2017 ANNUAL REPORT ANNUAL 2017
2017 ANNUAL REPORT Textron’s Diverse Product Portfolio Textron is known around the world for its powerful brands of aircraft, defense and industrial products that provide customers with groundbreaking technologies, innovative solutions and first-class service.
TEXTRON AVIATION BELL HELICOPTER INDUSTRIAL TEXTRON SYSTEMS
Citation Longitude® Bell V-280 Valor Arctic Cat M8000 Mountain Cat Ship-to-Shore Connector (SSC)
Citation Latitude® Bell-Boeing V-22 Osprey E-Z-GO RXV® ELiTETM NIGHTWARDENTM TUAS
Textron Aviation Defense Scorpion® Bell 525 Relentless Jacobsen® HF600TM Heavy-Duty Fairway Mower Aerosonde® SUAS
Cessna SkyCourierTM Bell 429 Global Ranger Greenlee® Gator® Next Gen Battery Tools Lycoming Engines 390 ThunderboltTM
Beechcraft® King Air® 350i Bell 505 Jet Ranger X Kautex Fuel Tank TRU’s Boeing 737 MAX Full Flight Simulator
Cessna Skylane® Bell AH-1Z Viper Textron GSE TUG MT Fury® Precision Weapon System Textron’s Global Network of Businesses
TEXTRON AVIATION BELL HELICOPTER INDUSTRIAL TEXTRON SYSTEMS FINANCE
Textron Aviation is home Bell Helicopter is the Our Industrial segment Textron Systems’ Our Finance segment, to the Beechcraft®, world’s leading supplier offers three main product businesses provide operated by Textron Cessna® and Hawker® of helicopters and lines: fuel systems and innovative solutions to Financial Corporation aircraft brands and related spare parts functional components the defense, aerospace (TFC), is a commercial continues to be a leader and services. Bell produced by Kautex; and general aviation finance business that in general aviation is the pioneer of the specialized vehicles markets. Product lines provides financing through two principal revolutionary tiltrotor such as golf cars, include unmanned solutions for purchasers lines of business: aircraft aircraft. Globally recreational and utility systems, advanced of Textron products, and aftermarket. Aircraft recognized for world- vehicles, aviation ground marine craft, armored primarily Textron includes sales of business class customer service, support equipment and vehicles, intelligent Aviation aircraft and Bell jet, turboprop and piston innovation and superior professional mowers, software solutions, helicopters. For more aircraft, as well as special quality, Bell’s global manufactured by Textron piston engines, than five decades, TFC mission and military aircraft. workforce serves Specialized Vehicles simulation, training has played a key role Aftermarket includes customers flying Bell businesses; and tools and other defense and for Textron customers commercial parts sales, aircraft in more than and test equipment made aviation mission support around the globe. maintenance, inspection 130 countries. by the Textron Tools & products and services. and repair services. Test companies.
SELECTED YEAR-OVER-YEAR FINANCIAL DATA
(Dollars in Millions, Except Per Share Amounts) 2017 2016 Total Revenues $14,198 $13,788 Total Segment Profit 1,169 1,309 Income from Continuing Operations—GAAP 306 843 Adjusted Income from Continuing Operations—Non-GAAP1 658 715 PER SHARE OF COMMON STOCK Common Stock Price: High $ 57.71 $ 49.82 Low 43.66 30.69 Year-End 56.59 48.56 Diluted Earnings from Continuing Operations—GAAP 1.14 3.09 Adjusted Diluted Earnings from Continuing Operations—Non-GAAP1 2.45 2.62
COMMON SHARES OUTSTANDING (In Thousands) Diluted Average 268,750 272,365 Year-End 261,471 270,287 FINANCIAL POSITION Total Assets $15,340 $15,358 Manufacturing Group Debt 3,088 2,777 Finance Group Debt 824 903 Shareholders’ Equity 5,647 5,574 Manufacturing Group Debt-to-Capital (Net of Cash) 26% 23% Manufacturing Group Debt-to-Capital 35% 33% KEY PERFORMANCE METRICS Net Cash Provided by Operating Activities of Continuing Operations for Manufacturing Group—GAAP $ 947 $ 988 Manufacturing Cash Flow Before Pension Contributions—Non-GAAP1 889 573
1. Adjusted Income from Continuing Operations, Adjusted Diluted Earnings Per Share from Continuing Operations and Manufacturing Cash Flow Before Pension Contributions are Non-GAAP Measures. See page 7 for a Reconciliation to GAAP.
Textron 2017 Annual Report 1 FELLOW SHAREHOLDERS,
It was a year of transition for its newest large-cabin jet, the Citation Longitude, our company as we put into for FAA certification and entry into service, which is place the building blocks that expected in early 2018. position us for growth in 2018 In addition to flight testing during the year, the first and beyond. production Longitude debuted at major business The achievements of aviation shows around the world and embarked on milestones within our new a 46-city demonstration tour across the U.S. The product programs, most Longitude follows the success of the Citation Latitude, Scott C. Donnelly notably, the first flight of the Chairman and the company’s first Citation large-cabin jet that entered Bell V-280 Valor and first Chief Executive Officer service in 2015 and achieved its milestone 100th delivery of the Bell 505 customer delivery during the fourth quarter of 2017. Jet Ranger X; introductions of new products like the In November, Textron Aviation introduced the Cessna Cessna SkyCourier turboprop; and our acquisition of SkyCourier, a new twin-engine, large-utility turboprop. Arctic Cat to expand our Textron Specialized Vehicles Textron Aviation collaborated with FedEx Express to product portfolio and dealer network all represented develop the performance specifications for the cargo progress in our long-term growth strategy. This resulted version of the SkyCourier and signed on as its launch in 2017 revenues of $14.2 billion, a 3.0% increase customer with an initial order for 50 aircraft and an over the previous year, and segment profit of $1.2 billion option to order 50 more. with a profit margin of 8.2%. Textron Aviation also continued development of the single-engine Cessna Denali turboprop. These new GROWTH THROUGH NEW PRODUCTS aircraft, together with the King Air and Caravan product lines, will represent the most comprehensive turboprop With the knowledge that innovation and new product product lineup in the market and provide our customers development are the lifeblood of our company, our with solutions to their aircraft needs for years to come. businesses maintained their focus in these key areas. On the military side at Textron Aviation, our Scorpion Understanding our customers and the trends that will jet and AT-6 Wolverine both performed extremely help shape their future needs have been hallmarks of well during August’s U.S. Air Force (USAF) OA-X light our businesses. Textron Aviation continued to prepare
2017 MILESTONES JANUARY FEBRUARY MARCH APRIL MAY JUNE
E-Z-GO RXV® ELiTETM series vehicle is Textron completes acquisition of Arctic Cat. introduced.
Bell Training Academy in Valencia, Spain Bell Helicopter delivers first Bell 505 Jet achieves EASA certification. Ranger X at Heli-Expo. 2 Textron 2017 Annual Report generation of vertical lift for the U.S. military through the Joint Multi-Role Technology Demonstrator initiative. Throughout the year, both our U.S. Army and foreign government customers experienced the V-280 mockup complete with virtual reality flights. On the commercial side, customers began taking deliveries of Bell’s newest aircraft, the Bell 505 Jet Ranger X, and flight testing
Textron Aviation employees celebrated the rollout of the 100th production Cessna Citation resumed for the Bell 525 Relentless program. Latitude, accomplishing the feat in less than 2.5 years. With the acquisition of Arctic Cat in March, Textron Specialized Vehicles significantly expanded its product attack demonstration program at Holloman Air Force lineup of off-road vehicles, snowmobiles and its dealer Base in New Mexico. This exercise represented an network, while introducing new products like the important step in the USAF’s evaluation of its needs Havoc X side-by-side and the Arctic Cat ZR200 youth for a future light attack fleet. snowmobile. TSV also introduced the new E-Z-GO At Bell Helicopter, capping a successful year of ELiTE golf car powered by a lithium-ion battery. This development and testing, the Bell V-280 Valor completed new technology has been well-received among golf its first flight in December. With this achievement, the course owners and fleet managers around the world, V-280 comes one step closer to realizing the next lowering maintenance costs and emissions, while reducing the weight of the E-Z-GO ELiTE. Drawing on decades of successful unmanned aircraft systems products, including the Shadow Tactical Unmanned Aircraft System (TUAS) with more than one million flight hours, Textron Systems introduced the new NIGHTWARDEN TUAS as its next-generation platform. Within our Textron Tools & Test businesses, product development teams leveraged their expertise and relationships with customers to introduce new products throughout the businesses’ sales channels. Greenlee
The United States Marine Corps received a special delivery from Bell Helicopter—our 350th launched new automated equipment to drive speed V-22 Osprey tiltrotor aircraft. and safety for electrical contractors, Sherman + Reilly
JANUARY FEBRUARY MARCH APRIL MAY JUNE
Bell Helicopter unveils FCX-001 concept Textron Aviation fabricates the first test Textron Systems’ NIGHTWARDENTM TUAS helicopter. components for Cessna Denali. is introduced.
TRU’s first-ever Boeing 737 MAX Full Flight Klauke opens second production facility Simulator receives qualification. in Slovakia. Textron 2017 Annual Report 3 developed a new remote-controlled underground cable was awarded a Foreign Military Sales contract for its puller and Klauke, with its flagship battery-powered Aerosonde Small Unmanned Aircraft System (SUAS), hydraulic tool technology, teamed with several OEM marking the first international sale for this platform. partners to access new market segments. Kautex continued to expand its presence in China with its technological prowess, winning contracts with STRONGER GLOBAL SALES AND Shanghai Automotive Industry Corporation (SAIC) SERVICE OPERATIONS for seven new vehicle programs. Working closely with SAIC, Kautex created a single-tank solution for three With a strong lineup of products and a local presence fuel tank applications that reduced engineering, testing around the world, we captured new business in highly and development costs. In two of the new programs, competitive market segments. Kautex will employ its proven pressurized hybrid fuel Bell Helicopter continued its rapid growth in China. systems for SAIC’s plug-in hybrid models. The first deliveries of 100 Bell 407GXP helicopters TRU Simulation + Training expanded its general aviation to Shaanxi Helicopter began as part of a deal training solutions programs, receiving full program announced in June. Also, Reignwood International certification for its Citation Latitude and King Air 350 pilot Investment Group Company Ltd. of China placed training programs and expanding its ProFlight Training two orders for a total of 110 Bell 505 Jet Ranger X Center in Tampa. helicopters and announced plans to establish a Bell Helicopter also continued to make investments in Bell 505 delivery and maintenance center in China. its customer service capabilities, achieving certification Our improving sales in China stem from our hard from the European Aviation Safety Agency in January work and commitment to developing this emerging of its Bell Training Academy in Valencia, Spain, which commercial rotorcraft market. includes a Bell 429 simulator for European customers Bell Helicopter also executed on two Foreign Military who now have a more convenient training resource. Sales contracts: the first three of 12 H-1 helicopters For the 23rd consecutive year, Bell Helicopter was were delivered to the U.S. Navy for Pakistan and the ranked first in the Professional Pilot survey of helicopter first of 17 V-22 tiltrotor aircraft was delivered to the operators, a testament to continuously improving its U.S. Navy for Japan. Meanwhile, Textron Systems level of customer service and support.
JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
China’s Shaanxi Helicopter to purchase Textron Off Road announces a powerful 100 Bell 407GXPs. new lineup of off-road vehicle models.
Textron Aviation Defense Scorpion® and First of 17 Bell V-22 Osprey tiltrotors for AT-6 Wolverine participate in USAF OA-X Japan is delivered. 4 Textron 2017 Annual Report experimentation program. Textron Systems won new contracts to provide TOTAL REVENUE BY SEGMENT maintenance and support for our military customers, including a five-year contract to provide training and TEXTRON AVIATION maintenance in support of USAF and Afghan Air Force INDUSTRIAL C-208B Caravans. The business also won a separate BELL 2 contract to supply support and technical services for TEXTRON S STEMS the Shadow TUAS and secured its first international FINANCE sustainment and support contract with the Italian Army for the Shadow V2.
DRIVING GROWTH THROUGH DISCIPLINED EXECUTION TOTAL REVENUE BY TYPE
In 2017, we continued to move forward with new COMMERCIAL technologies, processes and programs that enabled us U.S. GOVERNMENT 22 to innovate in order to better serve our customers and OTHER MILITAR markets. These initiatives, combined with our ongoing FINANCE investments in new products and the integration of
strategic acquisitions, put us in a good position for future growth. Our success will come from leveraging these investments through consistent execution in all phases of our operations. With the continued support of our TOTAL REVENUE BY REGION employees, customers and investors, we see exciting U.S. 62 growth opportunities across the company. EUROPE ASIA PACIFIC LATIN AMERICA AND MEXICO 6
CANADA 6
MIDDLE EAST 2
AFRICA Scott C. Donnelly Chairman and Chief Executive Officer
JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
Delivery of 100th Citation Latitude® to HavocTM X, Textron Off Road’s newest side- NetJets. by-side with 100-hp engine, is launched.
Cessna SkyCourierTM is introduced with First flight of Bell V-280 Valor FedEx Express as launch customer. next-generation tiltrotor. Textron 2017 Annual Report 5 Leadership
Board of Directors
Scott C. Donnelly (1) Lawrence K. Fish (3) (4) Lloyd G. Trotter (1) (4) Numbers Indicate Committee Chairman, President and CEO Chairman and CEO (Retired) Managing Partner Memberships: Textron Inc. Citizens Financial Group, Inc. GenNx 360 Capital Partners (1) Executive Committee: Chair, Scott C. Donnelly Kathleen M. Bader (1) (3) (5) Paul E. Gagné (2) (4) James L. Ziemer (2) (4) President and CEO (Retired) Chairman (Retired) President and CEO (Retired) (2) Audit Committee: NatureWorks LLC Wajax Corporation Harley-Davidson, Inc. Chair, R. Kerry Clark (3) Nominating and Corporate (1) (2) (2) (4) (3) (4) R. Kerry Clark Ralph D. Heath Maria T. Zuber Governance Committee: Chairman and CEO (Retired) Executive Vice President, Vice President, Research Chair, Kathleen M. Bader Cardinal Health, Inc. Aeronautics (Retired) Massachusetts Institute of (4) Organization and Lockheed Martin Corporation Technology James T. Conway (2) (3) Compensation Committee: Chair, Lloyd G. Trotter General (Retired) Deborah Lee James (2) (3) U.S. Marine Corps 23rd Secretary of the (5) Lead Director: U.S. Air Force (Retired) Kathleen M. Bader Ivor J. Evans (2) (3) Operating Partner (Retired) HCI Equity Partners
Segment and Executive Business Unit Corporate Officers Presidents Officers
Scott C. Donnelly Lisa M. Atherton Mark S. Bamford Thomas N. Nichipor Chairman, President and President and CEO Vice President and Vice President – Chief Executive Officer Textron Systems Segment Corporate Controller Textron Audit Services Textron Inc. Textron Inc. Textron Inc. Russ Bartlett Frank T. Connor President and CEO Dana L. Goldberg Elizabeth C. Perkins Executive Vice President and Textron Airborne Solutions Vice President – Tax Vice President and Chief Financial Officer Textron Inc. Deputy General Counsel Jason Butchko Textron Inc. Textron Inc. President and CEO Scott P. Hegstrom Julie G. Duffy Greenlee Textron Inc., Vice President – Eric Salander Executive Vice President – Sherman + Reilly Inc., and Mergers & Acquisitions Vice President – Investor Human Resources HD Electric Company Textron Inc. Relations and Treasurer Textron Inc. Textron Inc. Scott A. Ernest Stewart Holmes E. Robert Lupone President and CEO Senior Vice President – Diane K. Schwarz Executive Vice President, Textron Aviation Washington Operations Vice President and General Counsel, Secretary and Chief Information Officer Kevin P. Holleran Lawrence J. La Sala Chief Compliance Officer Textron Inc. President and CEO Vice President and Textron Inc. Industrial Segment and Textron Deputy General Counsel – Cathy A. Streker Specialized Vehicles Litigation Vice President – Human Resources R. Danny Maldonado Paul A. Mc Gartoll Textron Inc. President and CEO Vice President – Strategy and Textron Financial Corporation Business Development Textron Inc. Jörg Rautenstrauch President and CEO Kautex Mitch Snyder President and CEO Bell Helicopter Ian K. Walsh President and CEO TRU Simulation + Training Inc. 6 Textron 2017 Annual Report Footnote To Selected Year-Over-Year Financial Data
Adjusted Income from Continuing Operations and Adjusted Diluted Earnings Per Share from Continuing Operations Adjusted income from continuing operations and adjusted diluted earnings per share from continuing operations both exclude special charges, net of income taxes, the income tax impact from the enactment of the Tax Cuts and Jobs Act (the “Act”) and a significant multi-year income tax settlement. We consider items recorded in special charges, net of income taxes, such as enterprise-wide restructuring and acquisition-related restructuring, integration and transaction costs, to be of a non-recurring nature that is not indicative of ongoing operations. In addition, both the impact from the Act and the income tax settlement are not considered to be indicative of ongoing operations, since they represent significant one-time adjustments.
(Dollars in millions except per share amounts) 2017 2016 Income from Continuing Operations—GAAP $ 306 $843 Restructuring, net of taxes 59 78 Arctic Cat restructuring, integration and transaction costs, net of taxes 27 — Total special charges, net of taxes 86 78 Income tax expense resulting from the Tax Cuts and Jobs Act 266 — Income tax settlement — (206) Adjusted Income from Continuing Operations—Non-GAAP $ 658 $ 715 Diluted Earnings Per Share: Income from Continuing Operations—GAAP $1.14 $3.09 Restructuring, net of taxes 0.22 0.29 Arctic Cat restructuring, integration and transaction costs, net of taxes 0.10 — Total special charges, net of taxes 0.32 0.29 Income tax expense resulting from the Tax Cuts and Jobs Act 0.99 — Income tax settlement — (0.76) Adjusted Income from Continuing Operations—Non-GAAP $2.45 $2.62
Manufacturing Cash Flow Before Pension Contributions Manufacturing cash flow before pension contributions adjusts net cash from operating activities of continuing operations (GAAP) for the following: •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; •Deducts capital expenditures and includes proceeds from the sale of property, plant and equipment to arrive at the net capital investment required to support ongoing manufacturing operations; •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.
(In Millions) 2017 2016
Net Cash Provided By Operating Activities of Continuing Operations—GAAP $ 947 $ 988 Less: Capital expenditures (423) (446) Dividends received from TFC — (29) Plus: Total pension contributions 358 50 Proceeds from the sale of property, plant and equipment 7 10 Manufacturing Cash Flow Before Pension Contributions—Non-GAAP $ 889 $ 573
Textron 2017 Annual Report 7 8 Textron 2017 Annual Report
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
Form 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2017 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 1-5480
Textron Inc. (Exact name of registrant as specified in its charter)
Delaware 05-0315468 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
40 Westminster Street, Providence, RI 02903 (Address of principal executive offices) (Zip code)
Registrant’s Telephone Number, Including Area Code: (401) 421-2800
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered Common Stock — par value $0.125 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ✓ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No ✓
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ✓ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ✓ No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ✓ ]
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 [ ✓ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ] Emerging growth company [ ] (do not check if smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No ✓
The aggregate market value of the registrant’s Common Stock held by non-affiliates at July 1, 2017 was approximately $12.5 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 3, 2018, 261,771,970 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 25, 2018. Textron 2017 Annual Report 1
Textron Inc. Index to Annual Report on Form 10-K For the Fiscal Year Ended December 30, 2017
PART I Page Item 1. usiness Item 1A. Risk actors 1
Item 1 . nresolved Staff Comments 1
Item 2. roperties 1
Item . egal roceedings 1
Item . ine Safety isclosures 1
PART II Item . Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer urchases of uity Securities 1
Item . Selected inancial ata 1
Item . Management’s Discussion and Analysis of Financial Condition and Results of Operations 1 Item A. uantitative and ualitative isclosures About arket Risk
Item . inancial Statements and Supplementary ata
Item . Changes In and isagreements ith Accountants on Accounting and inancial isclosure 1 Item A. Controls and rocedures 1
PART III Item 1 . irectors, xecutive fficers and Corporate overnance
Item 11. xecutive Compensation
Item 12. Security wnership of Certain eneficial wners and anagement and Related Stockholder atters
Item 1 . Certain Relationships and Related Transactions and irector Independence
Item 1 . rincipal Accountant ees and Services
PART IV Item 1 . xhibits and inancial Statement Schedules
Item 1 . orm 1 Summary
Signatures
2 Textron 2017 Annual Report 2
PART I
Item 1. Business
e tron nc is a multi industry company that le erages its glo al net ork of aircraft, defense, industrial and finance usinesses to pro ide customers ith inno ati e products and ser ices around the orld e ha e appro imately , employees orld ide e tron nc as founded in and reincorporated in Dela are on uly , nless other ise indicated, references to “Textron Inc.,” the “Company,” “we,” “our” and “us” in this Annual Report on Form 10 refer to e tron nc and its consolidated su sidiaries
e conduct our usiness through fi e operating segments e tron A iation, ell, e tron Systems and ndustrial, hich represent our manufacturing usinesses, and Finance, hich represents our finance usiness A description of the usiness of each of our segments is set forth elo Our usiness segments include operations that are unincorporated di isions of e tron nc and others that are separately incorporated su sidiaries Financial information y usiness segment and geographic area appears in ote to the Consolidated Financial Statements on pages through of this Annual Report on Form he follo ing description of our business should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages through of this Annual Report on Form nformation included in this Annual Report on Form refers to our continuing usinesses unless other ise indicated
Textron Aviation Segment e tron A iation is a leader in general a iation e tron A iation manufactures, sells and ser ices eechcraft and Cessna aircraft, and ser ices the a ker rand of usiness ets he segment has t o principal product lines aircraft and aftermarket Aircraft includes sales of usiness ets, tur oprop aircraft, piston engine aircraft, and military trainer and defense aircraft Aftermarket includes commercial parts sales, and maintenance, inspection and repair ser ices Re enues in the e tron A iation segment accounted for 33%, 36% and 36% of our total revenues in 2017, 2016 and 2015, respectively. Revenues for Textron Aviation’s principal lines of usiness ere as follo s
(In millions) 2017 2016 2015 Aircraft , , , Aftermarket , , , otal re enues , , ,
he family of ets currently produced y e tron A iation includes the Citation M , Citation C , Citation C , Citation S , Citation atitude, Citation So ereign , and the Citation , the fastest ci ilian et in the orld n addition, the ne Citation ongitude, a super midsi e et hich achie ed first flight in Octo er , is e pected to enter into ser ice in early e tron A iation is also continuing the de elopment of the Citation emisphere, a large ca in et
Textron Aviation’s turboprop aircraft include the Beechcraft King Air C90GTx, King Air 250, King Air 350ER and King Air 350i, and the Cessna Cara an and rand Cara an E he Cessna Denali, a high performance single engine tur oprop aircraft, is e pected to achie e its first flight in n addition, e tron A iation recently announced the Cessna Skycourier, a t in engine, high ing, large utility tur oprop aircraft, hich is targeted for first flight in e tron A iation’s piston engine aircraft include the eechcraft aron and onan a, and the Cessna Skyha k, Skylane, and the ur o Stationair
e tron A iation also offers the trainer, hich is used to train pilots from more than countries, the A light attack military aircraft, and the Scorpion he Scorpion is a highly afforda le, multi mission aircraft designed primarily for the tactical military et a iation market his aircraft is not yet in production, pending customer orders
n support of its family of aircraft, e tron A iation operates a glo al net ork of ser ice centers, t o of hich are co located ith ell elicopter, along ith more than authori ed independent ser ice centers located throughout the orld e tron A iation o ned ser ice centers pro ide customers ith hour ser ice and maintenance e tron A iation also pro ides its customers ith around the clock parts support and offers a mo ile support program ith o er mo ile ser ice units and se eral dedicated support aircraft n addition, A le Aerospace Ser ices, nc , a su sidiary of e tron A iation, also pro ides component and maintenance, repair and o erhaul ser ices in support of commercial and military fi ed and rotor ing aircraft
Textron 2017 Annual Report 3
Textron Aviation mar ets its products worldwide through its own sales force, as well as through a networ of authori ed independent sales representatives. Textron Aviation has several competitors domestically and internationally in various mar et segments. Textron Aviation’s aircraft compete with other aircraft that vary in si e, speed, range, capacity and handling characteristics on the basis of price, product uality and reliability, direct operating costs, product support and reputation.
