 and for nonaccrual, 82(cid:4) were originated from 2017 to 2019. On a quarterly basis, we evaluate individual larger balance accounts for impairment. A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators described above. Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified. If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification. A summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment is provided below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Recorded investment: Impaired finance receivables with specific allowance for credit losses Impaired finance receivables with no specific allowance for credit losses Total Unpaid principal balance Allowance for credit losses on impaired finance receivables Average recorded investment of impaired finance receivables December 31, 2022 (cid:29)anuary 1, 2022 $ $ $ 15 $ 31 46 $ 60 $ 3 67 33 61 94 109 4 117 A summary of the allowance for credit 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 exclude $91 million and $95 million of leveraged leases at December 31, 2022 and January 1, 2022, respectively, in accordance with U.S. generally accepted accounting principles. (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Allowance for credit losses based on collective evaluation Allowance for credit losses based on individual evaluation Finance receivables evaluated collectively Finance receivables evaluated individually $ December 31, 2022 21 $ 3 450 46 (cid:29)anuary 1, 2022 21 4 441 94 Textron 2022 Annual Report 47 47 Note 5. Inventories Inventories are composed of the following: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Finished goods (cid:49)ork in process Raw materials and components Total December 31, 2022 991 $ $ 1,540 1,019 3,550 $ $ (cid:29)anuary 1, 2022 1,071 1,548 849 3,468 Note 8. Leases (cid:49)e primarily lease certain manufacturing plants, offices, warehouses, training and service centers at various locations worldwide through operating leases. Our operating leases have remaining lease terms up to 26 years, which include options to extend the lease term for periods up to 25 years when it is reasonably certain the option will be exercised. Operating lease cost totaled $69 million, $66 million and $61 million in 2022, 2021 and 2020, respectively. (cid:48)ariable and short-term lease costs were not significant. In 2022, 2021 and 2020, cash paid for operating lease liabilities totaled $68 million, $66 million and $60 million, respectively, and is classified in cash flows from operating activities. Noncash transactions totaled $58 million, $86 million and $119 million in 2022, 2021 and 2020, reflecting the recognition of operating lease assets and liabilities for new or extended leases. (cid:28)alance sheet and other information related to our operating leases is as follows: At both December 31, 2022 and January 1, 2022, 71(cid:4) of inventories were valued using the LIFO method. Inventories valued at LIFO cost would have been higher by approximately $594 million and $523 million, at December 31, 2022 and January 1, 2022, respectively, if they had been valued using the FIFO method. Note 6. Property, Plant and E(cid:61)uipment, Net Our Manufacturing group’s property, plant and equipment, net is composed of the following: (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Land, buildings and improvements Machinery and equipment Accumulated depreciation and amortization Total Useful Lives (in years) 2 1 - 40 $ - 20 December 31, 2022 2,140 $ 5,467 7,607 (5,084) 2,523 $ $ (cid:29)anuary 1, 2022 2,097 5,329 7,426 (4,888) 2,538 At December 31, 2022, maturities of our operating lease liabilities on an undiscounted basis totaled $68 million for 2023, $61 million for 2024, $54 million for 2025, $40 million for 2026, $35 million for 2027 and $230 million thereafter. The Manufacturing group’s depreciation expense totaled $340 million, $325 million and $325 million in 2022, 2021 and 2020, respectively. Note (cid:16). Other Current Liabilities The other current liabilities of our Manufacturing group are summarized below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) 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: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:28)alance at beginning of year Provision Settlements Adjustments(cid:9) (cid:28)alance at end of year $ December 31, 2022 1,416 $ 414 171 644 2,645 $ $ (cid:29)anuary 1, 2022 1,105 477 142 620 2,344 $ $ 2022 127 $ 73 (60) 9 149 $ 2021 119 $ 70 (66) 4 127 $ 2020 141 54 (64) (12) 119 (cid:5) (cid:20)d(cid:49)ustments (cid:48)nclude c(cid:47)anges to pr(cid:48)or (cid:64)ear est(cid:48)mates(cid:6) ne(cid:62) (cid:48)ssues on pr(cid:48)or (cid:64)ear sales(cid:6) (cid:41)us(cid:48)ness ac(cid:56)u(cid:48)s(cid:48)t(cid:48)ons and d(cid:48)spos(cid:48)t(cid:48)ons(cid:6) and currenc(cid:64) translat(cid:48)on ad(cid:49)ustments(cid:8) 48 Textron 2022 Annual Report 48 (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Other assets Other current liabilities Other liabilities (cid:49)eighted-average remaining lease term (in years) (cid:49)eighted-average discount rate Note 9. Debt and Credit Facilities Our debt is summarized in the table below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Manufacturing group 4.30(cid:4) due 2024 3.875(cid:4) due 2025 4.00(cid:4) due 2026 3.65(cid:4) due 2027 3.375(cid:4) due 2028 3.90(cid:4) due 2029 3.00(cid:4) due 2030 2.45(cid:4) due 2031 Other (weighted-average rate of 2.20(cid:4) and 2.04(cid:4), respectively) Total Manufacturing group debt Less: Current portion of long-term debt Total Long-term debt Finance group (cid:48)ariable-rate note due 2025 (5.86(cid:4)) and 2022 (1.65(cid:4)) Fixed-rate note due 2027 (4.40(cid:4)) and 2022 (2.88(cid:4)) (cid:48)ariable-rate notes due 2022-2027 (weighted-average rate of 5.81(cid:4) and 1.57(cid:4), respectively)(cid:9) Fixed-rate notes due 2022-2028 (weighted-average rate of 3.39(cid:4) and 3.29(cid:4), respectively)(cid:9) Floating Rate Junior Subordinated Notes due 2067 (6.34(cid:4) and 1.89(cid:4), respectively) Total Finance group debt (cid:5) (cid:30)otes amort(cid:48)(cid:65)e on a mont(cid:47)l(cid:64) (cid:41)as(cid:48)s and are secured (cid:41)(cid:64) (cid:45)(cid:48)nance rece(cid:48)va(cid:41)les as descr(cid:48)(cid:41)ed (cid:48)n (cid:30)ote (cid:14)(cid:8) December 31, (cid:29)anuary 1, $ 2022 372 $ 2022 374 56 325 10.5 3.19(cid:4) 54 326 10.4 4.14(cid:4) December 31, (cid:29)anuary 1, $ 350 $ 2022 350 350 350 300 300 650 500 32 25 $ 50 5 23 272 375 $ $ $ $ $ 3,182 $ 3,185 (7) (6) 3,175 $ 3,179 2022 350 350 350 350 300 300 650 500 35 100 150 7 36 289 582 49 Note 8. Leases (cid:49)e primarily lease certain manufacturing plants, offices, warehouses, training and service centers at various locations worldwide through operating leases. Our operating leases have remaining lease terms up to 26 years, which include options to extend the lease term for periods up to 25 years when it is reasonably certain the option will be exercised. Operating lease cost totaled $69 million, $66 million and $61 million in 2022, 2021 and 2020, respectively. (cid:48)ariable and short-term lease costs were not significant. In 2022, 2021 and 2020, cash paid for operating lease liabilities totaled $68 million, $66 million and $60 million, respectively, and is classified in cash flows from operating activities. Noncash transactions totaled $58 million, $86 million and $119 million in 2022, 2021 and 2020, reflecting the recognition of operating lease assets and liabilities for new or extended leases. (cid:28)alance sheet and other information related to our operating leases is as follows: (cid:3)Dollars (cid:48)n m(cid:48)ll(cid:48)ons(cid:4) Other assets Other current liabilities Other liabilities (cid:49)eighted-average remaining lease term (in years) (cid:49)eighted-average discount rate $ December 31, 2022 372 $ 54 326 10.4 4.14(cid:4) (cid:29)anuary 1, 2022 374 56 325 10.5 3.19(cid:4) At December 31, 2022, maturities of our operating lease liabilities on an undiscounted basis totaled $68 million for 2023, $61 million for 2024, $54 million for 2025, $40 million for 2026, $35 million for 2027 and $230 million thereafter. Note 9. Debt and Credit Facilities Our debt is summarized in the table below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Manufacturing group 4.30(cid:4) due 2024 3.875(cid:4) due 2025 4.00(cid:4) due 2026 3.65(cid:4) due 2027 3.375(cid:4) due 2028 3.90(cid:4) due 2029 3.00(cid:4) due 2030 2.45(cid:4) due 2031 Other (weighted-average rate of 2.20(cid:4) and 2.04(cid:4), respectively) Total Manufacturing group debt Less: Current portion of long-term debt Total Long-term debt Finance group (cid:48)ariable-rate note due 2025 (5.86(cid:4)) and 2022 (1.65(cid:4)) Fixed-rate note due 2027 (4.40(cid:4)) and 2022 (2.88(cid:4)) (cid:48)ariable-rate notes due 2022-2027 (weighted-average rate of 5.81(cid:4) and 1.57(cid:4), respectively)(cid:9) Fixed-rate notes due 2022-2028 (weighted-average rate of 3.39(cid:4) and 3.29(cid:4), respectively)(cid:9) Floating Rate Junior Subordinated Notes due 2067 (6.34(cid:4) and 1.89(cid:4), respectively) Total Finance group debt (cid:5) (cid:30)otes amort(cid:48)(cid:65)e on a mont(cid:47)l(cid:64) (cid:41)as(cid:48)s and are secured (cid:41)(cid:64) (cid:45)(cid:48)nance rece(cid:48)va(cid:41)les as descr(cid:48)(cid:41)ed (cid:48)n (cid:30)ote (cid:14)(cid:8) December 31, 2022 (cid:29)anuary 1, 2022 $ $ $ $ $ 350 $ 350 350 350 300 300 650 500 32 3,182 $ (7) 3,175 $ 25 $ 50 5 23 272 375 $ 350 350 350 350 300 300 650 500 35 3,185 (6) 3,179 100 150 7 36 289 582 Textron 2022 Annual Report 49 49 The following table shows required payments during the next five years on debt outstanding at December 31, 2022: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Manufacturing group Finance group Total $ $ 2023 7 $ 13 20 $ 2024 357 $ 10 367 $ 2025 356 $ 28 384 $ 2026 355 $ 1 356 $ 202(cid:16) 355 51 406 On October 21, 2022, Textron entered into a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 billion, of which $100 million is available for the issuance of letters of credit. (cid:49)e 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 2027 and provides for two one-year extensions at our option with the consent of lenders representing a majority of the commitments under the facility. This new facility replaces the existing five-year facility, which was scheduled to expire in October 2024. At December 31, 2022 and January 1, 2022, there were no amounts borrowed against either facility. At December 31, 2022, there were $9 million of outstanding letters of credit issued under the new facility, and at January 1, 2022, there were $9 million of outstanding letters of credit issued under the prior facility. Floating Rate (cid:29)unior Subordinated Notes The Finance group’s $272 million of 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(cid:26) 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. In 2022 and 2021, TFC repurchased $17 million and $5 million, respectively, of these notes. Interest is variable at the three-month London Interbank Offered Rate (cid:10) 1.735(cid:4). Support Agreement 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(cid:4) and consolidated shareholders' equity of no less than $125 million. There were no cash contributions required to be paid to TFC in 2022, 2021 and 2020 to maintain compliance with the support agreement. Note 10. Derivative Instruments and Fair (cid:41)alue Measurements (cid:49)e 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. (cid:49)e 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. (cid:48)aluation 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 (cid:41)alue on a Recurring (cid:21)asis (cid:49)e 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. (cid:49)e 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(cid:26) however, they are not based on actual transactions, so they are classified as Level 2. At December 31, 2022 and January 1, 2022, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $354 million and $272 million, respectively. At December 31, 2022, the fair value amount of our foreign currency exchange contracts was an $11 million liability. At January 1, 2022, the fair value amounts of our foreign currency exchange contracts were a $4 million asset and a $3 million liability. 