|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation and Financial Statement Presentation
Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems and Industrial segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation (TFC) and its consolidated subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements.
Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of Cash Flows, cash received from customers is reflected as operating activities when received from third parties. However, in the cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or eliminated in consolidation.
Collaborative Arrangements
Our Bell segment has a strategic alliance agreement with The Boeing Company (Boeing) to provide engineering, development and test services related to the V-22 aircraft, as well as to produce the V-22 aircraft, under a number of separate contracts with the U.S. Government (V-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity interest. We account for this alliance as a collaborative arrangement with Bell and Boeing reporting costs incurred and revenues generated from transactions with the U.S. Government in each company’s respective income statement. Neither Bell nor Boeing is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are allocated between Bell and Boeing on a 50%-50% basis. Negotiated profits on fixed-price contracts are also allocated 50%-50%; however, Bell and Boeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. Based on the contractual arrangement established under the alliance, Bell accounts for its rights and obligations under the specific requirements of the V-22 Contracts allocated to Bell under the work breakdown structure. We account for all of our rights and obligations, including warranty, product and any contingent liabilities, under the specific requirements of the V-22 Contracts allocated to us under the agreement. Revenues and cost of sales reflect our performance under the V-22 Contracts with revenues recognized using the units-of-delivery method. We include all assets used in performance of the V-22 Contracts that we own, including inventory and unpaid receivables and all liabilities arising from our obligations under the V-22 Contracts in our Consolidated Balance Sheets.
Use of Estimates
We prepare our financial statements in conformity with generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated Statements of Operations in the period that they are determined.
We periodically change our estimates of revenues and costs on certain long-term contracts that are accounted for under the percentage-of-completion method of accounting. These changes in estimates increased income from continuing operations before income taxes by $83 million, $78 million and $95 million in 2016, 2015 and 2014, respectively, ($52 million, $49 million and $60 million after tax, respectively, or $0.19, $0.18 and $0.21 per diluted share, respectively). For 2016, 2015 and 2014, the gross favorable program profit adjustments totaled $106 million, $111 million and $132 million, respectively, and the gross unfavorable program profit adjustments totaled $23 million, $33 million and $37 million, respectively.
Revenue Recognition
We generally recognize 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 risk and rewards of ownership. Taxes collected from customers and remitted to government authorities are recorded on a net basis.
When a sale arrangement involves multiple deliverables, such as sales of products that include customization and other services, we evaluate the arrangement to determine whether there are separate items that are required to be delivered under the arrangement that qualify as separate units of accounting. These arrangements typically involve the customization services we offer to customers who purchase Bell helicopters, and the services generally are provided within the first six months after the customer accepts the aircraft and assumes risk of loss. We consider the aircraft and the customization 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. We also consider any performance, cancellation, termination or refund-type provisions. Revenue is recognized when the recognition criteria for each unit of accounting are met.
Long-Term Contracts — Revenues 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. We then recognize that estimated profit over the contract term based on either the units-of-delivery method or the cost-to-cost method (which typically is used for development effort as costs are incurred), as appropriate under the circumstances. Revenues under fixed-price contracts generally are recorded using the units-of-delivery method. Revenues under cost-reimbursement contracts are recorded using the cost-to-cost method.
Long-term contract profits are based on estimates of total contract cost and revenues utilizing current contract specifications, expected engineering requirements, the achievement of contract milestones and product deliveries. Certain contracts are awarded with fixed-price incentive fees that also are considered when estimating revenues and profit rates. Contract costs typically are incurred over a period of several years, and the estimation of these costs requires substantial judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We update our projections of costs at least semiannually or when circumstances significantly change. When adjustments are required, any changes from prior estimates are recognized using the cumulative catch-up method with the impact of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized 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. Portfolio gains/losses include impairment charges related to repossessed assets and properties and gains/losses on the sale or early termination of finance assets. We recognize interest using the interest method, which provides a constant rate of return over the terms of the receivables. Accrual of interest income is suspended if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically suspend the accrual of interest income for accounts that are contractually delinquent by more than three months unless collection is not doubtful. Cash payments on nonaccrual accounts, including finance charges, generally are applied to reduce the net investment balance. Once we conclude that the collection of all principal and interest is no longer doubtful, we resume the accrual of interest and recognize previously suspended interest income at the time either a) the loan becomes contractually current through payment according to the original terms of the loan, or b) if the loan has been modified, following a period of performance under the terms of the modification.
Cash and Equivalents
Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or estimated net realizable value. We value our inventories generally using the first-in, first-out (FIFO) method or the last-in, first-out (LIFO) method for certain qualifying inventories where LIFO provides a better matching of costs and revenues. We determine costs for our commercial helicopters on an average cost basis by model considering the expended and estimated costs for the current production release. Inventories 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 expenses. Since our inventoried costs include amounts related to contracts with long production cycles, a portion of these costs is not expected to be realized within one year. Pursuant 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. Accordingly, these advances and payments are reflected as an offset against the related inventory balances with any remaining amounts recorded as a liability in customer deposits. Customer deposits are recorded against inventory only when the right of offset exists, while all other customer deposits are recorded in Accrued liabilities.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. We capitalize expenditures for improvements that increase asset values and extend useful lives. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying value of the asset exceeds the sum of the undiscounted expected future cash flows, the asset is written down to fair value.
Goodwill and Intangible Assets
Goodwill represents the excess of the consideration paid for the acquisition of a business over the fair values assigned to intangible and other net assets of the acquired business. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to an annual impairment test. We evaluate the recoverability of these assets in the fourth quarter of each year or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate a potential impairment.
For our impairment test, we calculate the fair value of each reporting unit and indefinite-lived intangible asset primarily using discounted cash flows. A reporting unit represents the operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment, in which case such component is the reporting unit. In certain instances, we have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics. For the goodwill impairment test, the discounted cash flows incorporate assumptions for revenue growth, operating margins and discount rates that represent our best estimates of current and forecasted market conditions, cost structure, anticipated net cost reductions, and the implied rate of return that we believe a market participant would require for an investment in a business having similar risks and characteristics to the reporting unit being assessed. If the reporting unit’s estimated fair value exceeds its carrying value, there is no impairment. Otherwise, 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 acquired in a business combination. If the carrying amount of the goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. For indefinite-lived intangible assets, if the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
Acquired intangible assets with finite lives are subject to amortization. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Amortization of these intangible assets is recognized over their estimated useful lives using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. Approximately 79% of our gross intangible assets are amortized based on the cash flow streams used to value the assets, with the remaining assets amortized using the straight-line method.
Finance Receivables
Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for losses.