Bell Segment Bell elicopter is one of the leading suppliers of military and commercial helicopters, tiltrotor aircraft, and related spare parts and services in the world. Revenues for Bell accounted for 23%, 23% and 26% of our total revenues in 2017, 2016 and 2015, respectively. Revenues by Bell’s principal lines of business were as follows
(In millions) 2017 2016 2015 Military 22 rogram 1,129 1,151 1,19 Other Military 9 7 936 39 Commercial 1,2 1 1,152 1, 21 Total revenues 3,317 3,239 3, 5
Bell supplies advanced military helicopters and support to the . . Government and to military customers outside the nited tates. Bell’s primary U.S. Government programs are the V 22 tiltrotor aircraft and the 1 helicopters. Bell is one of the leading suppliers of helicopters to the . . Government and, in association with The Boeing Company Boeing , the only supplier of military tiltrotor aircraft. Tiltrotor aircraft are designed to provide the benefits of both helicopters and fixed wing aircraft. Through its strategic alliance with Boeing, Bell produces and supports the 22 tiltrotor aircraft for the . . Department of Defense DoD , and also for apan under the . . Government sponsored foreign military sales program. The 1 helicopter program includes a utility model, the 1 , and an advanced attac model, the A 1 , which have % parts commonality between them. hile the . . Marine Corps is the primary customer for 1 helicopters, we also sell 1 helicopters under the . . Government sponsored foreign military sales program.
Bell is developing the 2 0 alor, a next generation vertical lift aircraft as part of the oint Multi Role Technology Demonstrator MR TD initiative. The MR TD program is the science and technology precursor to the Department of Defense s Future ertical ift program. Aircraft designed through this initiative will compete to replace thousands of aging utility and attac helicopters for the . . Armed Forces over the next decade. The 2 0 achieved its first flight in December 2017.
Through its commercial business, Bell is a leading supplier of commercially certified helicopters and support to corporate, offshore petroleum exploration and development, utility, charter, police, fire, rescue and emergency medical helicopter operators, and foreign governments. Bell produces a variety of commercial aircraft types, including light single and twin engine helicopters and medium twin engine helicopters, along with other related products. The helicopters currently offered by Bell for commercial applications include the 407GXP, 412EP, 412EPI, 429, 429WLG, 505 Jet Ranger X and Huey II. In addition, the 525 Relentless, Bell’s first super medium commercial helicopter, is expected to achieve certification in 2019.
For both its military programs and its commercial products, Bell provides post sale support and service for an installed base of approximately 13,000 helicopters through a networ of five Bell operated service centers, four global parts distribution centers and over 100 independent service centers located in 35 countries. Collectively, these service sites offer a complete range of logistics support, including parts, support e uipment, technical data, training devices, pilot and maintenance training, component repair and overhaul, engine repair and overhaul, aircraft modifications, aircraft customi ing, accessory manufacturing, contractor maintenance, field service and product support engineering.
Bell competes against a number of competitors throughout the world for its helicopter business and its parts and support business. Competition is based primarily on price, product uality and reliability, product support, performance and reputation.
4 Textron 2017 Annual Report
Textron Systems Segment Textron Systems’ product lines consist of unmanned systems, marine and land systems, and simulation, training and other defense and aviation mission support products and services. e tron Systems is a supplier to the defense, aerospace and general aviation mar ets, and represents 1 , 1 and 11 of our total revenues in 2017, 201 and 2015, respectively. his segment sells its products to U.S. Government customers and to customers outside the U.S. through foreign military sales sponsored by the U.S. Government and directly through commercial sales channels. e tron Systems competes on the basis of technology, contract performance, price, product quality and reliability, product support and reputation. Revenues by Textron Systems’ product lines ere as follo s
(In millions) 2017 2016 2015 Unmanned Systems 714 7 arine and Land Systems 470 294 1 Simulation, raining and ther 5 99 4 otal revenues 1, 40 1,75 1,520
Unmanned Systems ur Unmanned Systems product line includes the offerings of the Unmanned Systems and Support Solutions businesses. he Unmanned Systems business has designed, manufactured and fielded combat proven unmanned aircraft systems for more than 25 years. his business’s products include the U.S. Army’s premier tactical unmanned aircraft system, the Shadow, which has surpassed one million flight hours since its introduction, and the Aerosonde Small Unmanned Aircraft System, a multi mission capable unmanned aircraft system that has amassed more than 200,000 flight hours in commercial and military operations around the orld. In addition, its unmanned aircraft and interoperable command and control technologies provide critical situational a areness and actionable intelligence for users orld ide. ur Support Solutions business provides logistical support for various unmanned systems as ell as training and supply chain services to government and commercial customers orld ide.
Marine and Land Systems ur arine and Land Systems product line includes advanced marine craft, armored vehicles, turrets and related subsystems, in service ith U.S. and international militaries, special operations forces, police forces and civilian entities. arine and Land Systems’ primary U.S. Government program is for the development and production of the U.S. Navy’s next generation Landing Craft Air ushion as part of the Ship to Shore onnector program.
Simulation, Training and Other ur Simulation, raining and ther product line includes products and services from five businesses RU Simulation raining, e tron Airborne Solutions, Electronic Systems, Lycoming, and Weapons and Sensors.
RU Simulation raining designs, develops, manufactures, installs, and provides maintenance of advanced flight training course are and devices, including full flight simulators, for both rotary and fi ed ing aircraft for commercial airlines, aircraft original e uipment manufacturers E s , flight training centers and training organi ations orld ide. hrough its training centers, RU Simulation raining provides initial type rating and recurrency training for pilots, as ell as maintenance training in its Aviation aintenance raining Academy. e tron Airborne Solutions, hich includes Airborne actical Advantage ompany, focuses on live military air to air and air to ship training and support services for U.S. avy, arine and Air orce pilots. Electronic Systems provides high technology test e uipment, electronic arfare test and training solutions and intelligence soft are solutions for U.S. and international defense, intelligence and la enforcement communities.
Lycoming speciali es in the engineering, manufacture, service and support of piston aircraft engines for the general aviation and remotely piloted aircraft mar ets. Weapons and Sensors offers advanced precision guided eapons systems, airborne and ground based sensors and surveillance systems, and protection systems for the defense and aerospace industries.
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Industrial Segment ur ndustrial segment designs and manufactures a variety of products within three principal product lines. ndustrial segment revenues, which represented , and of our total revenues in , and , respectively, were as follows
(In millions) 2017 2016 2015 uel Systems and unctional Components , , , Speciali ed ehicles , , , Tools and Test quipment Total revenues , , ,
Fuel Systems and Functional Components ur uel Systems and unctional Components product line is produced by our autex business unit which is headquartered in onn, Germany and operates over plants in countries. autex is a leading developer and manufacturer of blow molded plastic fuel systems for cars, light truc s and all terrain vehicles. autex also develops and manufactures clear vision systems for automobiles and selective catalytic reduction systems used to reduce emissions from diesel engines, as well as plastic bottles and containers for medical, household, agricultural, laboratory and industrial uses. Additionally, autex operates a business that produces cast iron engine camshafts, cran shafts and other engine components. autex serves the global automobile mar et, with operating facilities near its ma or customers around the world.
ur automotive products have several ma or competitors worldwide, some of which are affiliated with the s that comprise our targeted customer base. Competition typically is based on a number of factors including price, technology, environmental performance, product quality and reliability, prior experience and available manufacturing capacity.
Specialized Vehicles ur Speciali ed ehicles product line includes products sold by the Textron Speciali ed ehicles businesses under the G , Textron ff Road, Arctic Cat, TUG Technologies, ouglas quipment, remier, Safeaero, Ransomes, acobsen, Cushman and ixie Chopper brands. These businesses design, manufacture and sell golf cars, off road utility vehicles, recreational side by side and all terrain vehicles, snowmobiles, light transportation vehicles, aviation ground support equipment and professional turf maintenance equipment, as well as speciali ed turf care vehicles. See Note to the Consolidated inancial Statements for additional information regarding the acquisition of Arctic Cat that we completed on arch , .
These businesses have a diversified customer base that includes golf courses and resorts, government agencies and municipalities, consumers, outdoor enthusiasts, and commercial and industrial users such as factories, warehouses, airports, planned communities, hunting preserves, educational and corporate campuses, sporting venues, municipalities and landscaping professionals. Sales are made through a combination of factory direct resources and a networ of independent distributors and dealers worldwide. e have two ma or competitors for both golf cars and professional turf maintenance equipment, and several competitors for off road utility vehicles, recreational all terrain and light transportation vehicles, side by sides and snowmobiles, aviation ground support equipment, and speciali ed turf care products. Competition is based primarily on price, product quality and reliability, product features, product support and reputation.
Tools and Test Equipment The Tools and Test quipment product line includes products sold by businesses that design and manufacture powered equipment, electrical test and measurement instruments, mechanical and hydraulic tools, cable connectors, fiber optic assemblies, underground and aerial transmission and distribution products and power utility products. This product line encompasses the Greenlee, Greenlee Communications, Greenlee Utility, lectric, lau e, Sherman Reilly and ndura businesses and brands. Their products are used principally in the construction, maintenance, telecommunications, data communications, electrical, utility and plumbing industries, and are distributed through a global networ of sales representatives and distributors, as well as through direct sales to home improvement retailers and s. The businesses have plant operations in five countries with almost half of their combined revenues coming from outside the United States. These businesses face competition from numerous manufacturers based primarily on price, delivery lead time, product quality and reliability.
Finance Segment ur inance segment, or the inance group, is a commercial finance business that consists of Textron inancial Corporation T C and its consolidated subsidiaries. The inance segment provides financing primarily to purchasers of new and pre owned Textron Aviation aircraft and ell helicopters. A substantial number of the new originations in our finance receivable portfolio are cross border transactions for aircraft sold outside of the U.S. inance receivables originated in the U.S. are primarily for purchasers who had difficulty in accessing other sources of financing for the purchase of Textron manufactured products. n , and , our inance group paid our anufacturing group million, million and million, respectively, related to the sale of Textron manufactured products to third parties that were financed by the inance group.
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The commercial finance business traditionally is extremely competitive. ur inance segment is sub ect to competition from various types of financing institutions, including ban s, leasing companies, commercial finance companies and finance operations of equipment vendors. Competition within the commercial finance industry primarily is focused on price, term, structure and service.
Our Finance segment’s largest business risk is the collectability of its finance receivable portfolio. See “Finance Portfolio Quality” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page for information about the Finance segment’s credit performance.
Backlog ur bac log at the end of and is summari ed below
December 30, December 31, (In millions) 2017 2016 ell , , Textron Systems , , Textron Aviation , , Total bac log , ,
Approximately of our total bac log at ecember , represents orders that are not expected to be filled in .
ac log with the U.S. Government represented of our total bac log at ecember , and excluded amounts where funding has not been formally appropriated. At ecember , and ecember , , Bell’s backlog included $1.6 billion and . billion, respectively, related to a multi year contract with the U.S. Government for the purchase of tiltrotor aircraft.
or information regarding the impact of the new revenue recognition accounting standard on bac log, see Note to the Consolidated inancial Statements on page of this Annual Report on orm .
U.S. Government Contracts n , approximately of our consolidated revenues were generated by or resulted from contracts with the U.S. Government, excluding those contracts under the U.S. Government sponsored foreign military sales program. This business is sub ect to competition, changes in procurement policies and regulations, the continuing availability of funding, which is dependent upon congressional appropriations, national and international priorities for defense spending, world events, and the si e and timing of programs in which we may participate.
ur contracts with the U.S. Government generally may be terminated by the U.S. Government for convenience or if we default in whole or in part by failing to perform under the terms of the applicable contract. f the U.S. Government terminates a contract for convenience, we normally will be entitled to payment for the cost of contract wor performed before the effective date of termination, including, if applicable, reasonable profit on such wor , as well as reasonable termination costs. f, however, the U.S. Government terminates a contract for default, generally a we will be paid the contract price for completed supplies delivered and accepted and services rendered, an agreed upon amount for manufacturing materials delivered and accepted and for the protection and preservation of property, and an amount for partially completed products accepted by the U.S. Government b the U.S. Government may not be liable for our costs with respect to unaccepted items and may be entitled to repayment of advance payments and progress payments related to the terminated portions of the contract c the U.S. Government may not be liable for assets we own and utili e to provide services under the “fee for service” contracts; and (d) we may be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source.
Research and Development nformation regarding our research and development expenditures is contained in Note to the Consolidated inancial Statements on page of this Annual Report on orm .
Patents and Trademarks e own, or are licensed under, numerous patents throughout the world relating to products, services and methods of manufacturing. atents developed while under contract with the U.S. Government may be sub ect to use by the U.S. Government. e also own or license active trademar registrations and pending trademar applications in the U.S. and in various foreign countries or regions, as well as trade names and service mar s. 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, trademar or other intellectual property right is of such importance that its loss or termination would have a material adverse effect on our business ta en as a whole. Some of these trademar s, trade names and service mar s are used in this Annual Report on orm and other reports, including A ATS Able Aerospace Services Able referred Aeronautical Accessories AA acAlert Aerosonde AirScout Alterra A Ambush Arctic Cat Ascent
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A COA ; Baron; Battle awk; Bearcat; Beechcraft; Beechcraft 6; Bell; Bell elicopter; Bell ; B D OR S; Black orks McCauley; Bonan a; Cadillac Gage; CAP; Caravan; Caravan Amphibian; Caravan 6 ; Cessna; Cessna ; Cessna ; Cessna SkyCourier; Cessna urbo Skylane A; Cessna urbo Skyhawk A; Citation; C A O A P D O ; Citation ncore ; Citation atitude; Citation ongitude; Citation M ; Citation Sovereign; Citation ; Citation ; Citation S ; C 1 ; C ; C ; C ; C ; Clairity; C A ; C AR S ; Commando; Cushman; Customer Advantage Plans; CUS ; DataScout; Denali; Dixie Chopper; Dixie Chopper Stryker; Double ision; Duct Dawg; clipse; l igre; FORC R; GO; GO PR SS; FAS A C ; FAS RAP; Firecat; Firefly; FOR R ARRA ; Fury; G ugger; Gator ye; Gator Grips; G OBA M SS O SUPPOR ; Gorilla; Grand Caravan; Greenlee; 1; AU R; D ; awker; emisphere; uey; uey ; iCommand; iPress; ; nstinct; ntegrated Command Suite; BRA ; CR MP; acobsen; acobsen over ing; et Ranger ; autex; ing Air; ing Air C G x; ing Air ; ing Air ; iowa arrior; lauke; F; OO OU ; ycoming; ynx; M111 AS ; MAD FOR RAD ; McCauley; Mechtronix; MicroObserver; Millenworks; Mission Critical Support (MCS); M SS O ; Motorfist; MudPro; Mustang; ext Generation Carbon Canister; ext Generation Fuel System; GCC; GFS; ight arden; Odyssey; O S AUG ; Overwatch; Pantera; PDCue; Power Advantage; Premier; Pro Fit; ProFlight; ProParts; ProPropeller; Prowler; Ransomes; R A Cue; R A Feel; Recoil; Relentless; ROCO C ; R ; R ; SAB R; Safeaero; Safe one; Scorpion; Shadow; Shadow night; Shadow Master; Sherman Reilly; Skyhawk; Skyhawk SP; Skylane; SkyP US; Sno Pro; SnoCross; Sovereign; Speed Punch; Speedrack; Spider; Stampede; Stationair; S ; Super Cargomaster; Super Medium; SuperCobra; S M ; Synturian; DCue; eam Arctic; extron; extron Airborne Solutions; extron Aviation; extron Defense Systems; extron Financial Corporation; extron GS ; extron Marine and Systems; extron Off Road; extron Systems; hundercat; Metal; RU S ; RU Simulation raining; RUC S R; x; UG; urbo Skylane; urbo Stationair; R ; U 1 ; Under Dawg; atch; A OR; alue Driven MRO Solutions; Osprey; ; ; atchman; ildcat; olverine; R; F ; 6; ; G ; G ; 1 ; ; ; and Relentless. hese marks and their related trademark designs and logotypes (and variations of the foregoing) are trademarks trade names or service marks of extron nc. its subsidiaries affiliates or oint ventures.
Environmental Considerations Our operations are sub ect to numerous laws and regulations designed to protect the environment. Compliance with these laws and expenditures for environmental control facilities has not had a material effect on our capital expenditures earnings or competitive position. Additional information regarding environmental matters is contained in ote 1 to the Consolidated Financial Statements on page 66 of this Annual Report on Form 1 .
e do not believe that existing or pending climate change legislation regulation or international treaties or accords are reasonably likely to have a material effect in the foreseeable future on our business or markets nor on our results of operations capital expenditures or financial position. e will continue to monitor emerging developments in this area.
Employees At December 1 we had approximately employees.
Executive Officers of the Registrant he following table sets forth certain information concerning our executive officers as of February 1 1 .
Name Age Current Position with Textron Inc. Scott C. Donnelly 6 Chairman President and Chief xecutive Officer Frank . Connor xecutive ice President and Chief Financial Officer ulie G. Duffy xecutive ice President uman Resources . Robert upone xecutive ice President General Counsel Secretary and Chief Compliance Officer
Mr. Donnelly oined extron in une as xecutive ice President and Chief Operating Officer and was promoted to President and Chief Operating Officer in anuary . e was appointed to the Board of Directors in October and became Chief xecutive Officer of extron in December at which time the Chief Operating Officer position was eliminated. n uly 1 Mr. Donnelly was appointed Chairman of the Board of Directors effective September 1 1 . Previously Mr. Donnelly was the President and C O of General lectric Company s Aviation business unit a position he had held since July 2005. GE’s Aviation business unit is a leading maker of commercial and military et engines and components as well as integrated digital electric power and mechanical systems for aircraft. Prior to uly Mr. Donnelly served as Senior ice President of G Global Research one of the world’s largest and most diversified industrial research organizations with facilities in the U.S., India, China and Germany and held various other management positions since oining General lectric in 1 .
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r. Connor oined e tron in August 200 as E ecutive ice resident and Chief inancial fficer. reviously, r. Connor was head of elecom Investment an ing at Goldman, Sachs Co. from 200 to 200 . rior to that osition, he served as Chief erating fficer of elecom, echnology and edia Investment an ing at Goldman, Sachs Co. from to 200 . r. Connor oined the Cor orate inance e artment of Goldman, Sachs Co. in and ecame a ice resident in 0 and a anaging irector in .
s. uffy was named E ecutive ice resident, uman esources in July 20 . s. uffy oined e tron in as a mem er of the corporate legal team and has since held positions of increasing responsibility within the Company’s legal function, most recently serving as ice resident and e uty General Counsel itigation, a osition she had held since 20 . In that role she was res onsi le for managing the cor orate litigation staff with rimary oversight of litigation throughout e tron. She has also layed an active role in develo ing, im lementing and standardizing human resources olicies across the Com any and served as the senior legal advisor on em loyment and enefits issues.
r. u one oined e tron in e ruary 20 2 as E ecutive ice resident, General Counsel, Secretary and Chief Com liance fficer. reviously, he was senior vice resident and general counsel of Siemens Cor oration U.S. since and general counsel of Siemens AG for the Americas since 200 . rior to oining Siemens in 2, r. u one was vice resident and general counsel of rice Communications Cor oration.
Available Information e ma e availa le free of charge on our Internet e site www.te tron.com our Annual e ort on orm 0 , uarterly e orts on orm 0 , Current e orts on orm and amendments to those re orts filed or furnished ursuant to Section a or 5 d of the Securities E change Act of as soon as reasona ly ractica le after we electronically file such material with, or furnish it to, the Securities and E change Commission.
Forward-Looking Information Certain statements in this Annual e ort on orm 0 and other oral and written statements made y us from time to time are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward loo ing statements, which may descri e strategies, goals, outloo or other non historical matters, or ro ect 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 loo ing statements. hese statements are only redictions and involve nown and un nown ris s, uncertainties, and other factors that may cause our actual results to differ materially from those e ressed or im lied y such forward loo ing statements. Given these uncertainties, you should not lace undue reliance on these forward loo ing statements. orward loo ing statements s ea only as of the date on which they are made, and we underta e no o ligation to u date or revise any forward loo ing statements. In addition to those factors descri ed herein under “Risk Factors,” among the factors that could cause actual results to differ materially from ast and ro ected future results are the following
• Interruptions in the U.S. Government’s ability to fund its activities and/or pay its obligations; • Changing riorities or reductions in the U.S. Government defense udget, including those related to military o erations in foreign countries • ur a ility to erform as antici ated and to control costs under contracts with the U.S. Government • The U.S. Government’s ability to unilaterally modify or terminate its contracts with us for the U.S. Government’s convenience or for our failure to erform, to change a lica le rocurement and accounting olicies, or, under certain circumstances, to withhold ayment or sus end or de ar us as a contractor eligi le to receive future contract awards • Changes in foreign military funding riorities or udget constraints and determinations, or changes in government regulations or olicies on the e ort and im ort of military and commercial roducts • olatility in the glo al economy or changes in worldwide olitical conditions that adversely im act demand for our roducts • olatility in interest rates or foreign e change rates • is s related to our international usiness, including esta lishing and maintaining facilities in locations around the world and relying on oint venture artners, su contractors, su liers, re resentatives, consultants and other usiness artners in connection with international usiness, including in emerging mar et countries • Our Finance segment’s ability to maintain portfolio credit uality or to realize full value of receiva les • erformance issues with ey su liers or su contractors • egislative or regulatory actions, oth domestic and foreign, im acting our o erations or demand for our roducts • ur a ility to control costs and successfully im lement various cost reduction activities • he efficacy of research and develo ment investments to develo new roducts or unantici ated e enses in connection with the launching of significant new roducts or rograms
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• The timing of our new product launches or certifications of our new aircraft products; • Our ability to keep pace with our competitors in the introduction of new products and upgrades with features and technologies desired by our customers; • Pension plan assumptions and future contributions; • emand softness or volatility in the markets in which we do business; • Cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption; • ifficulty or unanticipated expenses in connection with integrating ac uired businesses; • The risk that ac uisitions do not perform as planned, including, for example, the risk that ac uired businesses will not achieve revenues and profit projections; and • The impact of changes in tax legislation including the recently enacted Tax Cuts and obs Act .