50 Textron 2022 Annual Report Our Finance group enters into interest rate swap agreements to mitigate exposure to fluctuations in interest rates. (cid:28)y using these contracts, we are able to convert floating-rate cash flows to fixed-rate cash flows. These agreements are designated as cash flow hedges. At December 31, 2022, we had a swap agreement for a notional amount of $272 million with a maturity of August 2023 and a swap agreement for a notional amount of $25 million, maturing in June 2025, with a combined fair value of an $8 million asset. At January 1, 2022, we had a swap agreement for a notional amount of $289 million with a maturity of August 2023 and an insignificant fair value. The fair value of these swap agreements is determined using values published by third-party leading financial news and data providers. These values are observable data that represent the value that financial institutions use for contracts entered into at that date, but are not based on actual transactions, so they are classified as Level 2. Assets and Liabilities Not Recorded at Fair (cid:41)alue 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: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Manufacturing group Debt, excluding leases Finance group Finance receivables, excluding leases Debt December 31, 2022 (cid:29)anuary 1, 2022 Carrying (cid:41)alue Estimated Fair (cid:41)alue Carrying (cid:41)alue Estimated Fair (cid:41)alue $ (3,175) $ (2,872) $ (3,181) $ (3,346) 390 (375) 369 (294) 413 (582) 444 (546) Fair value for the Manufacturing group debt is determined using market observable data for similar transactions (Level 2). The fair value for the Finance group debt was determined primarily based on discounted cash flow analyses using observable market inputs from debt with similar duration, subordination and credit default expectations (Level 2). Fair value estimates for finance receivables were determined based on internally developed discounted cash flow models primarily utilizing significant unobservable inputs (Level 3), which include estimates of the rate of return, financing cost, capital structure and(cid:14)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. (cid:49)e 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: Note 11. Shareholders(cid:72) E(cid:61)uity Capital Stoc(cid:55) (cid:3)(cid:27)n t(cid:47)ousands(cid:4) (cid:28)alance at beginning of year Share repurchases Share-based compensation activity (cid:28)alance at end of year Earnings Per Share 2022 216,935 (13,075) 2,301 206,161 2021 226,444 (13,533) 4,024 216,935 2020 227,956 (4,145) 2,633 226,444 (cid:49)e calculate basic and diluted earnings per share (EPS) based on net income, which approximates income available to common shareholders for each period. (cid:28)asic 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: (cid:3)(cid:27)n t(cid:47)ousands(cid:4) (cid:28)asic weighted-average shares outstanding Dilutive effect of stock options Diluted weighted-average shares outstanding 2022 212,809 2,164 214,973 2021 224,106 2,414 226,520 2020 228,536 443 228,979 In 2022, 2021 and 2020, stock options to purchase 1.0 million, 1.1 million and 7.6 million shares, respectively, of common stock were excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive. 50 51 Our Finance group enters into interest rate swap agreements to mitigate exposure to fluctuations in interest rates. (cid:28)y using these contracts, we are able to convert floating-rate cash flows to fixed-rate cash flows. These agreements are designated as cash flow hedges. At December 31, 2022, we had a swap agreement for a notional amount of $272 million with a maturity of August 2023 and a swap agreement for a notional amount of $25 million, maturing in June 2025, with a combined fair value of an $8 million asset. At January 1, 2022, we had a swap agreement for a notional amount of $289 million with a maturity of August 2023 and an insignificant fair value. The fair value of these swap agreements is determined using values published by third-party leading financial news and data providers. These values are observable data that represent the value that financial institutions use for contracts entered into at that date, but are not based on actual transactions, so they are classified as Level 2. Assets and Liabilities Not Recorded at Fair (cid:41)alue 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: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Manufacturing group Debt, excluding leases Finance group Finance receivables, excluding leases Debt December 31, 2022 (cid:29)anuary 1, 2022 Carrying (cid:41)alue Estimated Fair (cid:41)alue Carrying (cid:41)alue Estimated Fair (cid:41)alue $ (3,175) $ (2,872) $ (3,181) $ (3,346) 390 (375) 369 (294) 413 (582) 444 (546) Fair value for the Manufacturing group debt is determined using market observable data for similar transactions (Level 2). The fair value for the Finance group debt was determined primarily based on discounted cash flow analyses using observable market inputs from debt with similar duration, subordination and credit default expectations (Level 2). Fair value estimates for finance receivables were determined based on internally developed discounted cash flow models primarily utilizing significant unobservable inputs (Level 3), which include estimates of the rate of return, financing cost, capital structure and(cid:14)or discount rate expectations of current market participants combined with estimated loan cash flows based on credit losses, payment rates and expectations of borrowers’ ability to make payments on a timely basis. Note 11. Shareholders(cid:72) E(cid:61)uity Capital Stoc(cid:55) (cid:49)e 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: (cid:3)(cid:27)n t(cid:47)ousands(cid:4) (cid:28)alance at beginning of year Share repurchases Share-based compensation activity (cid:28)alance at end of year 2022 216,935 (13,075) 2,301 206,161 2021 226,444 (13,533) 4,024 216,935 2020 227,956 (4,145) 2,633 226,444 Earnings Per Share (cid:49)e calculate basic and diluted earnings per share (EPS) based on net income, which approximates income available to common shareholders for each period. (cid:28)asic 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: (cid:3)(cid:27)n t(cid:47)ousands(cid:4) (cid:28)asic weighted-average shares outstanding Dilutive effect of stock options Diluted weighted-average shares outstanding 2022 212,809 2,164 214,973 2021 224,106 2,414 226,520 2020 228,536 443 228,979 In 2022, 2021 and 2020, stock options to purchase 1.0 million, 1.1 million and 7.6 million shares, respectively, of common stock were excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive. Textron 2022 Annual Report 51 51 Accumulated Other Comprehensive Loss The components of Accumulated other comprehensive loss are presented below: Note 12. Segment and Geographic Data Pension and Postretirement (cid:21)enefits Ad(cid:54)ustments Foreign Currency Translation Ad(cid:54)ustments Deferred Gains (Losses) on Hedge Contracts Accumulated Other Comprehensive Loss (1,739) 813 133 4 (789) 108 69 (612) (1) $ 3 (1) — 1 $ (3) — (2) $ (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:28)alance at January 2, 2021 Other comprehensive income before reclassifications Reclassified from Accumulated other comprehensive loss Other (cid:28)alance at January 1, 2022 Other comprehensive income before reclassifications Reclassified from Accumulated other comprehensive loss (cid:28)alance at December 31, 2022 $ $ $ (1,780) $ 861 120 — (799) $ 214 69 (516) $ 42 $ (51) 14 4 9 $ (103) — (94) $ Other comprehensive income The before and after-tax components of other comprehensive income are presented below: (cid:49)e operate in, and report financial information for, the following six operating segments: Textron Aviation, (cid:28)ell, Textron Systems, Industrial, Textron eAviation and Finance. The accounting policies of the segments are the same as those described in Note 1. and non-U.S. governments. Textron Aviation products include Citation jets, (cid:37)ing Air and Caravan turboprop aircraft, military trainer and defense aircraft, piston engine aircraft, and aftermarket part sales and services sold to a diverse base of corporate and individual buyers, and U.S. (cid:28)ell products include military and commercial helicopters, tiltrotor aircraft and related spare parts and services. (cid:28)ell supplies military helicopters and, in association with The (cid:28)oeing Company, military tiltrotor aircraft, and aftermarket services to the U.S. and non-U.S. governments. (cid:28)ell also supplies commercial helicopters and aftermarket services to corporate, private, law enforcement, utility, public safety and emergency medical helicopter operators, and U.S. and foreign governments. Textron Systems products and services include unmanned aircraft systems, electronic systems and solutions, advanced marine craft, piston aircraft engines, live military air-to-air and air-to-ship training, weapons and related components, and armored and specialty vehicles for U.S. and international military, government and commercial customers. Industrial products and markets include the following: (cid:81) (cid:81) Fuel Systems and Functional Components products consist of blow-molded plastic fuel systems, including conventional plastic fuel tanks and pressurized fuel tanks for hybrid applications, clear-vision systems, plastic tanks for selective catalytic reduction systems and battery housing systems for use in electric vehicles that are marketed primarily to automobile OEMs(cid:26) and Specialized (cid:48)ehicles 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. The Textron eAviation segment manufactures a family of light aircraft and gliders with both electric and combustion engines, and also performs other research and development initiatives related to sustainable aviation solutions. The Finance segment provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell helicopters. Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments includes non-service components of net periodic benefit cost(cid:14)(income) and excludes interest expense, net(cid:26) certain corporate expenses(cid:26) gains(cid:14)losses on major business dispositions(cid:26) special charges(cid:26) and an inventory charge related to the 2020 CO(cid:48)ID-19 restructuring plan, as discussed in Note 16. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense. (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Pension and postretirement benefits adjustments: Unrealized gains (losses) Amortization of net actuarial loss(cid:9) Amortization of prior service cost(cid:9) Recognition of prior service cost Pension and postretirement benefits adjustments, net Foreign currency translation adjustments: Foreign currency translation adjustments (cid:28)usiness disposition Foreign currency translation adjustments, net Deferred gains (losses) on hedge contracts: Current deferrals Reclassification adjustments Deferred gains (losses) on hedge contracts, net Total 2022 2021 2020 Pre-Tax Amount Tax (Expense) (cid:21)enefit After- Tax Amount Pre-Tax Amount Tax (Expense) (cid:21)enefit After- Tax Amount Pre-Tax Amount Tax (Expense) (cid:21)enefit After- Tax Amount $ 285 $ 83 8 (4) (67) $ 218 $ 1,148 $ (271) $ 877 $ (144) $ (20) (2) — (34) (3) 4 116 4 (16) 63 6 (4) 184 6 (8) 150 7 (20) 372 (89) 283 1,285 (304) 981 (103) — (103) — — — (103) — (103) (51) — 14 — — (37) (7) 4 — — (7) 4 (3) — (3) 3 (1) 2 — — — (51) 14 (37) 3 (1) 2 38 81 — 81 4 (6) (2) $ 262 $ (85) $ 177 $ 1,250 $ (304) $ 946 $ 117 $ 35 $ (109) (43) (1) 2 141 5 (6) (7) 31 (3) 78 — — 78 (3) (1) 2 3 (4) (1) 1 (9) $ 108 (cid:5) (cid:36)(cid:47)ese components o(cid:45) ot(cid:47)er compre(cid:47)ens(cid:48)ve (cid:48)ncome are (cid:48)ncluded (cid:48)n t(cid:47)e computat(cid:48)on o(cid:45) net per(cid:48)od(cid:48)c pens(cid:48)on cost(cid:8) (cid:35)ee (cid:30)ote (cid:11)(cid:15) (cid:45)or add(cid:48)t(cid:48)onal (cid:48)n(cid:45)ormat(cid:48)on(cid:8) 52 Textron 2022 Annual Report 52 53 Note 12. Segment and Geographic Data (cid:49)e operate in, and report financial information for, the following six operating segments: Textron Aviation, (cid:28)ell, Textron Systems, Industrial, Textron eAviation and Finance. The accounting policies of the segments are the same as those described in Note 1. Textron Aviation products include Citation jets, (cid:37)ing Air and Caravan turboprop aircraft, military trainer and defense aircraft, piston engine aircraft, and aftermarket part sales and services sold to a diverse base of corporate and individual buyers, and U.S. and non-U.S. governments. (cid:28)ell products include military and commercial helicopters, tiltrotor aircraft and related spare parts and services. (cid:28)ell supplies military helicopters and, in association with The (cid:28)oeing Company, military tiltrotor aircraft, and aftermarket services to the U.S. and non-U.S. governments. (cid:28)ell also supplies commercial helicopters and aftermarket services to corporate, private, law enforcement, utility, public safety and emergency medical helicopter operators, and U.S. and foreign governments. Textron Systems products and services include unmanned aircraft systems, electronic systems and solutions, advanced marine craft, piston aircraft engines, live military air-to-air and air-to-ship training, weapons and related components, and armored and specialty vehicles for U.S. and international military, government and commercial customers. Industrial products and markets include the following: (cid:81) (cid:81) Fuel Systems and Functional Components products consist of blow-molded plastic fuel systems, including conventional plastic fuel tanks and pressurized fuel tanks for hybrid applications, clear-vision systems, plastic tanks for selective catalytic reduction systems and battery housing systems for use in electric vehicles that are marketed primarily to automobile OEMs(cid:26) and Specialized (cid:48)ehicles 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. The Textron eAviation segment manufactures a family of light aircraft and gliders with both electric and combustion engines, and also performs other research and development initiatives related to sustainable aviation solutions. The Finance segment provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and (cid:28)ell helicopters. Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments includes non-service components of net periodic benefit cost(cid:14)(income) and excludes interest expense, net(cid:26) certain corporate expenses(cid:26) gains(cid:14)losses on major business dispositions(cid:26) special charges(cid:26) and an inventory charge related to the 2020 CO(cid:48)ID-19 restructuring plan, as discussed in Note 16. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense. Textron 2022 Annual Report 53 53 Our revenues by segment, along with a reconciliation of segment profit to income from continuing operations before income taxes, are as follows: Revenues Segment Profit (Loss) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Textron Aviation (cid:28)ell Textron Systems Industrial Textron eAviation Finance Total Corporate expenses and other, net Interest expense, net for Manufacturing group Special charges(cid:9) Inventory charge(cid:9) (cid:33)ain on business disposition Income from continuing operations before income taxes (cid:5) (cid:35)ee (cid:30)ote (cid:11)(cid:16) (cid:45)or add(cid:48)t(cid:48)onal (cid:48)n(cid:45)ormat(cid:48)on(cid:8) Other information by segment is provided below: $ 2022 5,073 $ 3,091 1,172 3,465 16 52 2021 4,566 $ 3,364 1,273 3,130 — 49 2020 3,974 $ 3,309 1,313 3,000 — 55 $ 12,869 $ 12,382 $ 11,651 $ $ 2022 584 $ 317 152 165 (26) 31 1,223 $ (113) (94) — — — 1,016 $ 2021 378 $ 408 189 140 — 19 1,134 $ (129) (124) (25) — 17 873 $ 2020 16 462 152 111 — 10 751 (122) (145) (147) (55) — 282 Assets Capital Expenditures Depreciation and Amorti(cid:70)ation (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Textron Aviation (cid:28)ell Textron Systems Industrial Textron eAviation Finance Corporate Total $ December 31, 2022 4,496 $ 2,857 1,989 2,555 278 664 3,454 16,293 $ $ (cid:29)anuary 1, 2022 4,390 $ 3,382 1,980 2,529 — 867 2,679 15,827 $ 2022 138 $ 80 57 78 1 — — 354 $ 2021 115 $ 92 80 82 — — 6 375 $ 2020 94 $ 117 42 62 — — 2 317 $ 2022 152 $ 90 49 93 2 1 10 397 $ 2021 139 $ 87 45 99 — 10 10 390 $ 2020 138 91 43 102 — 5 12 391 Geographic Data Presented below is selected financial information by geographic area: Revenues(cid:5) Property, Plant and E(cid:61)uipment, net(cid:5)(cid:5) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) United States Europe Other international Total (cid:5) (cid:34)evenues are attr(cid:48)(cid:41)uted to countr(cid:48)es (cid:41)ased on t(cid:47)e locat(cid:48)on o(cid:45) t(cid:47)e customer(cid:8) (cid:5)(cid:5) Propert(cid:64)(cid:6) plant and e(cid:56)u(cid:48)pment(cid:6) net (cid:48)s (cid:41)ased on t(cid:47)e locat(cid:48)on o(cid:45) t(cid:47)e asset(cid:8) 54 Textron 2022 Annual Report $ 2022 8,702 $ 1,468 2,699 2021 8,572 $ 1,369 2,441 $ 12,869 $ 12,382 $ 11,651 $ 2020 7,943 $ 1,336 2,372 December 31, 2022 2,137 $ 188 198 2,523 $ (cid:29)anuary 1, 2022 2,121 201 216 2,538 54 Note 13. Revenues Disaggregation of Revenues Our revenues disaggregated by major product type are presented below: Our revenues for our segments by customer type and geographic location are presented below: Textron Aviation (cid:21)ell Industrial Finance Total Textron Systems Textron eAviation (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Aircraft Aftermarket parts and services Textron Aviation Military aircraft and support programs Commercial helicopters, parts and services Fuel systems and functional components (cid:21)ell Textron Systems Specialized vehicles Industrial Textron eAviation Finance Total revenues Geographic location(cid:19) (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) 2022 Customer type(cid:19) Commercial U.S. (cid:33)overnment Total revenues United States Europe Other international Total revenues 2021 Customer type(cid:19) Commercial U.S. (cid:33)overnment Total revenues United States Europe Other international Total revenues 2020 Customer type(cid:19) Commercial U.S. (cid:33)overnment Total revenues Geographic location(cid:19) Geographic location(cid:19) United States Europe Other international Total revenues $ $ $ $ $ $ $ $ $ 2022 2021 $ 3,387 $ 3,116 $ 1,686 5,073 1,740 1,351 3,091 1,172 1,771 1,694 3,465 16 52 1,450 4,566 2,073 1,291 3,364 1,273 1,735 1,395 3,130 — 49 2020 2,714 1,260 3,974 2,213 1,096 3,309 1,313 1,751 1,249 3,000 — 55 $ 12,869 $ 12,382 $ 11,651 4,959 $ 1,284 $ 114 1,807 274 $ 898 3,450 $ 15 5,073 $ 3,091 $ 1,172 $ 3,465 $ 3,520 $ 2,242 $ 1,054 $ 1,862 $ 579 974 139 710 42 76 699 904 4,435 $ 1,328 $ 257 $ 3,113 $ 131 2,036 1,016 17 4,566 $ 3,364 $ 1,273 $ 3,130 $ $ 5,073 $ 3,091 $ 1,172 $ 3,465 $ 52 $ 12,869 3,424 $ 2,425 $ 1,126 $ 1,570 $ — $ 27 $ 396 746 171 768 44 103 757 803 $ 4,566 $ 3,364 $ 1,273 $ 3,130 $ — $ 49 $ 12,382 3,826 $ 1,079 $ 249 $ 2,993 $ 148 2,230 1,064 7 3,974 $ 3,309 $ 1,313 $ 3,000 $ 2,825 $ 2,564 $ 1,129 $ 1,398 $ — $ 27 $ 356 793 148 597 44 140 786 816 $ 3,974 $ 3,309 $ 1,313 $ 3,000 $ — $ 55 $ 11,651 16 $ — 16 $ 7 $ 6 3 16 $ — $ — — $ — — — $ — — $ — — 52 $ — 52 $ 17 $ 3 32 10,035 2,834 12,869 8,702 1,468 2,699 49 $ — 9,182 3,200 49 $ 12,382 1 21 8,572 1,369 2,441 55 $ — 8,202 3,449 55 $ 11,651 2 26 7,943 1,336 2,372 55 Note 13. Revenues Disaggregation of Revenues Our revenues disaggregated by major product type are presented below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Aircraft Aftermarket parts and services Textron Aviation Military aircraft and support programs Commercial helicopters, parts and services (cid:21)ell Textron Systems Fuel systems and functional components Specialized vehicles Industrial Textron eAviation Finance Total revenues 2022 3,387 $ 1,686 5,073 1,740 1,351 3,091 1,172 1,771 1,694 3,465 16 52 12,869 $ 2021 3,116 $ 1,450 4,566 2,073 1,291 3,364 1,273 1,735 1,395 3,130 — 49 12,382 $ 2020 2,714 1,260 3,974 2,213 1,096 3,309 1,313 1,751 1,249 3,000 — 55 11,651 $ $ Our revenues for our segments by customer type and geographic location are presented below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) 2022 Customer type(cid:19) Commercial U.S. (cid:33)overnment Total revenues Geographic location(cid:19) United States Europe Other international Total revenues 2021 Customer type(cid:19) Commercial U.S. (cid:33)overnment Total revenues Geographic location(cid:19) United States Europe Other international Total revenues 2020 Customer type(cid:19) Commercial U.S. (cid:33)overnment Total revenues Geographic location(cid:19) United States Europe Other international Total revenues Textron Aviation (cid:21)ell Textron Systems Industrial Textron eAviation Finance Total $ $ $ $ $ $ $ $ $ $ $ $ 4,959 $ 114 5,073 $ 3,520 $ 579 974 5,073 $ 4,435 $ 131 4,566 $ 3,424 $ 396 746 4,566 $ 3,826 $ 148 3,974 $ 2,825 $ 356 793 3,974 $ 1,284 $ 1,807 3,091 $ 2,242 $ 139 710 3,091 $ 1,328 $ 2,036 3,364 $ 2,425 $ 171 768 3,364 $ 1,079 $ 2,230 3,309 $ 2,564 $ 148 597 3,309 $ 274 $ 898 1,172 $ 1,054 $ 42 76 1,172 $ 257 $ 1,016 1,273 $ 1,126 $ 44 103 1,273 $ 249 $ 1,064 1,313 $ 1,129 $ 44 140 1,313 $ 3,450 $ 15 3,465 $ 1,862 $ 699 904 3,465 $ 3,113 $ 17 3,130 $ 1,570 $ 757 803 3,130 $ 2,993 $ 7 3,000 $ 1,398 $ 786 816 3,000 $ 16 $ — 16 $ 7 $ 6 3 16 $ — $ — — $ — $ — — — $ — $ — — $ — $ — — — $ 52 $ — 52 $ 17 $ 3 32 52 $ 49 $ — 49 $ 27 $ 1 21 49 $ 55 $ — 55 $ 27 $ 2 26 55 $ 10,035 2,834 12,869 8,702 1,468 2,699 12,869 9,182 3,200 12,382 8,572 1,369 2,441 12,382 8,202 3,449 11,651 7,943 1,336 2,372 11,651 Textron 2022 Annual Report 55 55 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 (cid:43)uantity contracts. At December 31, 2022, we had $13.3 billion in remaining performance obligations of which we expect to recognize revenues of approximately 86(cid:4) through 2024, an additional 11(cid:4) through 2026, and the balance thereafter. Contract Assets and Liabilities Assets and liabilities related to our contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At December 31, 2022 and January 1, 2022, contract assets totaled $680 million and $717 million, respectively, and contract liabilities totaled $1.5 billion and $1.2 billion, respectively, reflecting timing differences between revenues recognized, billings and payments from customers. During 2022, 2021 and 2020, we recognized revenues of $873 million, $600 million and $506 million, respectively, that were included in the contract liability balance at the beginning of each year. Note 14. Share-(cid:21)ased 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, performance share units or other awards that are payable in shares. For 2022, 2021 and 2020, the awards granted under this Plan primarily included stock options, restricted stock units and performance share 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: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Compensation expense Income tax benefit Total compensation expense included in net income $ $ 2022 66 $ (16) 50 $ 2021 138 $ (33) 105 $ 2020 57 (14) 43 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 utilizing an estimated forfeiture rate. 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 As of December 31, 2022, we had not recognized $27 million of total compensation costs associated with unvested awards subject only to service conditions. (cid:49)e expect to recognize compensation expense for these awards over a weighted-average period of approximately two years. (cid:49)e typically grant stock appreciation rights to selected non-U.S. employees. At December 31, 2022, outstanding stock appreciation rights totaled 574,315 with a weighted-average exercise price of $51.82 and a weighted-average remaining contractual life of 6.2 years(cid:26) these units had an intrinsic value of $11 million, compared to $18 million at January 1, units. grant. 2022. Stoc(cid:55) Options Stock option compensation expense was $22 million, $21 million and $20 million in 2022, 2021 and 2020, 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 (cid:28)lack-Scholes option-pricing model to determine the fair value of options granted on the date of grant. The expected volatility used in this model is based on historical volatilities and implied volatilities from traded options on our common stock. The expected term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior. (cid:49)e grant options annually on the first day of March. The assumptions used in our option-pricing model for these grants and the weighted-average fair value for these options are as follows: 56 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 (cid:43)uantity contracts. At December 31, 2022, we had $13.3 billion in remaining performance obligations of which we expect to recognize revenues of approximately 86(cid:4) through 2024, an additional 11(cid:4) through 2026, and the balance thereafter. Contract Assets and Liabilities Assets and liabilities related to our contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At December 31, 2022 and January 1, 2022, contract assets totaled $680 million and $717 million, respectively, and contract liabilities totaled $1.5 billion and $1.2 billion, respectively, reflecting timing differences between revenues recognized, billings and payments from customers. During 2022, 2021 and 2020, we recognized revenues of $873 million, $600 million and $506 million, respectively, that were included in the contract liability balance at the beginning of each year. Note 14. Share-(cid:21)ased 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, performance share units or other awards that are payable in shares. For 2022, 2021 and 2020, the awards granted under this Plan primarily included stock options, restricted stock units and performance share units. 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: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Compensation expense Income tax benefit Total compensation expense included in net income $ $ 2022 66 $ (16) 50 $ 2021 138 $ (33) 105 $ 2020 57 (14) 43 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 utilizing an estimated forfeiture rate. 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 December 31, 2022, we had not recognized $27 million of total compensation costs associated with unvested awards subject only to service conditions. (cid:49)e expect to recognize compensation expense for these awards over a weighted-average period of approximately two years. (cid:49)e typically grant stock appreciation rights to selected non-U.S. employees. At December 31, 2022, outstanding stock appreciation rights totaled 574,315 with a weighted-average exercise price of $51.82 and a weighted-average remaining contractual life of 6.2 years(cid:26) these units had an intrinsic value of $11 million, compared to $18 million at January 1, 2022. Stoc(cid:55) Options Stock option compensation expense was $22 million, $21 million and $20 million in 2022, 2021 and 2020, 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 (cid:28)lack-Scholes option-pricing model to determine the fair value of options granted on the date of grant. The expected volatility used in this model is based on historical volatilities and implied volatilities from traded options on our common stock. The expected term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior. (cid:49)e grant options annually on the first day of March. The assumptions used in our option-pricing model for these grants and the weighted-average fair value for these options are as follows: 56 Textron 2022 Annual Report 56 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 (cid:43)uantity contracts. At December 31, 2022, we had $13.3 billion in remaining performance obligations of which we expect to recognize revenues of approximately 86(cid:4) through 2024, an additional 11(cid:4) through 2026, and the balance thereafter. Contract Assets and Liabilities Assets and liabilities related to our contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At December 31, 2022 and January 1, 2022, contract assets totaled $680 million and $717 million, respectively, and contract liabilities totaled $1.5 billion and $1.2 billion, respectively, reflecting timing differences between revenues recognized, billings and payments from customers. During 2022, 2021 and 2020, we recognized revenues of $873 million, $600 million and $506 million, respectively, that were included in the contract liability balance at the beginning of each year. Note 14. Share-(cid:21)ased 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, performance share units or other awards that are payable in shares. For 2022, 2021 and 2020, the awards granted under this Plan primarily included stock options, restricted stock units and performance share 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: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Compensation expense Income tax benefit Total compensation expense included in net income $ $ 2022 66 $ (16) 50 $ 2021 138 $ (33) 105 $ 2020 57 (14) 43 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 utilizing an estimated forfeiture rate. 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 As of December 31, 2022, we had not recognized $27 million of total compensation costs associated with unvested awards subject only to service conditions. (cid:49)e expect to recognize compensation expense for these awards over a weighted-average period of approximately two years. (cid:49)e typically grant stock appreciation rights to selected non-U.S. employees. At December 31, 2022, outstanding stock appreciation rights totaled 574,315 with a weighted-average exercise price of $51.82 and a weighted-average remaining contractual life of 6.2 years(cid:26) these units had an intrinsic value of $11 million, compared to $18 million at January 1, units. grant. 