Document and Entity Information - shares |
9 Months Ended | |
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Sep. 29, 2018 |
Oct. 12, 2018 |
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| Document and Entity Information | ||
| Entity Registrant Name | TEXTRON INC | |
| Entity Central Index Key | 0000217346 | |
| Document Type | 10-Q | |
| Document Period End Date | Sep. 29, 2018 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-29 | |
| Entity Current Reporting Status | Yes | |
| Entity Filer Category | Large Accelerated Filer | |
| Entity Small Business | false | |
| Entity Emerging Growth Company | false | |
| Entity Common Stock, Shares Outstanding | 242,961,492 | |
| Document Fiscal Year Focus | 2018 | |
| Document Fiscal Period Focus | Q3 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Millions |
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Sep. 29, 2018 |
Sep. 30, 2017 |
Sep. 29, 2018 |
Sep. 30, 2017 |
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| Consolidated Statements of Comprehensive Income | ||||
| Net income | $ 563 | $ 159 | $ 976 | $ 413 |
| Other comprehensive income, net of taxes: | ||||
| Pension and postretirement benefits adjustments, net of reclassifications | 38 | 23 | 100 | 70 |
| Foreign currency translation adjustments, net of reclassifications | 7 | 34 | (20) | 98 |
| Deferred gains on hedge contracts, net of reclassifications | 1 | 10 | (2) | 18 |
| Other comprehensive income | 46 | 67 | 78 | 186 |
| Comprehensive income | $ 609 | $ 226 | $ 1,054 | $ 599 |
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions |
Sep. 29, 2018 |
Dec. 30, 2017 |
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| Consolidated Balance Sheets | ||
| Accumulated depreciation and amortization | $ 4,165 | $ 4,120 |
Basis of Presentation |
9 Months Ended |
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Sep. 29, 2018 | |
| Basis of Presentation | |
| Basis of Presentation |
Note 1. Basis of Presentation
Our Consolidated Financial Statements include the accounts of Textron Inc. (Textron) and its majority-owned subsidiaries. We have prepared these unaudited consolidated financial statements in accordance with accounting principles generally accepted in the U.S. for interim financial information. Accordingly, these interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. The consolidated interim financial statements included in this quarterly report should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 30, 2017. In the opinion of management, the interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair presentation of our consolidated financial position, results of operations and cash flows for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.
At the beginning of 2018, we adopted Accounting Standards Update (ASU) No. 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. This standard provides guidance on the classification of certain cash flows and requires companies to classify cash proceeds received from the settlement of corporate-owned life insurance as cash inflows from investing activities. The standard is required to be adopted on a retrospective basis. Prior to adoption of this standard, we classified these proceeds as operating activities in the Consolidated Statements of Cash Flows. Upon adoption, we reclassified $20 million of net cash proceeds for the first nine months of 2017 from operating activities to investing activities.
Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems and Industrial segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements. All significant intercompany transactions are eliminated from the Consolidated Financial Statements, including retail financing activities for inventory sold by our Manufacturing group and financed by our Finance group.
Use of Estimates We prepare our financial statements in conformity with generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated Statements of Operations in the period that they are determined.
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Summary of Significant Accounting Policies Update |
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Sep. 29, 2018 | |
| Summary of Significant Accounting Policies Update | |
| Summary of Significant Accounting Policies Update |
Note 2. Summary of Significant Accounting Policies Update
Our significant accounting policies are included in Note 1 of our Annual Report on Form 10-K for the year ended December 30, 2017. On December 31, 2017, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606). Significant changes to our policies resulting from the adoption are provided below. We adopted ASC 606 using the modified retrospective transition method applied to contracts that were not substantially complete at the end of 2017. We recorded a $90 million adjustment to increase retained earnings to reflect the cumulative impact of adopting this standard at the beginning of 2018, primarily related to certain long-term contracts our Bell segment has with the U.S. Government that converted to the cost-to-cost method for revenue recognition. The comparative information has not been restated and is reported under the accounting standards in effect for those periods. A reconciliation of the financial statement line items impacted for the three and nine months ended September 29, 2018 under ASC 606 to the prior accounting standards is provided in Note 15.
Revenue Recognition Revenue is recognized when control of the goods or services promised under the contract is transferred to the customer either at a point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). We account for a contract when it has approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract has commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or multiple performance obligations. A performance obligation is a promise to transfer a distinct good or service to a customer and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative standalone selling price of each performance obligation. Revenue is then recognized for the transaction price allocated to the performance obligation when control of the promised goods or services underlying the performance obligation is transferred. Contract consideration is not adjusted for the effects of a significant financing component when, at contract inception, the period between when control transfers and when the customer will pay for that good or service is one year or less.
Commercial Contracts The majority of our contracts with commercial customers have a single performance obligation as there is only one good or service promised or the promise to transfer the goods or services is not distinct or separately identifiable from other promises in the contract. Revenue is primarily recognized at a point in time, which is generally when the customer obtains control of the asset upon delivery and customer acceptance. Contract modifications that provide for additional distinct goods or services at the standalone selling price are treated as separate contracts.
For commercial aircraft, we contract with our customers to sell fully outfitted fixed-wing aircraft, which may include configuration options. The aircraft typically represents a single performance obligation and revenue is recognized upon customer acceptance and delivery. For commercial helicopters, our customers generally contract with us for fully functional basic configuration aircraft and control is transferred upon customer acceptance and delivery. At times, customers may separately contract with us for the installation of accessories and customization to the basic aircraft. If these contracts are entered into at or near the same time of the basic aircraft contract, we assess whether the contracts meet the criteria to be combined. For contracts that are combined, the basic aircraft and the accessories and customization are typically considered to be distinct, and therefore, are separate performance obligations. For these contracts, revenue is recognized on the basic aircraft upon customer acceptance and transfer of title and risk of loss and on the accessories and customization upon delivery and customer acceptance. We utilize observable prices to determine the standalone selling prices when allocating the transaction price to these performance obligations.
The transaction price for our commercial contracts reflects our estimate of returns, rebates and discounts, which are based on historical, current and forecasted information. Amounts billed to customers for shipping and handling are included in the transaction price and generally are not treated as separate performance obligations as these costs fulfill a promise to transfer the product to the customer. Taxes collected from customers and remitted to government authorities are recorded on a net basis.
We primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from one to five years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation.