Item 1A. Risk Factors
Our business, financial condition and results of operations are subject to various risks, including those discussed below, which may affect the value of our securities. The risks discussed below are those that we believe currently are the most significant to our business.
We have customer concentration with the U.S. Government; reduction in U.S. Government defense spending may adversely affect our results of operations and financial condition. uring 1 , we derived approximately of our revenues from sales to a variety of U.S. Government entities. Our revenues from the U.S. Government largely result from contracts awarded to us under various U.S. Government defense related programs. The funding of these programs is subject to congressional appropriation decisions and the U.S. Government budget process which includes enacting relevant legislation, such as appropriations bills and accords on the debt ceiling. Although multiple year contracts may be planned in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a program may continue for several years. Conse uently, programs often are only partially funded initially, and additional funds are committed only as Congress makes further appropriations. Further uncertainty with respect to ongoing programs could also result in the event that the U.S. Government finances its operations through temporary funding measures such as “continuing resolutions” rather than full year appropriations. If we incur costs in advance or in excess of funds committed on a contract, we are at risk for non reimbursement of those costs until additional funds are appropriated. The reduction, termination or delay in the timing of funding for U.S. Government programs for which we currently provide or propose to provide products or services may result in a loss of anticipated future revenues that could materially and adversely impact our results of operations and financial condition. Significant changes in national and international policies or priorities for defense spending could impact the funding, or the timing of funding, of our programs, which could negatively impact our results of operations and financial condition.
Under the udget Control Act of 11, the U.S. Government committed to significantly reduce the federal deficit over ten years. As a result, long term funding for various programs in which we participate, as well as future purchasing decisions by our U.S. Government customers, could be reduced, delayed or cancelled. In addition, these cuts could adversely affect the viability of the suppliers and subcontractors under our programs. There are many variables in how these budget cuts could be implemented that make it difficult to determine specific impacts; however, we expect that se uestration, as currently provided for under the udget Control Act, would result in lower revenues, profits and cash flows for our company. Such circumstances may also result in an impairment of our goodwill and intangible assets. ecause our U.S. Government contracts generally re uire us to continue to perform even if the U.S. Government is unable to make timely payments; if, for example, the debt ceiling is not raised, and, as a result, our customer does not pay us on a timely basis, we may need to finance our continued performance of the impacted contracts from our other resources on an interim basis. An extended delay in the timely payment by the U.S. Government could result in a material adverse effect on our cash flows, results of operations and financial condition.
U.S. Government contracts may be terminated at any time and may contain other unfavorable provisions. The U.S. Government typically can terminate or modify any of its contracts with us either for its convenience or if we default by failing to perform under the terms of the applicable contract. In the event of termination for the U.S. Government’s convenience, contractors are generally protected by provisions covering reimbursement for costs incurred on the contracts and profit on those costs but not the anticipated profit that would have been earned had the contract been completed. A termination arising out of our default for failure to perform could expose us to liability, including but not limited to, all costs incurred under the contract plus potential liability for re procurement costs in excess of the total original contract amount, less the value of work performed and accepted by the customer under the contract. Such an event could also have an adverse effect on our ability to compete for future contracts and orders. If any of our contracts are terminated by the U.S. Government whether for convenience or default, our backlog and anticipated revenues would be reduced by the expected value of the remaining work under such contracts. e also enter into “fee for service” contracts with the U.S. Government where we retain ownership of, and consequently the risk of loss on, aircraft
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and equipment supplied to perform under these contracts. ermination of these contracts could materially and adversely impact our results of operations. n contracts for which we are teamed with others and are not the prime contractor, the U.S. Government could terminate a prime contract under which we are a su contractor, irrespective of the quality of our products and services as a su contractor. n addition, in the event that the U.S. Government is una le to ma e timely payments, failure to continue contract performance places the contractor at ris of termination for default. ny such event could result in a material adverse effect on our cash flows, results of operations and financial condition.
As a U.S. Government contractor, we are subject to procurement rules and regulations. e must comply with and are affected y laws and regulations relating to the formation, administration and performance of U.S. Government contracts. hese laws and regulations, among other things, require certification and disclosure of all cost and pricing data in connection with contract negotiation, define allowa le and unallowa le costs and otherwise govern our right to reim ursement under certain cost ased U.S. Government contracts, and safeguard and restrict the use and dissemination of classified information, covered defense information, and the e portation of certain products and technical data. ew laws, regulations or procurement requirements or changes to current ones including, for e ample, regulations related to cy ersecurity can significantly increase our costs and ris s and reduce our profita ility. ur failure to comply with procurement regulations and requirements could allow the U.S. Government to suspend or de ar us from receiving new contracts for a period of time, reduce the value of e isting contracts, issue modifications to a contract, withhold cash on contract payments, and control and potentially prohi it the e port of our products, services and associated materials, any of which could negatively impact our results of operations, financial condition or liquidity. num er of our U.S. Government contracts contain provisions that require us to ma e disclosure to the nspector General of the agency that is our customer if we have credi le evidence that we have violated U.S. criminal laws involving fraud, conflict of interest, or ri ery the U.S. civil alse laims ct or received a significant overpayment under a U.S. Government contract. ailure to properly and timely ma e disclosures under these provisions may result in a termination for default or cause, suspension and or de arment, and potential fines.
As a U.S. Government contractor, our businesses and systems are subject to audit and review by the Defense Contract Audit Agency (DCAA) and the Defense Contract Management Agency (DCMA). e operate in a highly regulated environment and are routinely audited and reviewed y the U.S. Government and its agencies such as and . hese agencies review our performance under contracts, our cost structure and our compliance with laws and regulations applica le to U.S. Government contractors. he systems that are su ect to review include, ut are not limited to, our accounting, estimating, material management and accounting, earned value management, purchasing and government property systems. f an audit uncovers improper or illegal activities we may e su ect to civil and criminal penalties and administrative sanctions that may include the termination of our contracts, forfeiture of profits, suspension of payments, fines, and, under certain circumstances, suspension or de arment from future contracts for a period of time. hether or not illegal activities are alleged, the U.S. Government also has the a ility to decrease or withhold certain payments when it deems systems su ect to its review to e inadequate. hese laws and regulations affect how we conduct usiness with our government customers and, in some instances, impose added costs on our usiness.
The use of multi-award contracts by the U.S. Government may increase competition and pricing pressure. he U.S. Government increasingly relies upon competitive contract award types, including indefinite delivery, indefinite quantity and multi award contracts, which have the potential to create greater competition and increased pricing pressure, as well as to increase our cost y requiring that we su mit multiple ids. n addition, multi award contracts require that we ma e sustained efforts to o tain tas orders and delivery orders under the contract. urther, the competitive idding process is costly and demands managerial time to prepare ids and proposals for contracts that may not e awarded to us or may e split among competitors.
Our profitability and cash flow may vary depending on the mix of our government contracts and our ability to control costs. Under fi ed price contracts, generally we receive a fi ed price irrespective of the actual costs we incur, and, consequently, any costs in e cess of the fi ed price are a sor ed y us. hanges in underlying assumptions, circumstances or estimates used in developing the pricing for such contracts may adversely affect our results of operations. dditionally, fi ed price contracts may require progress payments rather than performance ased payments which can delay our a ility to recover a significant amount of costs incurred on a contract and thus affect the timing of our cash flows. i ed price incentive ased fee arrangements provide that allowa le costs incurred are reim ursa le ut are su ect to a cost share which could negatively impact our profita ility. Under time and materials contracts, we are paid for la or at negotiated hourly illing rates and for certain e penses. Under cost reim ursement contracts that are su ect to a contract ceiling amount, we are reim ursed for allowa le costs and paid a fee, which may e fi ed or performance ased, however, if our costs e ceed the contract ceiling or are not allowa le under the provisions of the contract or applica le regulations, we may not e a le to o tain reim ursement for all such costs. Under each type of contract, if we are una le to control costs incurred in performing under the contract, our cash flows, results of operations and financial condition could e adversely affected. ost overruns also may adversely affect our a ility to sustain e isting programs and o tain future contract awards.
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Demand for our aircraft products is cyclical and could adversely affect our financial results. emand for usiness ets, tur o props and commercial helicopters has een cyclical and difficult to forecast. herefore, future demand for these products could e significantly and une pectedly less than anticipated and or less than previous period deliveries. Similarly, there is uncertainty as to when or whether our e isting commercial ac log for aircraft products will convert to revenues as the conversion depends on production capacity, customer needs and credit availa ility. hanges in economic conditions may cause customers to request that firm orders e rescheduled or cancelled. educed demand for our aircraft products or delays or cancellations of orders could result in a material adverse effect on our cash flows, results of operations and financial condition.
We may make acquisitions that increase the risks of our business. e may enter into acquisitions in an effort to e pand our usiness and enhance shareholder value. cquisitions involve ris s and uncertainties that could result in our not achieving e pected enefits. Such ris s include difficulties in integrating newly acquired usinesses and operations in an efficient and cost effective manner challenges in achieving e pected strategic o ectives, cost savings and other benefits; the risk that the acquired businesses’ mar ets do not evolve as anticipated and that the acquired businesses’ products and technologies do not prove to be those needed to be successful in those markets; the risk that our due diligence reviews of the acquired usiness do not identify or adequately assess all of the material issues which impact valuation of the usiness or that may result in costs or lia ilities in e cess of what we anticipated the ris that we pay a purchase price that e ceeds what the future results of operations would have merited the ris that the acquired usiness may have significant internal control deficiencies or e posure to regulatory sanctions and the potential loss of ey customers, suppliers and employees of the acquired usinesses. n addition, unanticipated delays or difficulties in effecting acquisitions may prevent the consummation of the acquisition or divert the attention of our management and resources from our e isting operations.
If our Finance segment is unable to maintain portfolio credit quality, our financial performance could be adversely affected. ey determinant of the financial performance of our inance segment is the quality of loans, leases and other assets in its portfolio. ortfolio quality may e adversely affected y several factors, including finance receiva le underwriting procedures, collateral value, geographic or industry concentrations, and the effect of general economic conditions. n addition, a su stantial num er of the new originations in our finance receiva le portfolio are cross order transactions for aircraft sold outside of the U.S. ross order transactions present additional challenges and ris s in reali ing upon collateral in the event of orrower default, which may result in difficulty or delay in collecting on the related finance receiva les. f our inance segment has difficulty successfully collecting its finance receiva le portfolio, our cash flow, results of operations and financial condition could e adversely affected.
We may need to obtain financing in the future; such financing may not be available to us on satisfactory terms, if at all. e may periodically need to o tain financing in order to meet our de t o ligations as they come due, to support our operations and or to ma e acquisitions. ur access to the de t capital mar ets and the cost of orrowings are affected y a num er of factors including mar et conditions and the strength of our credit ratings. f we cannot o tain adequate sources of credit on favora le terms, or at all, our usiness, operating results, and financial condition could e adversely affected.
Failure to perform by our subcontractors or suppliers could adversely affect our performance. e rely on other companies to provide raw materials, ma or components and su systems for our products. Su contractors also perform services that we provide to our customers in certain circumstances. e depend on these suppliers and su contractors to meet our contractual o ligations to our customers and conduct our operations. ur a ility to meet our o ligations to our customers may e adversely affected if suppliers or su contractors 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. i ewise, the quality of our products may e adversely impacted if companies to whom we delegate manufacture of ma or components or su systems for our products, or from whom we acquire such items, do not provide components or su systems which meet required specifications and perform to our and our customers’ expectations. Our suppliers may be less likely than us to be able to quickly recover from natural disasters and other events eyond their control and may e su ect to additional ris s such as financial pro lems that limit their a ility to conduct their operations. he ris of these adverse effects may e greater in circumstances where we rely on only one or two su contractors or suppliers for a particular raw material, product or service. n particular, in the aircraft industry, most vendor parts are certified y the regulatory agencies as part of the overall ype ertificate for the aircraft eing produced y the manufacturer. f a vendor does not or cannot supply its parts, then the manufacturer’s production line may be stopped until the manufacturer can design, manufacture and certify a similar part itself or identify and certify another similar vendor’s part, resulting in significant delays in the completion of aircraft. Such events may adversely affect our financial results, damage our reputation and relationships with our customers, and result in regulatory actions and or litigation.
Our business could be negatively impacted by information technology disruptions and security threats. ur information technology and related systems are critical to the smooth operation of our usiness and essential to our a ility to perform day to day operations. rom time to time, we update and or replace systems used y our usinesses. he implementation of new systems can present temporary disruptions of usiness activities as e isting processes are transitioned to the new systems, resulting in productivity issues, including delays in production, shipments or other usiness operations. n addition,
12 Textron 2017 Annual Report
e outsource certain support functions, including certain global infrastructure services, to third party service providers. ny disruption of such outsourced processes or functions also could have a material adverse impact on our operations. n addition, as a . . defense contractor, e face certain security threats, including threats to our infrastructure, unla ful attempts to gain access to our information and threats to the physical security of our facilities and employees, as do our customers, suppliers, subcontractors and oint venture partners. ybersecurity threats, such as malicious soft are, attempts to gain unauthori ed access to our confidential, classified or other ise proprietary information or that of our employees or customers, as ell as other security breaches, are persistent, continue to evolve and require highly skilled resources. hile e have experienced cybersecurity attacks, e have not suffered any material losses relating to such attacks, and e believe our threat detection and mitigation processes and procedures are robust. ue to the evolving nature of these security threats, the possibility of future material incidents cannot be completely mitigated. uture attacks or breach of data security, hether of our systems or the systems of our service providers or other third parties ho may have access to our data for business purposes, could disrupt our operations, cause the loss of business information or compromise confidential information, exposing us to liability or regulatory action. uch an incident also could require significant management attention and resources, increase costs, hich may not be covered by insurance, and result in reputational damage, potentially adversely affecting our competitiveness and our results of operations.
Developing new products and technologies entails significant risks and uncertainties. o continue to gro our revenues and segment profit, e must successfully develop ne 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. elays or cost overruns in the development and acceptance of ne products, or certification of ne aircraft and other products, could affect our results of operations. hese delays could be caused by unanticipated technological hurdles, production changes to meet customer demands, unanticipated difficulties in obtaining required regulatory certifications of ne aircraft or other products, coordination ith oint venture partners or failure on the part of our suppliers to deliver components as agreed. e also could be adversely affected if our research and development investments are less successful than expected or if e do not adequately protect the intellectual property developed through these efforts. ike ise, ne 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. urthermore, because of the lengthy research and development cycle involved in bringing certain of our products to market, e cannot predict the economic conditions that ill exist hen any ne product is complete. reduction in capital spending in the aerospace or defense industries could have a significant effect on the demand for ne products and technologies under development, hich could have an adverse effect on our financial condition and results of operations. n addition, our investments in equipment or technology that e believe ill enable us to obtain future service contracts for our . . overnment or other customers may not result in contracts or revenues sufficient to offset such investment. he market for our product offerings may not develop or continue to expand as e currently anticipate. urthermore, e cannot be sure that our competitors ill not develop competing technologies hich gain superior market acceptance compared to our products. significant failure in our ne product development efforts or the failure of our products or services to achieve market acceptance relative to our competitors’ products or services could have an adverse effect on our financial condition and results of operations.
We are subject to the risks of doing business in foreign countries. uring , e derived approximately of our revenues from international business, including . . exports, and e expect international revenues to continue to increase. onducting business internationally exposes us to additional risks than if e conducted our business solely ithin the . . e maintain manufacturing facilities, service centers, supply centers and other facilities orld ide, including in various emerging market countries. e also have entered into, and expect to continue to enter into, oint venture arrangements in emerging market countries, some of hich may require capital investment, guaranties or other commitments. isks related to international operations include import, export and other trade restrictions; changing . . and foreign procurement policies and practices; restrictions on technology transfer; difficulties in protecting intellectual property; increasing complexity of employment and environmental, health and safety regulations; foreign investment la s; exchange controls; repatriation of earnings or cash settlement challenges, competition from foreign and multinational firms ith home country advantages; economic and government instability, acts of terrorism and related safety concerns. he impact of any one or more of these or other factors could adversely affect our business, financial condition or operating results.
dditionally, some international government customers require contractors to agree to specific in country purchases, technology transfers, manufacturing agreements or financial support arrangements, kno n as offsets, as a condition for a contract a ard. he contracts generally extend over several years and may include penalties if e fail to perform in accordance ith the offset requirements hich are often sub ective. e also are exposed to risks associated ith using foreign representatives and consultants for international sales and operations and teaming ith international subcontractors and suppliers in connection ith international programs. n many foreign countries, particularly in those ith developing economies, it is common to engage in business practices that are prohibited by la s and regulations applicable to us, such as the oreign orrupt ractices ct. lthough e maintain policies and procedures designed to facilitate compliance ith these la s, a violation of such la s by any of our international representatives,
Textron 2017 Annual Report 13
s s r s s ss r rs s r rs r s rs r r s rs r s ss r
We are subject to increasing compliance risks that could adversely affect our operating results. s s ss r s s r s r r s r r r s s r s s r s r r s r r s s r s s r s r r r r s r ss r r rs r r s s r s s s s s r s r r s r s r r r s r r r s s r s s r s r s s r s s r r r s r s r s r s r s r r s r r r r r s r r s r s r r s r s r s r r ss s s s r s r s s r r s s ss s ss r r s r s s r r r ss s r s r r s s s r r r s r s r s r r r r s r s r s s s ss r r s rs r r r s r r s r r s s r s s r s r s s s r r rr s ss r r r r s s s ss r r r r s r s r s ss r rs s s r r s r r s r r s r r rs s s s r r r r s r r s r r r r r rs r s ss
We are subject to legal proceedings and other claims. r s r s r s r s r s ss r s s r r r s s r r s s r s r r rs r r r r s s r s rs r r r s ss s s r s r s r r s s r s r s rs r s r s r r r r r s r rr r s rs r r s r s s s s ss s r s r s ss s s s s r r s s r r r s s r r s s r r r s r s r r s r r s r r r s s s r r r s r r s s s r s r r r s r rs r r r s r r s s r rr r r s rs r s r r r s s r s r r r
Intellectual property infringement claims of others and the inability to protect our intellectual property rights could harm our business and our customers. r r r s ss r r r s s s r r s rs r s r s s r s ss s r s rs r r r r s s r s s r r s r s r s r s r s r r r s ss r s r r r s rs r r s s r s r r r r s r s rs r r s
Certain of our products are subject to laws regulating consumer products and could be subject to repurchase or recall as a result of safety issues. s s r r s r r s r r r s s r s s r r rs s r r ss r r r s r s r r s r r r s s r r s r r r r r r s r r r r r s r s r r s r r s s r r s r s s s r s r r r s r r s r r r r s r r s s s ss ss s s r r s s r r s r r s r s s r s s s r r r r s s r r s r r s s s s s s s r r s s r r s r r s r s r s r
The increasing costs of certain employee and retiree benefits could adversely affect our results. r r s s rs r s r r r r s s s r r r r r s s r r r r s s s r
14 Textron 2017 Annual Report
s s r r r s r ss s r r r r ss s s r s r r s r s r s r s r r s s s s r ss s s s r r r r r s s r s r s r r s s s r s r r s substantially increase our pension liability with a resulting decrease in shareholders’ equity. Also, changes in pension legis r s r s s ss r s s
Our business could be adversely affected by strikes or work stoppages and other labor issues. r r r s r r s r r r s r s s r s r r s s r r r r s s s r s s r r r s s r s rs ss r s r s s s r r s r ss r s r r r s r s rs s rs r r r s r s r s s r s r s s r s rs sr r r r ss s s r s s r s rs r s r r rs r r r s s s rs r r s s r s
Currency, raw material price and interest rate fluctuations may adversely affect our results. r s r r r s s s s r rr r s r r r s r s r s rr r s s r r s s s r s s r s r s s r s r rr r s rs r r r r s r s s r s s r r r r r s r r s s s r s r s r r r s s r r s s r s r s s r ss s rr r s r r r s r s r s s s rs s r r s s r s
We may be unable to effectively mitigate pricing pressures. s r s r r r r r s s r s s s r s r r r s s s r r r r r r r ss r s r s r r r s s r r r s s r r s s r s rs
Unanticipated changes in our tax rates or exposure to additional income tax liabilities could affect our profitability. r s s r s r s s r s r s r s s r r s s r r rs s r s r s r s r r s s rr ss s s s r s r s s r s r s r s s r r r r rr rr ss s s r r r s s s s r r s s s s s r s r s s r ss ss r r r
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017 and significantly changed U.S. income tax law. r s s s r s r r rr ss s r s r r r s r r s s r r s ss s s s r r s s r s r rs r r r r rr ss s r r s r r s
Item 1B. Unresolved Staff Comments
Item 2. Properties
r r s r s s s s r r r r s r s r s r r s r r s ss s s s r s s r s s r s r rs r s r s s r r s r r s r r s s r r s s r r s
Textron 2017 Annual Report 15
Item 3. Legal Proceedings
As previously reported in Textron’s Annual Report on Form 10 for the fiscal year ended December 1, 201 , on ebruary 7, 2012, a lawsuit was filed in the United States an ruptcy Court, orthern District of hio, astern Di ision (A ron) by rian A. ash, Chapter 7 Trustee for air inance Company against T C, ortress Credit Corp. and air acility , C. T C pro ided a re ol ing line of credit of up to 17. million to air inance Company from 2002 through 2007. The complaint alleges numerous counts against TFC, as Fair Finance Company’s working capital lender, including receipt of fraudulent transfers and assisting in fraud perpetrated on air inance in estors. The Trustee see s a oidance and reco ery of alleged fraudulent transfers in the amount of 1 million as well as damages of 22 million on the other claims. The Trustee also see s trebled damages on all claims under hio law. n o ember , 2012, the Court dismissed all claims against T C. The trustee appealed, and on August 2 , 201 , the th Circuit Court of Appeals re ersed the dismissal in part and remanded certain claims bac to the trial court. e are igorously defending this lawsuit.
e also are sub ect 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 go ernment contracts alleged lac of compliance with applicable laws and regulations production partners product liability patent and trademar infringement employment disputes and en ironmental, health and safety matters. Some of these legal proceedings and claims see damages, fines or penalties in substantial amounts or remediation of en ironmental contamination. As a go ernment contractor, we are sub ect to audits, re iews and in estigations to determine whether our operations are being conducted in accordance with applicable regulatory requirements. Under federal go ernment procurement regulations, certain claims brought by the U.S. o ernment could result in our suspension or debarment from U.S. o ernment contracting for a period of time. n the basis of information presently a ailable, we do not belie e that existing proceedings and claims will ha e a material effect on our financial position or results of operations.