2022. Stoc(cid:55) Options Stock option compensation expense was $22 million, $21 million and $20 million in 2022, 2021 and 2020, 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 (cid:28)lack-Scholes option-pricing model to determine the fair value of options granted on the date of grant. The expected volatility used in this model is based on historical volatilities and implied volatilities from traded options on our common stock. The expected term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior. (cid:49)e grant options annually on the first day of March. The assumptions used in our option-pricing model for these grants and the weighted-average fair value for these options are as follows: Fair value of options at grant date Dividend yield Expected volatility Risk-free interest rate Expected term (in years) The stock option activity during 2022 is provided below: (cid:3)(cid:31)pt(cid:48)ons (cid:48)n t(cid:47)ousands(cid:4) Outstanding at beginning of year (cid:33)ranted Exercised Forfeited or expired Outstanding at end of year Exercisable at end of year $ 2022 19.95 $ 0.1 (cid:4) 29.2 (cid:4) 1.9 (cid:4) 4.8 2021 15.05 $ 0.2 (cid:4) 33.6 (cid:4) 0.7 (cid:4) 4.7 2020 10.66 0.2 (cid:4) 29.3 (cid:4) 56 1.1 (cid:4) 4.7 Number of Options 8,289 $ 1,232 (1,102) (109) 8,310 $ 5,596 $ Weighted- Average Exercise Price 46.18 69.55 (41.00) (52.66) 50.25 47.03 At December 31, 2022, our outstanding options had an aggregate intrinsic value of $171 million and a weighted-average remaining contractual life of 5.8 years. Our exercisable options had an aggregate intrinsic value of $133 million and a weighted- average remaining contractual life of 4.6 years at December 31, 2022. The total intrinsic value of options exercised during 2022, 2021 and 2020 was $32 million, $63 million and $10 million, respectively. Restricted Stoc(cid:55) Units (cid:49)e issue restricted stock units that include the right to receive dividend equivalents and are settled in either cash or stock. (cid:28)eginning in 2020, new grants of restricted stock units vest in full on the third anniversary of the grant date. Restricted stock units granted prior to 2020 vest one-third each in the third, fourth and fifth year following the year of the grant. Compensation cost is determined using the fair value of these units 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 2022 activity for restricted stock units is provided below: Units Payable in Stoc(cid:55) Units Payable in Cash (cid:3)(cid:35)(cid:47)ares(cid:9)(cid:37)n(cid:48)ts (cid:48)n t(cid:47)ousands(cid:4) Outstanding at beginning of year, nonvested (cid:33)ranted (cid:48)ested Forfeited Outstanding at end of year, nonvested Number of Shares Weighted- Average Grant Date Fair (cid:41)alue 50.01 70.25 (53.68) — 52.99 569 $ 104 (148) — 525 $ Number of Units 1,158 $ 226 (248) (50) 1,086 $ Weighted- Average Grant Date Fair (cid:41)alue 49.92 71.05 (53.98) (52.48) 53.26 The fair value of the restricted stock unit awards that vested and(cid:14)or amounts paid under these awards is as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Fair value of awards vested Cash paid $ 2022 25 $ 17 2021 20 $ 13 2020 17 11 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. Performance share units are subject to performance goals set at the beginning of the three-year performance period and vest at the end of the performance period. These units are remeasured to fair value at the end of each reporting period based on the trading price of our common stock and the number of units, as adjusted based on assumptions with respect to performance on the relevant metrics. Textron 2022 Annual Report 57 57 The 2022 activity for our performance share units is as follows: Obligations and Funded Status (cid:3)(cid:37)n(cid:48)ts (cid:48)n t(cid:47)ousands(cid:4) Outstanding at beginning of year, nonvested (cid:33)ranted (cid:48)ested Outstanding at end of year, nonvested Number of Units 526 $ 174 (273) 427 $ Weighted- Average Grant Date Fair (cid:41)alue 45.87 71.07 (40.60) 59.51 The fair value of the performance share units that vested and(cid:14)or amounts paid under these awards is as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Fair value of awards vested Cash paid Note 15. Retirement Plans $ 2022 19 $ 15 2021 18 $ 6 2020 8 7 (cid:49)e provide defined-contribution benefits to eligible employees, as well as some remaining defined-benefit pension and other post-retirement benefits covering certain of our U.S. and Non-U.S. employees. Substantially all of our employees are covered by defined contribution plans. The largest of these plans, the Textron Savings Plan, is a qualified 401(k) plan subject to the Employee Retirement Income Security Act of 1974 (ERISA). Our defined contribution plans cost $140 million, $131 million and $128 million in 2022, 2021 and 2020, respectively. (cid:49)e also provide postretirement benefits other than pensions for certain retired employees in the U.S. that include healthcare, dental care, Medicare Part (cid:28) reimbursement and life insurance. A portion of our U.S. employees participate in the legacy defined benefit pension plans which were closed to new participants beginning on January 1, 2010. These legacy plans include the Textron Master Retirement Plan (TMRP), the (cid:28)ell (cid:34)elicopter Textron Master Retirement Plan, and the C(cid:49)C Castings Division of Textron Inc. (cid:34)ourly-Rated Employees' Pension Plan, which are each subject to the provisions of ERISA and provide a minimum guaranteed benefit to participants. The primary factors affecting the benefits earned by participants in our pension plans are employees’ years of service and compensation levels. Employees hired subsequent to the closure of these plans receive an additional annual cash contribution to their Textron Savings Plan account based on their eligible compensation of up to 4(cid:4). Periodic (cid:21)enefit Cost (Income) The components of net periodic benefit cost (income) and other amounts recognized in other comprehensive income (loss) (OCI) are as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Net periodic benefit cost (income) 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 (income)(cid:9) Other changes in plan assets and benefit obligations recogni(cid:70)ed in OCI Current year actuarial loss (gain) Current year prior service cost Amortization of net actuarial gain (loss) Amortization of prior service credit (cost) Total recognized in OCI, before taxes Total recognized in net periodic benefit cost (income) and OCI Pension (cid:21)enefits Postretirement (cid:21)enefits Other than Pensions 2022 2021 2020 2022 2021 2020 $ $ 108 $ 272 (609) 13 87 (129) $ 116 $ 252 (573) 12 152 (41) $ 106 $ 293 (574) 11 185 21 $ $ (246) $ (1,135) $ 4 (87) (13) 20 (152) (12) $ $ (342) $ (1,279) $ (471) $ (1,320) $ 146 $ 8 (185) (11) (42) $ (21) $ 2 $ 6 — (5) (4) (1) $ (39) $ — 4 5 (30) $ (31) $ 3 $ 5 — (5) (2) 1 $ (13) $ — 2 5 (6) $ (5) $ 2 8 — (5) (1) 4 (2) — 1 5 4 8 (cid:5) (cid:23)(cid:63)cludes t(cid:47)e cost assoc(cid:48)ated (cid:62)(cid:48)t(cid:47) t(cid:47)e de(cid:45)(cid:48)ned contr(cid:48)(cid:41)ut(cid:48)on component t(cid:47)at (cid:48)s (cid:48)ncluded (cid:48)n certa(cid:48)n o(cid:45) our (cid:37)(cid:8)(cid:35)(cid:8)(cid:7)(cid:41)ased de(cid:45)(cid:48)ned (cid:41)ene(cid:45)(cid:48)t pens(cid:48)on plans(cid:6) o(cid:45) (cid:2)(cid:11)(cid:11) m(cid:48)ll(cid:48)on (cid:48)n (cid:12)(cid:10)(cid:12)(cid:12)(cid:6) (cid:12)(cid:10)(cid:12)(cid:11) and (cid:12)(cid:10)(cid:12)(cid:10)(cid:6) respect(cid:48)vel(cid:64)(cid:8) 58 Textron 2022 Annual Report 58 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: Change in pro(cid:54)ected benefit obligation Projected benefit obligation at beginning of year (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Service cost Interest cost Actuarial gains (cid:28)enefits paid Plan amendment Plan participants’ contributions 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 (cid:28)enefits paid Foreign exchange rate changes and other Fair value of plan assets at end of year Funded status at end of year Pension (cid:21)enefits Postretirement (cid:21)enefits Other than Pensions December 31, (cid:29)anuary 1, December 31, (cid:29)anuary 1, 2022 2022 2022 2022 $ 9,339 $ 9,833 $ 202 $ 230 2 6 4 (40) (24) — — 3 5 4 (13) (27) — — 202 6,848 $ 9,339 $ 150 $ 108 272 — (2,373) (448) 1 (51) 9,947 $ (1,520) 37 (448) (73) 7,943 $ 1,095 $ $ $ $ $ 116 252 — (436) (446) 18 2 9,080 1,273 42 (446) (2) 9,947 608 $ (150) $ (202) Pension (cid:21)enefits Postretirement (cid:21)enefits Other than Pensions December 31, (cid:29)anuary 1, December 31, (cid:29)anuary 1, 2022 2022 $ 1,440 $ 1,129 $ (28) (317) 623 46 (29) (492) 953 58 2022 — $ (19) (131) (70) (6) 2022 — (21) (181) (34) (10) Actuarial gains for both 2022 and 2021 were largely the result of changes in the discount rate utilized. Amounts recognized in our balance sheets are as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Non-current assets Current liabilities Non-current liabilities Net loss (gain) Prior service cost (credit) Recognized in Accumulated other comprehensive loss, pre-tax: The accumulated benefit obligation for all defined benefit pension plans was $6.6 billion and $8.8 billion at December 31, 2022 and January 1, 2022, respectively, which included $326 million and $418 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: Pension plans with projected benefit obligation exceeding the fair value of plan assets are as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Accumulated benefit obligation Fair value of plan assets (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Projected benefit obligation Fair value of plan assets $ $ December 31, (cid:29)anuary 1, 2022 326 $ — 2022 741 298 December 31, (cid:29)anuary 1, 2022 597 $ 252 2022 819 298 59 Obligations and Funded Status All of our plans are measured as of our fiscal year-end. The changes in the projected benefit obligation and in the fair value of plan assets, along with our funded status, are as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Change in pro(cid:54)ected benefit obligation Projected benefit obligation at beginning of year Service cost Interest cost Plan participants’ contributions Actuarial gains (cid:28)enefits paid Plan amendment 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 (cid:28)enefits paid Foreign exchange rate changes and other Fair value of plan assets at end of year Funded status at end of year Pension (cid:21)enefits Postretirement (cid:21)enefits Other than Pensions December 31, 2022 (cid:29)anuary 1, 2022 December 31, 2022 (cid:29)anuary 1, 2022 $ $ $ $ $ 9,339 $ 108 272 — (2,373) (448) 1 (51) 6,848 $ 9,947 $ (1,520) 37 (448) (73) 7,943 $ 1,095 $ 202 $ 2 6 4 (40) (24) — — 150 $ 230 3 5 4 (13) (27) — — 202 9,833 $ 116 252 — (436) (446) 18 2 9,339 $ 9,080 1,273 42 (446) (2) 9,947 608 $ (150) $ (202) Actuarial gains for both 2022 and 2021 were largely the result of changes in the discount rate utilized. Amounts recognized in our balance sheets are as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Non-current assets Current liabilities Non-current liabilities Recognized in Accumulated other comprehensive loss, pre-tax: Net loss (gain) Prior service cost (credit) Pension (cid:21)enefits Postretirement (cid:21)enefits Other than Pensions $ December 31, 2022 1,440 $ (28) (317) (cid:29)anuary 1, 2022 1,129 $ (29) (492) December 31, 2022 — $ (19) (131) (cid:29)anuary 1, 2022 — (21) (181) 623 46 953 58 (70) (6) (34) (10) The accumulated benefit obligation for all defined benefit pension plans was $6.6 billion and $8.8 billion at December 31, 2022 and January 1, 2022, respectively, which included $326 million and $418 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: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Accumulated benefit obligation Fair value of plan assets Pension plans with projected benefit obligation exceeding the fair value of plan assets are as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Projected benefit obligation Fair value of plan assets December 31, 2022 326 $ — $ (cid:29)anuary 1, 2022 741 298 December 31, 2022 597 $ 252 $ (cid:29)anuary 1, 2022 819 298 Textron 2022 Annual Report 59 59 The fair value of our pension plan assets by major category and valuation method is as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Cash and equivalents Equity securities: Domestic International Mutual funds Debt securities: National, state and local governments Corporate debt Private investment partnerships Real estate Total December 31, 2022 (cid:29)anuary 1, 2022 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 $ 378 $ 3 $ — $ — $ 200 $ 6 $ — $ — Not Sub(cid:54)ect to Leveling Not Sub(cid:54)ect to Leveling 2,304 1,171 150 332 58 — — — — — 239 663 — — — — — — — — 569 225 230 — 2,774 1,772 123 — — — 27 129 1,070 395 677 150 — — 274 1,055 — — — — — — — — 599 271 305 — 98 170 1,098 375 $ 4,393 $ 905 $ 569 $ 2,076 $ 5,696 $ 1,335 $ 599 $ 2,317 Cash and equivalents, equity securities and debt securities include commingled 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. The fair value of the commingled funds is determined and published by the fund's investment managers and is the basis for current transactions, therefore, they are categorized as Level 1 in the table above(cid:26) certain of these funds were previously categorized as not subject to leveling and the prior year amounts have been reclassified to conform to the current presentation. 