U.S. Government Contracts Our contracts with the U.S. Government generally include the design, development, manufacture or modification of aerospace and defense products as well as related services. These contracts, which also include those under the U.S. Government-sponsored foreign military sales program, accounted for approximately 24% of total revenues in 2017. The customer typically contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability, which often results in the delivery of multiple units. Accordingly, the entire contract is accounted for as one performance obligation. In certain circumstances, a contract may include both production and support services, such as logistics and parts plans, which are considered to be distinct in the context of the contract and represent separate performance obligations. When a contract is separated into more than one performance obligation, we generally utilize the expected cost plus a margin approach to determine the standalone selling prices when allocating the transaction price.
Our contracts are frequently modified for changes in contract specifications and requirements. Most of our contract modifications with the U.S. Government are for goods and services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as part of that existing contract. The effect of these contract modifications on our estimates is recognized using the cumulative catch-up method of accounting.
Contracts with the U.S. Government generally contain clauses that provide lien rights to work-in-process along with clauses that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work-in-process. Due to the continuous transfer of control to the U.S. Government, we recognize revenue over the time that we perform under the contract. Selecting the method to measure progress towards completion requires judgment and is based on the nature of the products or service to be provided. We generally use the cost-to-cost method to measure progress for our contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts. Under this measure, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion of the performance obligation, and revenue is recorded proportionally as costs are incurred.
The transaction price for our contracts represents our best estimate of the consideration we will receive and includes assumptions regarding variable consideration as applicable. Certain of our long-term contracts contain incentive fees or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all other information that is reasonably available to us.
Total contract cost is estimated utilizing current contract specifications and expected engineering requirements. Contract costs typically are incurred over a period of several years, and the estimation of these costs requires substantial judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our projections of costs quarterly or more frequently when circumstances significantly change.
Approximately 80% of our 2017 revenues with the U.S. Government were under fixed-price and fixed-price incentive contracts. Under the typical payment terms of these contracts, the customer pays us either performance-based or progress payments. Performance-based payments represent interim payments of up to 90% of the contract price based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments of up to 80% of costs incurred as the work progresses. Because the customer retains a small portion of the contract price until completion of the contract, these contracts generally result in revenue recognized in excess of billings, which we present as contract assets in the Consolidated Balance Sheets. Amounts billed and due from our customers are classified in Accounts receivable, net. The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer. For cost-type contracts, we are generally paid for our actual costs incurred within a short period of time.
Contract Estimates For contracts where revenue is recognized over time, we generally recognize changes in estimated contract revenues, costs and profits using the cumulative catch-up method of accounting. This method recognizes the cumulative effect of changes on current and prior periods with the impact of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.
In the third quarter of 2018 and 2017, our cumulative catch-up adjustments increased segment profit by $63 million and $5 million, respectively, and net income by $48 million and $3 million, respectively ($0.19 and $0.01 per diluted share, respectively). For the third quarter of 2018 and 2017, the gross favorable adjustments totaled $79 million and $20 million, respectively, and the gross unfavorable adjustments totaled $16 million and $15 million, respectively.
In the first nine months of 2018 and 2017, our cumulative catch-up adjustments increased segment profit by $167 million and $2 million, respectively, and net income by $127 million and $1 million, respectively ($0.49 and $0.00 per diluted share, respectively). For the first nine months of 2018 and 2017, the gross favorable adjustments totaled $205 million and $63 million, respectively, and the gross unfavorable adjustments totaled $38 million and $61 million, respectively.
No individual adjustment was material to our Consolidated Statements of Operations for the third quarter and first nine months of 2018 and 2017. We recognized revenue from performance obligations satisfied in prior periods of approximately $55 million and $159 million during the three and nine months ended September 29, 2018, which related to changes in profit booking rates that impacted revenue.
Contract Assets and Liabilities Contract assets arise from contracts when revenue is recognized over time and the amount of revenue recognized exceeds the amount billed to the customer. These amounts are included in contract assets until the right to payment is no longer conditional on events other than the passage of time. Contract assets are included in Other current assets in the Consolidated Balance Sheet. Contract liabilities, which are primarily included in Other current liabilities, include deposits, largely from our commercial aviation customers, and billings in excess of revenue recognized.
The incremental costs of obtaining a contract with a customer that is expected to be recovered is expensed as incurred when the period to be benefitted is one year or less.
Accounts Receivable, Net Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. We maintain an allowance for doubtful accounts to provide for the estimated amount of accounts receivable that will not be collected, which is based on an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivable and collateral value, if any.
Accounting Pronouncements Not Yet Adopted In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases, that requires lessees to recognize all leases with a term greater than 12 months on the balance sheet as right-to-use assets and lease liabilities. Under current accounting guidance, we are not required to recognize assets and liabilities arising from operating leases on the balance sheet. The new standard is effective for our company at the beginning of 2019. The original guidance requires application of the standard on a modified retrospective basis at the earliest period presented. In July 2018, the FASB issued ASU No. 2018-11, which provides an alternate transition method that allows for application of the standard at the effective date without adjustment to comparative periods. We plan to elect this alternate transition method.
We are continuing to review and evaluate our leased assets to assess the impact of adopting the new standard and are implementing changes to our processes, systems and internal controls in order to quantify and account for the standard. Upon adoption, the assets and liabilities on our consolidated balance sheet will materially increase as we recognize the rights and corresponding obligations related to our operating leases. The standard is not expected to materially impact our cash flows or results of operations. We expect to complete our assessment of the impact of adopting this standard in the fourth quarter of 2018.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for our company at the beginning of 2020 with early adoption permitted beginning in 2019. Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of the standard on our consolidated financial statements.
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Business Disposition |
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| Business Disposition |
Note 3. Business Disposition
On April 18, 2018, we entered into an agreement to sell the businesses that manufacture and sell the products in our Tools and Test Equipment product line within our Industrial segment to Emerson Electric Co. We completed this disposition on July 2, 2018 and received net cash proceeds of $807 million. In the third quarter of 2018, we recorded an after-tax gain of $410 million, subject to post-closing adjustments. The carrying amounts by major classes of assets and liabilities that were related to this disposition are as follows:
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Retirement Plans |
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| Retirement Plans |
Note 4. Retirement Plans
In the first quarter of 2018, we adopted ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This standard requires companies to present only the service cost component of net periodic benefit cost in operating income in the same line as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net periodic benefit cost must be presented separately from service cost and excluded from operating income. In addition, only the service cost component is eligible for capitalization into inventory. The change in the amount capitalized into inventory was applied prospectively. The reclassification of the other components of net periodic benefit cost (credit) to a separate line was applied retrospectively using a practical expedient that permits the usage of amounts previously disclosed in the pension and other postretirement benefit plan note for prior periods. As a result, we reclassified $(7) million and $(21) million of other components of net periodic benefit cost (credit) for the third quarter and first nine months of 2017, respectively, from Cost of sales to a separate line item in the Consolidated Statements of Operations.