Item 4. Mine Safety Disclosures
ot applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The principal market on which our common stock is traded is the New York Stock Exchange under the symbol “TXT.” At December 0, 2017, there were approximately , 00 record holders of Textron common stoc . The high and low sales prices per share of our common stoc as reported on the ew or Stoc xchange and the di idends paid per share are pro ided in the following table
2017 2016 Dividends Dividends High Low per Share High Low per Share irst quarter 0. . 0.02 1.7 0. 0.02 Second quarter . 7 .00 0.02 0. 1 .00 0.02 Third quarter .07 7.00 0.02 1. .0 0.02 ourth quarter 7.71 1.07 0.02 . 2 7.1 0.02
Issuer Repurchases of Equity Securities The following pro ides information about our fourth quarter 2017 repurchases of equity securities that are registered pursuant to Section 12 of the Securities xchange Act of 1 , as amended
Maximum Total Average Price Total Number of Number of Shares Number of Paid per Share Shares Purchased as that may yet be Shares (excluding part of Publicly Purchased under Period (shares in thousands) Purchased * commissions) Announced Plan * the Plan ctober 1, 2017 – o ember , 2017 7 0 . 7 0 1 ,7 7 o ember , 2017 – December 2, 2017 0 . 2 0 1 , 07 December , 2017 – December 0, 2017 2 . 2 1 ,0 2 Total 2, 2 .1 2, 2 * These shares were purchased pursuant to a plan authorizing the repurchase of up to 25 million shares of Textron common stock that had been announced on January 25, 2017. This plan has no expiration date.
16 Textron 2017 Annual Report 1
Stock Performance ra h
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, 2012 with the Standard & Poor’s (S&P) 500 Stock Index, the S&P 500 Aerospace & Defense (A&D) Index and the S 00 ndustrials ndex, all of which include Textron. The values calculated assume dividend reinvestment.
00 Textron 0 S 00
S 00 A D 00
S 00 ndustrials 1 0
100
Textron nc. 100.00 1 . 1 0. 1 0. 1 . 0. S 00 100.00 1 . 1 0. 1 1 . 1 0. 0 .1 S 00 A D 100.00 1 . 1 . 1 .01 1 . 0 . S 00 ndustrials 100.00 1 1. 1 . 1 1 .1 1 . 0 . 1
Textron 2017 Annual Report 17 1
Item Selected inancial ata
(Dollars in millions, except per share amounts) Re enues extron A iation , , 21 , 22 ,5 2, e 3,31 3,23 3, 5 ,2 5 ,511 extron S stems 1, 0 1, 5 1,520 1, 2 1, 5 Ind stria ,2 3, 3,5 3,33 3,012 inance 3 103 132 otal re enues 1 ,1 13, 13, 23 13, 12,10 Segment rofit extron A iation (a) 303 3 00 23 ( ) e 15 3 00 52 5 3 extron S stems 13 1 12 150 1 Ind stria 2 0 32 302 2 0 2 2 inance 22 1 2 21 otal segment rofit 1,1 1,30 1,255 1,21 3 orporate expenses and other, net (132) (1 2) (15 ) (1 1) (1 ) Interest expense, net for an fact rin ro p (1 5) (13 ) (130) (1 ) (123) Specia char es (b) (130) (123) — (52) — Income tax expense (c) ( 5 ) (33) (2 3) (2 ) (1 ) Income from continuing o erations 30 3 05 Earnings er share asic earnin s per share — contin in operations 1 15 3 11 2 52 2 1 1 Di ted earnin s per share — contin in operations 1 1 3 0 2 50 2 15 1 5 asic a era e shares o tstandin (in thousands) 2 ,3 0 2 0, 2 , 2 2 , 0 2 ,2 Di ted a era e shares o tstandin (in thousands) 2 , 50 2 2,3 5 2 , 2 2 1, 0 2 , 2 Common stock information Di idends dec ared per share 0 0 0 0 0 0 0 0 0 0 ook a e at ear end 21 0 20 2 1 10 15 5 15 5 Price at ear end 5 5 5 2 01 2 1 3 1 inancial osition ota assets 15,3 0 15,35 1 , 0 1 , 05 12, an fact rin ro p debt 3,0 2, 2, 2, 11 1, 31 inance ro p debt 2 03 13 1,0 3 1,25 Shareholders’ equity 5, 5,5 , ,2 2 ,3 an fact rin ro p debt to capita (net of cash) 2 23 2 33 15 an fact rin ro p debt to capita 35 33 35 0 31 In estment data apita expendit res 23 20 2 an fact rin ro p depreciation 3 2 3 3 3 3 335 (a) Segment profit included amortization of $12 million and $63 million in 2015 and 2014, respectively, related to fair value step-up adjustments of Beechcraft acquired inventories sold during the period.
(b) Special charges included $90 million and $123 million in 2017 and 2016, respectively, related to our 2016 restructuring plan. We also recorded special charges of $40 million in 2017 related to the Arctic Cat acquisition, which included restructuring, integration and transaction costs. For 2014, special charges included acquisition and restructuring costs related to the acquisition of Beechcraft.
(c) Income tax expense for 2017 included a $266 million charge to reflect our provisional estimate of the net impact of the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. In 2016, we recognized an income tax benefit of $319 million, inclusive of interest, of which $206 million is attributable to continuing operations and $113 million is attributable to discontinued operations. This benefit was a result of the final settlement with the Internal Revenue Service Office of Appeals for our 1998 to 2008 tax years.
18 Textron 2017 Annual Report 1
Item Management’s Discussion and Analysis of Financial Condition and Results of Operations
er ie and Consolidated Results of erations
uri e ai tai ed o us o i esti i our usi esses throu h o ti ued de elo e t o e rodu ts a d ser i es e also o leted the strate i a quisitio o r ti at a lat or to e a d a d ro our e tro S e iali ed ehi les usi ess additio e o ti ued to ta e ost redu tio a tio s throu h the e e utio o our restru turi la s a d i te ratio a ti ities i order to reali our usi esses i ro e o erall o erati e i ie y a d etter ositio our usi esses or the uture ll o these a ti ities su ort our o erall strate y o lo ter ro th a d e a sio o our rodu t ort olio a d the reatio o lo ter shareholder alue i a ial hi hli hts o i lude the ollo i
• e erated illio i ash ro o erati a ti ities o our a u a turi usi esses et o a illio dis retio ary o tri utio to u d a S e sio la • ested illio i resear h a d de elo e t a ti ities illio i a ital e e ditures a d illio or the a quisitio o r ti at • etur ed illio to our shareholders throu h share re ur hases a d di ide d ay e ts • o ti ued e e utio o our restru turi la a d the restru turi a d i te ratio o the r ti at a quisitio resulti i s e ial har es o illio
a alysis o our o solidated o erati results is set orth elo more detailed analysis of our segments’ operating results is ro ided i the Se e t alysis se tio o a es to
Re enues
Change (Dollars in millions) e e ues
e e ues i reased illio i o ared ith lar ely dri e y i reases i the dustrial e tro Syste s a d ell se e ts artially o set y lo er re e ues at the e tro iatio se e t he et re e ue i rease i luded the ollo i a tors
• i her dustrial re e ues o illio ri arily due to the i a t ro the a quisitio o r ti at des ri ed i the Se e t alysis se tio elo • i her e tro Syste s re e ues o illio ri arily due to hi her olu e o illio i the ari e a d a d Syste s rodu t li e artially o set y lo er olu e i the other rodu ts li es • i her ell re e ues o illio ri arily due to a i rease i o er ial re e ues o illio lar ely re le ti hi her o er ial air ra t deli eries • o er e tro iatio re e ues o illio ri arily due to lo er olu e a d i o illio lar ely the result o lo er ilitary a d o er ial tur o ro olu e
e e ues i reased illio i o ared ith lar ely dri e y i reases i the dustrial e tro Syste s a d e tro iatio se e ts artially o set y lo er re e ues at the ell se e t he et re e ue i rease i luded the ollo i a tors
• i her dustrial re e ues o illio ri arily due to hi her olu e o illio lar ely i the uel Syste s a d u tio al o o e ts rodu t li e a d the i a t ro a quired usi esses o illio • i her e tro Syste s re e ues o illio ri arily due to hi her olu e o illio i the ari e a d a d Syste s rodu t li e a d illio i the a ed Syste s rodu t li e • i her e tro iatio re e ues o illio ri arily due to the i a t ro a a quired usi ess o illio a d hi her olu e a d i o illio lar ely the result o hi her itatio et olu e o illio artially o set y lo er o er ial tur o ro olu e • o er ell re e ues o illio ri arily due to a de rease i o er ial re e ues o illio lar ely re le ti lo er o er ial air ra t deli eries
Textron 2017 Annual Report 19
Cost of ales and ellin and Ad inistrati e pense
C an e (Dollars in millions) ost of sales ross margin as a per entage of anufa turing re enues elling and administrati e e pense —
n ost of sales in reased million and selling and administrati e e pense in reased million ompared it primarily due to an in rease from a uired usinesses largely r ti at ross margin as a per entage of anufa turing re enues de reased asis points from primarily due to lo er margins at t e e tron ystems segment largely refle ting an unfa ora le impa t from net program ad ustments and t e ndustrial segment i in luded t e impa t from t e r ti at a uisition
ost of sales in reased million in ompared it largely due to ig er olume at t e e tron ystems ndustrial and e tron iation segments and an in rease from a uired usinesses ese in reases ere partially offset y lo er olume at t e ell segment and fa ora le ost performan e a ross all of our manufa turing segments
nterest pense
C an e (Dollars in millions) nterest e pense —
nterest e pense on t e onsolidated tatements of perations in ludes interest for ot t e inan e and anufa turing orro ing groups it interest related to inter ompany orro ings eliminated nterest e pense for t e inan e segment is in luded it in segment profit and in ludes inter ompany interest onsolidated interest e pense in reased million in ompared it primarily due to ig er a erage de t outstanding
pecial C ar es
n e initiated a plan to restru ture and realign our usinesses y implementing ead ount redu tions fa ility onsolidations and ot er a tions in order to impro e o erall operating effi ien y a ross e tron nder t is plan e tron ystems dis ontinued produ tion of its sensor fu ed eapon produ t it in its eapons and ensors operating unit e om ined our a o sen usiness it t e e tron pe iali ed e i les usiness y onsolidating fa ilities and general and administrati e fun tions and e redu ed ead ount at e tron iation as ell as ot er usinesses and orporate fun tions n e em er e de ided to ta e additional restru turing a tions to furt er onsolidate operating fa ilities and streamline produ t lines primarily it in t e ell e tron ystems and ndustrial segments i resulted in additional spe ial arges of million in t e fourt uarter of e re orded total spe ial arges of million sin e t e in eption of t e plan i in luded million of se eran e osts million of asset impairments and million in ontra t terminations and ot er osts f t ese amounts million as in urred at e tron ystems million at e tron iation million at ndustrial million at ell and million at orporate e total ead ount redu tion under t is plan is e pe ted to e appro imately positions representing of our or for e
n onne tion it t e a uisition of r ti at as dis ussed in ote to t e onsolidated inan ial tatements e initiated a restru turing plan in t e first uarter of to integrate t is usiness into our e tron pe iali ed e i les usiness it in t e ndustrial segment and redu e operating redundan ies and ma imi e effi ien ies nder t e r ti at plan e re orded restru turing arges of million in i in luded million of se eran e osts largely related to ange of ontrol pro isions and million of ontra t termination and ot er osts n addition e re orded million of a uisition related integration and transa tion osts in
20 Textron 2017 Annual Report
Ac uisition Contract nte ration otal e erance Asset er inations ransaction pecial (In millions) Costs pair ents and Ot er Costs C ar es — — — — — — — — — — — — —
nco e a es
the Tax Cuts and Jobs Act (the “Act”). In the fourth quarter of 2017, we recorded
e ent Analysis
Textron 2017 Annual Report 21
A rox ate 22 of our 2017 re enues were der ed fro contracts w th the . . o ern ent. or our se ents that ha e s n f cant contracts w th the . . o ern ent, we t ca ex ress chan es n se ent rof t re ated to the o ern ent bus ness n ter s of o u e, chan es n ro ra erfor ance or chan es n contract x. Chan es n o u e that are descr bed n net sa es t ca dr e corres ond n chan es n our se ent rof t based on the rof t rate for a art cu ar contract. Chan es n ro ra erfor ance t ca re ate to rof t reco n t on assoc ated w th re s ons to tota est ated costs at co et on that ref ect ro ed or deter orated o erat n erfor ance or award fee rates. Chan es n contract x refers to chan es n o erat n ar n due to a chan e n the re at e o u e of contracts w th h her or ower fee rates such that the o era a era e ar n rate for the se ent chan es.
e tron A iation C an e (Dollars in millions) e enues , , 21 , 22 ( ) 2 erat n ex enses , , 2 , 22 ( ) 2 e ent rof t 0 00 (22) ( ) rof t ar n . 7. . ac o 1,1 0 1,0 1 1,07 1 ( )
e tron A iation Re enues and Operatin penses actors contr but n to the 2017 ear o er ear re enue chan e are ro ded be ow
ersus (In millions) o u e and x ( 07) ther 72 Tota chan e (2 )
Textron A iation’s revenues decreased $235 million, 5 , n 2017, co ared w th 201 , r ar due to ower o u e and x of 07 on, ar e the resu t of ower tar and co erc a turbo ro o u e. e de ered 1 0 C tat on ets, n A r turbo ro s and 1 eechcraft T tra ners n 2017, co ared w th 17 C tat on ets, 10 n A r turbo ro s and eechcraft T 6 trainers in 2016. The portion of the segment’s revenues derived from aftermarket sa es and ser ces re resented of ts tota re enues n 2017, co ared w th 1 n 201 .
Textron Aviation’s o erat n ex enses decreased 1 on, , n 2017, co ared w th 201 , ar e due to ower net o u e as descr bed abo e.
actors contr but n to the 201 ear o er ear re enue chan e are ro ded be ow
ersus (In millions) Acqu s t ons o u e and x 2 ther ( ) Tota chan e
Textron Aviation’s re enues ncreased on, 2 , n 201 , co ared w th 201 , r ar due to the act fro an acqu s t on of a re a r and o erhau bus ness n the f rst quarter of 201 , and h her o u e and x of 2 on. The ncrease n o u e and x was ar e due to h her C tat on et o u e of 1 on, art a offset b ower co erc a turbo ro o u e. e de ered 17 C tat on ets and 10 n A r turbo ro s n 201 , co ared w th 1 C tat on ets and 117 n A r turboprops in 2015. The portion of the segment’s revenues derived from aftermarket sales and services represented 1 of ts tota re enues n 201 , co ared w th 2 n 201 , ar e resu t n fro the acqu s t on.
Textron Aviation’s operating ex enses ncreased 110 on, 2 , n 201 , co ared w th 201 , ar e due to h her net o u e as descr bed abo e and add t ona o erat n ex enses resu t n fro the acqu s t on. These ncreases were art a offset b ro ed cost erfor ance of on, ar e attr butab e to ower research and de e o ent costs and ower co ensat on ex ense.
22 Textron 2017 Annual Report 22
e tron A iation e ent rofit actors contributing to 201 ear over ear segment profit change are provided belo
ersus (In millions) olume and mix $ ricing, net of inflation 56 erformance and other 3 Total change $ 6
egment profit at Textron Aviation decreased $ 6 million, 22 , in 201 , compared ith 2016, primaril as a result of lo er net volume and mix as described above. The favorable impact of $56 million from pricing, net of inflation, as largel offset b an unfavorable impact of $ 3 million from performance and other, largel reflecting higher research, development and engineering costs, hich included costs related to the corpion program in 201 .
actors contributing to 2016 ear over ear segment profit change are provided belo
ersus (In millions) erformance and other $ 65 olume and mix nflation and pricing 2 Total change $ 11
egment profit at Textron Aviation decreased $11 million, 3 , in 2016, compared ith 2015, primaril as a result of the mix of products sold and the unfavorable impact from inflation and pricing of $2 million. These decreases ere partiall offset b favorable performance and other of $65 million, largel attributable to lo er research and development costs and lo er compensation expense.
ell C an e (Dollars in millions) evenues 22 rogram $ 1,12 $ 1,151 $ 1,1 2 ther ilitar 36 3 1 12 ommercial 1,2 1 1,152 1, 21 1 Total revenues 3,31 3,23 3, 5 2 6 perating expenses 2, 02 2, 53 3,05 2 egment profit 15 3 6 00 rofit margin 12.5 11. 11.6 acklog $ ,5 $ 5,360 $ 5,22 1 3
Bell’s major U.S. Government programs at this time are the V 22 tiltrotor aircraft and the 1 helicopter platforms, hich are both in the production stage and represent a significant portion of Bell’s revenues from the . . overnment.
ell Re enues and Operatin penses actors contributing to the 201 ear over ear revenue change are provided belo
ersus (In millions) olume and mix $ 5 ther 21 Total change $
Bell’s revenues increased $78 million, 2%, in 201 , compared ith 2016, primaril due to an $ million increase in commercial revenues, largel due to higher deliveries as ell delivered 132 commercial aircraft in 201 , compared ith 11 aircraft in 2016. ilitar deliveries ere largel unchanged in 201 compared ith 2016, as e delivered 22 22 aircraft in both ears and 3 1 aircraft in 201 , compared ith 35 1 aircraft in 2016.
Textron 2017 Annual Report 23 23
Bell’s operating e penses increased $ million, 2%, in 2 7, compared ith 2 , primaril due to higher volume as descri ed a ove.
actors contri uting to the 2 ear over ear revenue change are provided elo
ersus (In millions) Volume and mi $ 22 ther otal change $ 2
Bell’s revenues decreased $2 million, %, in 2 , compared ith 2 , primaril due to the follo ing factors
• $2 million decrease in commercial revenues, primaril due to lo er aircraft deliveries, as e delivered commercial aircraft in 2 , compared ith 7 aircraft in 2 . • $ million decrease in V 22 program revenues, primaril due to lo er aircraft deliveries, as e delivered 22 V 22 aircraft in 2 , compared ith 2 V 22 aircraft in 2 . • $ 7 million increase in other militar revenues, primaril reflecting higher program revenues, as e delivered aircraft in 2 , compared ith 2 aircraft in 2 .
Bell’s operating expenses decreased $2 million, 7%, in 2 , compared ith 2 , primaril due to lo er net sales volume as descri ed a ove.
ell e ent rofit actors contri uting to 2 7 ear over ear segment profit change are provided elo
ersus (In millions) erformance and other $ Volume and mi 7 otal change $ 2
Bell’s segment profit increased $29 million, 8%, in 2017, compared with 2016, reflecting a favorable impact from performance and other of $ million, largel the result of improved manufacturing performance and lo er research and development costs, partiall offset an unfavora le impact from volume and mi of $ 7 million.
actors contri uting to 2 ear over ear segment profit change are provided elo
ersus (In millions) Volume and mi $ erformance and other 2 otal change $
Bell’s segment profit decreased $ million, %, in 2 , compared ith 2 . he unfavora le impact from volume and mi as primaril due to lo er commercial aircraft deliveries, hile the favora le performance and other as largel the result of lo er research and development costs.
ell ac lo Bell’s backlog decreased $762 million, 14%, in 2017, and increased $136 million, 3%, in 2016. he decrease in 2 7 as primaril due to deliveries on the V 22 and programs in e cess of orders.
24 Textron 2017 Annual Report 2
e tron yste s C an e (Dollars in millions) even es $ 1,840 $ 1,7 6 $ 1, 20 % 16% perating expenses 1,701 1, 70 1,391 8% 13% egment profit 139 186 129 2 % 44% rofit margin 7.6% 10.6% 8. % Backlog $ 1,406 $ 1,841 $ 2,328 24 % 21 %
e tron yste s Re enues and Operatin penses actors contrib ting to the 2017 ear over ear reven e change are provided below
ersus (In millions) ol me $ 67 c isitions 10 ther 7 otal change $ 84
even es at extron stems increased $84 million, %, in 2017, compared with 2016, primaril d e to higher vol me of $176 million in the arine and and stems prod ct line, partiall offset b lower vol me in the other prod ct lines, largel d e to the final deliveries of o r discontin ed sensor f ed weapon prod ct in the first half of 2017.
Textron Systems’ operating expenses increased $131 million, 8%, in 2017, compared with 2016, primaril d e to higher vol me as described above and the nfavorable impact from net program ad stments described below.
actors contrib ting to the 2016 ear over ear reven e change are provided below
ersus (In millions) ol me $ 200 c isitions 32 ther 4 otal change $ 236
even es at extron stems increased $236 million, 16%, in 2016, compared with 201 , primaril d e to higher vol me of $106 million in the arine and and stems prod ct line and $77 million in the nmanned stems prod ct line, and the impact from an ac isition of $32 million.
Textron Systems’ operating expenses increased $179 million, 13%, in 2016, compared with 201 , primaril d e to higher vol me as described above.
e tron yste s e ent rofit actors contrib ting to 2017 ear over ear segment profit change are provided below
ersus (In millions) erformance $ 28 ol me and mix 13 ther 6 otal change $ 47
Textron Systems’ segment profit decreased $47 million, 2 %, in 2017, compared with 2016, primaril d e to nfavorable performance. erformance reflects an nfavorable impact from net program ad stments compared with 2016, largel d e to $44 million of ad stments recorded in 2017 related to the actical rmo red atrol ehicle program . n 2017, this program experienced inefficiencies res lting from vario s prod ction iss es d ring the ramp p and s bse ent prod ction.