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 Assumptions The weighted-average assumptions we use for our pension and postretirement plans are as follows: Pension (cid:21)enefits Postretirement (cid:21)enefits Other than Pensions 2022 2021 2020 2022 2021 2020 Net periodic benefit cost Discount rate Expected long-term rate of return on assets Rate of compensation increase (cid:21)enefit obligations at year-end Discount rate Rate of compensation increase Interest crediting rate for cash balance plans 2.99 (cid:4) 7.10 (cid:4) 3.95 (cid:4) 5.51 (cid:4) 3.97 (cid:4) 5.25 (cid:4) 2.62 (cid:4) 7.10 (cid:4) 3.49 (cid:4) 2.99 (cid:4) 3.95 (cid:4) 5.25 (cid:4) 3.36 (cid:4) 7.55 (cid:4) 3.50 (cid:4) 2.62 (cid:4) 3.50 (cid:4) 5.25 (cid:4) 2.80 (cid:4) 2.35 (cid:4) 3.20 (cid:4) 5.70 (cid:4) 2.80 (cid:4) 2.35 (cid:4) As discussed in Note 1, actuarial gains and losses are amortized into net periodic pension cost based on either the remaining service period of the active participants or the remaining life expectancy of the inactive participants. As of January 2, 2021, almost all of the participants for our largest domestic plan, the TMRP, were considered inactive largely due to actions taken in prior years to close the plan to new entrants. Accordingly, the amortization period for this plan changed to the average remaining life expectancy of the participant(cid:26) this change reduced 2021 pension cost by approximately $85 million. Our assumed healthcare cost trend rate for both the medical and prescription drug cost was 6.5(cid:4) and 7.0(cid:4) in 2022 and 2021, respectively. (cid:49)e expect this rate to gradually decline to 4.75(cid:4) by 2029 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. (cid:49)e 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. (cid:49)e 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. (cid:49)here 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: U.S. Plan Assets Domestic equity securities International equity securities (cid:33)lobal equities Debt securities Real estate Private investment partnerships Non-U.S. Plan Assets Equity securities Debt securities Real estate 60 Textron 2022 Annual Report 17(cid:4) to 33(cid:4) 6(cid:4) to 17(cid:4) 5(cid:4) to 17(cid:4) 27(cid:4) to 38(cid:4) 7(cid:4) to 13(cid:4) 7(cid:4) to 13(cid:4) 55(cid:4) to 75(cid:4) 25(cid:4) to 45(cid:4) 0(cid:4) to 13(cid:4) unobservable inputs (Level 3): (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:28)alance at beginning of year Unrealized gains (losses), net Realized gains, net Purchases, sales and settlements, net (cid:28)alance at end of year $ 2022 599 $ (10) 11 (31) $ 569 $ 2021 458 90 9 42 599 60 61 The fair value of our pension plan assets by major category and valuation method is as follows: December 31, 2022 (cid:29)anuary 1, 2022 (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Cash and equivalents Equity securities: Domestic International Mutual funds Debt securities: National, state and local governments Corporate debt Private investment partnerships Real estate Total Level 1 $ 378 $ 2,304 1,171 150 332 58 — — $ 4,393 $ Not Sub(cid:54)ect to Leveling Level 2 Level 3 3 $ — $ Level 1 Level 2 Level 3 6 $ — $ — $ 200 $ Not Sub(cid:54)ect to Leveling — — — — — — — 225 230 — 2,774 1,772 123 — — — — — — 271 305 — 239 663 — — 905 $ 27 129 1,070 395 — — — 569 569 $ 2,076 $ 5,696 $ 1,335 $ 274 1,055 — — 677 150 — — 98 — 170 — 1,098 — 599 375 599 $ 2,317 Cash and equivalents, equity securities and debt securities include commingled 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. The fair value of the commingled funds is determined and published by the fund's investment managers and is the basis for current transactions, therefore, they are categorized as Level 1 in the table above(cid:26) certain of these funds were previously categorized as not subject to leveling and the prior year amounts have been reclassified to conform to the current presentation. 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): (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:28)alance at beginning of year Unrealized gains (losses), net Realized gains, net Purchases, sales and settlements, net (cid:28)alance at end of year $ $ 2022 599 $ (10) 11 (31) 569 $ 2021 458 90 9 42 599 Textron 2022 Annual Report 61 61 Estimated Future Cash Flow Impact Defined benefits under salaried plans are based on salary and years of service. (cid:34)ourly plans generally provide benefits based on stated amounts for each year of service. Our funding policy is consistent with applicable laws and regulations. In 2023, we expect to contribute approximately $50 million to our pension plans. (cid:28)enefit 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 2022. (cid:49)hile 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. (cid:28)enefit payments that we expect to pay on an undiscounted basis are as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Pension benefits Postretirement benefits other than pensions $ 2023 442 $ 19 2024 450 $ 19 2025 458 $ 18 2026 466 $ 17 202(cid:16) 474 $ 16 2028-2032 2,451 63 Note 16. Special Charges Restructuring Reserve Our restructuring reserve activity is summarized below: Provision for 2020 CO(cid:48)ID-19 restructuring plan (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:28)alance at January 2, 2021 Cash paid Reversals Foreign currency translation (cid:28)alance at January 1, 2022 Cash paid Foreign currency translation (cid:28)alance at December 31, 2022 There were no special charges recorded in 2022. Special charges recorded in 2021 and 2020 by segment and type of cost are as follows: The majority of the remaining cash outlays of $12 million is expected to be paid in the first quarter of 2023. (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) 2021 Industrial Total special charges 2020 Textron Aviation Industrial Textron Systems Corporate Total special charges Severance Costs Contract Terminations and Other Asset Impairments Total Restructuring Charges Other Charges $ $ $ $ 4 $ 4 $ 31 $ 27 11 4 73 $ 9 $ 9 $ — $ 1 12 — 13 $ 12 $ 12 $ 2 $ 6 14 — 22 $ 25 $ 25 $ 33 $ 34 37 4 108 $ — $ — $ 32 $ 7 — — 39 $ Total 25 25 65 41 37 4 147 (cid:12)(cid:10)(cid:12)(cid:10) (cid:21)(cid:31)(cid:38)(cid:27)D(cid:7)(cid:11)(cid:19) (cid:34)estructur(cid:48)ng Plan In 2020, we initiated a restructuring plan to reduce operating expenses through headcount reductions, facility consolidations and other actions in response to the economic challenges and uncertainty resulting from the CO(cid:48)ID-19 pandemic. Upon completion of this plan, we had incurred total charges of $133 million, which included severance costs of $77 million, asset impairment charges of $34 million and contract terminations and other costs of $22 million. Of these amounts, $59 million was incurred at Industrial, $37 million at Textron Systems, $33 million at Textron Aviation, and $4 million at Corporate. In connection with this plan, we ceased manufacturing at TRU Canada's facility in Montreal, resulting in a production suspension of our commercial air transport simulators. As a result of this action and market conditions, we incurred an inventory valuation charge of $55 million in 2020 to write-down TRU Canada’s inventory to its net realizable value and recorded the charge in cost of sales. (cid:12)(cid:10)(cid:12)(cid:10) (cid:31)t(cid:47)er (cid:21)(cid:47)arges In 2020, due to the impact of the CO(cid:48)ID-19 pandemic, we experienced decreased demand for our products and services as our customers delayed or ceased orders due to the environment of economic uncertainty. In light of these conditions, Textron Aviation had temporarily shut down most aircraft production. (cid:28)ased on these events, we performed an interim impairment test of the indefinite-lived (cid:28)eechcraft and (cid:37)ing Air trade name intangible assets and recorded an impairment charge of $32 million. Income from continuing operations before income taxes Income tax expense (benefit) is summarized as follows: Note 1(cid:16). Income Taxes income taxes is as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) U.S. Non-U.S. (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Current expense (benefit): Federal State Non-U.S. Federal State Non-U.S. Deferred expense (benefit): Income tax expense (benefit) $ 154 $ 126 $ (cid:49)e 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 62 Textron 2022 Annual Report 62 $ $ $ $ Contract Severance Terminations Costs and Other $ 43 $ 9 $ 9 (27) (5) (1) (13) (1) 10 (9) (1) — (2) — 19 $ 9 $ 5 $ 7 $ Total 52 19 (36) (6) (1) 28 (15) (1) 12 2022 810 $ 206 1,016 $ 2021 699 $ 174 873 $ 2020 202 80 282 2022 2021 2020 $ 272 $ 41 $ 33 69 374 (182) (29) (9) (220) 15 47 103 35 (10) (2) 23 (1) (76) 57 (20) 3 5 (15) (7) (27) 63 Restructuring Reserve Our restructuring reserve activity is summarized below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:28)alance at January 2, 2021 Provision for 2020 CO(cid:48)ID-19 restructuring plan Cash paid Reversals Foreign currency translation (cid:28)alance at January 1, 2022 Cash paid Foreign currency translation (cid:28)alance at December 31, 2022 Severance Costs Contract Terminations and Other $ $ $ 43 $ 9 (27) (5) (1) 19 $ (13) (1) 5 $ 9 $ 10 (9) (1) — 9 $ (2) — 7 $ Total 52 19 (36) (6) (1) 28 (15) (1) 12 The majority of the remaining cash outlays of $12 million is expected to be paid in the first quarter of 2023. Note 1(cid:16). Income Taxes (cid:49)e 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: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) U.S. Non-U.S. Income from continuing operations before income taxes Income tax expense (benefit) is summarized as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Current expense (benefit): Federal State Non-U.S. Deferred expense (benefit): Federal State Non-U.S. Income tax expense (benefit) 2022 810 $ 206 1,016 $ 2021 699 $ 174 873 $ 2020 202 80 282 2022 2021 2020 272 $ 33 69 374 (182) (29) (9) (220) 154 $ 41 $ 15 47 103 35 (10) (2) 23 126 $ (1) (76) 57 (20) 3 5 (15) (7) (27) $ $ $ $ Textron 2022 Annual Report 63 63 The following table reconciles the federal statutory income tax rate to our effective income tax rate: Deferred Taxes The significant components of our net deferred tax assets(cid:14)(liabilities) are provided below: U.S. Federal statutory income tax rate Increase (decrease) resulting from: Research and development tax credits (a) Foreign-derived intangible income deduction (b) State income taxes (net of federal impact) Non-U.S. tax rate differential and foreign tax credits (c) State income tax audit settlement (net of federal impact) Outside basis difference in assets held for sale Other, net Effective income tax rate 2022 21.0 (cid:4) (5.0) (2.5) 0.3 1.8 — — (0.4) 15.2 (cid:4) 2021 21.0 (cid:4) (7.0) — 0.5 1.3 — — (1.4) 14.4 (cid:4) 2020 21.0 (cid:4) (18.2) — (1.2) 10.8 (18.6) (2.7) (0.7) (9.6) (cid:4) (cid:3)a(cid:4) (cid:3)(cid:41)(cid:4) (cid:3)c(cid:4) (cid:27)n (cid:12)(cid:10)(cid:12)(cid:10)(cid:6) t(cid:47)e (cid:41)ene(cid:45)(cid:48)t o(cid:45) researc(cid:47) and development ta(cid:63) cred(cid:48)ts as a percentage o(cid:45) pre(cid:7)ta(cid:63) (cid:48)ncome (cid:62)as (cid:47)(cid:48)g(cid:47)er t(cid:47)an ot(cid:47)er per(cid:48)ods pr(cid:48)mar(cid:48)l(cid:64) due to lo(cid:62)er pre(cid:7)ta(cid:63) (cid:48)ncome(cid:8) (cid:27)n (cid:12)(cid:10)(cid:12)(cid:12)(cid:6) t(cid:47)e (cid:45)ore(cid:48)gn(cid:7)der(cid:48)ved (cid:48)ntang(cid:48)(cid:41)le (cid:48)ncome deduct(cid:48)on (cid:48)s pr(cid:48)mar(cid:48)l(cid:64) due to t(cid:47)e (cid:48)mpact o(cid:45) cap(cid:48)tal(cid:48)(cid:65)(cid:48)ng researc(cid:47) and development e(cid:63)pend(cid:48)tures (cid:45)or ta(cid:63)(cid:7) purposes e(cid:45)(cid:45)ect(cid:48)ve on (cid:28)anuar(cid:64) (cid:11)(cid:6) (cid:12)(cid:10)(cid:12)(cid:12) as part o(cid:45) t(cid:47)e (cid:36)a(cid:63) (cid:21)uts and (cid:28)o(cid:41)s (cid:20)ct o(cid:45) (cid:12)(cid:10)(cid:11)(cid:17)(cid:8) (cid:27)n (cid:12)(cid:10)(cid:12)(cid:10)(cid:6) t(cid:47)e e(cid:45)(cid:45)ect(cid:48)ve ta(cid:63) rate (cid:62)as un(cid:45)avora(cid:41)l(cid:64) (cid:48)mpacted (cid:41)(cid:64) a (cid:2)(cid:15)(cid:15) m(cid:48)ll(cid:48)on (cid:48)nventor(cid:64) c(cid:47)arge and spec(cid:48)al c(cid:47)arges (cid:48)n a non(cid:7)(cid:37)(cid:8)(cid:35)(cid:8) (cid:49)ur(cid:48)sd(cid:48)ct(cid:48)on (cid:62)(cid:47)ere ta(cid:63) (cid:41)ene(cid:45)(cid:48)ts cannot (cid:41)e real(cid:48)(cid:65)ed(cid:6) along (cid:62)(cid:48)t(cid:47) a (cid:2)(cid:11)(cid:10) m(cid:48)ll(cid:48)on ta(cid:63) e(cid:63)pense related to a dec(cid:48)s(cid:48)on to d(cid:48)v(cid:48)dend (cid:41)ac(cid:50) cas(cid:47) (cid:45)rom select non(cid:7)(cid:37)(cid:8)(cid:35)(cid:8) (cid:49)ur(cid:48)sd(cid:48)ct(cid:48)ons to t(cid:47)e (cid:37)(cid:8)(cid:35)(cid:8)(cid:6) part(cid:48)all(cid:64) o(cid:45)(cid:45)set (cid:41)(cid:64) a (cid:2)(cid:11)(cid:14) m(cid:48)ll(cid:48)on valuat(cid:48)on allo(cid:62)ance release(cid:8) Unrecogni(cid:70)ed Tax (cid:21)enefits Our unrecognized tax benefits represent tax positions for which reserves have been established, with unrecognized state tax benefits reflected net of applicable federal tax benefits. At the end of 2022, 2021 and 2020, 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: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) (cid:28)alance 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 (a) Reductions for tax positions of prior years (cid:28)alance at end of year $ $ 2022 207 $ 24 — — — 231 $ 2021 183 $ 21 10 (3) (4) 207 $ 2020 221 11 21 (69) (1) 183 (cid:3)a(cid:4) (cid:27)n (cid:12)(cid:10)(cid:12)(cid:10)(cid:6) certa(cid:48)n ta(cid:63) pos(cid:48)t(cid:48)ons related to state ta(cid:63) attr(cid:48)(cid:41)utes (cid:62)ere reduced (cid:41)(cid:64) (cid:2)(cid:16)(cid:18) m(cid:48)ll(cid:48)on (cid:41)ased on an aud(cid:48)t settlement (cid:62)(cid:48)t(cid:47) respect to certa(cid:48)n state (cid:48)ncome ta(cid:63) returns(cid:8) In the normal course of business, we are subject to examination by tax authorities throughout the world. (cid:49)e are generally no longer subject to U.S. federal tax examinations