We maintain an allowance for losses on finance receivables at a level considered adequate to cover inherent losses in the portfolio based on management’s evaluation. For larger balance accounts specifically identified as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable’s effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying amount. The expected future cash flows consider collateral value; financial performance and liquidity of our borrower; existence and financial strength of guarantors; estimated recovery costs, including legal expenses; and costs associated with the repossession and eventual disposal of collateral. When there is a range of potential outcomes, we perform multiple discounted cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results. While our analysis is specific to each individual account, critical factors included in this analysis include industry valuation guides, age and physical condition of the collateral, payment history and existence and financial strength of guarantors.
We also establish an allowance for losses to cover probable but specifically unknown losses existing in the portfolio. This allowance is established as a percentage of non-recourse finance receivables, which have not been identified as requiring specific reserves. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values and both general economic and specific industry trends.
Finance receivables are charged off at the earlier of the date the collateral is repossessed or when no payment has been received for six months, unless management deems the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell.
Pension and Postretirement Benefit Obligations
We maintain various pension and postretirement plans for our employees globally. These plans include significant pension and postretirement benefit obligations, which are calculated based on actuarial valuations. Key assumptions used in determining these obligations and related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. We evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases.
For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to our fiscal year-end. We recognize the overfunded or underfunded status of our pension and postretirement plans in the Consolidated Balance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income in the year in which they occur. Actuarial gains and losses that are not immediately recognized as net periodic pension cost are recognized as a component of other comprehensive income (loss) (OCI) and are amortized into net periodic pension cost in future periods.
Derivatives and Hedging Activities
We are exposed to market risk primarily from changes in currency exchange rates and interest rates. We do not hold or issue derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. Credit risk related to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through periodic settlements of positions.
All derivative instruments are reported at fair value in the Consolidated Balance Sheets. Designation to support hedge accounting is performed on a specific exposure basis. For financial instruments qualifying as cash flow hedges, we record changes in the fair value of derivatives (to the extent they are effective as hedges) in OCI, net of deferred taxes. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings.
Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or substantially liquidated. We use foreign currency financing transactions to effectively hedge long-term investments in foreign operations with the same corresponding currency. Foreign currency gains and losses on the hedge of the long-term investments are recorded in the cumulative translation adjustment account.
Product Liabilities
We accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. Our estimates are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience.
Environmental Liabilities and Asset Retirement Obligations
Liabilities for environmental matters are recorded on a site-by-site basis when it is probable that an obligation has been incurred and the cost can be reasonably estimated. We estimate our accrued environmental liabilities using currently available facts, existing technology, and presently enacted laws and regulations, all of which are subject to a number of factors and uncertainties. Our environmental liabilities are not discounted and do not take into consideration possible future insurance proceeds or significant amounts from claims against other third parties.
We have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and asbestos materials used in insulation, adhesive fillers and floor tiles. There is no legal requirement to remove these items, and there currently is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset retirement obligations are not estimable, there is no related liability recorded in the Consolidated Balance Sheets.
Warranty and Product Maintenance Liabilities
We provide limited warranty and product maintenance programs for certain products for periods ranging from one to five years. A significant portion of these liabilities arises from our commercial aircraft businesses. For our product maintenance contracts, revenue is recognized 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 recognized over the contract period in proportion to the costs expected to be incurred in performing the service.
For our warranty programs, we estimate the costs that may be incurred and record a liability in the amount of such costs at the time product revenues are recognized. Factors that affect this liability include the number of products sold, historical costs per claim, contractual recoveries from vendors and historical and anticipated rates of warranty claims, including production and warranty patterns for new models. We assess the adequacy of our recorded warranty liability periodically and adjust the amounts as necessary. Additionally, we may establish a warranty liability related to the issuance of aircraft service bulletins for aircraft no longer covered under the limited warranty programs.
Research and Development Costs
Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. Government contracts. In accordance with government regulations, we recover a portion of company-funded research and development costs through overhead rate charges on our U.S. Government contracts. Research and development costs that are not reimbursable under a contract with the U.S. Government or another customer are charged to expense as incurred. Company-funded research and development costs were $677 million, $778 million and $694 million in 2016, 2015 and 2014, respectively, and are included in cost of sales.
Income Taxes
The provision for income tax expense is calculated on reported Income from continuing operations before income taxes based on current tax law and includes, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Tax laws may require items to be included in the determination of taxable income at different times from when the items are reflected in the financial statements. Deferred tax balances reflect the effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and their tax bases, as well as from net operating losses and tax credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered. Deferred tax assets represent tax benefits for tax deductions or credits available in future years and require certain estimates and assumptions to determine whether it is more likely than not that all or a portion of the benefit will not be realized. The recoverability of these future tax deductions and credits is determined by assessing the adequacy of future expected taxable income from all sources, including the future reversal of existing taxable temporary differences, taxable income in carryback years, estimated future taxable income and available tax planning strategies. Should a change in facts or circumstances lead to a change in judgment about the ultimate recoverability of a deferred tax asset, we record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in income tax expense.
We record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the reporting date. To be recognized in the financial statements, the tax position must meet the more-likely-than-not threshold that the position will be sustained upon examination by the tax authority based on technical merits assuming the tax authority has full knowledge of all relevant information. For positions meeting this recognition threshold, the benefit is measured as the largest amount of benefit that meets the more-likely-than-not threshold to be sustained. We periodically evaluate these tax positions based on the latest available information. For tax positions that do not meet the threshold requirement, we recognize net tax-related interest and penalties for continuing operations in income tax expense.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, that outlines a five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In July 2015, the FASB approved a one-year deferral of the effective date of the standard to the beginning of 2018 for public companies, with an option to adopt the standard as early as the original effective date of 2017. The standard may be adopted either retrospectively or on a modified retrospective basis. We will adopt the standard in 2018 and expect to apply it on a modified retrospective basis, with a cumulative catch-up adjustment recognized at the beginning of 2018. The standard will primarily impact our businesses under long-term production contracts with the U.S. Government as these contracts currently use the units-of-delivery accounting method; under the new standard, these contracts will transition to a model that recognizes revenue over time, principally as costs are incurred, resulting in earlier revenue recognition. In 2016, approximately 25% of our revenues were from contracts with the U.S. Government. Given the complexity of our contracts, we are continuing to assess the potential effect that the standard is expected to have on our consolidated financial statements.
In February 2016, the 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, while lease expenses would continue to be recognized in the statement of operations in a manner similar to current accounting guidance. Under the 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 and early adoption is permitted. Entities must adopt the standard on a modified retrospective basis whereby it would be applied at the beginning of the earliest comparative year. While we continue to evaluate the impact of the standard on our consolidated financial statements, we expect that it will materially increase our assets and liabilities on our consolidated balance sheet as we recognize the rights and corresponding obligations related to our operating leases.