Textron 2017 Annual Report 25 2
actors contri ting to year o er year segment profit c ange are pro ided e o
ersus (In millions) erformance $ 4 o me and mix t er Tota c ange $ 7
Textron Systems’ segment profit increased $ 7 mi ion 44 in compared it primari y d e to impro ed cost performance and ig er o me as descri ed a o e
e tron yste s ac lo ac og at Textron Systems decreased $4 mi ion 4 in 7 primari y d e to de i eries in excess of orders in t e arine and and Systems prod ct ine as T de i eries near comp etion and fina de i eries of o r discontin ed sensor f ed eapon prod ct in 7 n ac og decreased y $4 7 mi ion primari y d e to de i eries in excess of orders in t e eapons and Sensors siness and nmanned Systems prod ct ine
ndustrial
C an e (Dollars in millions) e en es e Systems and nctiona omponents $ $ 7 $ 7 t er nd stria 4 4 Tota re en es 4 7 4 44 7 perating expenses 4 4 7 Segment profit rofit margin 7
ndustrial Re enues and Operatin penses actors contri ting to t e 7 year o er year re en e c ange are pro ided e o
ersus (In millions) c isitions $ o me 77 oreign exc ange 7 t er Tota c ange $ 4
nd stria segment re en es increased $4 mi ion in 7 compared it primari y d e to t e impact from ac ired sinesses of $ mi ion arge y re ated to t e ac isition of rctic at as descri ed e o e en es ere a so impacted y ig er o me of $77 mi ion primari y re ated to t e e Systems and nctiona omponents prod ct ine and a fa ora e impact of $ 7 mi ion from foreign exc ange primari y re ated to t e ro
n arc 7 e ac ired rctic at a man fact rer of a terrain e ic es side y sides and sno mo i es in addition to re ated parts garments and accessories rctic at pro ides a p atform to expand o r prod ct portfo io and increase o r distri tion c anne to s pport gro t it in o r Textron Specia i ed e ic es siness T e operating res ts of rctic at a e een inc ded in o r financia res ts on y for t e period s se ent to t e comp etion of t e ac isition See ote to t e onso idated inancia Statements for additiona information regarding t is ac isition
perating expenses for t e nd stria segment increased $ mi ion in 7 compared it primari y d e to additiona operating expenses from ac ired sinesses T e increase in operating expenses as a so d e to ig er o me as descri ed a o e
26 Textron 2017 Annual Report
ersus (In millions)
ndustrial e ent rofit
ersus (In millions)
Industrial’s segment profit decreased $39 million, 12
ersus (In millions)
Finance
(In millions)
Textron 2017 Annual Report 27
Finance Portfolio Quality The following table reflects information about the Finance segment’s credit performance related to finance recei a les
Dece er Dece er (Dollars in millions) inance recei a les $ $ 9 onaccrual finance recei a les 1 atio of nonaccrual finance recei a les to finance recei a les 1 9 2 da s contractual delin uenc $ 3 $ da s contractual delin uenc as a percentage of finance recei a les 23 * Excludes finance receivables held for sale of $30 million at December 31, 2016.
i uidity and Capital Resources
ur financings are conducted t roug t o separate orro ing groups e anufacturing group consists of e tron consolidated it its ma orit o ned su sidiaries t at operate in t e e tron iation, ell, e tron stems and Industrial segments e inance group, ic also is t e inance segment, consists of e tron inancial orporation and its consolidated su sidiaries e designed t is frame or to en ance our orro ing po er separating t e inance group ur anufacturing group operations include t e de elopment, production and deli er of tangi le goods and ser ices, ile our inance group pro ides 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 t ose e aluations, e present alance s eet and cas flo information for eac orro ing group it in t e onsolidated inancial tatements
e information t at is utili ed in assessing our li uidit is summari ed elo
Dece er Dece er (Dollars in millions) anufacturin roup as and e ui alents $ 1, 9 $ 1,13 e t 3, 2, Shareholders’ equity , , Capital (debt plus shareholders’ equity) , 3 ,3 1 et de t net of cas and e ui alents to capital 2 23 e t to capital 3 33 Finance roup as and e ui alents $ 1 3 $ 1 1 e t 2 9 3
e elie e t at our calculations of de t to capital and net de t to capital are useful measures as t e pro ide a summar indication of t e le el of de t financing i e , le erage t at is in place to support our capital structure, as ell as to pro ide an indication of t e capacit to add furt er le erage e elie e t at e ill a e sufficient cas to meet our future needs, ased on our e isting cas alances, t e cas e e pect to generate from our manufacturing operations and ot er a aila le funding alternati es, as appropriate
e tron as a senior unsecured re ol ing credit facilit t at e pires in eptem er 2 21 for an aggregate principal amount of $1 illion, of ic up to $1 million is a aila le for t e issuance of letters of credit t ecem er 3 , 2 1 , t ere ere no amounts orro ed against t e facilit and t ere ere $11 million of letters of credit issued against it
e also maintain an effecti e s elf registration statement filed it t e ecurities and c ange ommission t at allo s us to issue an unlimited amount of pu lic de t and ot er securities uring 2 1 , e issued $1 illion of pu lic de t under t is registration statement, ic consisted of $3 million in 3 otes due arc 2 2 , $3 million in 3 3 otes due arc 2 2 , and $3 million of loating ate otes due o em er 2 2
28 Textron 2017 Annual Report 2
anufacturin roup Cas Flo s Cash flows from continuing operations for the anufacturing group as presented in our Consolidated Statements of Cash Flows are summari ed below
(In millions) perating activities , nvesting activities ( ) ( ) ( ) Financing activities ( ) ( ) ( )
n , cash flows provided by operating activities was million, compared with million in , a decrease, as higher pension contributions of million and lower earnings were largely offset by improvements in wor ing capital. Significant factors contributing to the favorable change in wor ing capital included an increase in cash flows of million related to changes in inventory between the periods, principally in the Te tron viation and Te tron Systems segments, million related to changes in customer deposits and million from changes in net ta es paid received, partially offset by changes in accounts payable and accounts receivable. The increase in cash flows from customer deposits between the periods is primarily related to lower performance based payments received on certain military contracts in the ell segment in .
Cash flows provided by operating activities was million in , compared with , million in , a decrease. This decrease was primarily the result of changes in wor ing capital, which included lower customer deposits of million largely related to performance based payments on certain military contracts in the ell segment, along with a million reduction in dividends received from the Finance group. These decreases were partially offset by a million increase in cash proceeds from the settlements of corporate owned life insurance policies and million in lower payments for ta es and pension contributions as disclosed below.
et ta (receipts) payments were ( ) million, million and million in , and , respectively. ension contributions were million, million and million in , and , respectively. n , pension contributions included a million discretionary contribution to fund a .S. pension plan.
nvesting cash flows included capital e penditures of million, million and million in , and , respectively. n , cash flows from investing activities included a million aggregate cash payment, including the repayment of debt and net of cash acquired, for the acquisition of rctic Cat. nvesting cash flows also included cash used for acquisitions of million and million in and , respectively.
Total financing cash flows included proceeds from long term debt of million and million in and , respectively. n , and , financing activities also included the repayment of outstanding debt of million, million and million, respectively.
Share Repurchases n anuary , , we announced the adoption of a plan authori ing the repurchase of up to million shares of Te tron common stoc to offset the impact of dilution from share based compensation and benefit plans and for opportunistic capital management purposes. This plan has no e piration date and replaced the previous plan adopted in that had . million remaining shares available for repurchase. During , we repurchased an aggregate of . million shares of our outstanding common stoc for million under this plan. nder the share repurchase authori ation, we repurchased an aggregate of . million and . million shares of our outstanding common stoc in and , respectively, for million and million, respectively.
Dividends Dividend payments to shareholders totaled million, million and million in , and , respectively.
Dividends received from the Finance group, which totaled million and million in and , respectively, are included within cash flows from operating activities for the anufacturing group as they represent a return on investment.
Textron 2017 Annual Report 29
Finance roup Cas Flo s The cash flows from continuing operations for the Finance group as presented in our Consolidated Statements of Cash Flows are summari ed below
(In millions) perating activities ( ) nvesting activities Financing activities ( ) ( ) ( )
The Finance group’s cash flows from operating activities included net ta payments of million, million and million in , and , respectively. Cash flows from investing activities primarily included collections on finance receivables totaling million, million and million in , and , respectively, partially offset by finance receivable originations of million, million and million, respectively.
Cash flows used in financing activities included payments on long term and nonrecourse debt of million, million and million in , and , respectively, which were partially offset by proceeds from long term debt of million, million and million, respectively. n and , dividend payments to the anufacturing group totaled million and million, respectively.
Consolidated Cas Flo s The consolidated cash flows from continuing operations, after elimination of activity between the borrowing groups, are summari ed below
(In millions) perating activities , , nvesting activities ( ) ( ) ( ) Financing activities ( ) ( ) ( )
Consolidated cash flows provided by operating activities was million in , compared with , million in , a decrease, as higher pension contributions of million and lower earnings were largely offset by improvements in wor ing capital. Significant factors contributing to the favorable change in wor ing capital included an increase in cash flows of million related to changes in inventory between the periods, principally in the Te tron viation and Te tron Systems segments, million related to changes in customer deposits and million of lower net ta payments, partially offset by changes in accounts payable and accounts receivable. The increase in cash flows from customer deposits between the periods is primarily related to lower performance based payments received on certain military contracts in the ell segment in .
Cash flows provided by operating activities was , million in , compared with , million in , a decrease. This decrease was primarily the result of changes in wor ing capital, which included lower customer deposits of million largely related to performance based payments on certain military contracts in the ell segment. These decreases were partially offset by a million increase in cash proceeds from the settlements of corporate owned life insurance policies and million in lower payments for ta es and pension contributions as disclosed below.
et ta payments were million, million and million in , and , respectively. ension contributions were million, million and million in , and , respectively. n , pension contributions included a million discretionary contribution to fund a .S. pension plan.
nvesting cash flows included capital e penditures of million, million and million in , and , respectively. n , cash flows from investing activities included a million aggregate cash payment, including the repayment of debt and net of cash acquired, for the acquisition of rctic Cat. nvesting cash flows also included cash used for acquisitions of million and million in and , respectively.
n , and , cash used in financing activities included the repayment of outstanding debt of million, million and million, respectively, and share repurchases of million, million and million, respectively, partially offset by proceeds from long term debt of . billion, million and million, respectively.
30 Textron 2017 Annual Report
Capti e Financin and Ot er nterco pany ransactions he Finance group pro i es financing primaril to purchasers of new an pre owne e tron iation aircraft an ell helicopters manufacture our anufacturing group otherwise nown as capti e financing n the onsoli ate tatements of ash Flows cash recei e from customers is reflecte as operating acti ities when recei e from thir parties owe er in the cash flow information pro i e for the separate orrowing groups cash flows relate to capti e financing acti ities are reflecte ase on the operations of each group For e ample when pro uct is sol our anufacturing group to a customer an is finance the Finance group the origination of the finance recei a le is recor e within in esting acti ities 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 transferre etween the two orrowing groups there is no cash transaction reporte in the consoli ate cash flows at the time of the original financing hese capti e financing acti ities along with all significant intercompan transactions are reclassifie or eliminate from the onsoli ate tatements of ash Flows
eclassification a ustments inclu e in the onsoli ate tatements of ash Flows are summari e elow
(In millions) eclassification a ustments from in esting acti ities ash recei e from customers Finance recei a le originations for anufacturing group in entor sales ther otal reclassification a ustments from in esting acti ities eclassification a ustments from financing acti ities i i en s recei e anufacturing group from Finance group — otal reclassification a ustments to cash flow from operating acti ities
n er a upport greement etween e tron an F e tron is re uire to maintain a controlling interest in F he agreement as amen e in ecem er also re uires e tron to ensure that F maintains fi e charge co erage of no less than an consolidated shareholder’s equity of no less than $125 million here were no cash contri utions re uire to e pai to F in an to maintain compliance with the support agreement
Contractual O li ations
anufacturin roup he following ta le summari es the nown contractual o ligations as efine reporting regulations of our anufacturing group as of ecem er
ay ents Due y eriod ore an (In millions) otal ear ears ears ears e t urchase o ligations not reflecte in alance sheet — nterest on orrowings ension enefits for unfun e plans ostretirement enefits other than pensions ther long term lia ilities perating leases otal anufacturing group
Pension and Postretirement Benefits e maintain efine enefit pension plans an postretirement enefit plans other than pensions as escri e in ote to the onsoli ate Financial tatements nclu e in the a o e ta le are iscounte estimate enefit pa ments we e pect to ma e relate to unfun e pension an other postretirement enefit plans ctual enefit pa ments are epen ent on a num er of factors inclu ing mortalit assumptions e pecte retirement age rate of compensation increases an me ical tren rates which are su ect to change in future ears ur polic for fun ing pension plans is to ma e contri utions annuall consistent with applica le laws an regulations howe er future contri utions to our pension plans are not inclu e in the a o e ta le n we e pect to ma e appro imatel million of contri utions to our fun e pension plans an the etirement ccount lan ase on our current assumptions which ma change with changes in mar et con itions our current contri ution for each of the ears from through are estimate to e in the range of appro imatel million to million un er the plan pro isions in place at this time
Textron 2017 Annual Report 31
Other Long-Term Liabilities ther long term liabilities consist of undiscounted amounts in the onsolidated alance heets that primarily include obligations under deferred compensation arrangements, estimated environmental remediation costs, and a one time transition ta , as disclosed in ote 1 to the onsolidated Financial tatements, that will be paid over an eight year period. ayments under deferred compensation arrangements have been estimated based on management’s assumptions of e pected retirement age, mortality, stoc price and rates of return on participant deferrals. he timing of cash flows associated with environmental remediation costs is largely based on historical e perience. ertain other long term liabilities, such as deferred ta es, unrecogni ed ta benefits and product liability, warranty and litigation reserves, have been e cluded from the table due to the uncertainty of the timing of payments combined with the absence of historical trends to be used as a predictor for such payments.
Purchase Obligations urchase 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. Appro imately of the purchase obligations we disclose represent purchase orders issued for goods and services to be delivered under firm contracts with the . . overnment for which we have full recourse under customary contract termination clauses.
Finance roup he following table summari es the nown contractual obligations, as defined by reporting regulations, of our Finance group as of ecember , 2 1 ay ents Due y eriod ore an (In millions) otal ear ears ears ears erm debt $ 525 $ 22 $ 1 $ 5 $ 52 ubordinated debt 2 — — — 2 nterest on borrowings 1 2 2 2 1 1 otal Finance group $ 1, $ 5 $ 5 $ $ 52
At ecember , 2 1 , the Finance group also had $ million in other liabilities that are payable within the ne t 12 months.
Critical Accountin sti ates
o prepare our onsolidated Financial tatements to be in conformity with generally accepted accounting principles, we must ma e comple and sub ective udgments in the selection and application of accounting policies. he accounting policies that we believe are most critical to the portrayal of our financial condition and results of operations are listed below. e believe these policies require our most difficult, sub ective and comple udgments in estimating the effect of inherent uncertainties. his section should be read in con unction with ote 1 to the onsolidated Financial tatements, which includes other significant accounting policies.
on er Contracts e ma e a substantial portion of our sales to government customers pursuant to long term contracts. hese contracts require development and delivery of products over multiple years and may contain fi ed price purchase options for additional products. e account for these long term contracts under the percentage of completion method of accounting. nder this method, we estimate profit as the difference between total estimated revenues and cost of a contract. he percentage of completion method of accounting involves the use of various estimating techniques to pro ect costs at completion and, in some cases, includes estimates of recoveries asserted against the customer for changes in specifications. ue to the si e, length of time and nature of many of our contracts, the estimation of total contract costs and revenues through completion is complicated and sub ect to many variables relative to the outcome of future events over a period of several years. e are required to ma e numerous assumptions and estimates relating to items such as e pected engineering requirements, comple ity of design and related development costs, product performance, performance of subcontractors, availability and cost of materials, labor productivity and cost, overhead and capital costs, manufacturing efficiencies and the achievement of contract milestones, including product deliveries, technical requirements, or schedule.
ur cost estimation process is based on the professional nowledge and e perience of engineers and program managers along with finance professionals. e update our pro ections of costs at least semiannually or when circumstances significantly change. Ad ustments to pro ected costs are recogni ed in earnings when determinable. Anticipated losses on contracts are recogni ed in full in the period in which the losses become probable and estimable. ue to the significance of udgment in the estimation process described above, it is li ely that materially different revenues and or cost of sales amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. ur earnings could be reduced by a material amount resulting in a charge to earnings if a total estimated contract costs are significantly higher than e pected 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
32 Textron 2017 Annual Report 2
or inf ation c there is a change in engineering efforts re uired during the deve opment stage of the contract or d e are unab e to meet contract mi estones
t the outset of each contract e estimate the initia profit boo ing rate he initia profit boo ing rate of each contract considers ris s surrounding the abi it to achieve the technica re uirements for e amp e a ne deve oped product versus a mature product schedu e for e amp e the number and t pe of mi estone events and costs b contract re uirements in the initia estimated costs at comp etion rofit boo ing rates ma increase during the performance of the contract if e successfu retire ris s surrounding the technica schedu e and costs aspects of the contract i e ise the profit boo ing rate ma decrease if e are not successfu in retiring the ris s and as a resu t our estimated costs at comp etion increase of the estimates are sub ect to change during the performance of the contract and therefore ma affect the profit boo ing rate hen ad ustments are re uired an changes from prior estimates are recogni ed using the cumu ative catch up method ith the impact of the change from inception to date recorded in the current period
he fo o ing tab e sets forth the aggregate gross amount of a program profit ad ustments that are inc uded ithin segment profit for the three ears ended ecember
(In millions) ross favorab e ross unfavorab e et ad ustments
ood ill e eva uate the recoverabi it of good i annua in the fourth uarter or more fre uent if events or changes in circumstances such as dec ines in sa es earnings or cash f o s or materia adverse changes in the business c imate indicate that the carr ing va ue of a reporting unit might be impaired he reporting unit represents the operating segment un ess discrete financia information is prepared and revie ed b segment management for businesses one eve be o that operating segment in hich case such component is the reporting unit n certain instances e have aggregated components of an operating segment into a sing e reporting unit based on simi ar economic characteristics
e ca cu ate the fair va ue of each reporting unit primari using discounted cash f o s hese cash f o s incorporate assumptions for short and ong term revenue gro th rates operating margins and discount rates that represent our best estimates of current and forecasted mar et conditions cost structure anticipated net cost reductions and the imp ied rate of return that e be ieve a mar et participant ou d re uire for an investment in a business having simi ar ris s and business characteristics to the reporting unit being assessed he revenue gro th rates and operating margins used in our discounted cash f o ana sis are based on our strategic p ans and ong range p anning forecasts he ong term gro th rate e use to determine the termina va ue of the business is based on our assessment of its minimum e pected termina gro th rate as e as its past historica gro th and broader economic considerations such as gross domestic product inf ation and the maturit of the mar ets e serve e uti i e a eighted average cost of capita in our impairment ana sis that ma es assumptions about the capita structure that e be ieve a mar et participant ou d ma e and inc ude a ris premium based on an assessment of ris s re ated to the pro ected cash f o s of each reporting unit e be ieve this approach ie ds a discount rate that is consistent ith an imp ied rate of return that an independent investor or mar et participant ou d re uire for an investment in a compan having simi ar ris s and business characteristics to the reporting unit being assessed
f the reporting unit’s estimated fair va ue e ceeds its carr ing va ue there is no impairment and no further ana sis is performed ther ise the amount of the impairment is determined by comparing the carrying amount of the reporting unit’s goodwill to the imp ied fair va ue of that good i he imp ied fair va ue of good i is determined b assigning a fair va ue to a of the reporting unit’s assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination f the carr ing amount of the good i e ceeds the imp ied fair va ue an impairment oss is recogni ed in an amount e ua to that e cess
ased on our annua impairment revie the fair va ue of a of our reporting units e ceeded their carr ing va ues and e do not be ieve that there is a reasonab e possibi it that an units might fai the initia step of the impairment test in the foreseeab e future
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Retire ent enefits e maintain arious pension and postretirement plans for our employees globally hese plans include significant pension and postretirement benefit obligations, which are calculated based on actuarial aluations ey assumptions used in determining these obligations and related e penses include e pected long term rates of return on plan assets, discount rates and healthcare cost pro ections e also ma e assumptions regarding employee demographic factors such as retirement patterns, mortality, turno er and rate of compensation increases e e aluate and update these assumptions annually
o determine the weighted a erage e pected long term rate of return on plan assets, we consider the current and e pected asset allocation, as well as historical and e pected returns on each plan asset class lower e pected rate of return on plan assets will increase pension e pense or , the assumed e pected long term rate of return on plan assets used in calculating pension e pense was , compared with in or the last si years, the assumed rate of return for our domestic plans, which represent appro imately of our total pension assets, was basis point decrease in this long term rate of return in would ha e increased pension cost for our domestic plans by appro imately million
he discount rate enables us to state e pected future benefit payments as a present alue on the measurement date, reflecting the current rate at which the pension liabilities could be effecti ely settled his rate should be in line with rates for high quality fi ed income in estments a ailable for the period to maturity of the pension benefits, which fluctuate as long term interest rates change lower discount rate increases the present alue of the benefit obligations and increases pension e pense n , the weighted a erage discount rate used in calculating pension e pense was , compared with in or our domestic plans, the assumed discount rate was in , compared with in basis point decrease in the weighted a erage discount rate would ha e increased pension cost for our domestic plans by appro imately million in
he trend in healthcare costs is difficult to estimate and has an important effect on postretirement liabilities he medical and prescription drug healthcare cost trend rates represent the weighted a erage annual pro ected rate of increase in the per capita cost of co ered benefits n , we assumed a trend rate of for both medical and prescription drug healthcare rates and assumed this rate would gradually decline to by and then remain at that le el ee ote to the onsolidated inancial tatements for the impact of a one percentage point change in the cost trend rate
te A uantitati e and ualitati e Disclosures A out ar et Ris
Forei n Currency c an e Ris s ur financial results are affected by changes in foreign currency e change rates in the arious countries in which our products are manufactured and or sold or our manufacturing operations, we manage our foreign currency transaction e posures by entering into foreign currency e change contracts hese contracts generally are used to fi the local currency cost of purchased goods or ser ices or selling prices denominated in currencies other than the functional currency he notional amount of outstanding foreign currency e change contracts was appro imately million and million at ecember , and ecember , , respecti ely e also manage e posures to foreign currency assets and earnings primarily by funding certain foreign currency denominated assets with liabilities in the same currency so that certain e posures are naturally offset e primarily use borrowings denominated in ritish pound sterling for these purposes he impact of foreign currency e change rate changes on our onsolidated inancial tatements are as follows
(In millions) ncrease decrease in re enues ecrease in segment profit
nterest Rate Ris s ur financial results are affected by changes in interest rates s part of managing this ris , we see to achie e a prudent balance between floating and fi ed rate e posures e continually monitor our mi of these e posures and ad ust the mi , as necessary or our inance group, we limit our ris to changes in interest rates with a strategy of matching floating rate assets with floating rate liabilities
uantitati e Ris easures n the normal course of business, we enter into financial instruments for purposes other than trading he financial instruments that are sub ect to mar et ris include finance recei ables e cluding leases , debt e cluding capital lease obligations and foreign currency e change contracts o quantify the mar et ris inherent in these financial instruments, we utilize a sensiti ity analysis that includes a hypothetical change in fair alue assuming a decrease in interest rates and a strengthening in foreign e change rates against the dollar he fair alue of these financial instruments is estimated using discounted cash flow analysis and indicati e mar et pricing as reported by leading financial news and data pro iders
34 Textron 2017 Annual Report
t the end of each year, the table below pro ides the carrying and fair alues of these financial instruments along with the sensiti ity of fair alue to the hypothetical changes discussed abo e his sensiti ity analysis is most li ely not indicati e of actual results in the future
Dece er Dece er ensiti ity of ensiti ity of Fair alue Fair alue Carryin Fair to a Carryin Fair to a In millions alue alue C an e alue alue C an e anufacturin roup Foreign exchange rate risk ebt oreign currency e change contracts Interest rate risk ebt , , , , Finance roup Interest rate risk inance recei ables ebt * The value represents an asset or (liability).
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te Financial tate ents and upple entary Data
ur onsolidated inancial tatements and the related report of our independent registered public accounting firm thereon are included in this nnual eport on orm on the pages indicated below
a e
onsolidated tatements of perations for each of the years in the three year period ended ecember ,
onsolidated tatements of omprehensi e ncome for each of the years in the three year period ended ecember ,
onsolidated alance heets as of ecember , and ecember ,
Consolidated Statements of Shareholders’ Equity for each of the years in the three year period ended ecember ,
onsolidated tatements of ash lows for each of the years in the three year period ended ecember ,
otes to the onsolidated inancial tatements
ote ummary of ignificant ccounting olicies ote usiness cquisitions, oodwill and ntangible ssets ote ccounts ecei able and inance ecei ables ote n entories ote roperty, lant and quipment, et ote ccrued iabilities ote ebt and redit acilities ote eri ati e nstruments and air alue easurements ote Shareholders’ quity ote hare ased ompensation ote etirement lans ote pecial harges ote ncome a es ote ommitments and ontingencies ote upplemental ash low nformation ote egment and eographic ata
eport of ndependent egistered ublic ccounting irm
upplementary nformation
uarterly ata for and naudited chedule – aluation and ualifying ccounts
ll 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
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Consolidated tate ents of Operations
or each of the years in the three year eriod ended ecem er
(In millions, except per share data) Re enues anufacturin re enues inance re enues otal re enues Costs e penses and ot er Cost of sales Sellin and administrati e e ense nterest e ense S ecial char es — otal costs e enses and other ncome from continuin o erations efore income ta es ncome ta e ense nco e fro continuin operations ncome loss from discontinued o erations net of income ta es et inco e asic earnin s per s are Continuin o erations iscontinued o erations — — asic earnin s per s are Diluted earnin s per s are Continuin o erations iscontinued o erations — — Diluted earnin s per s are * See Note 13 to the Consolidated Financial Statements for additional information regarding the year ended December 31, 2016.