for years before 2014, state and local income tax examinations for years before 2017, 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. (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Capitalized research and development expenditures (a) U.S. operating loss and tax credit carryforwards (b) Accrued liabilities (c) Obligation for pension and postretirement benefits Deferred compensation Operating lease liabilities Non-U.S. operating loss and tax credit carryforwards (d) Prepaid pension benefits (e) Property, plant and equipment, principally depreciation Amortization of goodwill and other intangibles (cid:48)aluation allowance on deferred tax assets Operating lease right-of-use assets Other leasing transactions, principally leveraged leases Other, net Deferred taxes, net (cid:3)a(cid:4) (cid:23)(cid:45)(cid:45)ect(cid:48)ve (cid:45)or ta(cid:63) (cid:64)ears (cid:41)eg(cid:48)nn(cid:48)ng a(cid:45)ter Decem(cid:41)er (cid:13)(cid:11)(cid:6) (cid:12)(cid:10)(cid:12)(cid:11)(cid:6) researc(cid:47) and development e(cid:63)pend(cid:48)tures must (cid:41)e cap(cid:48)tal(cid:48)(cid:65)ed and amort(cid:48)(cid:65)ed (cid:45)or ta(cid:63)(cid:7)purposes as (cid:3)(cid:41)(cid:4) (cid:20)t Decem(cid:41)er (cid:13)(cid:11)(cid:6) (cid:12)(cid:10)(cid:12)(cid:12)(cid:6) (cid:37)(cid:8)(cid:35)(cid:8) operat(cid:48)ng loss and ta(cid:63) cred(cid:48)t carr(cid:64)(cid:45)or(cid:62)ard (cid:41)ene(cid:45)(cid:48)ts o(cid:45) (cid:2)(cid:12)(cid:11)(cid:18) m(cid:48)ll(cid:48)on e(cid:63)p(cid:48)re t(cid:47)roug(cid:47) (cid:12)(cid:10)(cid:14)(cid:12) (cid:48)(cid:45) not ut(cid:48)l(cid:48)(cid:65)ed and (cid:2)(cid:13)(cid:19) m(cid:48)ll(cid:48)on ma(cid:64) (cid:41)e part o(cid:45) t(cid:47)e (cid:36)a(cid:63) (cid:21)uts and (cid:28)o(cid:41)s (cid:20)ct o(cid:45) (cid:12)(cid:10)(cid:11)(cid:17)(cid:8) carr(cid:48)ed (cid:45)or(cid:62)ard (cid:48)nde(cid:45)(cid:48)n(cid:48)tel(cid:64)(cid:8) (cid:3)c(cid:4) (cid:20)ccrued l(cid:48)a(cid:41)(cid:48)l(cid:48)t(cid:48)es (cid:48)nclude (cid:62)arrant(cid:64) reserves(cid:6) sel(cid:45)(cid:7)(cid:48)nsured l(cid:48)a(cid:41)(cid:48)l(cid:48)t(cid:48)es and (cid:48)nterest(cid:8) (cid:3)d(cid:4) (cid:20)t Decem(cid:41)er (cid:13)(cid:11)(cid:6) (cid:12)(cid:10)(cid:12)(cid:12)(cid:6) non(cid:7)(cid:37)(cid:8)(cid:35)(cid:8) operat(cid:48)ng loss and ta(cid:63) cred(cid:48)t carr(cid:64)(cid:45)or(cid:62)ard (cid:41)ene(cid:45)(cid:48)ts o(cid:45) (cid:2)(cid:15)(cid:10) m(cid:48)ll(cid:48)on ma(cid:64) (cid:41)e carr(cid:48)ed (cid:45)or(cid:62)ard (cid:48)nde(cid:45)(cid:48)n(cid:48)tel(cid:64)(cid:8) (cid:3)e(cid:4) Prepa(cid:48)d pens(cid:48)on (cid:41)ene(cid:45)(cid:48)ts (cid:48)ncreased due to t(cid:47)e annual valuat(cid:48)on ad(cid:49)ustment(cid:8) (cid:49)e 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: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Manufacturing group: Deferred tax assets, net of valuation allowance Deferred tax liabilities Finance group (cid:82) Deferred tax liabilities Net deferred tax asset 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 that are indefinitely reinvested, totaling $1.6 billion at December 31, 2022 and $1.8 billion at January 1, 2022. Should these earnings be distributed in the future in the form of dividends or otherwise, we would be subject to withholding and local taxes 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. December 31, (cid:29)anuary 1, $ 2022 319 $ 257 209 117 108 102 53 (348) (222) (194) (99) (99) (53) (22) $ 128 $ 2022 — 313 191 175 108 103 48 (269) (204) (183) (109) (101) (73) 20 19 December 31, (cid:29)anuary 1, 2022 2022 $ $ 223 $ (52) (43) 128 $ 129 (49) (61) 19 64 Textron 2022 Annual Report 64 65 Deferred Taxes The significant components of our net deferred tax assets(cid:14)(liabilities) are provided below: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Capitalized research and development expenditures (a) U.S. operating loss and tax credit carryforwards (b) Accrued liabilities (c) Obligation for pension and postretirement benefits Deferred compensation Operating lease liabilities Non-U.S. operating loss and tax credit carryforwards (d) Prepaid pension benefits (e) Property, plant and equipment, principally depreciation Amortization of goodwill and other intangibles (cid:48)aluation allowance on deferred tax assets Operating lease right-of-use assets Other leasing transactions, principally leveraged leases Other, net Deferred taxes, net $ December 31, 2022 319 $ 257 209 117 108 102 53 (348) (222) (194) (99) (99) (53) (22) 128 $ $ (cid:29)anuary 1, 2022 — 313 191 175 108 103 48 (269) (204) (183) (109) (101) (73) 20 19 (cid:3)a(cid:4) (cid:23)(cid:45)(cid:45)ect(cid:48)ve (cid:45)or ta(cid:63) (cid:64)ears (cid:41)eg(cid:48)nn(cid:48)ng a(cid:45)ter Decem(cid:41)er (cid:13)(cid:11)(cid:6) (cid:12)(cid:10)(cid:12)(cid:11)(cid:6) researc(cid:47) and development e(cid:63)pend(cid:48)tures must (cid:41)e cap(cid:48)tal(cid:48)(cid:65)ed and amort(cid:48)(cid:65)ed (cid:45)or ta(cid:63)(cid:7)purposes as part o(cid:45) t(cid:47)e (cid:36)a(cid:63) (cid:21)uts and (cid:28)o(cid:41)s (cid:20)ct o(cid:45) (cid:12)(cid:10)(cid:11)(cid:17)(cid:8) (cid:3)(cid:41)(cid:4) (cid:20)t Decem(cid:41)er (cid:13)(cid:11)(cid:6) (cid:12)(cid:10)(cid:12)(cid:12)(cid:6) (cid:37)(cid:8)(cid:35)(cid:8) operat(cid:48)ng loss and ta(cid:63) cred(cid:48)t carr(cid:64)(cid:45)or(cid:62)ard (cid:41)ene(cid:45)(cid:48)ts o(cid:45) (cid:2)(cid:12)(cid:11)(cid:18) m(cid:48)ll(cid:48)on e(cid:63)p(cid:48)re t(cid:47)roug(cid:47) (cid:12)(cid:10)(cid:14)(cid:12) (cid:48)(cid:45) not ut(cid:48)l(cid:48)(cid:65)ed and (cid:2)(cid:13)(cid:19) m(cid:48)ll(cid:48)on ma(cid:64) (cid:41)e carr(cid:48)ed (cid:45)or(cid:62)ard (cid:48)nde(cid:45)(cid:48)n(cid:48)tel(cid:64)(cid:8) (cid:3)c(cid:4) (cid:20)ccrued l(cid:48)a(cid:41)(cid:48)l(cid:48)t(cid:48)es (cid:48)nclude (cid:62)arrant(cid:64) reserves(cid:6) sel(cid:45)(cid:7)(cid:48)nsured l(cid:48)a(cid:41)(cid:48)l(cid:48)t(cid:48)es and (cid:48)nterest(cid:8) (cid:3)d(cid:4) (cid:20)t Decem(cid:41)er (cid:13)(cid:11)(cid:6) (cid:12)(cid:10)(cid:12)(cid:12)(cid:6) non(cid:7)(cid:37)(cid:8)(cid:35)(cid:8) operat(cid:48)ng loss and ta(cid:63) cred(cid:48)t carr(cid:64)(cid:45)or(cid:62)ard (cid:41)ene(cid:45)(cid:48)ts o(cid:45) (cid:2)(cid:15)(cid:10) m(cid:48)ll(cid:48)on ma(cid:64) (cid:41)e carr(cid:48)ed (cid:45)or(cid:62)ard (cid:48)nde(cid:45)(cid:48)n(cid:48)tel(cid:64)(cid:8) (cid:3)e(cid:4) Prepa(cid:48)d pens(cid:48)on (cid:41)ene(cid:45)(cid:48)ts (cid:48)ncreased due to t(cid:47)e annual valuat(cid:48)on ad(cid:49)ustment(cid:8) (cid:49)e 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: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Manufacturing group: Deferred tax assets, net of valuation allowance Deferred tax liabilities Finance group (cid:82) Deferred tax liabilities Net deferred tax asset December 31, 2022 (cid:29)anuary 1, 2022 $ $ 223 $ (52) (43) 128 $ 129 (49) (61) 19 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 that are indefinitely reinvested, totaling $1.6 billion at December 31, 2022 and $1.8 billion at January 1, 2022. Should these earnings be distributed in the future in the form of dividends or otherwise, we would be subject to withholding and local taxes 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. Textron 2022 Annual Report 65 65 Note 18. Commitments and Contingencies Report of Independent Registered Public Accounting Firm (cid:49)e 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(cid:26) government contracts(cid:26) alleged lack of compliance with applicable laws and regulations(cid:26) disputes with suppliers, production partners or other third parties(cid:26) product liability(cid:26) patent and trademark infringement(cid:26) employment disputes(cid:26) 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. (cid:33)overnment could result in our suspension or debarment from U.S. (cid:33)overnment 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 $285 million and $213 million at December 31, 2022 and January 1, 2022, 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. (cid:49)e 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. (cid:28)ased upon information currently available, we estimate that our potential environmental liabilities are within the range of $40 million to $145 million. At December 31, 2022, environmental reserves of $74 million have been established to address these specific estimated liabilities. (cid:49)e estimate that we will likely pay our accrued environmental remediation liabilities over the next ten years and have classified $13 million as current liabilities. In 2022, 2021 and 2020, to evaluate and remediate contaminated sites, we incurred expense, net of recoveries received, of $9 million, $6 million and $7 million, respectively. Note 19. Supplemental Cash Flow Information Our cash payments and receipts are as follows: (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Interest paid: Manufacturing group Finance group Net taxes paid: Manufacturing group Finance group 2022 2021 $ 110 $ 13 128 $ 17 332 24 72 21 2020 139 20 34 8 To the Shareholders and the (cid:28)oard of Directors of Textron Inc. Opinion on the Financial Statements (cid:49)e have audited the accompanying Consolidated (cid:28)alance Sheets of Textron Inc. (the Company) as of December 31, 2022 and January 1, 2022, the related Consolidated Statements of Operations, Comprehensive Income, Shareholders’ Equity and Cash Flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule contained on page 70 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and January 1, 2022 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. (cid:49)e also have audited, in accordance with the standards of the Public Company Accounting Oversight (cid:28)oard (United States) (PCAO(cid:28)), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control (cid:82) Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 16, 2023 expressed an unqualified opinion thereon. (cid:21)asis 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. (cid:49)e are a public accounting firm registered with the PCAO(cid:28) 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 PCAO(cid:28). (cid:49)e conducted our audits in accordance with the standards of the PCAO(cid:28). 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. (cid:49)e 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. (cid:23)evenue (cid:23)ecognition (cid:5) (cid:14)stimates at (cid:12)ompletion for Select (cid:18)ong (cid:25)erm (cid:12)ontracts Descr(cid:48)pt(cid:48)on o(cid:45) t(cid:47)e As described in Note 1 to the consolidated financial statements, revenues under long-term contracts with (cid:29)atter the U.S. (cid:33)overnment 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. (cid:49)hen 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. 66 Textron 2022 Annual Report 66 67 Report of Independent Registered Public Accounting Firm To the Shareholders and the (cid:28)oard of Directors of Textron Inc. Opinion on the Financial Statements (cid:49)e have audited the accompanying Consolidated (cid:28)alance Sheets of Textron Inc. (the Company) as of December 31, 2022 and January 1, 2022, the related Consolidated Statements of Operations, Comprehensive Income, Shareholders’ Equity and Cash Flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule contained on page 70 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and January 1, 2022 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. (cid:49)e also have audited, in accordance with the standards of the Public Company Accounting Oversight (cid:28)oard (United States) (PCAO(cid:28)), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control (cid:82) Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 16, 2023 expressed an unqualified opinion thereon. (cid:21)asis 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. (cid:49)e are a public accounting firm registered with the PCAO(cid:28) 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 PCAO(cid:28). (cid:49)e conducted our audits in accordance with the standards of the PCAO(cid:28). 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. (cid:49)e 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. Descr(cid:48)pt(cid:48)on o(cid:45) t(cid:47)e (cid:29)atter (cid:23)evenue (cid:23)ecognition (cid:5) (cid:14)stimates at (cid:12)ompletion for Select (cid:18)ong (cid:25)erm (cid:12)ontracts As described in Note 1 to the consolidated financial statements, revenues under long-term contracts with the U.S. (cid:33)overnment 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. (cid:49)hen 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. Textron 2022 Annual Report 67 67 Auditing the Company’s estimated costs at completion for select long-term contracts was challenging and complex due to the judgment involved in evaluating management’s assumptions and key estimates over the duration of these long-term contracts. The estimated costs at completion for the select long- term contracts 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. (cid:26)o(cid:62) (cid:39)e (cid:20)ddressed t(cid:47)e (cid:29)atter (cid:48)n (cid:31)ur (cid:20)ud(cid:48)t (cid:49)e 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 for the select long-term contracts and related key assumptions and management’s review that the data underlying the estimated costs at completion was complete and accurate. Descr(cid:48)pt(cid:48)on o(cid:45) t(cid:47)e (cid:29)atter To test the accuracy of the Company’s estimated costs at completion for the select long-term contracts, 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. (cid:49)e also tested the completeness and accuracy of the underlying data back to source documents and contracts. Defined (cid:11)enefit (cid:22)ension (cid:21)bligations As described in Note 15 to the consolidated financial statements, at December 31, 2022, the aggregate qualified defined benefit pension obligation was $6.8 billion and the fair value of pension plan assets was $7.9 billion, resulting in a net pension asset of $1.1 billion. 