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.
|
Note 2. Business Acquisitions, Goodwill and Intangible Assets
2016 Acquisitions
In 2016, we paid $186 million in cash and assumed debt of $19 million to acquire six businesses, net of cash acquired and holdbacks. Our acquisition of Able Engineering and Component Services, Inc. and Able Aerospace, Inc. (Able) in the first quarter of 2016 represented the largest of these businesses and is included in the Textron Aviation segment. Able is an industry-leading repair and overhaul business that provides component repairs, component exchanges and replacement parts, among other support and service offerings for commercial rotorcraft and fixed-wing aircraft customers around the world. We are in the process of allocating the purchase price and valuing the acquired assets and liabilities for certain of these acquisitions. Based on the allocation of the aggregate purchase price for these acquisitions as of December 31, 2016, $101 million has been allocated to goodwill, related to expected synergies and the value of the existing workforce, and $59 million to intangible assets. Of the recorded goodwill, approximately $45 million is deductible for tax purposes. The intangible assets, which primarily include customer relationships and technologies, are amortized over a weighted-average period of 15 years. The operating results of these acquisitions have been included in the Consolidated Statements of Operations since their respective closing dates.
2015 Acquisitions
During 2015, we made aggregate cash payments for acquisitions of $81 million, which included three businesses within our Industrial and Textron Aviation segments.
2014 Acquisitions
On March 14, 2014, we completed the acquisition of all of the outstanding equity interests in Beech Holdings, LLC, which included Beechcraft Corporation and other subsidiaries, (collectively “Beechcraft”), for an aggregate cash payment of $1.5 billion. The acquisition of Beechcraft and the formation of the Textron Aviation segment has provided increased scale and complementary product offerings, allowing us to strengthen our position across the aviation industry and enhance our ability to support our customers. We financed $1.1 billion of the purchase price with the issuance of long-term debt and the remaining balance was paid from cash on hand. During 2014, we also made aggregate cash payments of $149 million for seven acquisitions within our Industrial and Systems Segments, including Tug Technologies Corporation, a manufacturer of ground support equipment in the aviation industry.
Goodwill
The changes in the carrying amount of goodwill by segment are as follows:
(In millions) |
|
Textron |
|
Bell |
|
Textron |
|
Industrial |
|
Total |
Balance at January 3, 2015 |
$ |
554 |
$ |
31 |
$ |
1,057 |
$ |
385 |
$ |
2,027 |
Acquisitions |
|
6 |
|
— |
|
— |
|
10 |
|
16 |
Foreign currency translation |
|
— |
|
— |
|
(6) |
|
(14) |
|
(20) |
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2016 |
|
560 |
|
31 |
|
1,051 |
|
381 |
|
2,023 |
|
|
|
|
|
|
|
|
|
|
|
Acquisitions |
|
54 |
|
— |
|
36 |
|
7 |
|
97 |
Foreign currency translation |
|
(1) |
|
— |
|
— |
|
(6) |
|
(7) |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
$ |
613 |
$ |
31 |
$ |
1,087 |
$ |
382 |
$ |
2,113 |
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets
Our intangible assets are summarized below:
|
|
|
|
December 31, 2016 |
|
January 2, 2016 |
||||||||
(Dollars in millions) |
|
Weighted-Average |
|
Gross |
|
Accumulated |
|
Net |
|
Gross |
|
Accumulated |
|
Net |
Patents and technology |
|
15 |
$ |
537 |
$ |
(158) |
$ |
379 |
$ |
513 |
$ |
(120) |
$ |
393 |
Customer relationships and contractual agreements |
|
15 |
|
384 |
|
(226) |
|
158 |
|
375 |
|
(220) |
|
155 |
Trade names and trademarks |
|
16 |
|
264 |
|
(36) |
|
228 |
|
263 |
|
(32) |
|
231 |
Other |
|
9 |
|
18 |
|
(16) |
|
2 |
|
23 |
|
(19) |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
1,203 |
$ |
(436) |
$ |
767 |
$ |
1,174 |
$ |
(391) |
$ |
783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and trademarks in the table above include $204 million of indefinite-lived intangible assets at both December 31, 2016 and January 2, 2016. Amortization expense totaled $66 million, $61 million and $62 million in 2016, 2015 and 2014, respectively. Amortization expense is estimated to be approximately $66 million, $63 million, $62 million, $58 million and $55 million in 2017, 2018, 2019, 2020 and 2021, respectively.
|
Note 3. Accounts Receivable and Finance Receivables
Accounts Receivable
Accounts receivable is composed of the following:
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Commercial |
|
|
|
|
$ |
797 |
$ |
841 |
U.S. Government contracts |
|
|
|
|
|
294 |
|
239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,091 |
|
1,080 |
Allowance for doubtful accounts |
|
|
|
|
|
(27) |
|
(33) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
1,064 |
$ |
1,047 |
|
|
|
|
|
|
|
|
|
We have unbillable receivables, primarily on U.S. Government contracts, that arise when the revenues we have appropriately recognized based on performance cannot be billed yet under terms of the contract. Unbillable receivables within accounts receivable totaled $178 million at December 31, 2016 and $135 million at January 2, 2016.
Finance Receivables
Finance receivables are presented in the following table:
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Finance receivables* |
|
|
|
|
$ |
976 |
$ |
1,135 |
Allowance for losses |
|
|
|
|
|
(41) |
|
(48) |
|
|
|
|
|
|
|
|
|
Total finance receivables, net |
|
|
|
|
$ |
935 |
$ |
1,087 |
|
|
|
|
|
|
|
|
|
* Includes finance receivables held for sale of $30 million at both December 31, 2016 and January 2, 2016.
Finance receivables primarily includes loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. These loans typically have initial terms ranging from five to ten years, amortization terms ranging from eight to fifteen years and an average balance of $1 million at December 31, 2016. Loans generally require the customer to pay a significant down payment, along with periodic scheduled principal payments that reduce the outstanding balance through the term of the loan.
Our finance receivables are diversified across geographic region and borrower industry. At December 31, 2016, 61% of our finance receivables were distributed internationally and 39% throughout the U.S., compared with 62% and 38%, respectively, at the end of 2015. At December 31, 2016 and January 2, 2016, finance receivables of $411 million and $493 million, respectively, have been pledged as collateral for TFC’s debt of $244 million and $352 million, respectively.
Finance Receivable Portfolio Quality
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. 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 delinquency aging category are summarized as follows:
(Dollars in millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Performing |
|
|
|
|
$ |
758 |
$ |
891 |
Watchlist |
|
|
|
|
|
101 |
|
130 |
Nonaccrual |
|
|
|
|
|
87 |
|
84 |
|
|
|
|
|
|
|
|
|
Nonaccrual as a percentage of finance receivables |
|
|
|
|
|
9.20% |
|
7.60% |
|
|
|
|
|
|
|
|
|
Less than 31 days past due |
|
|
|
|
$ |
857 |
$ |
950 |
31-60 days past due |
|
|
|
|
|
49 |
|
86 |
61-90 days past due |
|
|
|
|
|
18 |
|
42 |
Over 90 days past due |
|
|
|
|
|
22 |
|
27 |
|
|
|
|
|
|
|
|
|
60+ days contractual delinquency as a percentage of finance receivables |
|
|
|
|
|
4.23% |
|
6.24% |
|
|
|
|
|
|
|
|
|
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 2016 or 2015.
A summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment is provided below:
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Recorded investment: |
|
|
|
|
|
|
|
|
Impaired loans with related allowance for losses |
|
|
|
|
$ |
55 |
$ |
62 |
Impaired loans with no related allowance for losses |
|
|
|
|
|
65 |
|
42 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
120 |
$ |
104 |
|
|
|
|
|
|
|
|
|
Unpaid principal balance |
|
|
|
|
$ |
125 |
$ |
113 |
Allowance for losses on impaired loans |
|
|
|
|
|
11 |
|
17 |
Average recorded investment |
|
|
|
|
|
101 |
|
102 |
|
|
|
|
|
|
|
|
|
Allowance for Losses
A rollforward of the allowance for losses on finance receivables and a summary of its composition, based on how the underlying finance receivables are evaluated for impairment, is provided below. The finance receivables reported in this table specifically exclude $99 million and $118 million of leveraged leases at December 31, 2016 and January 2, 2016, respectively, in accordance with U.S. generally accepted accounting principles.
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Balance at beginning of year |
|
|
|
|
$ |
48 |
$ |
51 |
Provision for losses |
|
|
|
|
|
(1) |
|
(2) |
Charge-offs |
|
|
|
|
|
(16) |
|
(14) |
Recoveries |
|
|
|
|
|
10 |
|
13 |
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
|
|
$ |
41 |
$ |
48 |
|
|
|
|
|
|
|
|
|
Allowance based on collective evaluation |
|
|
|
|
$ |
30 |
$ |
31 |
Allowance based on individual evaluation |
|
|
|
|
|
11 |
|
17 |
Finance receivables evaluated collectively |
|
|
|
|
|
727 |
|
883 |
Finance receivables evaluated individually |
|
|
|
|
|
120 |
|
104 |
|
|
|
|
|
|
|
|
|
|
Note 4. Inventories
Inventories are composed of the following:
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Finished goods |
|
|
|
|
$ |
1,947 |
$ |
1,735 |
Work in process |
|
|
|
|
|
2,742 |
|
2,921 |
Raw materials and components |
|
|
|
|
|
724 |
|
605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,413 |
|
5,261 |
Progress/milestone payments |
|
|
|
|
|
(949) |
|
(1,117) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
4,464 |
$ |
4,144 |
|
|
|
|
|
|
|
|
|
Inventories valued by the LIFO method totaled $1.9 billion and $1.6 billion at December 31, 2016 and January 2, 2016, respectively, and the carrying values of these inventories would have been higher by approximately $457 million and $463 million, respectively, had our LIFO inventories been valued at current costs. Inventories related to long-term contracts, net of progress/milestone payments, were $557 million and $611 million at December 31, 2016 and January 2, 2016, respectively.
|
Note 5. Property, Plant and Equipment, Net
Our Manufacturing group’s property, plant and equipment, net is composed of the following:
(Dollars in millions) |
|
|
|
Useful Lives |
|
December 31, |
|
January 2, |
Land and buildings |
|
|
|
3 – 40 |
$ |
1,884 |
$ |
1,859 |
Machinery and equipment |
|
|
|
1 – 20 |
|
4,820 |
|
4,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,704 |
|
6,407 |
Accumulated depreciation and amortization |
|
|
|
|
|
(4,123) |
|
(3,915) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
2,581 |
$ |
2,492 |
|
|
|
|
|
|
|
|
|
At December 31, 2016 and January 2, 2016, assets under capital leases totaled $284 million and $275 million, respectively, and had accumulated amortization of $85 million and $87 million, respectively. The Manufacturing group’s depreciation expense, which included amortization expense on capital leases, totaled $368 million, $383 million and $379 million in 2016, 2015 and 2014, respectively.
|
Note 6. Accrued Liabilities
The accrued liabilities of our Manufacturing group are summarized below:
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Customer deposits |
|
|
|
|
$ |
991 |
$ |
1,323 |
Salaries, wages and employer taxes |
|
|
|
|
|
301 |
|
315 |
Current portion of warranty and product maintenance contracts |
|
|
|
|
|
151 |
|
137 |
Other |
|
|
|
|
|
814 |
|
692 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
2,257 |
$ |
2,467 |
|
|
|
|
|
|
|
|
|
Changes in our warranty liability are as follows:
(In millions) |
|
|
|
2016 |
|
2015 |
|
2014 |
Balance at beginning of year |
|
|
$ |
143 |
$ |
148 |
$ |
121 |
Provision |
|
|
|
79 |
|
78 |
|
75 |
Settlements |
|
|
|
(70) |
|
(72) |
|
(71) |
Acquisitions |
|
|
|
2 |
|
3 |
|
43 |
Adjustments* |
|
|
|
(16) |
|
(14) |
|
(20) |
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
$ |
138 |
$ |
143 |
$ |
148 |
|
|
|
|
|
|
|
|
|
* Adjustments include changes to prior year estimates, new issues on prior year sales and currency translation adjustments.