See otes to the Consolidated inancial Statements
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Consolidated tate ents of Co pre ensi e nco e
(In millions) et inco e Co pre ensi e inco e
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Consolidated alance eets
Dece er Dece er (In millions, except share data) Assets anufacturin roup otal current assets otal anufacturin roup assets Finance roup otal Finance roup assets otal assets Liabilities and shareholders’ equity ia ilities anufacturin roup otal current lia ilities otal anufacturin roup lia ilities Finance roup otal Finance roup lia ilities otal lia ilities Shareholders’ equity — Total shareholders’ equity Total liabilities and shareholders’ equity
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Consolidated Statements of Shareholders’ Equity
umulated ther otal Common Ca ital reasury etained Com rehensi e Shareholders’ (In millions, except per share data) Sto Sur lus Sto Earnin s oss Equity — — —
40 Textron 2017 Annual Report
Consolidated Statements of Cash lo s
Consolidated (In millions) Cash flo s from o eratin a ti ities Cash flo s from in estin a ti ities Cash flo s from finan in a ti ities — et in rease de rease in ash and equi alents
Textron 2017 Annual Report 41
Consolidated Statements of Cash lo s ontinued
anufa turin rou inan e rou (In millions) Cash flo s from o eratin a ti ities — — — — — — — — — — — — — — — — — — — — — — — — — — — — Cash flo s from in estin a ti ities — — — — — — — — — — — — Cash flo s from finan in a ti ities — — — — — — — — — — — et in rease de rease in ash and equi alents
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otes to the Consolidated inan ial Statements
ote Summary of Si nifi ant ountin oli ies
rin i les of Consolidation and inan ial Statement resentation e fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different me to evaluate each group’s performance. To support those evaluations, we present balance sheet and cash flow information for
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 o
Colla orati e rran ements transactions with the U.S. Government in each company’s respective income statement. Neither Bell nor Boeing is
se of Estimates
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e enue e o nition e generally recogni e revenue for the sale of products, which are not under long term contracts, upon delivery. For commercial aircraft, delivery is upon completion of manufacturing, customer acceptance, and the transfer of the ris and rewards of ownership. Ta es collected from customers and remitted to government authorities are recorded on a net basis.
hen a sale arrangement involves multiple deliverables, such as sales of products that include customi ation and other services, we evaluate the arrangement to determine whether there are separate items that are re uired to be delivered under the arrangement that ualify as separate units of accounting. These arrangements typically involve the customi ation services we offer to customers who purchase Bell helicopters, and the services generally are provided within the first si months after the customer accepts the aircraft and assumes ris of loss. e consider the aircraft and the customi ation services to be separate units of accounting and allocate contract price between the two on a relative selling price basis using the best evidence of selling price for each of the deliverables, typically by reference to the price charged when the same or similar items are sold separately by us. e also consider any performance, cancellation, termination or refund type provisions. evenue is recogni ed when the recognition criteria for each unit of accounting are met.
Long-Term Contracts evenues under long term contracts are accounted for under the percentage of completion method of accounting. Under this method, we estimate profit as the difference between the total estimated revenues and cost of a contract. e then recogni e that estimated profit over the contract term based on either the units of delivery method or the cost to cost method which typically is used for development effort as costs are incurred , as appropriate under the circumstances. evenues under fi ed price contracts generally are recorded using the units of delivery method. evenues under cost reimbursement contracts are recorded using the cost to cost method.
ong term contract profits are based on estimates of total contract cost and revenues utili ing current contract specifications, e pected engineering re uirements, the achievement of contract milestones and product deliveries. ertain contracts are awarded with fi ed price incentive fees that also are considered when estimating revenues and profit rates. ontract costs typically are incurred over a period of several years, and the estimation of these costs re uires substantial udgment. ur cost estimation process is based on the professional nowledge and e perience of engineers and program managers along with finance professionals. e update our pro ections of costs at least semiannually or when circumstances significantly change. hen ad ustments are re uired, any changes from prior estimates are recogni ed using the cumulative catch up method with the impact of the change from inception to date recorded in the current period. nticipated losses on contracts are recogni ed in full in the period in which the losses become probable and estimable.
Finance Revenues Finance revenues primarily include interest on finance receivables, capital lease earnings and portfolio gains losses. ortfolio gains losses include impairment charges related to repossessed assets and properties and gains losses on the sale or early termination of finance assets. e recogni e interest using the interest method, which provides a constant rate of return over the terms of the receivables. ccrual of interest income is suspended if credit uality indicators suggest full collection of principal and interest is doubtful. n addition, we automatically suspend the accrual of interest income for accounts that are contractually delin uent by more than three months unless collection is not doubtful. ash payments on nonaccrual accounts, including finance charges, generally are applied to reduce the net investment balance. nce we conclude that the collection of all principal and interest is no longer doubtful, we resume the accrual of interest and recogni e 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.
Cash and Equi alents ash and e uivalents consist of cash and short term, highly li uid investments with original maturities of three months or less.
n entories nventories are stated at the lower of cost or estimated net reali able value. e value our inventories generally using the first in, first out F F method or the last in, first out F method for certain ualifying inventories where F provides a better matching of costs and revenues. e determine costs for our commercial helicopters on an average cost basis by model considering the e pended and estimated costs for the current production release. nventories include costs related to long term contracts, which are stated at actual production costs, including allocable operating overhead, advances to suppliers, and, in the case of contracts with the U.S. Government, allocable research and development and general and administrative e penses. Since our inventoried costs include amounts related to contracts with long production cycles, a portion of these costs is not e pected to be reali ed within one year. ursuant to contract provisions, agencies of the U.S. Government have title to, or security interest in, inventories related to such contracts as a result of advances, performance based payments and progress payments. ccordingly, these advances and payments are reflected as an offset against the related inventory balances with any remaining amounts recorded as a liability in
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customer deposits. ustomer deposits are recorded against inventory only when the right of offset e ists, while all other customer deposits are recorded in ccrued liabilities.
ro erty lant and Equi ment roperty, plant and e uipment are recorded at cost and are depreciated primarily using the straight line method. e capitali e e penditures for improvements that increase asset values and e tend useful lives. roperty, plant and e uipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. f the carrying value of the asset e ceeds the sum of the undiscounted e pected future cash flows, the asset is written down to fair value.
ood ill and ntan i le ssets Goodwill represents the e cess of the consideration paid for the ac uisition of a business over the fair values assigned to intangible and other net assets of the ac uired business. Goodwill and intangible assets deemed to have indefinite lives are not amorti ed, but are sub ect to an annual impairment test. e evaluate the recoverability of these assets in the fourth uarter of each year or more fre uently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate a potential impairment.
For our impairment test, we calculate the fair value of each reporting unit and indefinite lived intangible asset primarily using discounted cash flows. reporting unit represents the operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment, in which case such component is the reporting unit. n certain instances, we have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics. For the goodwill impairment test, the discounted cash flows incorporate assumptions for revenue growth, operating margins and discount rates that represent our best estimates of current and forecasted mar et conditions, cost structure, anticipated net cost reductions, and the implied rate of return that we believe a mar et participant would re uire for an investment in a business having similar risks and characteristics to the reporting unit being assessed. If the reporting unit’s estimated fair value e ceeds its carrying value, there is no impairment. therwise, the amount of the impairment is determined by comparing the carrying amount of the reporting unit’s goodwill to the implied fair value of that goodwill. The implied fair value of goodwill is determined by assigning a fair value to all of the reporting unit’s assets and liabilities as if the reporting unit had been ac uired in a business combination. f the carrying amount of the goodwill e ceeds the implied fair value, an impairment loss is recogni ed in an amount e ual to that e cess. For indefinite lived intangible assets, if the carrying amount of an intangible asset e ceeds its fair value, an impairment loss is recogni ed in an amount e ual to that e cess.
c uired intangible assets with finite lives are sub ect to amorti ation. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. morti ation of these intangible assets is recogni ed 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 reali ed. ppro imately of our gross intangible assets are amorti ed based on the cash flow streams used to value the assets, with the remaining assets amorti ed using the straight line method.
inan e e ei a les Finance receivables primarily include loans provided to purchasers of new and pre owned Te tron viation aircraft and Bell helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for losses.
e maintain an allowance for losses on finance receivables at a level considered ade uate to cover inherent losses in the portfolio based on management’s evaluation. For larger balance accounts specifically identified as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable’s effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying amount. The e pected future cash flows consider collateral value financial performance and li uidity of our borrower e istence and financial strength of guarantors estimated recovery costs, including legal e penses and costs associated with the repossession and eventual disposal of collateral. hen there is a range of potential outcomes, we perform multiple discounted cash flow analyses and weight the potential outcomes based on their relative li elihood of occurrence. The evaluation of our portfolio is inherently sub ective, as it re uires estimates, including the amount and timing of future cash flows e pected to be received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results. 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 e istence and financial strength of guarantors.
e also establish an allowance for losses to cover probable but specifically un nown losses e isting in the portfolio. This allowance is established as a percentage of non recourse finance receivables, which have not been identified as re uiring specific reserves. The percentage is based on a combination of factors, including historical loss e perience, current delin uency and default trends, collateral values and both general economic and specific industry trends.
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Finance receivables are charged off at the earlier of the date the collateral is repossessed or when no payment has been received for six months, unless management deems the receivable collectible. epossessed assets are recorded at their fair value, less estimated cost to sell.
ension and ostretirement enefit li ations e maintain various pension and postretirement plans for our employees globally. These plans include significant pension and postretirement benefit obligations, which are calculated based on actuarial valuations. 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 pro ections. e evaluate and update these assumptions annually in consultation with third party actuaries and investment advisors. e also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases.
For our year end measurement, our defined benefit plan assets and obligations are measured as of the month end date closest to our fiscal year end. e recogni e the overfunded or underfunded status of our pension and postretirement plans in the onsolidated alance heets and recogni e changes in the funded status of our defined benefit plans in comprehensive income in the year in which they occur. ctuarial gains and losses that are not immediately recogni ed as net periodic pension cost are recogni ed as a component of other comprehensive income loss I and are amorti ed into net periodic pension cost in future periods.
eri ati es and ed in ti ities e are exposed to market risk primarily from changes in currency exchange rates and interest rates. e do not hold or issue derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. redit risk related to derivative financial instruments is considered minimal and is managed by re uiring high credit standards for counterparties and through periodic settlements of positions.
ll derivative instruments are reported at fair value in the onsolidated alance heets. esignation to support hedge accounting is performed on a specific exposure basis. For financial instruments ualifying as cash flow hedges, we record changes in the fair value of derivatives to the extent they are effective as hedges in I, net of deferred taxes. hanges in fair value of derivatives not ualifying as hedges are recorded in earnings.
Foreign currency denominated assets and liabilities are translated into . . dollars. d ustments from currency rate changes are recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or substantially li uidated. e use foreign currency financing transactions to effectively hedge long term investments in foreign operations with the same corresponding currency. Foreign currency gains and losses on the hedge of the long term investments are recorded in the cumulative translation ad ustment account.
rodu t ia ilities e accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. ur estimates are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience.
En ironmental ia ilities and sset etirement li ations iabilities 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. e estimate our accrued environmental liabilities using currently available facts, existing technology, and presently enacted laws and regulations, all of which are sub ect to a number of factors and uncertainties. ur environmental liabilities are not discounted and do not take into consideration possible future insurance proceeds or significant amounts from claims against other third parties.
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. There is no legal re uirement to remove these items, and there currently is no plan to remodel the related facilities or otherwise cause the impacted items to re uire disposal. ince these asset retirement obligations are not estimable, there is no related liability recorded in the onsolidated alance heets.
arranty and rodu t aintenan e ia ilities e provide limited warranty and product maintenance programs for certain products for periods ranging from one to five years. significant portion of these liabilities arises from our commercial aircraft businesses. For our product maintenance contracts, revenue is recogni ed on a straight line basis over the contract period, unless sufficient historical evidence indicates that the cost of providing these services is incurred on a basis other than straight line. In those circumstances, revenue is recogni ed over the contract period in proportion to the costs expected to be incurred in performing the service.
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or our arranty rograms e estimate the costs that may e incurred and record a lia ility in the amount of such costs at the time roduct revenues are recogni ed actors that affect this lia ility include the num er of roducts sold historical costs er claim contractual recoveries from vendors and historical and antici ated rates of arranty claims including roduction and arranty atterns for ne models e assess the adequacy of our recorded arranty lia ility eriodically and adjust the amounts as necessary dditionally e may esta lish a arranty lia ility related to the issuance of aircraft service ulletins for aircraft no longer covered under the limited arranty rograms
esear h and e elo ment Costs ur customer funded research and develo ment costs are charged directly to the related contracts hich rimarily consist of overnment contracts n accordance ith government regulations e recover a ortion of com any funded research and develo ment costs through overhead rate charges on our overnment contracts esearch and develo ment costs that are not reim ursa le under a contract ith the overnment or another customer are charged to e ense as incurred om any funded research and develo ment costs ere million million and million in and res ectively and are included in cost of sales
n ome a es he rovision for income ta e ense is calculated on re orted ncome from continuing o erations efore income ta es ased on current ta la and includes in the current eriod the cumulative effect of any changes in ta rates from those used reviously in determining deferred ta assets and lia ilities a la s may require items to e included in the determination of ta a le income at different times from hen the items are reflected in the financial statements eferred ta alances reflect the effects of tem orary differences et een the financial re orting carrying amounts of assets and lia ilities and their ta ases as ell as from net o erating losses and ta credit carryfor ards and are stated at enacted ta rates in effect for the year ta es are e ected to e aid or recovered eferred ta assets re resent ta enefits for ta deductions or credits availa le in future years and require certain estimates and assum tions to determine hether it is more li ely than not that all or a ortion of the enefit ill not e reali ed he recovera ility of these future ta deductions and credits is determined y assessing the adequacy of future e ected ta a le income from all sources including the future reversal of e isting ta a le tem orary differences ta a le income in carry ac years estimated future ta a le income and availa le ta lanning strategies hould a change in facts or circumstances lead to a change in judgment a out the ultimate recovera ility of a deferred ta asset e record or adjust the related valuation allo ance in the eriod that the change in facts and circumstances occurs along ith a corres onding increase or decrease in income ta e ense
We record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the reporting date o e recogni ed in the financial statements the ta osition must meet the more li ely than not threshold that the osition ill e sustained u on e amination y the ta authority ased on technical merits assuming the ta authority has full no ledge of all relevant information or ositions meeting this recognition threshold the enefit is measured as the largest amount of enefit that meets the more li ely than not threshold to e sustained e eriodically evaluate these ta ositions ased on the latest availa le information or ta ositions that do not meet the threshold requirement e recogni e net ta related interest and enalties for continuing o erations in income ta e ense
e ountin Standards
Revenue Recognition n ay the inancial ccounting tandards oard issued ccounting tandards date o Revenue from Contracts with Customers that outlines a five ste revenue recognition model ased on the rinci le that an entity should recogni e revenue to de ict the transfer of romised goods or services to customers in an amount that reflects the consideration to hich the entity e ects to e entitled in e change for those goods and services his ne standard ecame effective for us at the eginning of and ill e ado ted using the modified retros ective transition method nder this method e ill record the cumulative effect of ado ting the ne standard in the first quarter of
ased on revie and analysis of our contracts the standard rimarily im acts our ell and e tron ystems segments hich have long term roduction contracts ith the overnment rior to ado tion of the ne standard revenue as generally recogni ed for these contracts as units ere delivered hile under the ne standard revenue ill e recogni ed over time rinci ally as costs are incurred his change ill generally result in an acceleration of revenue for these contracts t the ado tion date the im act of recogni ing these revenues under the ne standard for historical eriods ending rior to ecem er ill result in a cumulative after ta transition adjustment to increase retained earnings y a ro imately million largely related to the ell segment n addition the transition adjustment ill esta lish contract assets of a ro imately million ith corres onding decreases in inventory of a ro imately million and in contract lia ilities deferred revenue and customer de osits and accounts receiva les rimarily reflecting the conversion of contracts to the cost to cost method his change is not e ected to have a significant im act on our future o erating results as the revenues that ould have een recogni ed under the units of delivery method in future years ill essentially e re laced y the acceleration of revenue on other contracts into earlier eriods using the
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cost to cost method he ne standard ill have no impact on cash flo s and does not affect the economics of our underl ing customer contracts he standard does not have a significant impact on revenue recognition for our extron viation and ndustrial segments hich ill continue to primaril recogni e revenue at the point in time hen the customer accepts deliver of the goods provided
t the end of our bac log excluded amounts here funding from the overnment had not been formall appropriated nder the ne standard bac log ill generall include these unfunded amounts as bac log ill be the e uivalent of the transaction price allocated to our remaining performance obligations hich represents the revenue e expect to recogni e under our contracts in future periods for hich or has not et been performed t adoption the increase in our bac log for the unfunded amounts ill be full offset b the decrease due to the acceleration of revenues in the transition ad ustment We expect bac log at the ell segment to decrease b approximatel at the adoption date hich ill partiall be offset b an increase of approximatel at the extron stems segment
We have updated the accounting policies affected b this standard redesigned our related internal controls over financial reporting and are expanding the disclosures to be included in our first uarter orm to meet the ne re uirements
Other Standards n arch the issued o Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost his standard re uires companies to present onl the service cost component of net periodic benefit costs in operating income in the same line as other emplo ee compensation costs hile the other components of net periodic benefit costs must be excluded from operating income n addition onl the service cost component ill be eligible for capitali ation into inventor his standard is effective for our compan at the beginning of he reclassification of the other components of net periodic benefit cost out of operating income must be applied retrospectivel hile the change in the amount companies ma capitali e into inventor can be applied prospectivel his standard ill not have a material impact on our consolidated financial statements and ill not change our segment reporting
n ebruar the issued o Leases that re uires lessees to recogni e all leases ith a term greater than months on the balance sheet as right to use assets and lease liabilities hile lease expenses ould continue to be recogni ed in the statement of operations in a manner similar to current accounting guidance nder the current accounting guidance e are not re uired to recogni e assets and liabilities arising from operating leases on the balance sheet he ne standard is effective for our compan at the beginning of and earl adoption is permitted ntities must adopt the standard on a modified retrospective basis hereb it ould be applied at the beginning of the earliest comparative ear While e continue to evaluate the impact of the standard on our consolidated financial statements e expect that it ill materiall increase the assets and liabilities on our consolidated balance sheet as e recogni e the rights and corresponding obligations related to operating leases
n une the issued o Financial Instruments – Credit Losses. or most financial assets such as trade and other receivables loans and other instruments this standard changes the current incurred loss model to a for ard loo ing expected credit loss model hich generall ill result in the earlier recognition of allo ances for losses he ne standard is effective for our compan at the beginning of ith earl adoption permitted beginning in ntities are re uired to appl the provisions of the standard through a cumulative effect ad ustment to retained earnings as of the effective date We are currentl evaluating the impact of the standard on our consolidated financial statements
ote usiness quisitions ood ill and ntan i le ssets
quisitions n arch e completed the ac uisition of rctic at nc rctic at a publicl held compan pursuant to a cash tender offer for per share follo ed b a short form merger rctic at manufactures and mar ets all terrain vehicles side b sides and sno mobiles in addition to related parts garments and accessories he cash paid for this business including repa ment of debt and net of cash ac uired totaled million rctic at provides a platform to expand our product portfolio and increase our distribution channel to support gro th ithin our extron peciali ed ehicles business in the ndustrial segment he operating results of rctic at are included in the onsolidated tatements of perations since the closing date
We allocated the consideration paid for this business on a preliminar basis to the assets ac uired and liabilities assumed based on their estimated fair values at the ac uisition date We expect to finali e the purchase accounting in the first uarter of ased on the preliminar allocation million has been allocated to good ill related to expected s nergies and the value of the assembled or force and million to intangible assets hich included million of indefinite lived assets related to tradenames he definite lived intangible assets are primaril related to customer dealer relationships and technolog hich ill be amorti ed over to ears We determined the value of the intangible assets using the relief from ro alt and multi period excess
48 Textron 2017 Annual Report
earnings methods hich utili e significant unobservable inputs or evel inputs as defined b the fair value hierarch nder these valuation methods e are re uired to ma e estimates and assumptions about sales operating margins gro th rates ro alt rates and discount rates based on anticipated cash flo s and mar etplace data pproximatel million of the good ill is deductible for tax purposes
and quisitions n e paid million in cash and assumed debt of million to ac uire six businesses net of cash ac uired and holdbac s ur ac uisition of ble ngineering and omponent ervices nc and ble erospace nc in the first uarter of represented the largest of these businesses and is included in the extron viation segment uring e made aggregate cash pa ments for ac uisitions of million hich included three businesses ithin our ndustrial and extron viation segments
ood ill he changes in the carr ing amount of good ill b segment are as follo s
e tron e tron iation ell Systems ndustrial otal alance at anuar c uisitions — oreign currenc translation — — alance at ecember c uisitions — — — oreign currenc translation — — alance at ecember
ntan i le ssets ur intangible assets are summari ed belo
e em er e em er ei hted era e ross ross morti ation Carryin umulated Carryin umulated eriod in years mount morti ation et mount morti ation et atents and technolog ustomer relationships and contractual agreements rade names and trademar s ther otal
rade names and trademar s in the table above include million and million of indefinite lived intangible assets at ecember and ecember respectivel morti ation expense totaled million million and million in and respectivel morti ation expense is estimated to be approximatel million million million million and million in and respectivel
Textron 2017 Annual Report 49
ote ounts e ei a le and inan e e ei a les
ounts e ei a le
e em er e em er
inan e e ei a les
e em er e em er
for TFC’s debt of
inan e e ei a le ortfolio uality
50 Textron 2017 Annual Report
F e re e b es te or ed b sed o t e red t t d tors d b de e te or re s r ed s fo o s
e em er e em er erfor t st o r o r s er e t e of f e re e b es ess t d s st d e d s st d e d s st d e er d s st d e d s o tr t de e s er e t e of f e re e b es
rter b s s e e te d d f e re e b es for r e t o o o e eo s ortfo os d r er b e o ts o o e eo s o ortfo os f e re e b e s o s dered red e t s rob b e t t e be b e to o e t o ts d e ord to t e o tr t ter s of t e o ree e t b sed o o r re e of t e red t t d tors des r bed bo e red f e re e b es de bot o r o ts d o ts for f o e t o of r and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified. If t e od f t o s e f es terest r te e to or re ter t r et r te for f e re e b e t o r b e r s t e o t s ot o s dered red e rs s bse e t to t e od f t o terest o e re o ed o red o s s ot s f t or
s r of red f e re e b es e d e er ed e ses d t e er e re orded est e t s ro ded be o
e em er e em er e orded est e t red o s t re ted o e for osses red o s t o re ted o e for osses Tot d r b e o e for osses o red o s er e re orded est e t
ro for rd of t e o e for osses o f e re e b es d s r of ts o os t o b sed o o t e der f e re e b es re e ted for r e t s ro ded be o T e f e re e b es re orted t s t b e s e f e de o d o of e er ed e ses t e e ber d e e ber res e t e ord e t e er e ted o t r es
e em er e em er e t be of e r ro s o for osses C r e offs e o er es e t e d of e r o e b sed o o e t e e t o o e b sed o d d e t o F e re e b es e ted o e t e F e re e b es e ted d d
Textron 2017 Annual Report 51
ote n entories
Inventories are composed of the follo ing
e em er e em er inished goods , , or in process , , a materials and components , , rogress milestone payments otal , ,
Inventories valued by the I method totaled . billion and . billion at ecember , and ecember , , respectively, and the carrying values of these inventories ould have been higher by approximately million and million, respectively, had our I inventories been valued at current costs. Inventories related to long term contracts, net of progress milestone payments, ere million and million at ecember , and ecember , , respectively.