We provide defined benefit pension plans and other postretirement benefits to eligible employees. The components of net periodic benefit cost for these plans are as follows:
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Earnings Per Share |
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| Earnings Per Share |
Note 5. Earnings Per Share
We calculate basic and diluted earnings per share (EPS) based on net income, which approximates income available to common shareholders for each period. Basic EPS is calculated using the two-class method, which includes the weighted-average number of common shares outstanding during the period and restricted stock units to be paid in stock that are deemed participating securities as they provide nonforfeitable rights to dividends. Diluted EPS considers the dilutive effect of all potential future common stock, including stock options.
The weighted-average shares outstanding for basic and diluted EPS are as follows:
For the three and nine months ended September 29, 2018, there were no stock options excluded from the calculation of diluted weighted-average shares outstanding. Stock options to purchase 1.5 million and 1.2 million shares of common stock were excluded from the calculation of diluted weighted-average shares outstanding for the three and nine months ended September 30, 2017, respectively, as their effect would have been anti-dilutive.
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Accounts Receivable and Finance Receivables |
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| Accounts Receivable and Finance Receivables |
Note 6. Accounts Receivable and Finance Receivables
Accounts Receivable Accounts receivable is composed of the following:
Upon adoption of ASC 606, unbilled receivables, primarily related to U.S. Government contracts, totaling $203 million were reclassified from accounts receivable to contract assets or liabilities, depending on the net position of the contract as discussed in Note 15. In addition, $71 million of accounts receivable, net were sold in the third quarter of 2018 as a result of a business disposition as disclosed in Note 3.
Finance Receivables Finance receivables are presented in the following table:
Credit Quality Indicators and Nonaccrual Finance Receivables We internally assess the quality of our finance receivables based on a number of key credit quality indicators and statistics such as delinquency, loan balance to estimated collateral value and the financial strength of individual borrowers and guarantors. Because many of these indicators are difficult to apply across an entire class of receivables, we evaluate individual loans on a quarterly basis and classify these loans into three categories based on the key credit quality indicators for the individual loan. These three categories are performing, watchlist and nonaccrual.
We classify finance receivables as nonaccrual if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three months unless collection of principal and interest is not doubtful. Accrual of interest income is suspended for these accounts and all cash collections are generally applied to reduce the net investment balance. Once we conclude that the collection of all principal and interest is no longer doubtful, we resume the accrual of interest and recognize previously suspended interest income at the time either a) the loan becomes contractually current through payment according to the original terms of the loan, or b) if the loan has been modified, following a period of performance under the terms of the modification. Accounts are classified as watchlist when credit quality indicators have deteriorated as compared with typical underwriting criteria, and we believe collection of full principal and interest is probable but not certain. All other finance receivables that do not meet the watchlist or nonaccrual categories are classified as performing.
Delinquency We measure delinquency based on the contractual payment terms of our finance receivables. In determining the delinquency aging category of an account, any/all principal and interest received is applied to the most past-due principal and/or interest amounts due. If a significant portion of the contractually due payment is delinquent, the entire finance receivable balance is reported in accordance with the most past-due delinquency aging category.
Finance receivables categorized based on the credit quality indicators and by the delinquency aging category are summarized as follows:
Impaired Loans On a quarterly basis, we evaluate individual finance receivables for impairment in non-homogeneous portfolios and larger balance accounts in homogeneous loan portfolios. A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators described above. Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified. If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification. Interest income recognized on impaired loans was not significant in the first nine months of 2018 or 2017.
A summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment is provided below:
A summary of the allowance for losses on finance receivables, based on how the underlying finance receivables are evaluated for impairment, is provided below. The finance receivables reported in this table specifically exclude leveraged leases in accordance with U.S. generally accepted accounting principles.
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Inventories |
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| Inventories |
Note 7. Inventories
Inventories are composed of the following:
Upon adoption of ASC 606, $199 million of inventories, net of progress/milestone payments, primarily related to our U.S. Government contracts, were reclassified from inventories to contract assets or liabilities depending on the net position of the contract as discussed in Note 15. In addition, $100 million of inventories were sold in the third quarter of 2018 as a result of a business disposition as disclosed in Note 3.
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Warranty Liability |
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| Warranty Liability |
Note 8. Warranty Liability
Changes in our warranty liability are as follows:
* Adjustments include changes to prior year estimates, new issues on prior year sales, business dispositions and currency translation adjustments.
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Derivative Instruments and Fair Value Measurements |
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| Derivative Instruments and Fair Value Measurements |
Note 9. Derivative Instruments and Fair Value Measurements
We measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We prioritize the assumptions that market participants would use in pricing the asset or liability into a three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exist, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of Level 1, which include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect our estimates about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. Valuation techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are utilized only to the extent that observable inputs are not available or cost effective to obtain.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis We manufacture and sell our products in a number of countries throughout the world, and, therefore, we are exposed to movements in foreign currency exchange rates. We primarily utilize foreign currency exchange contracts with maturities of no more than three years to manage this volatility. These contracts qualify as cash flow hedges and are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and overhead expenses. Net gains and losses recognized in earnings and Accumulated other comprehensive loss on cash flow hedges, including gains and losses related to hedge ineffectiveness, were not significant in the periods presented.
Our foreign currency exchange contracts are measured at fair value using the market method valuation technique. The inputs to this technique utilize current foreign currency exchange forward market rates published by third-party leading financial news and data providers. These are observable data that represent the rates that the financial institution uses for contracts entered into at that date; however, they are not based on actual transactions so they are classified as Level 2. At September 29, 2018 and December 30, 2017, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $428 million and $426 million, respectively. At September 29, 2018, the fair value amounts of our foreign currency exchange contracts were a $7 million asset and a $2 million liability. At December 30, 2017, the fair value amounts of our foreign currency exchange contracts were a $13 million asset and a $7 million liability.