|
Note 7. Debt and Credit Facilities
Our debt is summarized in the table below:
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Manufacturing group |
|
|
|
|
|
|
|
|
4.625% due 2016 |
|
|
|
|
$ |
— |
$ |
250 |
5.60% due 2017 |
|
|
|
|
|
350 |
|
350 |
Variable-rate note due 2018 (2.09% and 1.58%, respectively) |
|
|
|
|
|
150 |
|
150 |
7.25% due 2019 |
|
|
|
|
|
250 |
|
250 |
Variable-rate note due 2019 (1.95% and 1.59%, respectively) |
|
|
|
|
|
200 |
|
200 |
6.625% due 2020 |
|
|
|
|
|
184 |
|
222 |
3.65% due 2021 |
|
|
|
|
|
250 |
|
250 |
5.95% due 2021 |
|
|
|
|
|
250 |
|
250 |
4.30% due 2024 |
|
|
|
|
|
350 |
|
350 |
3.875% due 2025 |
|
|
|
|
|
350 |
|
350 |
4.00% due 2026 |
|
|
|
|
|
350 |
|
— |
Other (weighted-average rate of 2.86% and 1.29%, respectively) |
|
|
|
|
|
93 |
|
75 |
|
|
|
|
|
|
|
|
|
Total Manufacturing group debt |
|
|
|
|
$ |
2,777 |
$ |
2,697 |
Less: Short-term debt and current portion of long-term debt |
|
|
|
|
|
(363) |
|
(262) |
|
|
|
|
|
|
|
|
|
Total Long-term debt |
|
|
|
|
$ |
2,414 |
$ |
2,435 |
|
|
|
|
|
|
|
|
|
Finance group |
|
|
|
|
|
|
|
|
Fixed-rate notes due 2016-2017 (weighted-average rate of 4.59%) (a) |
|
|
|
|
$ |
10 |
$ |
21 |
Variable-rate note due 2018 (weighted-average rate of 1.89% and 1.53%, respectively) |
|
|
|
|
|
200 |
|
200 |
2.26% note due 2019 |
|
|
|
|
|
150 |
|
— |
Fixed-rate notes due 2017-2025 (weighted-average rate of 2.87% and 2.79%, respectively) (a) (b) |
|
|
|
|
|
202 |
|
300 |
Variable-rate notes due 2016-2025 (weighted-average rate of 1.97% and 1.54%, respectively) (a) (b) |
|
|
|
|
|
42 |
|
52 |
Securitized debt (weighted-average rate of 1.71%) |
|
|
|
|
|
— |
|
41 |
6% Fixed-to-Floating Rate Junior Subordinated Notes |
|
|
|
|
|
299 |
|
299 |
|
|
|
|
|
|
|
|
|
Total Finance group debt |
|
|
|
|
$ |
903 |
$ |
913 |
|
|
|
|
|
|
|
|
|
(a) |
Notes amortize on a quarterly or semi-annual basis. |
(b) |
Notes are secured by finance receivables as described in Note 3. |
The following table shows required payments during the next five years on debt outstanding at December 31, 2016:
(In millions) |
|
2017 |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
Manufacturing group |
$ |
363 |
$ |
157 |
$ |
457 |
$ |
195 |
$ |
507 |
Finance group |
|
64 |
|
239 |
|
188 |
|
36 |
|
23 |
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
427 |
$ |
396 |
$ |
645 |
$ |
231 |
$ |
530 |
|
|
|
|
|
|
|
|
|
|
|
On September 30, 2016, Textron entered into a senior unsecured revolving credit facility that expires in September 2021 for an aggregate principal amount of $1.0 billion, of which up to $100 million is available for the issuance of letters of credit. At December 31, 2016, there were no amounts borrowed against the facility and there were $11 million of letters of credit issued against it. This facility replaced the existing 5-year facility, which had no outstanding borrowings and was scheduled to expire in October 2018.
6% Fixed-to-Floating Rate Junior Subordinated Notes
The Finance group’s $299 million of 6% Fixed-to-Floating Rate Junior Subordinated Notes are unsecured and rank junior to all of its existing and future senior debt. The notes mature on February 15, 2067; however, we have the right to redeem the notes at par on or after February 15, 2017 and are obligated to redeem the notes beginning on February 15, 2042. Interest on the notes is fixed at 6% until February 15, 2017 and is variable at the three-month London Interbank Offered Rate + 1.735% thereafter.
Support Agreement
Under a Support Agreement, as amended in December 2015, Textron Inc. is required to ensure that TFC maintains fixed charge coverage of no less than 125% and consolidated shareholder’s equity of no less than $125 million. There were no cash contributions required to be paid to TFC in 2016, 2015 and 2014 to maintain compliance with the support agreement.
|
Note 8. 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 December 31, 2016 and January 2, 2016, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $665 million and $706 million, respectively. At December 31, 2016, the fair value amounts of our foreign currency exchange contracts were a $7 million asset and a $17 million liability. At January 2, 2016, the fair value amounts of our foreign currency exchange contracts were a $7 million asset and a $28 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 Recorded at Fair Value on a Nonrecurring Basis
During the years ended December 31, 2016 and January 2, 2016, the Finance group’s impaired nonaccrual finance receivables of $44 million and $45 million, respectively, were measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). Impaired nonaccrual finance receivables represent assets recorded at fair value on a nonrecurring basis since the measurement of required reserves on our impaired finance receivables is significantly dependent on the fair value of the underlying collateral. For impaired nonaccrual finance receivables secured by aviation assets, the fair values of collateral are determined primarily based on the use of industry pricing guides. Fair value measurements recorded on impaired finance receivables resulted in charges to provision for loan losses totaling $10 million, $13 million and $18 million for 2016, 2015 and 2014, respectively.
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:
|
|
December 31, 2016 |
|
January 2, 2016 |
||||
(In millions) |
|
Carrying |
|
Estimated |
|
Carrying |
|
Estimated |
Manufacturing group |
|
|
|
|
|
|
|
|
Debt, excluding leases |
$ |
(2,690) |
$ |
(2,809) |
$ |
(2,628) |
$ |
(2,744) |
Finance group |
|
|
|
|
|
|
|
|
Finance receivables, excluding leases |
|
729 |
|
758 |
|
863 |
|
820 |
Debt |
|
(903) |
|
(831) |
|
(913) |
|
(840) |
|
|
|
|
|
|
|
|
|
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.
|
Note 11. Retirement Plans
Our defined benefit and defined contribution plans cover substantially all of our employees. A significant number of our U.S.-based employees participate in the Textron Retirement Plan, which is designed to be a “floor-offset” arrangement with both a defined benefit component and a defined contribution component. The defined benefit component of the arrangement includes the Textron Master Retirement Plan (TMRP) and the Bell Helicopter Textron Master Retirement Plan (BHTMRP), and the defined contribution component is the Retirement Account Plan (RAP). The defined benefit component provides a minimum guaranteed benefit (or “floor” benefit). Under the RAP, participants are eligible to receive contributions from Textron of 2% of their eligible compensation but may not make contributions to the plan. Upon retirement, participants receive the greater of the floor benefit or the value of the RAP. Both the TMRP and the BHTMRP are subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Effective on January 1, 2010, the Textron Retirement Plan was closed to new participants, and employees hired after that date receive an additional 4% annual cash contribution to their Textron Savings Plan account based on their eligible compensation.
We also have other funded and unfunded defined benefit pension plans that cover certain of our U.S. and Non-U.S. employees. In addition, several defined contribution plans are sponsored by our various businesses, of which the largest plan is the Textron Savings Plan, which is a qualified 401(k) plan subject to ERISA. Our defined contribution plans cost approximately $110 million, $103 million and $99 million in 2016, 2015 and 2014, respectively; these amounts include $10 million, $12 million and $16 million, respectively, in contributions to the RAP. We also provide postretirement benefits other than pensions for certain retired employees in the U.S., which include healthcare, dental care, Medicare Part B reimbursement and life insurance benefits.