ote ro erty lant and Equi ment et
Our Manufacturing group’s property, plant and equipment, net is composed of the follo ing
seful i es e em er e em er in years and and buildings – , , achinery and e uipment – , , , , ccumulated depreciation and amorti ation , , otal , ,
t ecember , and ecember , , assets under capital leases totaled million and million, respectively, and had accumulated amorti ation of million and million, respectively. The Manufacturing group’s depreciation expense, which included amorti ation expense on capital leases, totaled million, million and million in , and , respectively.
ote rued ia ilities
he accrued liabilities of our anufacturing group are summari ed belo
e em er e em er ustomer deposits , alaries, ages and employer taxes urrent portion of arranty and product maintenance contracts ther otal , ,
hanges in our arranty liability are as follo s
alance at beginning of year rovision ettlements c uisitions d ustments alance at end of year
52 Textron 2017 Annual Report
ote e t and Credit a ilities
Our de t is summari ed in the ta le elow
e em er e em er anufa turin rou . due — aria le rate note due . — aria le rate notes due . — . due . due aria le rate notes due . — . due . due . due . due . due . due — . due — Other weighted average rate of . and . , respectively Total Manufacturing group de t , , ess hort term de t and current portion of long term de t Total ong term de t , , inan e rou ixed rate notes due weighted average rate of . a — aria le rate note due . and . , respectively . note due ixed rate notes due weighted average rate of . and . , respectively a aria le rate notes due weighted average rate of . and . , respectively a ixed to loating ate unior u ordinated otes . and . , respectively Total inance group de t
The following ta le shows required payments during the next five years on de t outstanding at ecem er ,
Manufacturing group inance group Total
Textron has a senior unsecured revolving credit facility that expires in eptem er for an aggregate principal amount of . illion, of which up to million is availa le for the issuance of letters of credit. t ecem er , , there were no amounts orrowed against the facility and there were million of letters of credit issued against it.
i ed to loatin ate unior Su ordinated otes The Finance group’s $ million of ixed to loating ate unior u ordinated otes are unsecured and ran unior to all of its existing and future senior de t. The notes mature on e ruary , however, we have the right to redeem the notes at par at any time and we are o ligated to redeem the notes eginning on e ruary , . nterest on the notes was fixed at through e ruary , and is now varia le at the three month ondon nter an Offered ate . .
Su ort reement nder a upport greement, as amended in ecem er , Textron nc. is required to ensure that T maintains fixed charge coverage of no less than 125% and consolidated shareholder’s equity of no less than $ million. There were no cash contri utions required to e paid to T in , and to maintain compliance with the support agreement.
Textron 2017 Annual Report 53
ote eri ati e nstruments and air alue easurements
e easure fair value at the price that ould e received to sell an asset or paid to transfer a lia ility in an orderly transaction et een ar et participants at the easure ent date e prioriti e the assu ptions that ar et participants ould use in pricing the asset or lia ility into a three tier fair value hierarchy This fair value hierarchy gives the highest priority evel 1 to quoted prices in active ar ets for identical assets or lia ilities and the lo est priority evel to uno serva le inputs in hich little or no ar et data e ist requiring co panies to develop their o n assu ptions serva le inputs that do not eet the criteria of evel 1 hich include quoted prices for si ilar assets or lia ilities in active ar ets or quoted prices for identical assets and lia ilities in ar ets that are not active are categori ed as evel 2 evel inputs are those that reflect our esti ates a out the assu ptions ar et participants ould use in pricing the asset or lia ility ased on the est infor ation availa le in the circu stances aluation techniques for assets and lia ilities easured using evel inputs ay include ethodologies such as the ar et approach the inco e approach or the cost approach and ay use uno serva le inputs such as pro ections esti ates and anage ent’s interpretation of current ar et data These uno serva le inputs are utili ed only to the e tent that o serva le inputs are not availa le or cost effective to o tain
ssets and ia ilities e orded at air alue on a e urrin asis e anufacture and sell our products in a nu er of countries throughout the orld and therefore e are e posed to ove ents in foreign currency e change rates e pri arily utili e foreign currency e change contracts ith aturities of no ore than three years to anage this volatility These contracts qualify as cash flo hedges and are intended to offset the effect of e change rate fluctuations on forecasted sales inventory purchases and overhead e penses et gains and losses recogni ed in earnings and ccu ulated other co prehensive loss on cash flo hedges including gains and losses related to hedge ineffectiveness ere not significant in the periods presented
ur foreign currency e change contracts are easured at fair value using the ar et ethod valuation technique The inputs to this technique utili e current foreign currency e change for ard ar et rates pu lished y third party leading financial ne s and data providers These are o serva le data that represent the rates that the financial institution uses for contracts entered into at that date ho ever they are not ased on actual transactions so they are classified as evel 2 t ece er 2 1 and ece er 1 2 1 e had foreign currency e change contracts ith notional a ounts upon hich the contracts ere ased of $ 2 illion and $ 5 illion respectively t ece er 2 1 the fair value a ounts of our foreign currency e change contracts ere a $1 illion asset and a $ illion lia ility t ece er 1 2 1 the fair value a ounts of our foreign currency e change contracts ere a $ illion asset and a $1 illion lia ility
e hedge our net invest ent position in a or currencies and generate foreign currency interest pay ents that offset other transactional e posures in these currencies To acco plish this e orro directly in foreign currency and designate a portion of foreign currency de t as a hedge of a net invest ent e record changes in the fair value of these contracts in other co prehensive inco e to the e tent they are effective as cash flo hedges urrency effects on the effective portion of these hedges hich are reflected in the foreign currency translation ad ust ents ithin ccu ulated other co prehensive loss ere not significant in the periods presented
ssets and ia ilities ot e orded at air alue The carrying value and esti ated fair value of our financial instru ents that are not reflected in the financial state ents at fair value are as follo s
e em er e em er Carryin Estimated Carryin Estimated alue air alue alue air alue anufa turin rou e t e cluding leases $ $ 1 $ 2 $ 2 inan e rou Finance receiva les e cluding leases 5 2 5 e t 2 1
Fair value for the anufacturing group de t is deter ined using ar et o serva le data for si ilar transactions evel 2 The fair value for the Finance group de t as deter ined pri arily ased on discounted cash flo analyses using o serva le ar et inputs fro de t ith si ilar duration su ordination and credit default e pectations evel 2 Fair value esti ates for finance receiva les ere deter ined ased on internally developed discounted cash flo odels pri arily utili ing significant uno serva le inputs evel hich include esti ates of the rate of return financing cost capital structure and or discount rate e pectations of current ar et participants co ined ith esti ated loan cash flows based on credit losses, payment rates and expectations of borrowers’ a ility to a e pay ents on a ti ely asis
54 Textron 2017 Annual Report 5
ote . Shareholders’ Equity
Ca ital Sto e ha e a thori ation for million shares of preferred stoc with a par al e of and million shares of common stoc with a par al e of tstandin common stoc acti ity is presented below
alance at be innin of year , , , toc rep rchases , , , hare based compensation acti ity , , , alance at end of year , , ,
Earnin s er Share e calc late basic and dil ted earnin s per share based on net income, which approximates income a ailable to common shareholders for each period asic is calc lated sin the two class method, which incl des the wei hted a era e n mber of common shares o tstandin d rin the period and restricted stoc nits to be paid in stoc that are deemed participatin sec rities as they pro ide nonforfeitable ri hts to di idends il ted considers the dil ti e effect of all potential f t re common stoc , incl din stoc options
he wei hted a era e shares o tstandin for basic and dil ted are as follows
asic wei hted a era e shares o tstandin , , , il ti e effect of stoc options , , , il ted wei hted a era e shares o tstandin , , ,
n , and , stoc options to p rchase million, million and million shares, respecti ely, of common stoc are excl ded from the calc lation of dil ted wei hted a era e shares o tstandin as their effect wo ld ha e been anti dil ti e
umulated ther Com rehensi e oss he components of cc m lated ther omprehensi e oss are presented below
ension and orei n eferred umulated ostretirement Curren y ains osses ther enefits ranslation on ed e Com rehensi e d ustments d ustments Contra ts oss alance at an ary , , , ther comprehensi e income loss before reclassifications eclassified from cc m lated other comprehensi e loss — ther comprehensi e income loss alance at ecember , , , ther comprehensi e income before reclassifications eclassified from cc m lated other comprehensi e loss — ther comprehensi e income alance at ecember , , ,
Textron 2017 Annual Report 55
ther o rehe si e o e oss
a ter a ter a ter re a E e se a re a E e se a re a E e se a ou t e e it ou t ou t e e it ou t ou t e e it ou t — — — —
ote . Share ased o e satio
56 Textron 2017 Annual Report
Sto tio s
ei hted u er o era e tio s E er ise ri e
estri ted Sto its
its aya le i Sto its aya le i ash ei hted ei hted u er o era e ra t u er o era e ra t Shares ate air alue its ate air alue
Textron 2017 Annual Report 57
er or a e Share its
ei hted u er o era e ra t its ate air alue
ote . etire e t la s
participate in the Textron Retirement Plan, which is designed to be a “floor offset” arrangement with both a defined “floor” benefit). Under
58 Textron 2017 Annual Report
eriodi e e it ost redit The components of net periodic benefit cost credit) and other amo nts recogni ed in are as follows
ostretire e t e e its e sio e e its ther tha e sio s et eriodi e e it ost redit er ice cost nterest cost xpected ret rn on plan assets ) ) ) — — — morti ation of prior ser ice cost credit) ) ) ) morti ation of net act arial loss gain) ) — rtailment and other charges — — — — — et periodic benefit cost credit) ) ) ther ha es i la assets a d e e it o li atio s re o i ed i rrent ear act arial loss gain) ) ) ) ) ) rrent ear prior ser ice cost credit) — — — ) — morti ation of net act arial gain loss) ) ) ) — ) morti ation of prior ser ice credit cost) ) ) ) Total recogni ed in , before taxes ) ) ) ) Total recogni ed in net periodic benefit cost credit) and ) ) ) )
The estimated amo nt that will be amorti ed from cc m lated other comprehensi e loss into net periodic pension costs in is as follows ostretire e t e e its e sio ther tha e e its e sio s et act arial loss gain) ) Prior ser ice cost credit) ) Total )
li atio s a d u ded Status ll of o r plans are meas red as of o r fiscal ear end. The changes in the pro ected benefit obligation and in the fair al e of plan assets, along with o r f nded stat s, are as follows ostretire e t e e its e sio e e its ther tha e sio s ha e i ro e ted e e it o li atio Pro ected benefit obligation at beginning of ear , , er ice cost nterest cost Plan participants’ contributions — — ct arial losses gains) ) ) enefits paid ) ) ) ) Plan amendment — — ) rtailments and special termination benefits — ) — — oreign exchange rate changes and other ) — — Pro ected benefit obligation at end of ear , , ha e i air alue o la assets air al e of plan assets at beginning of ear , , ct al ret rn on plan assets , mplo er contrib tions enefits paid ) ) oreign exchange rate changes and other ) air al e of plan assets at end of ear , , nded stat s at end of ear ) , ) ) )
Textron 2017 Annual Report 59
ounts r co ni in our balanc s ts ar as ollo s
ostretire e t e e its e sio e e its ther tha e sio s on curr nt ass ts — — urr nt liabiliti s on curr nt liabiliti s co ni in ccu ulat ot r co pr nsi loss pr ta t loss ain Prior s r ic cost cr it
accu ulat b n it obli ation or all in b n it p nsion plans as billion an billion at c b r an c b r r sp cti l ic inclu illion an illion r sp cti l in accu ulat b n it obli ations or un un plans r un in is not p r itt or in or i n n iron nts r un in is not asibl
P nsion plans it accu ulat b n it obli ations c in t air alu o plan ass ts ar as ollo s
Pro ct b n it obli ation ccu ulat b n it obli ation air alu o plan ass ts
ssu tio s i t a ra assu ptions us or our p nsion an postr tir nt plans ar as ollo s
ostretire e t e e its e sio e e its ther tha e sio s et eriodi e e it ost iscount rat p ct lon t r rat o r turn on ass ts at o co p nsation incr as e e it o li atio s at year e d iscount rat at o co p nsation incr as
ur assu alt car cost tr n rat or bot t ical an pr scription ru cost as in bot an p ct t is rat to ra uall clin to b r assu it ill r ain on p rc nta point c an in t s assu alt car cost tr n rat s oul a t ollo in cts
e e er e ta e er e ta e oi t oi t rease e rease ct on total o s r ic an int r st cost co pon nts ct on postr tir nt b n it obli ations ot r t an p nsions
e sio ssets p ct lon t r rat o r turn on plan ass ts is t r in bas on a ari t o consi rations inclu in t stablis ass t allocation tar ts and expectations for those asset classes, historical returns of the plans’ assets and other market considerations. in st our p nsion ass ts it t ob cti o ac i in a total rat o r turn o r t lon t r t at ill b su ici nt to un utur p nsion obli ations an to ini i utur p nsion contributions ar illin to tol rat a co nsurat l l o ris to ac i t is ob cti bas on t un status o t plans an t lon t r natur o our p nsion liabilit is is controll b aintainin a port olio o ass ts t at is i rsi i across a ari t o ass t class s in st nt st l s an in st nt ana rs r possibl in st nt ana rs ar pro ibit ro o nin our s curiti s in t port olios t at t ana on our b al
60 Textron 2017 Annual Report
or . . plan assets, hich represent the ma orit of our plan assets, asset allocation tar et ran es are esta lished consistent ith our in estment o ecti es, and the assets are re alanced periodicall . or on . . plan assets, allocations are ased on expected cash flo needs and assessments of the local practices and markets. ur tar et allocation ran es are as follo s
.S. la ssets omestic e uit securities to nternational e uit securities to lo al e uities to e t securities to eal estate to ri ate in estment partnerships to ed e funds to o .S. la ssets uit securities to e t securities to eal estate
he fair alue of our pension plan assets ma or cate or and aluation method is as follo s
e e er e e er ot ot Su e t to Su e t to e el e el e el e eli e el e el e el e eli ash and e ui alents — — uit securities omestic , — — , — — nternational — — — — utual funds — — — — — — e t securities ational, state and local o ernments — — orporate de t — — — — sset acked securities — — — — — ri ate in estment partnerships — — — — — — eal estate — — — — ed e funds — — — — — — otal , , , , , ,
ash and e ui alents, e uit securities and de t securities include comin led funds, hich represent in estments in funds offered to institutional in estors that are similar to mutual funds in that the pro ide di ersification holdin arious e uit and de t securities. ince these comin led funds are not uoted on an acti e market, the are priced ased on the relati e alue of the underl in e uit and de t in estments and their indi idual prices at an i en time these funds are not su ect to le elin ithin the fair alue hierarch . e t securities are alued ased on same da actual tradin prices, if a aila le. f such prices are not a aila le, e use a matrix pricin model ith historical prices, trends and other factors.
ri ate in estment partnerships represents interests in funds hich in est in e uit , de t and other financial assets. hese funds are enerall not pu licl traded so the interests therein are alued usin income and market methods that include cash flo pro ections and market multiples for arious compara le in estments. eal estate includes o ned properties and limited partnership interests in real estate partnerships. ned properties are alued usin certified appraisals at least e er three ears that are updated at least annuall the real estate in estment mana er ased on current market trends and other a aila le information. hese appraisals enerall use the standard methods for aluin real estate, includin forecastin income and identif in current transactions for compara le real estate to arri e at a fair alue. imited partnership interests in real estate partnerships are alued similarl to pri ate in estment partnerships, ith the eneral partner usin standard real estate aluation methods to alue the real estate properties and securities held ithin their portfolios. either pri ate in estment nor real estate partnerships are su ect to le elin ithin the fair alue hierarch .
he hed e funds cate or represents an in estment in a di ersified fund of hed e funds of hich e are the sole in estor. he fund in ests in portfolio funds that are not pu licl traded and are mana ed arious portfolio mana ers. n estments in portfolio funds are t picall alued on the asis of the most recent price or aluation provided by the fund’s administrator. The administrator for
Textron 2017 Annual Report 61
the fund a re ates these va uations ith the other assets and iabi ities to a u ate the va ue of the fund hi h is not sub e t to eve in ithin the fair va ue hierar hy.
The tab e be o presents a re on i iation of the fair va ue measurements for o ned rea estate properties hi h use si nifi ant unobservab e inputs eve
a an e at be innin of year nrea i ed ains osses net ea i ed ains net ur hases sa es and sett ements net a an e at end of year
Esti ated uture ash lo a t efined benefits under sa aried p ans are based on sa ary and years of servi e. our y p ans enera y provide benefits based on stated amounts for ea h year of servi e. ur fundin po i y is onsistent ith app i ab e a s and re u ations. n e e pe t to ontribute appro imate y mi ion to fund our pension p ans and the . enefit payments provided be o ref e t e pe ted future emp oyee servi e as appropriate and are e pe ted to be paid net of estimated parti ipant ontributions. These payments are based on the same assumptions used to measure our benefit ob i ation at the end of . hi e pension benefit payments primari y i be paid out of ua ified pension trusts e i pay postretirement benefits other than pensions out of our enera orporate assets. enefit payments that e e pe t to pay on an undis ounted basis are as fo o s
ension benefits ost retirement benefits other than pensions
ote . S e ial har es
n e initiated a p an to restru ture and rea i n our businesses by imp ementin head ount redu tions fa i ity onso idations and other a tions in order to improve overa operatin effi ien y a ross Te tron. nder this p an Te tron ystems dis ontinued produ tion of its sensor fu ed eapon produ t ithin its eapons and ensors operatin unit e ombined our a obsen business ith the Te tron pe ia i ed ehi es business by onso idatin fa i ities and enera and administrative fun tions and e redu ed head ount at Te tron viation as e as other businesses and orporate fun tions. n e ember e de ided to ta e additiona restru turin a tions to further onso idate operatin fa i ities and stream ine produ t ines primari y ithin the e Te tron ystems and ndustria se ments hi h resu ted in additiona spe ia har es of mi ion in the fourth uarter of . e re orded tota spe ia har es of mi ion sin e the in eption of the p an hi h in uded mi ion of severan e osts mi ion of asset impairments and mi ion in ontra t terminations and other osts. f these amounts mi ion as in urred at Te tron ystems mi ion at Te tron viation mi ion at ndustria mi ion at e and mi ion at orporate. The tota head ount redu tion under this p an is e pe ted to be appro imate y positions representin of our or for e.
n onne tion ith the a uisition of r ti at as dis ussed in ote e initiated a restru turin p an in the first uarter of to inte rate this business into our Te tron pe ia i ed ehi es business ithin the ndustria se ment and redu e operatin redundan ies and ma imi e effi ien ies. nder the r ti at p an e re orded restru turin har es of mi ion in hi h in uded mi ion of severan e osts ar e y re ated to han e of ontro provisions and mi ion of ontra t termination and other osts. n addition e re orded mi ion of a uisition re ated inte ration and transa tion osts in .
62 Textron 2017 Annual Report
pe ia har es re orded for these p ans are as fo o s
quisitio o tra t te ratio otal Se era e sset er i atio s ra sa tio S e ial osts air e ts a d ther osts har es ndustria Te tron viation — — e — Te tron ystems — Tota ndustria — Te tron viation — e — — Te tron ystems — orporate — — — Tota —
n ana ysis of our restru turin reserve a tivity for both p ans is summari ed be o
o tra t Se era e er i atio s osts a d ther otal rovision for p an eversa s — ash paid a an e at e ember rovision for p an rovision for r ti at p an ash paid eversa s on ash uti i ation — a an e at e ember
oth the p an and r ti at p an are substantia y omp eted ith the ma ority of the remainin ash out ays of mi ion e pe ted to be paid in the first ha f of . everan e osts enera y are paid on a ump sum basis and in ude outp a ement osts hi h are paid in a ordan e ith norma payment terms.
ote . o e a es
e ondu t business oba y and as a resu t fi e numerous onso idated and separate in ome ta returns ithin and outside the . . or a of our . . subsidiaries e fi e a onso idated federa in ome ta return. n ome from ontinuin operations before in ome ta es is as fo o s
. . on . . n ome from ontinuin operations before in ome ta es
Textron 2017 Annual Report 63
— — — —
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. Among other things, the Act reduces the U.S. federal
64 Textron 2017 Annual Report
ur unrecogni ed tax benefits re resent tax ositions for which reser es ha e been established. Unrecogni ed state tax benefits and interest related to unrecogni ed tax benefits are reflected net of a licable tax benefits. A reconciliation of our unrecogni ed tax benefits is as follows
e e er e e er a uary alance at beginning of ear 1 01 Additions for tax ositions related to current ear 12 12 Additions for tax ositions of rior ears 1 — Additions for ac uisitions — 1 eductions for settlements and ex iration of statute of limitations (17) (21 ) (2) eductions for tax ositions of rior ears (1 ) ( ) (1) alance at end of ear 1 2 1 01
At the end of 2017 and 201 , if these unrecogni ed tax benefits were recogni ed in future eriods, the would fa orabl im act our effecti e tax rate.
n the normal course of business, we are sub ect to examination b tax authorities throughout the world. e are no longer sub ect to U.S. federal tax examinations for ears before 2012, U.S. state and local income tax examinations for ears before 1 7, and non U.S. income tax examinations for ears before 2011.