We hedge our net investment position in major currencies and generate foreign currency interest payments that offset other transactional exposures in these currencies. To accomplish this, we borrow directly in foreign currency and designate a portion of foreign currency debt as a hedge of a net investment. We record changes in the fair value of these contracts in other comprehensive income to the extent they are effective as cash flow hedges. Currency effects on the effective portion of these hedges, which are reflected in the foreign currency translation adjustments within Accumulated other comprehensive loss, were not significant in the periods presented.
Assets and Liabilities Not Recorded at Fair Value The carrying value and estimated fair value of our financial instruments that are not reflected in the financial statements at fair value are as follows:
Fair value for the Manufacturing group debt is determined using market observable data for similar transactions (Level 2). The fair value for the Finance group debt was determined primarily based on discounted cash flow analyses using observable market inputs from debt with similar duration, subordination and credit default expectations (Level 2). Fair value estimates for finance receivables were determined based on internally developed discounted cash flow models primarily utilizing significant unobservable inputs (Level 3), which include estimates of the rate of return, financing cost, capital structure and/or discount rate expectations of current market participants combined with estimated loan cash flows based on credit losses, payment rates and expectations of borrowers’ ability to make payments on a timely basis.
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Shareholders' Equity |
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| Shareholders' Equity |
Note 10. Shareholders’ Equity
A reconciliation of Shareholder’s equity is presented below:
The components of Accumulated other comprehensive loss are presented below:
The before and after-tax components of Other comprehensive income are presented below:
*These components of Other comprehensive income are included in the computation of net periodic pension cost. See Note 11 of our 2017 Annual Report on Form 10-K for additional information.
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| Special Charges |
Note 11. Special Charges
In 2017, special charges were related to a 2016 restructuring plan and the Arctic Cat acquisition, which included both restructuring, integration and transaction costs. There were no special charges recorded in 2018.
Special charges recorded in 2017 are as follows:
Our restructuring reserve activity for the first nine months of 2018 is summarized below:
Both plans are substantially completed with approximately half of the remaining cash outlays of $20 million expected to be paid in the remainder of 2018. Severance costs generally are paid on a lump-sum basis and include outplacement costs, which are paid in accordance with normal payment terms.
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Income Taxes |
9 Months Ended |
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Sep. 29, 2018 | |
| Income Taxes | |
| Income Taxes |
Note 12. Income Taxes
Our effective tax rate for the third quarter and first nine months of 2018 was 10.4% and 11.8%, respectively. The effective tax rate was lower than the U.S. federal statutory tax rate of 21% for these periods, primarily due to the disposition of the Tools and Test equipment product line which resulted in a gain taxable primarily in a non-U.S. jurisdiction that partially exempts such gains from tax. The effective tax rate for the first nine months of 2018 also reflects a $25 million benefit recognized upon the reassessment of our reserve for uncertain tax positions based on new information, including interactions with the tax authorities and recent audit settlements.
Our effective tax rate for the third quarter and first nine months of 2017 was 21.7% and 23.6%, respectively. The effective tax rate was lower than the U.S. federal statutory tax rate of 35% for these periods, primarily due to a net discrete tax benefit of $15 million, largely related to state income taxes, which included a unitary filing election that resulted in a non-recurring benefit in the quarter and state refund claims.
U.S. Tax Reform The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. Among other things, the Act reduces the U.S. federal corporate tax rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. We have reasonably estimated the effects of the Act and recorded provisional amounts in the fourth quarter of 2017 to remeasure our U.S. federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%, and for the one-time transition tax. The U.S. Government and state tax authorities are expected to continue to issue guidance regarding the Act, which may result in adjustments to our provisional estimates. We are continuing to analyze certain aspects of the Act and may refine our estimates, which could potentially affect the measurement of our net deferred tax assets or give rise to new deferred tax amounts.
In the first nine months of 2018, we have not recorded any measurement period adjustments to the provisional estimates recorded at the end of 2017. The final determination of the remeasurement of our net deferred tax assets and the transition tax will be completed as additional information becomes available, but no later than one year from the enactment date. Any subsequent adjustments to the provisional amounts will be recorded to current or deferred tax expense in the fourth quarter of 2018 when the analysis is complete.
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Commitments and Contingencies |
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Sep. 29, 2018 | |
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| Commitments and Contingencies |
Note 13. Commitments and Contingencies
We are subject to legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims relating to commercial and financial transactions; government contracts; alleged lack of compliance with applicable laws and regulations; production partners; product liability; patent and trademark infringement; employment disputes; and environmental, safety and health matters. Some of these legal proceedings and claims seek damages, fines or penalties in substantial amounts or remediation of environmental contamination. As a government contractor, we are subject to audits, reviews and investigations to determine whether our operations are being conducted in accordance with applicable regulatory requirements. Under federal government procurement regulations, certain claims brought by the U.S. Government could result in our suspension or debarment from U.S. Government contracting for a period of time. On the basis of information presently available, we do not believe that existing proceedings and claims will have a material effect on our financial position or results of operations.
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Segment Information |
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| Segment Information |
Note 14. Segment Information
We operate in, and report financial information for, the following five business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses, gain on business disposition and special charges. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.
Our revenues by segment, along with a reconciliation of segment profit to income from continuing operations before income taxes, are included in the table below:
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Revenues |
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| Revenues |
Note 15. Revenues
Disaggregation of Revenues Our revenues disaggregated by major product type for the three and nine months ended September 29, 2018 are presented below:
Our revenues by customer type and geographic location for the three and nine months ended September 29, 2018 are presented below:
Remaining Performance Obligations Our remaining performance obligations, which is the equivalent of our backlog, represent the expected transaction price allocated to our contracts that we expect to recognize as revenue in future periods when we perform under the contracts. These remaining obligations include amounts that have been formally appropriated under contracts with the U.S. Government, and exclude unexercised contract options and potential orders under ordering-type contracts such as Indefinite Delivery, Indefinite Quantity contracts. At September 29, 2018, we had $8.7 billion in remaining performance obligations of which we expect to recognize revenues of approximately 62% through 2019, an additional 22% through 2021, and the balance thereafter.