Periodic Benefit Cost
The components of net periodic benefit cost and other amounts recognized in OCI are as follows:
|
Pension Benefits |
Postretirement Benefits |
||||||||||
(In millions) |
|
2016 |
|
2015 |
|
2014 |
|
2016 |
|
2015 |
|
2014 |
Net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
$ |
98 |
$ |
113 |
$ |
109 |
$ |
3 |
$ |
4 |
$ |
4 |
Interest cost |
|
338 |
|
327 |
|
334 |
|
16 |
|
15 |
|
19 |
Expected return on plan assets |
|
(490) |
|
(483) |
|
(462) |
|
— |
|
— |
|
— |
Amortization of prior service cost (credit) |
|
15 |
|
16 |
|
15 |
|
(22) |
|
(25) |
|
(23) |
Amortization of net actuarial loss |
|
104 |
|
148 |
|
112 |
|
— |
|
2 |
|
2 |
Curtailment and other charges |
|
— |
|
6 |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (credit) |
$ |
65 |
$ |
127 |
$ |
108 |
$ |
(3) |
$ |
(4) |
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in plan assets and benefit obligations recognized in OCI |
|
|
|
|
|
|
|
|
|
|
|
|
Current year actuarial loss (gain) |
$ |
399 |
$ |
(107) |
$ |
729 |
$ |
(17) |
$ |
(29) |
$ |
5 |
Current year prior service cost (credit) |
|
— |
|
— |
|
12 |
|
(12) |
|
— |
|
(30) |
Amortization of net actuarial loss |
|
(104) |
|
(148) |
|
(112) |
|
— |
|
(2) |
|
(2) |
Amortization of prior service credit (cost) |
|
(15) |
|
(18) |
|
(15) |
|
22 |
|
25 |
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in OCI, before taxes |
$ |
280 |
$ |
(273) |
$ |
614 |
$ |
(7) |
$ |
(6) |
$ |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and OCI |
$ |
345 |
$ |
(146) |
$ |
722 |
$ |
(10) |
$ |
(10) |
$ |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated amount that will be amortized from Accumulated other comprehensive loss into net periodic pension costs in 2017 is as follows:
(In millions) |
|
|
|
|
|
Pension |
|
Postretirement |
Net actuarial loss (gain) |
|
|
|
|
$ |
137 |
$ |
(1) |
Prior service cost (credit) |
|
|
|
|
|
15 |
|
(8) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
152 |
$ |
(9) |
|
|
|
|
|
|
|
|
|
Obligations and Funded Status
All of our plans are measured as of our fiscal year-end. The changes in the projected benefit obligation and in the fair value of plan assets, along with our funded status, are as follows:
|
Pension Benefits |
Postretirement Benefits |
||||||
(In millions) |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Change in benefit obligation |
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
$ |
7,476 |
$ |
8,006 |
$ |
364 |
$ |
413 |
Service cost |
|
98 |
|
113 |
|
3 |
|
4 |
Interest cost |
|
338 |
|
327 |
|
16 |
|
15 |
Plan participants’ contributions |
|
— |
|
— |
|
5 |
|
5 |
Actuarial losses (gains) |
|
571 |
|
(470) |
|
(17) |
|
(29) |
Benefits paid |
|
(410) |
|
(423) |
|
(42) |
|
(44) |
Plan amendment |
|
— |
|
— |
|
(12) |
|
— |
Curtailments and special termination benefits |
|
(7) |
|
(4) |
|
— |
|
— |
Foreign exchange rate changes and other |
|
(75) |
|
(73) |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year |
$ |
7,991 |
$ |
7,476 |
$ |
317 |
$ |
364 |
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
$ |
6,668 |
$ |
6,979 |
|
|
|
|
Actual return on plan assets |
|
655 |
|
113 |
|
|
|
|
Employer contributions |
|
40 |
|
55 |
|
|
|
|
Benefits paid |
|
(410) |
|
(423) |
|
|
|
|
Foreign exchange rate changes and other |
|
(79) |
|
(56) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
$ |
6,874 |
$ |
6,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year |
$ |
(1,117) |
$ |
(808) |
$ |
(317) |
$ |
(364) |
|
|
|
|
|
|
|
|
|
Amounts recognized in our balance sheets are as follows:
|
Pension Benefits |
Postretirement Benefits |
||||||
(In millions) |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Non-current assets |
$ |
63 |
$ |
73 |
$ |
— |
$ |
— |
Current liabilities |
|
(26) |
|
(26) |
|
(35) |
|
(40) |
Non-current liabilities |
|
(1,154) |
|
(855) |
|
(282) |
|
(324) |
Recognized in Accumulated other comprehensive loss, pre-tax: |
|
|
|
|
|
|
|
|
Net loss |
|
2,187 |
|
1,915 |
|
(8) |
|
9 |
Prior service cost (credit) |
|
78 |
|
92 |
|
(40) |
|
(50) |
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for all defined benefit pension plans was $7.6 billion and $7.1 billion at December 31, 2016 and January 2, 2016, respectively, which included $387 million and $371 million, respectively, in accumulated benefit obligations for unfunded plans where funding is not permitted or in foreign environments where funding is not feasible.
Pension plans with accumulated benefit obligations exceeding the fair value of plan assets are as follows:
(In millions) |
|
|
|
|
|
2016 |
|
2015 |
Projected benefit obligation |
|
|
|
|
$ |
7,799 |
$ |
2,881 |
Accumulated benefit obligation |
|
|
|
|
|
7,422 |
|
2,708 |
Fair value of plan assets |
|
|
|
|
|
6,627 |
|
2,091 |
|
|
|
|
|
|
|
|
|
Assumptions
The weighted-average assumptions we use for our pension and postretirement plans are as follows:
|
Pension Benefits |
Postretirement Benefits |
||||||||||
|
|
2016 |
|
2015 |
|
2014 |
|
2016 |
|
2015 |
|
2014 |
Net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
4.66% |
|
4.25% |
|
4.92% |
|
4.50% |
|
4.00% |
|
4.50% |
Expected long-term rate of return on assets |
|
7.58% |
|
7.57% |
|
7.60% |
|
|
|
|
|
|
Rate of compensation increase |
|
3.49% |
|
3.49% |
|
3.50% |
|
|
|
|
|
|
Benefit obligations at year-end |
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
4.13% |
|
4.66% |
|
4.18% |
|
4.00% |
|
4.50% |
|
4.00% |
Rate of compensation increase |
|
3.50% |
|
3.49% |
|
3.49% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our assumed healthcare cost trend rate for both the medical and prescription drug cost was 7.25% in 2016 and 7.50% in 2015. We expect this rate to gradually decline to 5.0% by 2024 where we assume it will remain. These assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement benefits other than pensions. A one-percentage-point change in these assumed healthcare cost trend rates would have the following effects:
(In millions) |
|
|
|
|
|
One- |
|
One- |
Effect on total of service and interest cost components |
|
|
|
|
$ |
1 |
$ |
(1) |
Effect on postretirement benefit obligations other than pensions |
|
|
|
|
14 |
|
(12) | |
|
|
|
|
|
|
|
|
Pension Assets
The expected long-term rate of return on plan assets is determined based on a variety of considerations, including the established asset allocation targets and expectations for those asset classes, historical returns of the plans’ assets and other market considerations. We invest our pension assets with the objective of achieving a total rate of return, over the long term, sufficient to fund future pension obligations and to minimize future pension contributions. We are willing to tolerate a commensurate level of risk to achieve this objective based on the funded status of the plans and the long-term nature of our pension liability. Risk is controlled by maintaining a portfolio of assets that is diversified across a variety of asset classes, investment styles and investment managers. Where possible, investment managers are prohibited from owning our securities in the portfolios that they manage on our behalf.