The tax effects of tem orar differences that gi e rise to significant ortions of our net deferred tax assets and liabilities are ro ided below
e e er e e er Deferred tax assets bligation for ension and ostretirement benefits 2 7 2 Accrued ex enses 2 0 2 2 Deferred com ensation 10 17 oss carr forwards 21 1 n entor Allowance for credit losses 1 2 ther, net 2 7 Total deferred tax assets 77 1,2 aluation allowance for deferred tax assets (1 ) (11 ) 72 1,1 7 Deferred tax liabilities ro ert , lant and e ui ment, rinci all de reciation (12 ) (1 ) Amorti ation of goodwill and other intangibles (1 ) (1 ) easing transactions ( 1) (1 7) re aid ension benefits (21) (1 ) Total deferred tax liabilities ( 1) ( ) et deferred tax asset
e belie e earnings during the eriod when the tem orar differences become deductible will be sufficient to reali e the related future income tax benefits. or those urisdictions where the ex iration date of tax carr forwards or the ro ected o erating results indicate that reali ation is not more than li el , a aluation allowance is ro ided. n 2017, we recorded million in deferred tax assets, along with a million aluation allowance, related to state loss carr forwards as the li elihood that we will be able to utili e these carr forwards is no longer deemed remote redominatel due to a consolidated filing election made during the ear.
Textron 2017 Annual Report 65
e e er e e er
ote . o it e ts a d o ti e ies
E iro e tal e ediatio
eases
66 Textron 2017 Annual Report
ote . Su le e tal ash lo or atio
ote . Se e t a d eo ra hi ata
• • •
Textron 2017 Annual Report 67
e e ues Se e t ro it —
ssets a ital E e ditures e re iatio a d orti atio e e er e e er — — —
eo ra hi ata
ro erty la t e e ues a d Equi e t et e e er e e er — —
68 Textron 2017 Annual Report
e ort o de e de t e istered u li ou ti ir
i io o the i a ial State e ts
December 31, 2016, the related Consolidated Statements of Operations, Comprehensive Income, Shareholders’ Equity and Cash contained on page 71 (collectively referred to as the “financial statements”).
(PCAOB), the Company’s internal control over financial reporting as of Decem –
asis or i io
the Company’s Company’s
We have served as the Company’s auditor since 1957.
Textron 2017 Annual Report 69
uarterly ata
( naudited) e e ues e tron Aviation 970 1,171 1,15 1,391 1,091 1,196 1,19 1, 36 Bell 697 25 12 9 3 1 0 73 7 e tron Systems 16 77 5 9 32 7 13 532 Industrial 992 1,113 1,0 2 1,139 952 1,00 6 952 inance 1 1 1 15 20 20 20 1 otal revenues 3,093 3,60 3, ,017 3,201 3,511 3,251 3, 25 Se e t ro it e tron Aviation 36 5 93 120 73 1 100 135 Bell 3 112 106 11 2 1 97 126 e tron Systems 20 2 0 37 29 60 53 Industrial 76 2 9 3 91 99 66 73 inance 5 7 6 5 7 3 otal segment profit 219 295 295 360 2 0 32 310 391 Corporate e penses and other, net (27) (31) (30) ( ) (32) (31) (53) (56) Interest e pense, net for anufacturing group (3 ) (36) (37) (3 ) (33) (37) (35) (33) Special charges (a) (37) (13) (25) (55) — — (115) ( ) Income ta benefit (e pense) (b) (21) (62) ( ) (329) (6 ) ( 2) 192 (79) Income (loss) from continuing operations 100 153 159 (106) 151 17 299 215 Income (loss) from discontinued operations, net of income ta es (b) 1 — — — (1) (1) 122 (1) et i o e loss 101 153 159 (106) 150 177 21 21 asi ear i s er share Continuing operations 0.37 0.57 0.60 (0. 0) 0.55 0.66 1.11 0.79 Discontinued operations — — — — — — 0. 5 — Basic earnings per share 0.37 0.57 0.60 (0. 0) 0.55 0.66 1.56 0.79 Basic average shares outstanding 270, 9 267,11 26 ,62 263,295 271,660 269, 270,560 270,9 6 iluted ear i s er share Continuing operations 0.37 0.57 0.60 (0. 0) 0.55 0.66 1.10 0.7 Discontinued operations — — — — — (0.01) 0. 5 — Diluted earnings per share 0.37 0.57 0.60 (0. 0) 0.55 0.65 1.55 0.7 Diluted average shares outstanding 272, 30 269,299 266,9 9 263,295 273,022 271,316 272,099 273,11 Se e t ro it ar i s e tron Aviation 3.7 .6 .1 .6 6.7 6. .3 9. Bell 11.9 13.6 13.1 11.6 10.1 10.1 13.2 1 .2 e tron Systems . . .7 7.6 9.0 12.3 10.7 10.0 Industrial 7.7 7. .7 7.3 9.6 9.9 7. 7.7 inance 22.2 27. 3 .9 0.0 25.0 35.0 15.0 22.2 Segment profit margin 7.1 .2 .5 9.0 .7 9.3 9.5 10.2 o o sto i or atio Price range igh 50.93 .67 5 .07 57.71 1.7 0.61 1.33 9. 2 o 3.66 5.00 7.00 51.07 30.69 3 .00 35.06 37.19 Dividends declared per share 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02
70 Textron 2017 Annual Report 70
S hedule — aluatio a d uali yi ou ts
llo a e or dou t ul a ou ts e tory reser es
te . ha es a d isa ree e ts ith ou ta ts o ou ti a d i a ial is losure
te . o trols a d ro edures
ment’s Report on Internal Control Over Financial Reporting
–
Textron Inc. and has issued an attestation report on Textron’s internal controls over financial reporting as of
Textron 2017 Annual Report 71
To the oard of irectors and the hareholders of Textron Inc.
e have audited Textron Inc.’s internal control over financial reporting as of ece er ased on criteria esta lished in Internal ontrol— Integrated ra e or issued the o ittee of ponsoring rgani ations of the Tread a o ission ra e or the criteria . In our opinion Textron Inc. the o pan aintained in all aterial respects effective internal control over financial reporting as of ece er ased on the criteria.
e also have audited in accordance ith the standards of the u lic o pan ccounting versight oard nited tates the onsolidated alance heets of the o pan as of ece er and ece er and the related onsolidated tate ents of perations o prehensive Inco e hareholder’s Equity and Cash Flows for each of the three years in the period ended ece er and the related notes and financial state ent schedule contained on page of the o pan and our report dated e ruar expressed an un ualified opinion thereon.
The Company’s anage ent is responsi le for aintaining effective internal control over financial reporting and for its assess ent of the effectiveness of internal control over financial reporting included in the acco pan ing Management’s Report on Internal ontrol ver inancial eporting. ur responsi ilit is to express an opinion on the Company’s internal control over financial reporting ased on our audit. e are a pu lic accounting fir registered ith the and are re uired to e independent ith respect to the o pan in accordance ith the . . federal securities la s and the applica le rules and regulations of the ecurities and xchange o ission and the .
e conducted our audit in accordance ith the standards of the . Those standards re uire that e plan and perfor the audit to o tain reasona le assurance a out hether effective internal control over financial reporting as aintained in all aterial respects.
ur audit included o taining an understanding of internal control over financial reporting assessing the ris that a aterial ea ness exists testing and evaluating the design and operating effectiveness of internal control ased on the assessed ris and perfor ing such other procedures as e considered necessar in the circu stances. e elieve that our audit provides a reasona le asis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasona le assurance regarding the relia ilit of financial reporting and the preparation of financial state ents for external purposes in accordance ith generall accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that pertain to the aintenance of records that in reasona le detail accuratel and fairl reflect the transactions and dispositions of the assets of the co pan provide reasona le assurance that transactions are recorded as necessar to per it preparation of financial state ents in accordance ith generall accepted accounting principles and that receipts and expenditures of the co pan are eing ade onl in accordance ith authori ations of anage ent and directors of the co pan and provide reasona le assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a aterial effect on the financial state ents.
ecause of its inherent li itations internal control over financial reporting a not prevent or detect isstate ents. lso pro ections of an evaluation of effectiveness to future periods are su ect to the ris that controls a eco e inade uate ecause of changes in conditions or that the degree of co pliance ith the policies or procedures a deteriorate.
s rnst oung
oston assachusetts e ruar
72 Textron 2017 Annual Report
The information appearing under “ELECTION OF DIRECTORS— Nominees for Director,” “CORPORATE GOVERNANCE— Corporate overnance Guidelines and Policies,” “— Code of Ethics,” “– oard Committees— it Committee,” and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in the Proxy Statement for our Annual Meeting of Shareholders to e held on April , is incorporated y reference into this Annual Report on Form .
Information regarding our executive officers is contained in art I of this Annual Report on Form .
The information appearing under “CORPORATE GOVERNANCE —Compensation of irectors,” “COMPENSATION COMMITTEE REPORT,” “COMPENSATION DISCUSSION AND ANALYSIS” and “EXECUTIVE COMPENSATION” in the roxy tatement for our Annual Meeting of hareholders to e held on April , is incorporated y reference into this Annual Report on Form .
The information appearing under “SECURITY OWNERSHIP” and “E EC TI E C M E ATI – Equity Compensation lan Information” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April 2 , is incorporated y reference into this Annual Report on Form .
The information appearing under “CORPORATE GOVERNANCE irector Independence” and “EXECUTIVE C M E ATI — Transactions with Related Persons” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April , is incorporated y reference into this Annual Report on Form .
The information appearing under “RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACC TI FIRM — Fees to Independent Auditors” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April , is incorporated y reference into this Annual Report on Form .
Textron 2017 Annual Report 73
Financial Statements and Schedules — See Index on Page 6
1A Restated Certificate of Incorporation of Textron as filed with the Secretary of State of Delaware on April 2 , 2 1 Incorporated by reference to Exhibit 3.1 to Textron’s Quarterly Report on Form 1 for the fiscal uarter ended April , 2 1 (SEC File No 1 )
1B Certificate of Amendment of Restated Certificate of Incorporation of Textron Inc , filed with the Secretary of State of Delaware on April 2 , 2 11 Incorporated by reference to Exhibit 3.1 to Textron’s Quarterly Report on Form 1 for the fiscal uarter ended April 2, 2 11 (SEC File No 1 )
2 Amended and Restated By Laws of Textron Inc , effecti e April 2 , 2 1 and further amended April 2 , 2 11, uly 2 , 2 1 , February 2 , 2 1 and December 6, 2 16. Incorporated by reference to Exhibit 3.2 to Textron’s Current Report on Form filed on December , 2 16
1A Support Agreement dated as of May 2 , 1 , between Textron Inc and Textron Financial Corporation Incorporated by reference to Exhibit 4.1 to Textron’s Annual Report on Form 10 for the fiscal year ended December 1, 2 11 (SEC File No 1 )
1B Amendment to Support Agreement, dated as of December 2 , 2 1 , by and between Textron Inc and Textron Financial Corporation Incorporated by reference to Exhibit 4.1B to Textron’s Annual Report on Form 1 for the fiscal year ended anuary 2, 2 16
NOTE Instruments defining the rights of holders of certain issues of long term debt of Textron ha e not been filed as exhibits because the authori ed principal amount of any one of such issues does not exceed 1 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 re uest
NOTE Exhibits 1 1 through 1 16 below are management contracts or compensatory plans, contracts or agreements
1 1A Textron Inc 2 Long Term Incenti e Plan (Amended and Restated as of April 2 , 2 1 ) Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 1 for the fiscal uarter ended March 1, 2 12 (SEC File No 1 )
1 1B Form of Non ualified Stoc Option Agreement Incorporated by reference to Exhibit 10.2 to Textron’s uarterly Report on Form 1 for the fiscal uarter ended une , 2 (SEC File No 1 )
1 1C Form of Incenti e Stoc Option Agreement Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 1 for the fiscal uarter ended une , 2 (SEC File No 1 )
1 1D Form of Restricted Stoc Unit Grant Agreement Incorporated by reference to Exhibit 10.4 to Textron’s uarterly Report on Form 1 for the fiscal uarter ended une , 2 (SEC File No 1 )
1 1E Form of Restricted Stoc Unit Grant Agreement with Di idend E ui alents Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10 for the fiscal uarter ended March 2 , 2 (SEC File No 1 )
1 1F Form of Performance Share Unit Grant Agreement. Incorporated by reference to Exhibit 10.1H to Textron’s
Annual Report on Form 1 for the fiscal year ended anuary , 2 (SEC File No 1 )
74 Textron 2017 Annual Report
10.1G Form of on Qualified Stoc ption Agreement. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended arch 2 2014.
10.1H Form of Stoc Settled Restricted Stoc Unit Grant Agreement ith i idend E ui alents. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended arch 2 2014.
10.1I Form of Performance Share Unit Grant Agreement. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended arch 2 2014.
10.2 Textron Inc. Short Term Incenti e Plan. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended April 1 201 .
10.3A Textron Inc. 201 ong Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended uly 4 201 .
10.3B Form of on Qualified Stoc ption Agreement under 201 ong Term Incenti e Plan. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended April 2 201 .
10.3 Form of Stoc Settled Restricted Stoc Unit ith i idend E ui alents Grant Agreement under 201 ong Term Incenti e Plan. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended April 2 201 .
10.3 Form of Performance Share Unit Grant Agreement under 201 ong Term Incenti e Plan. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended April 2 201 .
10.4 Textron Spillo er Sa ings Plan effecti e ctober 201 . Incorporated by reference to Exhibit 10.4 to Textron’s Annual Report on Form 10 for the fiscal year ended anuary 2 201 .
10. A Textron Spillo er Pension Plan As Amended and Restated Effecti e anuary 3 2010 including Appendix A as amended and restated effecti e anuary 3 2010 efined Benefit Pro isions of the Supplemental Benefits Plan for Textron ey Executi es As in effect before anuary 1 200 . Incorporated by reference to Exhibit 10.4 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended April 3 2010. SE File o. 1 4 0
10. B Amendments to the Textron Spillo er Pension Plan dated ctober 12 2011. Incorporated by reference to Exhibit 10.5B to Textron’s Annual Report on Form 10 for the fiscal year ended ecember 31 2011. SE File o. 1 4 0
10. Second Amendment to the Textron Spillo er Pension Plan dated ctober 2013. Incorporated by reference to Exhibit 10.5C to Textron’s Annual Report on Form 10 for the fiscal year ended ecember 2 2013.
10. eferred Income Plan for Textron Executi es Effecti e ctober 201 . Incorporated by reference to Exhibit 10.6 to Textron’s Annual Report on Form 10 for the fiscal year ended anuary 2 201 .
10. A eferred Income Plan for on Employee irectors As Amended and Restated Effecti e anuary 1 200 including Appendix A Prior Plan Pro isions As in effect before anuary 1 200 . Incorporated by reference to Exhibit 10.9 to Textron’s Annual Report on Form 10 for the fiscal year ended anuary 3 200 . SE File o. 1 4 0
10. B Amendment o. 1 to eferred Income Plan for on Employee irectors as Amended and Restated Effecti e anuary 1 200 dated as of o ember 2012. Incorporated by reference to Exhibit 10.8B to Textron’s Annual Report on Form 10 for the fiscal year ended ecember 2 2012. SE File o. 1 4 0
10. Amendment o. 2 to eferred Income Plan for on Employee irectors as Amended and Restated Effecti e anuary 1 200 . Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended April 1 201 .
Textron 2017 Annual Report 75
10.8A Severance Plan for Textron ey Executives As Amended and Restated Effective anuary 1 2010. Incorporated by reference to Exhibit 10.10 to Textron’s Annual Report on Form 10 for the fiscal year ended anuary 2 2010. SEC File o. 1 5480
10.8B First Amendment to the Severance Plan for Textron ey Executives dated ctober 26 2010. Incorporated by reference to Exhibit 10.10B to Textron’s Annual Report on Form 10 for the fiscal year ended anuary 1 2011. SEC File o. 1 5480
10.8C Second Amendment to the Severance Plan for Textron ey Executives dated arch 24 2014. Incorporated by reference to Exhibit 10.5 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended arch 29 2014.
10.9 Form of Indemnity Agreement bet een Textron and its executive officers.
10.10 Form of Indemnity Agreement bet een Textron and its non employee directors approved by the ominating and Corporate Governance Committee of the Board of irectors on uly 21 2009 and entered into ith all non employee directors effective as of August 1 2009 . Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended ctober 3 2009. SEC File o. 1 5480
10.11A etter Agreement bet een Textron and Scott C. onnelly dated une 26 2008. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended une 28 2008. SEC File o. 1 5480
10.11B Amendment to etter Agreement bet een Textron and Scott C. onnelly dated ecember 16 2008 together ith Addendum o.1 thereto dated ecember 23 2008. Incorporated by reference to Exhibit 10.15B to Textron’s Annual Report on Form 10 for the fiscal year ended anuary 3 2009. SEC File o. 1 5480
10.11C Agreement bet een Textron and Scott C. onnelly, dated May 1, 2009, related to Mr. Donnelly’s personal use of a portion of hangar space at T.F. Green Airport hich is leased by Textron. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended uly 4 2009. SEC File o. 1 5480
10.11 angar icense and Services Agreement made and entered into on April 25 2011 to be effective as of December 5, 2010, between Textron Inc. and Mr. Donnelly’s limited liability company. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended April 2 2011. SEC File o. 1 5480
10.11E Amended and Restated angar icense and Services Agreement made and entered into as of ctober 1 2015 between Textron Inc. and Mr. Donnelly’s limited liability company. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended ctober 3 2015.
10.12A etter Agreement bet een Textron and Fran Connor dated uly 2 2009. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended ctober 3 2009. SEC File o. 1 5480
10.12B angar icense and Services Agreement made and entered into on April 25 2011 to be effective as of ecember 5 2010 bet een Textron Inc. and Mr. Connor’s limited liability company. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended April 2 2011. SEC File o. 1 5480
10.12C Amended and Restated angar icense and Services Agreement made and entered into on uly 24 2015 between Textron Inc. and Mr. Connor’s limited liability company. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended ctober 3 2015.
10.13 etter Agreement bet een Textron and ulie G. uffy dated uly 2 201 . Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended September 30 201 .
76 Textron 2017 Annual Report 6
10.1 A etter A reement between Textron and E. Robert upone, dated December 22, 2011. Incorporated by reference to Exhibit 10.17 to Textron’s Annual Report on Form 10 for the fiscal year ended December 1, 2011. EC File o. 1 5 0
10.1 B Amendment to letter a reement between Textron and E. Robert upone, dated uly 2 , 2012. Incorporated by reference to Exhibit 10.5 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended eptember 29, 2012. EC File o. 1 5 0
10.15 Director Compensation.
10.1 Form of Aircraft Time harin A reement between Textron and its executi e officers. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10 Q for the fiscal uarter ended eptember 2 , 200 . EC File o. 1 5 0
10.1 Credit A reement, dated as of eptember 0, 201 , amon Textron, the enders listed therein, Mor an Chase Ban , .A., as Administrati e A ent, Citiban , .A. and Ban of America, .A., as yndication A ents, and The Ban of To yo Mitsubishi F , td., as Documentation A ent. Incorporated by reference to Exhibit 10.1 to Textron’s Current Report on Form filed on ctober , 201 .
12.1 Computation of ratio of income to fixed charges of Textron Inc.’s Manufacturing group.
12.2 Computation of ratio of income to fixed char es of Textron Inc., includin all ma ority owned subsidiaries.
21 Certain subsidiaries of Textron. ther subsidiaries, which considered in the a re ate do not constitute a si nificant subsidiary, are omitted from such list.
2 Consent of Independent Re istered ublic Accountin Firm.
2 ower of attorney.
1.1 Certification of Chief Executi e fficer ursuant to ection 02 of the arbanes xley Act of 2002.
1.2 Certification of Chief Financial fficer ursuant to ection 02 of the arbanes xley Act of 2002.
2.1 Certification of Chief Executi e fficer ursuant to 1 . .C. 1 50, as adopted pursuant to ection 90 of the arbanes xley Act of 2002.
2.2 Certification of Chief Financial fficer ursuant to 1 . .C. 1 50, as adopted pursuant to ection 90 of the arbanes xley Act of 2002.
101 The following materials from Textron Inc.’s Annual Report on Form 10 for the year ended December 0, 201 , formatted in BR e tensible Business Reportin an ua e i the Consolidated tatements of perations, ii the Consolidated tatements of Comprehensi e Income iii the Consolidated Balance heets, i the Consolidated tatements of hareholders’ Equity, (v) the Consolidated Statements of Cash Flows, (vi) the otes to the Consolidated Financial tatements, and ii chedule II – aluation and Qualifyin Accounts.
Confidential Treatment has been re uested for portions of this document.
ot applicable.
Textron 2017 Annual Report 77
Signatures
ursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1 3 , the registrant has duly caused this Annual Report on Form 10 to be signed on its behalf by the undersigned, thereunto duly authori ed on this 15th day of February 01 .
TE TR I C. Registrant
y s Fran T. Connor Fran T. Connor Executive ice resident and Chief Financial fficer
78 Textron 2017 Annual Report 7
ursuant to the requirements of the Securities Exchange Act of 1 3 , this Annual Report on Form 10 has been signed below on this 15th day of February 01 by the following persons on behalf of the registrant and in the capacities indicated
s Scott C. onnelly Scott C. onnelly Chairman, resident and Chief Executive fficer (principal executive officer) athleen M. ader irector
R. erry Clar irector
ames T. Conway irector
Ivor . Evans irector
awrence . Fish irector
aul E. agn irector
Ralph . eath irector
eborah ee ames irector
loyd . Trotter irector
ames . iemer irector
Maria T. uber irector
s Fran T. Connor Fran T. Connor Executive ice resident and Chief Financial fficer (principal financial officer)
s Mar S. amford Mar S. amford ice resident and Corporate Controller (principal accounting officer)
y s ayne M. onegan ayne M. onegan, Attorney in fact
Textron 2017 Annual Report 79 7
NOTES
80 Textron 2017 Annual Report Corporate Information
Corporate Headquarters Investor Relations Textron Inc. Textron Inc. 40 Westminster Street Investor Relations Providence, RI 02903 40 Westminster Street (401) 421-2800 Providence, RI 02903 www.textron.com Investor Relations phone line: (401) 457-2288 Annual Meeting News media phone line: Textron’s annual meeting of shareholders will be (401) 457-2362 held on Wednesday, April 25, 2018, at 11 a.m. at Textron Inc., 40 Westminster Street, 18th Floor, For more information, visit our website at Providence, RI 02903. www.textron.com.
Transfer Agent, Registrar and Company Publications and Dividend Paying Agent General Information For shareholder services such as change of address, To receive a copy of Textron’s Forms 10-K and lost certificates or dividend checks, change in 10-Q, Proxy Statement or Annual Report without registered ownership or the Dividend Reinvestment charge, visit our website at www.textron.com or Plan, write or call: send a written request to Textron Investor Relations at the address listed above. For the most recent American Stock Transfer & Trust company news and earnings press releases, visit our Company, LLC website at www.textron.com. Operations Center 6201 15th Avenue Textron is an Equal Opportunity Employer. Brooklyn, NY 11219 phone: (866) 621-2790 Textron Board of Directors email: [email protected] To contact the Textron Board of Directors or to report concerns or complaints about accounting, Stock Exchange Information internal accounting controls or auditing matters, (Symbol: TXT) you may write to Board of Directors, Textron Inc., Textron common stock is listed on the New York 40 Westminster Street, Providence, RI 02903; Stock Exchange. call (866) 698-6655 or (401) 457-2269; or send an email to [email protected].
Textron provides a multimedia interactive version of the Annual Report in the Investor Resources section of its website at www.textron.com. 2017 ANNUAL REPORT
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