Contract assets and liabilities Assets and liabilities related to our contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At September 29, 2018, contract assets and liabilities totaled $408 million and $1.1 billion, respectively. Upon adoption of ASC 606 on December 31, 2017, contract assets and liabilities related to our contracts with customers were $429 million and $1.0 billion, respectively. During the third quarter and first nine months of 2018, we recognized $56 million and $755 million, respectively, in revenues that were included in the contract liability balance at the adoption date.
Reconciliation of ASC 606 to Prior Accounting Standards The amount by which each financial statement line item is affected in 2018 as a result of applying the new accounting standard as discussed in Note 2 is presented below:
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Summary of Significant Accounting Policies Update (Policies) |
9 Months Ended |
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Sep. 29, 2018 | |
| Summary of Significant Accounting Policies Update | |
| Revenue Recognition |
Revenue Recognition Revenue is recognized when control of the goods or services promised under the contract is transferred to the customer either at a point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). We account for a contract when it has approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract has commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or multiple performance obligations. A performance obligation is a promise to transfer a distinct good or service to a customer and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative standalone selling price of each performance obligation. Revenue is then recognized for the transaction price allocated to the performance obligation when control of the promised goods or services underlying the performance obligation is transferred. Contract consideration is not adjusted for the effects of a significant financing component when, at contract inception, the period between when control transfers and when the customer will pay for that good or service is one year or less.
Commercial Contracts The majority of our contracts with commercial customers have a single performance obligation as there is only one good or service promised or the promise to transfer the goods or services is not distinct or separately identifiable from other promises in the contract. Revenue is primarily recognized at a point in time, which is generally when the customer obtains control of the asset upon delivery and customer acceptance. Contract modifications that provide for additional distinct goods or services at the standalone selling price are treated as separate contracts.
For commercial aircraft, we contract with our customers to sell fully outfitted fixed-wing aircraft, which may include configuration options. The aircraft typically represents a single performance obligation and revenue is recognized upon customer acceptance and delivery. For commercial helicopters, our customers generally contract with us for fully functional basic configuration aircraft and control is transferred upon customer acceptance and delivery. At times, customers may separately contract with us for the installation of accessories and customization to the basic aircraft. If these contracts are entered into at or near the same time of the basic aircraft contract, we assess whether the contracts meet the criteria to be combined. For contracts that are combined, the basic aircraft and the accessories and customization are typically considered to be distinct, and therefore, are separate performance obligations. For these contracts, revenue is recognized on the basic aircraft upon customer acceptance and transfer of title and risk of loss and on the accessories and customization upon delivery and customer acceptance. We utilize observable prices to determine the standalone selling prices when allocating the transaction price to these performance obligations.
The transaction price for our commercial contracts reflects our estimate of returns, rebates and discounts, which are based on historical, current and forecasted information. Amounts billed to customers for shipping and handling are included in the transaction price and generally are not treated as separate performance obligations as these costs fulfill a promise to transfer the product to the customer. Taxes collected from customers and remitted to government authorities are recorded on a net basis.
We primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from one to five years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation.
U.S. Government Contracts Our contracts with the U.S. Government generally include the design, development, manufacture or modification of aerospace and defense products as well as related services. These contracts, which also include those under the U.S. Government-sponsored foreign military sales program, accounted for approximately 24% of total revenues in 2017. The customer typically contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability, which often results in the delivery of multiple units. Accordingly, the entire contract is accounted for as one performance obligation. In certain circumstances, a contract may include both production and support services, such as logistics and parts plans, which are considered to be distinct in the context of the contract and represent separate performance obligations. When a contract is separated into more than one performance obligation, we generally utilize the expected cost plus a margin approach to determine the standalone selling prices when allocating the transaction price.
Our contracts are frequently modified for changes in contract specifications and requirements. Most of our contract modifications with the U.S. Government are for goods and services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as part of that existing contract. The effect of these contract modifications on our estimates is recognized using the cumulative catch-up method of accounting.
Contracts with the U.S. Government generally contain clauses that provide lien rights to work-in-process along with clauses that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work-in-process. Due to the continuous transfer of control to the U.S. Government, we recognize revenue over the time that we perform under the contract. Selecting the method to measure progress towards completion requires judgment and is based on the nature of the products or service to be provided. We generally use the cost-to-cost method to measure progress for our contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts. Under this measure, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion of the performance obligation, and revenue is recorded proportionally as costs are incurred.
The transaction price for our contracts represents our best estimate of the consideration we will receive and includes assumptions regarding variable consideration as applicable. Certain of our long-term contracts contain incentive fees or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all other information that is reasonably available to us.
Total contract cost is estimated utilizing current contract specifications and expected engineering requirements. Contract costs typically are incurred over a period of several years, and the estimation of these costs requires substantial judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our projections of costs quarterly or more frequently when circumstances significantly change.
Approximately 80% of our 2017 revenues with the U.S. Government were under fixed-price and fixed-price incentive contracts. Under the typical payment terms of these contracts, the customer pays us either performance-based or progress payments. Performance-based payments represent interim payments of up to 90% of the contract price based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments of up to 80% of costs incurred as the work progresses. Because the customer retains a small portion of the contract price until completion of the contract, these contracts generally result in revenue recognized in excess of billings, which we present as contract assets in the Consolidated Balance Sheets. Amounts billed and due from our customers are classified in Accounts receivable, net. The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer. For cost-type contracts, we are generally paid for our actual costs incurred within a short period of time.
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| Contract Estimates |
Contract Estimates For contracts where revenue is recognized over time, we generally recognize changes in estimated contract revenues, costs and profits using the cumulative catch-up method of accounting. This method recognizes the cumulative effect of changes on current and prior periods with the impact of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.
In the third quarter of 2018 and 2017, our cumulative catch-up adjustments increased segment profit by $63 million and $5 million, respectively, and net income by $48 million and $3 million, respectively ($0.19 and $0.01 per diluted share, respectively). For the third quarter of 2018 and 2017, the gross favorable adjustments totaled $79 million and $20 million, respectively, and the gross unfavorable adjustments totaled $16 million and $15 million, respectively.
In the first nine months of 2018 and 2017, our cumulative catch-up adjustments increased segment profit by $167 million and $2 million, respectively, and net income by $127 million and $1 million, respectively ($0.49 and $0.00 per diluted share, respectively). For the first nine months of 2018 and 2017, the gross favorable adjustments totaled $205 million and $63 million, respectively, and the gross unfavorable adjustments totaled $38 million and $61 million, respectively.