For U.S. plan assets, which represent the majority of our plan assets, asset allocation target ranges are established consistent with our investment objectives, and the assets are rebalanced periodically. For Non-U.S. plan assets, allocations are based on expected cash flow needs and assessments of the local practices and markets. Our target allocation ranges are as follows:
U.S. Plan Assets |
|
|
Domestic equity securities |
|
20% to 35% |
International equity securities |
|
8% to 19% |
Global equities |
|
0% to 12% |
Debt securities |
|
27% to 38% |
Real estate |
|
7% to 13% |
Private investment partnerships |
|
5% to 11% |
Hedge funds |
|
0% to 5% |
Non-U.S. Plan Assets |
|
|
Equity securities |
|
51% to 74% |
Debt securities |
|
26% to 46% |
Real estate |
|
3% to 15% |
The fair value of our pension plan assets by major category and valuation method is as follows:
|
|
December 31, 2016 |
|
January 2, 2016 |
||||||||||||
(In millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Not |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Not |
Cash and equivalents |
$ |
26 |
$ |
8 |
$ |
— |
$ |
156 |
$ |
27 |
$ |
11 |
$ |
— |
$ |
173 |
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
1,262 |
|
— |
|
— |
|
618 |
|
1,252 |
|
— |
|
— |
|
595 |
International |
|
773 |
|
— |
|
— |
|
510 |
|
812 |
|
— |
|
— |
|
360 |
Mutual funds |
|
309 |
|
— |
|
— |
|
— |
|
251 |
|
— |
|
— |
|
— |
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
National, state and local governments |
|
341 |
|
246 |
|
— |
|
44 |
|
410 |
|
314 |
|
— |
|
43 |
Corporate debt |
|
— |
|
769 |
|
— |
|
121 |
|
— |
|
752 |
|
— |
|
126 |
Asset-backed securities |
|
— |
|
45 |
|
— |
|
100 |
|
— |
|
92 |
|
— |
|
— |
Real estate |
|
— |
|
— |
|
494 |
|
292 |
|
— |
|
— |
|
436 |
|
322 |
Private investment partnerships |
|
— |
|
— |
|
— |
|
506 |
|
— |
|
— |
|
— |
|
441 |
Hedge funds |
|
— |
|
— |
|
— |
|
254 |
|
— |
|
— |
|
— |
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
2,711 |
$ |
1,068 |
$ |
494 |
$ |
2,601 |
$ |
2,752 |
$ |
1,169 |
$ |
436 |
$ |
2,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2016, we adopted ASU No. 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which removed the requirement to categorize within the fair value hierarchy, as defined in Note 8, investments for which fair value is measured using the net asset value per share practical expedient. As a result, to conform with the current year presentation, pension assets totaling $2.3 billion at January 2, 2016 have been reclassified from the Level 2 and 3 categories as they are no longer subject to leveling within the fair value hierarchy.
Cash and equivalents, equity securities and debt securities include comingled funds, which represent investments in funds offered to institutional investors that are similar to mutual funds in that they provide diversification by holding various equity and debt securities. Since these comingled funds are not quoted on any active market, they are priced based on the relative value of the underlying equity and debt investments and their individual prices at any given time; these funds are not subject to leveling within the fair value hierarchy. Debt securities are valued based on same day actual trading prices, if available. If such prices are not available, we use a matrix pricing model with historical prices, trends and other factors.
Private investment partnerships represent interests in funds which invest in equity, debt and other financial assets. These funds are generally not publicly traded so the interests therein are valued using income and market methods that include cash flow projections and market multiples for various comparable investments. Real estate includes owned properties and limited partnership interests in real estate partnerships. Owned properties are valued using certified appraisals at least every three years that are updated at least annually by the real estate investment manager based on current market trends and other available information. These appraisals generally use the standard methods for valuing real estate, including forecasting income and identifying current transactions for comparable real estate to arrive at a fair value. Limited partnership interests in real estate partnerships are valued similarly to private investment partnerships, with the general partner using standard real estate valuation methods to value the real estate properties and securities held within their portfolios. Neither real estate partnerships nor private investment partnerships are subject to leveling within the fair value hierarchy.
Hedge funds represent an investment in a diversified fund of hedge funds of which we are the sole investor. The fund invests in portfolio funds that are not publicly traded and are managed by various portfolio managers. Investments in portfolio funds are typically valued on the basis of the most recent price or valuation provided by the fund’s administrator. The administrator for the fund aggregates these valuations with the other assets and liabilities to calculate the value of the fund, which is not subject to leveling within the fair value hierarchy.
The table below presents a reconciliation of the fair value measurements for owned real estate properties, which use significant unobservable inputs (Level 3):
(In millions) |
|
|
|
|
|
2016 |
|
2015 |
Balance at beginning of year |
|
|
|
|
$ |
436 |
$ |
436 |
Unrealized gains, net |
|
|
|
|
|
6 |
|
46 |
Realized gains (losses), net |
|
|
|
|
|
10 |
|
(17) |
Purchases, sales and settlements, net |
|
|
|
|
|
42 |
|
(29) |
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
|
|
$ |
494 |
$ |
436 |
|
|
|
|
|
|
|
|
|
Estimated Future Cash Flow Impact
Defined benefits under salaried plans are based on salary and years of service. Hourly plans generally provide benefits based on stated amounts for each year of service. Our funding policy is consistent with applicable laws and regulations. In 2017, we expect to contribute approximately $55 million to fund our pension plans and the RAP. Benefit payments provided below reflect expected future employee service, as appropriate, and are expected to be paid, net of estimated participant contributions. These payments are based on the same assumptions used to measure our benefit obligation at the end of 2016. While pension benefit payments primarily will be paid out of qualified pension trusts, we will pay postretirement benefits other than pensions out of our general corporate assets. Benefit payments that we expect to pay on an undiscounted basis are as follows:
(In millions) |
|
2017 |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
2022-2026 |
Pension benefits |
$ |
407 |
$ |
411 |
$ |
417 |
$ |
425 |
$ |
434 |
$ |
2,290 |
Post-retirement benefits other than pensions |
|
36 |
|
34 |
|
32 |
|
31 |
|
29 |
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12. Special Charges
2016 Special Charges
Special charges recorded in 2016 by segment are as follows:
(In millions) |
|
Severance |
|
Asset |
|
Contract |
|
Total |
Textron Systems |
$ |
15 |
$ |
34 |
$ |
13 |
$ |
62 |
Textron Aviation |
|
33 |
|
1 |
|
1 |
|
35 |
Industrial |
|
17 |
|
2 |
|
1 |
|
20 |
Bell |
|
4 |
|
1 |
|
— |
|
5 |
Corporate |
|
1 |
|
— |
|
— |
|
1 |
|
|
|
|
|
|
|
|
|
|
$ |
70 |
$ |
38 |
$ |
15 |
$ |
123 |
|
|
|
|
|
|
|
|
|
In 2016, we initiated a plan to restructure and realign our businesses by implementing headcount reductions, facility consolidations and other actions in order to improve overall operating efficiency across Textron. As part of this plan, Textron Systems will discontinue production of its sensor-fuzed weapon product by the end of the first quarter of 2017, resulting in headcount reductions, facility consolidations and asset impairments within its Weapons and Sensors operating unit. Historically, sensor-fuzed weapon sales have relied on foreign military and direct commercial international customers for which both executive branch and congressional approval is required. The political environment has made it difficult to obtain these approvals. Within our Industrial segment, the plan provides for the combination of our Jacobsen business with the Textron Specialized Vehicles businesses, resulting in the consolidation of certain facilities and general and administrative functions and related headcount reductions. In addition, we initiated restructuring actions, principally headcount reductions, in our Textron Aviation segment, as well as other businesses and corporate functions. The total headcount reduction related to restructuring activities is expected to be approximately 1,700 positions, representing approximately 5% of our workforce.