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, expected return on plan assets) used in the measurement process. These assumptions have a significant effect on the projected benefit obligation. (cid:26)o(cid:62) (cid:39)e (cid:20)ddressed t(cid:47)e (cid:29)atter (cid:48)n (cid:31)ur (cid:20)ud(cid:48)t (cid:49)e 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. (cid:49)e 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 mortality 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, we assessed whether the information is consistent with publicly available information and entity-specific data. (cid:49)e 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. (cid:14)s(cid:14) Ernst (cid:5) Young LLP (cid:49)e have served as the Company’s auditor since 1957. (cid:28)oston, Massachusetts February 16, 2023 68 Textron 2022 Annual Report 2022 2021 2020 $ $ $ $ $ $ 24 $ 2 (2) 24 $ (4) — 3 36 $ (1) (11) 24 $ (9) (3) 2 25 $ 35 $ 24 $ 25 $ 370 $ 357 $ 21 (41) 40 (27) 350 $ 370 $ 29 25 (18) 36 25 7 — 3 35 309 105 (57) 357 Schedule II (cid:71) (cid:41)aluation and (cid:36)ualifying Accounts (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Allowance for credit losses on accounts receivable (cid:28)alance at beginning of year Provision (reversal) for credit losses Deductions from reserves(cid:9) (cid:28)alance at end of year Allowance for credit losses on finance receivables (cid:28)alance at beginning of year Provision (reversal) for credit losses Charge-offs Recoveries (cid:28)alance at end of year Inventory FIFO reserves (cid:28)alance at beginning of year Charged to costs and expenses Deductions from reserves(cid:9) (cid:28)alance at end of year None. Item 9A. Controls and Procedures D(cid:48)sclosure (cid:21)ontrols and Procedures (cid:5) Deduct(cid:48)ons pr(cid:48)mar(cid:48)l(cid:64) (cid:48)nclude amounts (cid:62)r(cid:48)tten o(cid:45)(cid:45) on uncollect(cid:48)(cid:41)le accounts (cid:3)less recover(cid:48)es(cid:4)(cid:6) (cid:48)nventor(cid:64) d(cid:48)sposals(cid:6) c(cid:47)anges to pr(cid:48)or (cid:64)ear est(cid:48)mates(cid:6) (cid:41)us(cid:48)ness d(cid:48)spos(cid:48)t(cid:48)ons and currenc(cid:64) translat(cid:48)on ad(cid:49)ustments(cid:8) Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure (cid:49)e performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2022. The evaluation was performed with the participation of senior management of each business segment and key Corporate functions, under the supervision of our Chairman, President and Chief Executive Officer (CEO) and our Executive (cid:48)ice President and Chief Financial Officer (CFO). (cid:28)ased on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were operating and effective as of December 31, 2022. (cid:21)(cid:47)anges (cid:48)n (cid:27)nternal (cid:21)ontrols (cid:31)ver (cid:24)(cid:48)nanc(cid:48)al (cid:34)eport(cid:48)ng 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. (cid:29)anagement(cid:66)s (cid:34)eport on (cid:27)nternal (cid:21)ontrol (cid:31)ver (cid:24)(cid:48)nanc(cid:48)al (cid:34)eport(cid:48)ng 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. (cid:49)ith 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 (cid:82) Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). (cid:28)ased on our evaluation under the 2013 Framework, we have concluded that Textron Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022. The independent registered public accounting firm, Ernst (cid:5) Young LLP (PCAO(cid:28) ID: 42), has audited the Consolidated Financial Statements of Textron Inc. and has issued an attestation report on Textron’s internal controls over financial reporting as of December 31, 2022, as stated in its report, which is included herein. 68 69 Schedule II (cid:71) (cid:41)aluation and (cid:36)ualifying Accounts (cid:3)(cid:27)n m(cid:48)ll(cid:48)ons(cid:4) Allowance for credit losses on accounts receivable (cid:28)alance at beginning of year Provision (reversal) for credit losses Deductions from reserves(cid:9) (cid:28)alance at end of year Allowance for credit losses on finance receivables (cid:28)alance at beginning of year Provision (reversal) for credit losses Charge-offs Recoveries (cid:28)alance at end of year Inventory FIFO reserves (cid:28)alance at beginning of year Charged to costs and expenses Deductions from reserves(cid:9) (cid:28)alance at end of year 2022 2021 2020 24 $ 2 (2) 24 $ 25 $ (4) — 3 24 $ 370 $ 21 (41) 350 $ 36 $ (1) (11) 24 $ 35 $ (9) (3) 2 25 $ 357 $ 40 (27) 370 $ 29 25 (18) 36 25 7 — 3 35 309 105 (57) 357 $ $ $ $ $ $ (cid:5) Deduct(cid:48)ons pr(cid:48)mar(cid:48)l(cid:64) (cid:48)nclude amounts (cid:62)r(cid:48)tten o(cid:45)(cid:45) on uncollect(cid:48)(cid:41)le accounts (cid:3)less recover(cid:48)es(cid:4)(cid:6) (cid:48)nventor(cid:64) d(cid:48)sposals(cid:6) c(cid:47)anges to pr(cid:48)or (cid:64)ear est(cid:48)mates(cid:6) (cid:41)us(cid:48)ness d(cid:48)spos(cid:48)t(cid:48)ons and currenc(cid:64) translat(cid:48)on ad(cid:49)ustments(cid:8) Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures D(cid:48)sclosure (cid:21)ontrols and Procedures (cid:49)e performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2022. The evaluation was performed with the participation of senior management of each business segment and key Corporate functions, under the supervision of our Chairman, President and Chief Executive Officer (CEO) and our Executive (cid:48)ice President and Chief Financial Officer (CFO). (cid:28)ased on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were operating and effective as of December 31, 2022. (cid:21)(cid:47)anges (cid:48)n (cid:27)nternal (cid:21)ontrols (cid:31)ver (cid:24)(cid:48)nanc(cid:48)al (cid:34)eport(cid:48)ng 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. (cid:29)anagement(cid:66)s (cid:34)eport on (cid:27)nternal (cid:21)ontrol (cid:31)ver (cid:24)(cid:48)nanc(cid:48)al (cid:34)eport(cid:48)ng 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. (cid:49)ith 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 (cid:82) Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). (cid:28)ased on our evaluation under the 2013 Framework, we have concluded that Textron Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022. The independent registered public accounting firm, Ernst (cid:5) Young LLP (PCAO(cid:28) ID: 42), has audited the Consolidated Financial Statements of Textron Inc. and has issued an attestation report on Textron’s internal controls over financial reporting as of December 31, 2022, as stated in its report, which is included herein. Textron 2022 Annual Report 69 69 Item 10. Directors, Executive Officers and Corporate Governance The information appearing under “ELECTION OF DIRECTORS — Nominees for Director,” “CORPORATE (cid:33)O(cid:48)ERNANCE — Corporate (cid:33)overnance (cid:33)uidelines and Policies,” “— Code of Ethics,” and “— (cid:28)oard Committees — (cid:20)ud(cid:48)t (cid:21)omm(cid:48)ttee,” in the Proxy Statement for our 2023 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10- The information appearing under “CORPORATE (cid:33)O(cid:48)ERNANCE — Compensation of Directors,” “COMPENSATION COMMITTEE REPORT,” “COMPENSATION DISCUSSION AND ANALYSIS” and “EXECUTI(cid:48)E COMPENSATION” in the Proxy Statement for our 2023 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10-(cid:37). Item 12. Security Ownership of Certain (cid:21)eneficial Owners and Management and Related Stoc(cid:55)holder Matters The information appearing under “SECURITY O(cid:49)NERS(cid:34)IP” and “EXECUTI(cid:48)E COMPENSATION (cid:82) Equity Compensation Plan Information” in the Proxy Statement for our 2023 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10-(cid:37). Item 13. Certain Relationships and Related Transactions and Director Independence The information appearing under “CORPORATE (cid:33)O(cid:48)ERNANCE — Director Independence” and “EXECUTI(cid:48)E COMPENSATION — Transactions with Related Persons” in the Proxy Statement for our 2023 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10-(cid:37). Item 14. Principal Accountant Fees and Services The information appearing under “RATIFICATION OF APPOINTMENT OF INDEPENDENT RE(cid:33)ISTERED PU(cid:28)LIC ACCOUNTIN(cid:33) FIRM — Fees to Independent Auditors” in the Proxy Statement for our 2023 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10-(cid:37). Report of Independent Registered Public Accounting Firm Item 9C. Disclosure Regarding Foreign (cid:29)urisdictions that Prevent Inspections To the Shareholders and the (cid:28)oard of Directors of Textron Inc. Opinion on Internal Control over Financial Reporting Not applicable. PART III (cid:49)e have audited Textron Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), (the COSO criteria). In our opinion, Textron, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. (cid:49)e also have audited, in accordance with the standards of the Public Company Accounting Oversight (cid:28)oard (United States) (PCAO(cid:28)), the Consolidated (cid:28)alance Sheets of the Company as of December 31, 2022 and January 1, 2022, and the related Consolidated Statements of Operations, Comprehensive Income, Shareholders' Equity and Cash Flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule contained on page 70, of the Company and our report dated February 16, 2023 expressed an unqualified opinion thereon. (cid:37). Item 11. Executive Compensation Information regarding our executive officers is contained in Part I of this Annual Report on Form 10-(cid:37). (cid:21)asis 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. (cid:49)e are a public accounting firm registered with the PCAO(cid:28) 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 PCAO(cid:28). (cid:49)e conducted our audit in accordance with the standards of the PCAO(cid:28). 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. (cid:49)e 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(cid:26) (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(cid:26) 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. (cid:28)ecause 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. (cid:14)s(cid:14) Ernst (cid:5) Young LLP (cid:28)oston, Massachusetts February 16, 2023 70 Textron 2022 Annual Report 70 71 Item 9C. Disclosure Regarding Foreign (cid:29)urisdictions that Prevent Inspections Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance The information appearing under “ELECTION OF DIRECTORS — Nominees for Director,” “CORPORATE (cid:33)O(cid:48)ERNANCE — Corporate (cid:33)overnance (cid:33)uidelines and Policies,” “— Code of Ethics,” and “— (cid:28)oard Committees — (cid:20)ud(cid:48)t (cid:21)omm(cid:48)ttee,” in the Proxy Statement for our 2023 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10- (cid:37). Information regarding our executive officers is contained in Part I of this Annual Report on Form 10-(cid:37). Item 11. Executive Compensation The information appearing under “CORPORATE (cid:33)O(cid:48)ERNANCE — Compensation of Directors,” “COMPENSATION COMMITTEE REPORT,” “COMPENSATION DISCUSSION AND ANALYSIS” and “EXECUTI(cid:48)E COMPENSATION” in the Proxy Statement for our 2023 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10-(cid:37). Item 12. Security Ownership of Certain (cid:21)eneficial Owners and Management and Related Stoc(cid:55)holder Matters The information appearing under “SECURITY O(cid:49)NERS(cid:34)IP” and “EXECUTI(cid:48)E COMPENSATION (cid:82) Equity Compensation Plan Information” in the Proxy Statement for our 2023 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10-(cid:37). Item 13. Certain Relationships and Related Transactions and Director Independence The information appearing under “CORPORATE (cid:33)O(cid:48)ERNANCE — Director Independence” and “EXECUTI(cid:48)E COMPENSATION — Transactions with Related Persons” in the Proxy Statement for our 2023 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10-(cid:37). Item 14. Principal Accountant Fees and Services The information appearing under “RATIFICATION OF APPOINTMENT OF INDEPENDENT RE(cid:33)ISTERED PU(cid:28)LIC ACCOUNTIN(cid:33) FIRM — Fees to Independent Auditors” in the Proxy Statement for our 2023 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10-(cid:37). Textron 2022 Annual Report 71 71 PART I(cid:41) Item 15. Exhibits and Financial Statement Schedules Financial Statements and Schedules — See Index on Page 32. Exhibits 3.1A 3.1(cid:28) 3.2 4.1A 4.1(cid:28) 4.2 NOTE: NOTE: 10.1A 10.1(cid:28) 10.1C 10.2 10.3A 10.3(cid:28) 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 (cid:43)uarterly Report on Form 10-(cid:43) 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 (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended April 2, 2011. (SEC File No. 1-5480) Amended and Restated (cid:28)y-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-(cid:37) 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-(cid:37) 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 4.1(cid:28) to Textron’s Annual Report on Form 10-(cid:37) for the fiscal year ended January 2, 2016 (SEC File No. 1-5480). Description of registrant’s securities. Incorporated by reference to Exhibit 4.6 to Textron's Annual Report on Form 10-(cid:37) for the fiscal year ended January 4, 2020. 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(cid:4) 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 (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended March 31, 2012. (SEC File No. 1-5480) Form of Non-(cid:43)ualified Stock Option Agreement. Incorporated by reference to Exhibit 10.2 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended June 30, 2007. (SEC File No. 1-5480) Form of Non-(cid:43)ualified Stock Option Agreement. Incorporated by reference to Exhibit 10.1 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended March 29, 2014. (SEC File No. 1-5480) Amended and Restated Textron Inc. Short-Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended October 3, 2020. Textron Inc. 