No individual adjustment was material to our Consolidated Statements of Operations for the third quarter and first nine months of 2018 and 2017. We recognized revenue from performance obligations satisfied in prior periods of approximately $55 million and $159 million during the three and nine months ended September 29, 2018, which related to changes in profit booking rates that impacted revenue.
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| Contract Assets and Liabilities |
Contract Assets and Liabilities Contract assets arise from contracts when revenue is recognized over time and the amount of revenue recognized exceeds the amount billed to the customer. These amounts are included in contract assets until the right to payment is no longer conditional on events other than the passage of time. Contract assets are included in Other current assets in the Consolidated Balance Sheet. Contract liabilities, which are primarily included in Other current liabilities, include deposits, largely from our commercial aviation customers, and billings in excess of revenue recognized.
The incremental costs of obtaining a contract with a customer that is expected to be recovered is expensed as incurred when the period to be benefitted is one year or less.
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| Accounts Receivable, Net |
Accounts Receivable, Net Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. We maintain an allowance for doubtful accounts to provide for the estimated amount of accounts receivable that will not be collected, which is based on an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivable and collateral value, if any.
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| Accounting Pronouncements Not Yet Adopted |
Accounting Pronouncements Not Yet Adopted In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases, that requires lessees to recognize all leases with a term greater than 12 months on the balance sheet as right-to-use assets and lease liabilities. Under current accounting guidance, we are not required to recognize assets and liabilities arising from operating leases on the balance sheet. The new standard is effective for our company at the beginning of 2019. The original guidance requires application of the standard on a modified retrospective basis at the earliest period presented. In July 2018, the FASB issued ASU No. 2018-11, which provides an alternate transition method that allows for application of the standard at the effective date without adjustment to comparative periods. We plan to elect this alternate transition method.
We are continuing to review and evaluate our leased assets to assess the impact of adopting the new standard and are implementing changes to our processes, systems and internal controls in order to quantify and account for the standard. Upon adoption, the assets and liabilities on our consolidated balance sheet will materially increase as we recognize the rights and corresponding obligations related to our operating leases. The standard is not expected to materially impact our cash flows or results of operations. We expect to complete our assessment of the impact of adopting this standard in the fourth quarter of 2018.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses. The new standard is effective for our company at the beginning of 2020 with early adoption permitted beginning in 2019. Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of the standard on our consolidated financial statements.
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Business Disposition (Tables) |
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| Schedule of major classes of assets and liabilities disposed of |
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Retirement Plans (Tables) |
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| Components of net periodic benefit cost |
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Earnings Per Share (Tables) |
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Accounts Receivable and Finance Receivables (Tables) |
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| Accounts receivable |
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| Finance receivables |
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| Finance receivables by credit quality indicator and by delinquency aging category |
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| Summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment |
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| Allowance for losses on finance receivables on an individual and on a collective basis |
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Inventories (Tables) |
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| Inventories | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories |
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Warranty Liability (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warranty Liability | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Changes in warranty liability |
* Adjustments include changes to prior year estimates, new issues on prior year sales, business dispositions and currency translation adjustments.
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Derivative Instruments and Fair Value Measurements (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Fair Value Measurements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Carrying value and estimated fair value of financial instruments |
|
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Shareholders' Equity (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Shareholder's equity |
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| Schedule of components of Accumulated Other Comprehensive Loss |
|
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| Schedule of before and after-tax components of other comprehensive income |
*These components of Other comprehensive income are included in the computation of net periodic pension cost. See Note 11 of our 2017 Annual Report on Form 10-K for additional information.
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Special Charges (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 29, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Charges | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of special charges |
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| Schedule of restructuring reserve activity |
Segment Information (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 29, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Information | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues by segment and reconciliation of segment profit to income from continuing operations before income taxes |