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended July 4, 2015 (SEC File No. 1-5480). Form of Non-(cid:43)ualified Stock Option Agreement under 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended April 2, 2016 (SEC File No. 1-5480). 72 Textron 2022 Annual Report 72 10.3C 10.3D 10.3E 10.3F 10.4 10.5A 10.5(cid:28) 10.5C 10.6 10.7A 10.7(cid:28) 10.7C 10.7D 10.7E Form of Stock-Settled Restricted Stock Unit (with Dividend Equivalents) (cid:33)rant Agreement under 2015 Long- Term Incentive Plan. Incorporated by reference to Exhibit 10.2 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended April 2, 2016 (SEC File No. 1-5480). Form of Performance Share Unit (cid:33)rant Agreement under 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.3 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended April 2, 2016 (SEC File No. 1-5480). Form of Performance Share Unit (cid:33)rant Agreement under 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.2 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended April 4, 2020. Form of Stock-Settled Restricted Stock Unit (with Dividend Equivalents) (cid:33)rant Agreement under 2015 Long- Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to Textron's (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended April 4, 2020. Textron Spillover Savings Plan, effective October 5, 2015. Incorporated by reference to Exhibit 10.4 to Textron’s Annual Report on Form 10-(cid:37) for the fiscal year ended January 2, 2016 (SEC File No. 1-5480). Textron Spillover Pension Plan, As Amended and Restated Effective January 3, 2010, including Appendix A (as amended and restated effective January 3, 2010), Defined (cid:28)enefit Provisions of the Supplemental (cid:28)enefits Plan for Textron (cid:37)ey Executives (As in effect before January 1, 2007). Incorporated by reference to Exhibit 10.4 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) 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 10.5(cid:28) to Textron’s Annual Report on Form 10-(cid:37) 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-(cid:37) 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-(cid:37) for the fiscal year ended January 2, 2016 (SEC File No. 1-5480). 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-(cid:37) 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 10.8(cid:28) to Textron’s Annual Report on Form 10-(cid:37) for the fiscal year ended December 29, 2012. (SEC File No. 1-5480) 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 (cid:43)uarterly Report on Form 10-(cid:43) 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 (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended September 29, 2018. Amendment No. 4 to Deferred Income Plan for Non-Employee Directors, as Amended and Restated Effective January 1, 2009. Incorporated by reference to Exhibit 10.7E to Textron's Annual Report on Form 10-(cid:37) for the fiscal year ended January 4, 2020. Textron 2022 Annual Report 73 73 10.8A 10.8(cid:28) 10.8C 10.9 10.10 10.11A 10.11(cid:28) 10.11C 10.11D 10.12A 10.12(cid:28) 10.13 10.14A 10.14(cid:28) Severance Plan for Textron (cid:37)ey Executives, As Amended and Restated Effective January 1, 2010. Incorporated by reference to Exhibit 10.10 to Textron’s Annual Report on Form 10-(cid:37) for the fiscal year ended January 2, 2010. (SEC File No. 1-5480) First Amendment to the Severance Plan for Textron (cid:37)ey Executives, dated October 26, 2010. Incorporated by reference to Exhibit 10.10(cid:28) to Textron’s Annual Report on Form 10-(cid:37) for the fiscal year ended January 1, 2011. (SEC File No. 1-5480) Second Amendment to the Severance Plan for Textron (cid:37)ey Executives, dated March 24, 2014. Incorporated by reference to Exhibit 10.5 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) 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-(cid:37) 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 (cid:33)overnance Committee of the (cid:28)oard of Directors on July 21, 2009 and entered into with all non- employee directors, effective as of August 1, 2009 or as of such later date as the director joined the (cid:28)oard). Incorporated by reference to Exhibit 10.1 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) 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 (cid:43)uarterly Report on Form 10-(cid:43) 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 10.15(cid:28) to Textron’s Annual Report on Form 10-(cid:37) for the fiscal year ended January 3, 2009. (SEC File No. 1-5480) Amended and Restated (cid:34)angar 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 (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended October 3, 2015 (SEC File No. 1-5480). 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-(cid:37) 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 (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended October 3, 2009. (SEC File No. 1-5480) 10.15 10.16 10.17 10.18 21 23 24 31.1 31.2 32.1 32.2 101 Textron Inc. 2015 Long-Term Incentive Plan Equity Program for Non-Employee Directors. Incorporated by reference to Exhibit 10.15 to Textron's Annual Report on Form 10-(cid:37) for the fiscal year ended January 4, 2020. Director Compensation. (SEC File No. 1-5480) Form of Aircraft Time Sharing Agreement between Textron and its executive officers. Incorporated by reference to Exhibit 10.3 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended September 27, 2008. Credit Agreement, dated as of October 21, 2022, among Textron, the Lenders listed therein, JPMorgan Chase (cid:28)ank, N.A., as Administrative Agent, (cid:28)ank of America, N.A. and Citibank, N.A., as Syndication Agents, and MUF(cid:33) (cid:28)ank, Ltd., as Documentation Agent. Incorporated by reference to Exhibit 10.1 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended October 1, 2022. 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. 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 The following materials from Textron Inc.’s Annual Report on Form 10-(cid:37) for the year ended December 31, 2022, formatted in Inline X(cid:28)RL (eXtensible (cid:28)usiness Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (iii) the Consolidated (cid:28)alance 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 (cid:82) (cid:48)aluation and (cid:43)ualifying Accounts. 104 Cover Page Interactive Data File (formatted as Inline X(cid:28)RL and contained in Exhibit 101). Amended and Restated (cid:34)angar 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 (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended October 3, 2015 (SEC File No. 1-5480). Item 16. Form 10-K Summary Not applicable. Letter Agreement between Textron and Julie (cid:33). Duffy, dated July 27, 2017. Incorporated by reference to Exhibit 10.1 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended September 30, 2017. Letter Agreement between Textron and E. Robert Lupone, dated December 22, 2011. Incorporated by reference to Exhibit 10.17 to Textron’s Annual Report on Form 10-(cid:37) 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 (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended September 29, 2012. (SEC File No. 1-5480) 74 Textron 2022 Annual Report 74 75 10.15 10.16 10.17 10.18 21 23 24 31.1 31.2 32.1 32.2 101 Textron Inc. 2015 Long-Term Incentive Plan Equity Program for Non-Employee Directors. Incorporated by reference to Exhibit 10.15 to Textron's Annual Report on Form 10-(cid:37) for the fiscal year ended January 4, 2020. Director Compensation. Form of Aircraft Time Sharing Agreement between Textron and its executive officers. Incorporated by reference to Exhibit 10.3 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended September 27, 2008. (SEC File No. 1-5480) Credit Agreement, dated as of October 21, 2022, among Textron, the Lenders listed therein, JPMorgan Chase (cid:28)ank, N.A., as Administrative Agent, (cid:28)ank of America, N.A. and Citibank, N.A., as Syndication Agents, and MUF(cid:33) (cid:28)ank, Ltd., as Documentation Agent. Incorporated by reference to Exhibit 10.1 to Textron’s (cid:43)uarterly Report on Form 10-(cid:43) for the fiscal quarter ended October 1, 2022. 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-(cid:37) for the year ended December 31, 2022, formatted in Inline X(cid:28)RL (eXtensible (cid:28)usiness Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (iii) the Consolidated (cid:28)alance 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 (cid:82) (cid:48)aluation and (cid:43)ualifying Accounts. 104 Cover Page Interactive Data File (formatted as Inline X(cid:28)RL and contained in Exhibit 101). Item 16. Form 10-K Summary Not applicable. Textron 2022 Annual Report 75 75 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-(cid:37) has been signed below on this 16th day of February 2023 by the following persons on behalf of the registrant and in the capacities indicated: 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-(cid:37) to be signed on its behalf by the undersigned, thereunto duly authorized on this 16th day of February 2023. Name Title TEXTRON INC. Registrant (cid:28)y: (cid:14)s(cid:14) Frank T. Connor Frank T. Connor Executive (cid:48)ice President and Chief Financial Officer (cid:14)s(cid:14) Scott C. Donnelly Scott C. Donnelly Chairman, President and Chief Executive Officer (principal executive officer) (cid:9) (cid:9) (cid:9) (cid:9) (cid:9) (cid:9) (cid:9) (cid:9) (cid:9) (cid:9) Richard F. Ambrose Director (cid:37)athleen M. (cid:28)ader Director R. (cid:37)erry Clark Director James T. Conway Director Ralph D. (cid:34)eath Director Deborah Lee James Director Thomas A. (cid:37)ennedy Director Lionel L. Nowell III Director James L. Ziemer Director Maria T. Zuber Director (cid:14)s(cid:14) Frank T. Connor Frank T. Connor (cid:14)s(cid:14) Mark S. (cid:28)amford Mark S. (cid:28)amford Executive (cid:48)ice President and Chief Financial Officer (principal financial officer) (cid:48)ice President and Corporate Controller (principal accounting officer) (cid:9)(cid:28)y: (cid:14)s(cid:14) Jayne M. Donegan Jayne M. Donegan, Attorney-in-fact 76 Textron 2022 Annual Report 76 77 Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-(cid:37) has been signed below on this 16th day of February 2023 by the following persons on behalf of the registrant and in the capacities indicated: Name Title (cid:14)s(cid:14) Scott C. Donnelly Scott C. Donnelly (cid:9) Chairman, President and Chief Executive Officer (principal executive officer) Richard F. Ambrose Director (cid:9) (cid:37)athleen M. (cid:28)ader Director (cid:9) R. (cid:37)erry Clark (cid:9) Director James T. Conway Director (cid:9) Ralph D. (cid:34)eath (cid:9) Director Deborah Lee James Director (cid:9) Thomas A. (cid:37)ennedy Director (cid:9) Lionel L. Nowell III Director (cid:9) James L. Ziemer Director (cid:9) Maria T. Zuber (cid:14)s(cid:14) Frank T. Connor Frank T. Connor (cid:14)s(cid:14) Mark S. (cid:28)amford Mark S. (cid:28)amford Director Executive (cid:48)ice President and Chief Financial Officer (principal financial officer) (cid:48)ice President and Corporate Controller (principal accounting officer) (cid:9)(cid:28)y: (cid:14)s(cid:14) Jayne M. Donegan Jayne M. Donegan, Attorney-in-fact Textron 2022 Annual Report 77 77 NOTES 78 Textron 2022 Annual Report NOTES Textron 2022 Annual Report 79 NOTES 80 Textron 2022 Annual Report CORPORATE INFORMATION CORPORATE HEADQUARTERS Textron Inc. 40 Westminster Street Providence, RI 02903 (401) 421-2800 www.textron.com ANNUAL MEETING Textron’s annual meeting of shareholders will be held on Wednesday, April 26, 2023, at 11 a.m. virtually at www.virtualshareholdermeeting.com/TXT2023. TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT For shareholder services such as change of address, lost certificates or dividend checks, change in registered ownership or the Dividend Reinvestment Plan, write or call: American Stock Transfer & Trust Company, LLC Operations Center 6201 15th Avenue Brooklyn, NY 11219 phone: (866) 621-2790 email: info@amstock.com STOCK EXCHANGE INFORMATION (Symbol: TXT) Textron common stock is listed on the New York Stock Exchange. INVESTOR RELATIONS Textron Inc. Investor Relations 40 Westminster Street Providence, RI 02903 Email address: irdepartment@textron.com Investor Relations phone line: (401) 457-2288 News media phone line: (401) 457-2362 For more information, visit our website at www.textron.com. COMPANY PUBLICATIONS AND GENERAL INFORMATION To receive a copy of Textron’s Forms 10-K and 10-Q, Proxy Statement or Annual Report without charge, visit our website at www.textron.com or send a written request to Textron Investor Relations at the street or email address listed above. For the most recent company news and earnings press releases, visit our website at www.textron.com. Textron is an Equal Opportunity Employer. TEXTRON BOARD OF DIRECTORS To contact the Textron Board of Directors or to report concerns or complaints about accounting, internal accounting controls or auditing matters, you may write to Board of Directors, Textron Inc., 40 Westminster Street, Providence, RI 02903; call (866) 698-6655; or send an email to textrondirectors@textron.com. Textron Inc. and the names of its subsidiaries, businesses and operating divisions, abbreviations thereof, and their logos and product and service designators are either the registered or unregistered trademarks or trade names of Textron Inc. and its subsidiaries. Names of other companies, abbreviations thereof, and logos and product and services designators of other companies are either the registered or unregistered trademarks or trade names of their respective owners. Textron provides a multimedia interactive version of the Annual Report in the Investor Resources section of its website at www.textron.com. www.textron.com © 2023 Textron Inc. 

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