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Revenues (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 29, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of revenue by major product type, customer type and geographic |
Our revenues disaggregated by major product type for the three and nine months ended September 29, 2018 are presented below:
Our revenues by customer type and geographic location for the three and nine months ended September 29, 2018 are presented below:
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| ASC 606 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of impacts of adopting ASU 606 |
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Basis of Presentation (Details) $ in Millions |
9 Months Ended | |
|---|---|---|
|
Sep. 29, 2018
USD ($)
item
|
Sep. 30, 2017
USD ($)
|
|
| Net proceeds from corporate-owned life insurance policies | $ 98 | $ 20 |
| Number of borrowing groups | item | 2 | |
| ASU 2016-15 | ||
| Net proceeds from corporate-owned life insurance policies | 20 | |
| Net proceeds from corporate-owned life insurance policies reclassified from operating activities | $ (20) | |
Summary of Significant Accounting Policies Update - ASU 2014-09 (Details) - USD ($) $ in Millions |
Sep. 29, 2018 |
Dec. 31, 2017 |
Dec. 30, 2017 |
|---|---|---|---|
| New Accounting Standards | |||
| Retained earnings | $ 6,419 | $ 5,368 | |
| ASC 606 | Effect of adoption of ASC 606 | |||
| New Accounting Standards | |||
| Retained earnings | $ (125) | $ 90 |
Summary of Significant Accounting Policies Update - Information regarding significant accounting policies (Details) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 29, 2018 |
Dec. 30, 2017 |
|
| U. S. Government | ||
| Revenue Recognition | ||
| Revenues From Contracts With U. S. Government, Percentage | 24.00% | |
| U. S. Government | Maximum | ||
| Revenue Recognition | ||
| Percentage of contract price received for performance based payments on US Government Contracts | 90.00% | |
| Percentage of costs incurred representing progress payments on US Government Contracts | 80.00% | |
| U. S. Government | Fixed-price and fixed-price incentive contracts | ||
| Revenue Recognition | ||
| Percentage of revenue under fixed-price and fixed-price incentive contracts | 80.00% | |
| Commercial Contract | Minimum | ||
| Revenue Recognition | ||
| Period of warranty programs | 1 year | |
| Commercial Contract | Maximum | ||
| Revenue Recognition | ||
| Period of warranty programs | 5 years |
Summary of Significant Accounting Policies Update - Contracts accounted for under cumulative catch-up method (Details) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 29, 2018 |
Sep. 30, 2017 |
Sep. 29, 2018 |
Sep. 30, 2017 |
|
| Use of Estimates | ||||
| Revenue recognized from performance obligations satisfied in prior periods | $ 55 | $ 159 | ||
| Cumulative catch-up method | ||||
| Use of Estimates | ||||
| Cumulative Catch-Up Adjustments | 63 | $ 5 | 167 | $ 2 |
| Change in Accounting Estimate Financial Effect Increase In Net Income | $ 48 | $ 3 | $ 127 | $ 1 |
| Change in Accounting Estimate Financial Effect Increase in Earnings Per Share Diluted | $ 0.19 | $ 0.01 | $ 0.49 | $ 0.00 |
| Gross favorable adjustments | $ 79 | $ 20 | $ 205 | $ 63 |
| Gross unfavorable adjustments | $ 16 | $ 15 | $ 38 | $ 61 |
Business Disposition (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
Jul. 02, 2018 |
Sep. 29, 2018 |
Sep. 29, 2018 |
|
| Business Disposition | |||
| Net proceeds from business disposition | $ 807 | ||
| Disposition of businesses | Tools and Test Equipment | |||
| Business Disposition | |||
| Net proceeds from business disposition | $ 807 | ||
| After tax gain | $ 410 | ||
| Assets | |||
| Accounts receivable, net | 71 | ||
| Inventories | 100 | ||
| Property, plant and equipment, net | 59 | ||
| Goodwill | 153 | ||
| Other assets | 24 | ||
| Total Assets | 407 | ||
| Liabilities | |||
| Accounts payable | 30 | ||
| Other current liabilities | 25 | ||
| Other liabilities | 11 | ||
| Total Liabilities | $ 66 |
Retirement Plans - Net periodic benefit cost (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 29, 2018 |
Sep. 30, 2017 |
Sep. 29, 2018 |
Sep. 30, 2017 |
|
| Net periodic benefit cost | ||||
| Other components of net periodic benefit cost (credit) | $ (19) | $ (7) | $ (57) | $ (21) |
| Cost of sales | 2,687 | 2,884 | 8,489 | 8,472 |
| Pension Benefits | ||||
| Net periodic benefit cost | ||||
| Service cost | 26 | 25 | 79 | 75 |
| Interest cost | 77 | 81 | 230 | 242 |
| Expected return on plan assets | (138) | (127) | (415) | (380) |
| Amortization of net actuarial loss | 38 | 34 | 115 | 102 |
| Amortization of prior service cost (credit) | 4 | 4 | 11 | 12 |
| Net periodic benefit cost | 7 | 17 | 20 | 51 |
| Postretirement Benefits Other Than Pensions | ||||
| Net periodic benefit cost | ||||
| Service cost | 1 | 1 | 2 | 2 |
| Interest cost | 2 | 3 | 7 | 9 |
| Amortization of prior service cost (credit) | (2) | (2) | (5) | (6) |
| Net periodic benefit cost | $ 1 | 2 | $ 4 | 5 |
| Accounting Standards Update 2017-07 | ||||
| Net periodic benefit cost | ||||
| Other components of net periodic benefit cost (credit) | (7) | (21) | ||
| Cost of sales | $ 7 | $ 21 | ||
Earnings Per Share (Details) - shares shares in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 29, 2018 |
Sep. 30, 2017 |
Sep. 29, 2018 |
Sep. 30, 2017 |
|
| Weighted-average shares outstanding for basic and diluted EPS | ||||
| Basic weighted-average shares outstanding | 246,136 | 264,624 | 253,512 | 267,409 |
| Dilutive effect of stock options | 3,242 | 2,365 | 3,268 | 2,325 |
| Diluted weighted-average shares outstanding | 249,378 | 266,989 | 256,780 | 269,734 |
| Anti-dilutive effect of weighted average shares | 0 | 1,500 | 0 | 1,200 |
Accounts Receivable and Finance Receivables - Accounts receivable (Details) - USD ($) $ in Millions |
Sep. 29, 2018 |
Jul. 02, 2018 |
Dec. 31, 2017 |
Dec. 30, 2017 |
|---|---|---|---|---|
| Accounts Receivable | ||||
| Total | $ 1,026 | |||
| Manufacturing group | ||||
| Accounts Receivable | ||||
| Accounts Receivable, Gross | 1,051 | $ 1,390 | ||
| Allowance for doubtful accounts | (25) | (27) | ||
| Total | 1,026 | 1,363 | ||
| Manufacturing group | Commercial | ||||
| Accounts Receivable | ||||
| Accounts Receivable, Gross | 895 | 1,007 | ||
| Manufacturing group | U. S. Government Contracts, including foreign military sales | ||||
| Accounts Receivable | ||||
| Accounts Receivable, Gross | 156 | $ 383 | ||
| Effect of adoption of ASC 606 | ASC 606 | ||||
| Accounts Receivable | ||||
| Total | $ 187 | $ (203) | ||
| Tools and Test Equipment | Disposition of businesses | ||||
| Accounts Receivable | ||||
| Accounts receivable, net | $ 71 |
Accounts Receivable and Finance Receivables - Finance receivables (Details) - USD ($) $ in Millions |
Sep. 29, 2018 |
Dec. 30, 2017 |
|---|---|---|
| Finance Receivables | ||
| Finance receivables, gross | $ 815 | $ 850 |
| Allowance for losses | (29) | (31) |
| Total finance receivables, net | $ 786 | $ 819 |
Accounts Receivable and Finance Receivables - Finance receivables by delinquency aging category (Details) - USD ($) $ in Millions |
Sep. 29, 2018 |
Dec. 30, 2017 |
|---|---|---|
| Finance receivables held for investment by delinquency aging | ||
| 60 + days contractual delinquency as a percentage of finance receivables | 5.03% | 4.00% |
| Less than 31 days past due | ||
| Finance receivables held for investment by delinquency aging | ||
| Financing receivable held for investment | $ 752 | $ 791 |
| 31-60 days past due | ||
| Finance receivables held for investment by delinquency aging | ||
| Financing receivable held for investment | 22 | 25 |
| 61- 90 days past due | ||
| Finance receivables held for investment by delinquency aging | ||
| Financing receivable held for investment | 32 | 14 |
| Over 90 days past due | ||
| Finance receivables held for investment by delinquency aging | ||
| Financing receivable held for investment | $ 9 | $ 20 |
Accounts Receivable and Finance Receivables - Summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment (Details) - USD ($) $ in Millions |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 29, 2018 |
Dec. 30, 2017 |
|
| Summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment | ||
| Recorded investment, impaired loans with related allowance for losses | $ 14 | $ 24 |
| Recorded investment, impaired loans with no related allowance for losses | 30 | 70 |
| Recorded investment, Total | 44 | 94 |
| Unpaid principal balance | 54 | 106 |
| Allowance for losses on impaired loans | 4 | 6 |
| Average recorded investment | $ 62 | $ 92 |
Accounts Receivable and Finance Receivables - Allowance for losses on finance receivables on an individual and on a collective basis (Details) - USD ($) $ in Millions |
Sep. 29, 2018 |
Dec. 30, 2017 |
|---|---|---|
| Finance receivables | ||
| Allowance based on collective evaluation | $ 25 | $ 25 |
| Allowance based on individual evaluation | 4 | 6 |
| Finance receivables evaluated collectively | 671 | 658 |
| Finance receivables evaluated individually | $ 44 | $ 94 |
Inventories (Details) - USD ($) $ in Millions |
Sep. 29, 2018 |
Jul. 02, 2018 |
Dec. 31, 2017 |
Dec. 30, 2017 |
|---|---|---|---|---|
| Inventories | ||||
| Finished goods | $ 1,740 | $ 1,790 | ||
| Work in process | 1,540 | 2,238 | ||
| Raw materials and components | 750 | 804 | ||
| Inventories, Gross | 4,030 | 4,832 | ||
| Progress/milestone payments | (682) | |||
| Total | 4,030 | $ 4,150 | ||
| Effect of adoption of ASC 606 | ASC 606 | ||||
| Inventories | ||||
| Total | $ 207 | $ (199) | ||
| Tools and Test Equipment | Disposition of businesses | ||||
| Inventories | ||||
| Inventories | $ 100 |
Warranty Liability (Details) - USD ($) $ in Millions |
9 Months Ended | |
|---|---|---|
Sep. 29, 2018 |
Sep. 30, 2017 |
|
| Changes in warranty liability | ||
| Balance at beginning of period | $ 164 | $ 138 |
| Provision | 50 | 54 |
| Settlements | (60) | (55) |
| Acquisitions | 1 | 32 |
| Adjustments | (2) | |
| Balance at end of period | $ 155 | $ 167 |
Derivative Instruments and Fair Value Measurements - Assets and liabilities recorded at fair value on a recurring basis (Details) - Manufacturing group - USD ($) $ in Millions |
9 Months Ended | |
|---|---|---|
Sep. 29, 2018 |
Dec. 30, 2017 |
|
| Fair value of derivative instruments | ||
| Forward exchange contracts maximum maturity period | 3 years | |
| Foreign currency exchange contracts | ||
| Fair value of derivative instruments | ||
| Notional amounts | $ 428 | $ 426 |
| Level 2 | Foreign currency exchange contracts | ||
| Fair value of derivative instruments | ||
| Derivative Asset, Fair Value | 7 | 13 |
| Derivative Liability, Fair Value | $ 2 | $ 7 |
Derivative Instruments and Fair Value Measurements - Assets and liabilities not recorded at fair value (Details) - USD ($) $ in Millions |
Sep. 29, 2018 |
Dec. 30, 2017 |
|---|---|---|
| Manufacturing group | Carrying Value | ||
| Financial instruments not reflected at fair value | ||
| Debt, excluding leases | $ (3,004) | $ (3,007) |
| Manufacturing group | Estimated Fair Value | ||
| Financial instruments not reflected at fair value | ||
| Debt, excluding leases | (3,004) | (3,136) |
| Finance group | ||
| Financial instruments not reflected at fair value | ||
| Debt | (788) | (824) |
| Finance group | Carrying Value | ||
| Financial instruments not reflected at fair value | ||
| Finance receivables, excluding leases | 614 | 643 |
| Debt | (788) | (824) |
| Finance group | Estimated Fair Value | ||
| Financial instruments not reflected at fair value | ||
| Finance receivables, excluding leases | 642 | 675 |
| Debt | $ (756) | $ (799) |
Special Charges - Restructuring reserve activity and total expected cash outlay (Details) $ in Millions |
9 Months Ended |
|---|---|
|
Sep. 29, 2018
USD ($)
| |
| Special Charges | |
| Remaining expected cash payments for restructuring activities | $ 20 |
| Restructuring reserve activity | |
| Balance at beginning of period | 44 |
| Cash paid | (25) |
| Provision for 2016 Plan | 3 |
| Reversals | (2) |
| Balance at end of period | 20 |
| Severance Costs | |
| Restructuring reserve activity | |
| Balance at beginning of period | 24 |
| Cash paid | (18) |
| Reversals | (2) |
| Balance at end of period | 4 |
| Contract Terminations and Other | |
| Restructuring reserve activity | |
| Balance at beginning of period | 20 |
| Cash paid | (7) |
| Provision for 2016 Plan | 3 |
| Balance at end of period | $ 16 |
Income Taxes (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 29, 2018 |
Sep. 30, 2017 |
Sep. 29, 2018 |
Sep. 30, 2017 |
|
| Income Taxes | ||||
| Effective income tax rate (as a percent) | 10.40% | 21.70% | 11.80% | 23.60% |
| U.S. federal statutory income tax rate (as a percent) | 21.00% | 35.00% | ||
| Discrete tax benefit | $ 15 | $ 25 | $ 15 | |
Segment Information - Operating and reportable segments (Details) |
9 Months Ended |
|---|---|
|
Sep. 29, 2018
segment
| |
| Operating and reportable business segments | |
| Number of business operating segments | 5 |
| Number of reportable business segments | 5 |
Revenues - Remaining Performance Obligations (Details) $ in Billions |
Sep. 29, 2018
USD ($)
|
|---|---|
| Revenues | |
| Remaining performance obligations | $ 8.7 |
Revenues - Contract assets and liabilities (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
Sep. 29, 2018 |
Sep. 29, 2018 |
Dec. 31, 2017 |
|
| Contract assets and liabilities | |||
| Contract assets | $ 408 | $ 408 | |
| Contract liabilities | 1,100 | 1,100 | |
| Revenue recognized included in contract liabilities | $ 56 | $ 755 | |
| Effect of adoption of ASC 606 | ASC 606 | |||
| Contract assets and liabilities | |||
| Contract assets | $ 429 | ||
| Contract liabilities | $ 1,000 |