We expect to incur additional pre-tax charges under this plan in the range of $17 million to $47 million, primarily related to contract termination, severance, facility consolidation and relocation costs. The remaining charges are expected to primarily be in the Industrial, Textron Systems and Textron Aviation segments. We anticipate the plan to be substantially completed by the end of the first half of 2017.
An analysis of our restructuring reserve activity under this plan is summarized below:
(In millions) |
|
|
|
Severance |
|
Contract |
|
Total |
Provision |
|
|
$ |
75 |
$ |
15 |
$ |
90 |
Reversals |
|
|
|
(5) |
|
— |
|
(5) |
Cash paid |
|
|
|
(20) |
|
(2) |
|
(22) |
|
|
|
|
|
|
|
|
|
End of year |
|
|
$ |
50 |
$ |
13 |
$ |
63 |
|
|
|
|
|
|
|
|
|
Total expected cash outlays for restructuring activities are estimated to be approximately $100 million to $120 million, of which $22 million was paid in 2016 and the remainder will be paid in 2017. Severance costs generally are paid on a lump-sum basis and include outplacement costs, which are paid in accordance with normal payment terms.
2014 Special Charges
In 2014, we executed a restructuring program in our Textron Aviation segment to align the Cessna and acquired Beechcraft business, reduce operating redundancies and maximize operating efficiencies. We recorded special charges of $41 million related to these restructuring activities in 2014, along with $11 million of transaction costs from the acquisition of Beechcraft.
|
Note 13. Income Taxes
We conduct business globally and, as a result, file numerous consolidated and separate income tax returns within and outside the U.S. For all of our U.S. subsidiaries, we file a consolidated federal income tax return. Income from continuing operations before income taxes is as follows:
(In millions) |
|
|
|
2016 |
|
2015 |
|
2014 |
U.S. |
|
|
$ |
652 |
$ |
745 |
$ |
553 |
Non-U.S. |
|
|
|
224 |
|
226 |
|
300 |
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
$ |
876 |
$ |
971 |
$ |
853 |
|
|
|
|
|
|
|
|
|
Income tax expense for continuing operations is summarized as follows:
(In millions) |
|
|
|
2016 |
|
2015 |
|
2014 |
Current: |
|
|
|
|
|
|
|
|
Federal |
|
|
$ |
(74) |
$ |
212 |
$ |
195 |
State |
|
|
|
18 |
|
16 |
|
18 |
Non-U.S. |
|
|
|
41 |
|
41 |
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(15) |
|
269 |
|
267 |
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
|
|
47 |
|
17 |
|
(12) |
State |
|
|
|
(7) |
|
(14) |
|
(4) |
Non-U.S. |
|
|
|
8 |
|
1 |
|
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
48 |
|
4 |
|
(19) |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
$ |
33 |
$ |
273 |
$ |
248 |
|
|
|
|
|
|
|
|
|
The following table reconciles the federal statutory income tax rate to our effective income tax rate for continuing operations:
|
|
|
|
2016 |
|
2015 |
|
2014 |
U.S. Federal statutory income tax rate |
|
|
|
35.0% |
|
35.0% |
|
35.0% |
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
Federal tax settlement |
|
|
|
(23.5) |
|
— |
|
— |
State income taxes (net of federal impact) (a) |
|
|
|
0.8 |
|
0.2 |
|
1.0 |
Non-U.S. tax rate differential and foreign tax credits (b) |
|
|
|
(2.7) |
|
(3.6) |
|
(5.8) |
Domestic manufacturing deduction |
|
|
|
(1.6) |
|
(2.7) |
|
(1.1) |
Research credit |
|
|
|
(3.2) |
|
(1.5) |
|
(1.5) |
Other, net |
|
|
|
(1.0) |
|
0.7 |
|
1.5 |
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
|
3.8% |
|
28.1% |
|
29.1% |
|
|
|
|
|
|
|
|
|
(a) |
Includes a favorable impact of (0.7)% in 2015 and (0.2)% in 2014 related to valuation allowance releases. |
(b) |
Includes a favorable impact of (1.4)% in 2015 and (0.6)% in 2014 related to a net change in valuation allowances. |
The provision for income taxes for 2016 included a benefit of $319 million to reflect the settlement with the U.S. Internal Revenue Service Office of Appeals for our 1998 to 2008 tax years, which resulted in a $206 million benefit attributable to continuing operations and $113 million attributable to discontinued operations.
We have recorded income tax at U.S. tax rates on all earnings, except for undistributed earnings of non-U.S. subsidiaries of approximately $1.4 billion, which are considered indefinitely reinvested. Should these earnings be distributed in the future in the form of dividends or otherwise, we would be subject to both U.S. income taxes (less foreign tax credits) and, in some instances, withholding taxes payable to various non-U.S. jurisdictions. Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested earnings is not practicable due to the complexity of U.S. and local tax laws.
Our unrecognized tax benefits represent tax positions for which reserves have been established. Unrecognized state tax benefits and interest related to unrecognized tax benefits are reflected net of applicable tax benefits. A reconciliation of our unrecognized tax benefits, excluding accrued interest, is as follows:
(In millions) |
|
|
|
December 31, |
|
January 2, |
|
January 3, |
Balance at beginning of year |
|
|
$ |
401 |
$ |
385 |
$ |
284 |
Additions for tax positions related to current year |
|
|
|
12 |
|
12 |
|
10 |
Additions for tax positions of prior years |
|
|
|
— |
|
6 |
|
— |
Additions for acquisitions |
|
|
|
— |
|
1 |
|
100 |
Reductions for settlements and expiration of statute of limitations |
|
|
|
(219) |
|
(2) |
|
(3) |
Reductions for tax positions of prior years |
|
|
|
(8) |
|
(1) |
|
(6) |
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
$ |
186 |
$ |
401 |
$ |
385 |
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits decreased during 2016 primarily due to the federal tax settlement as discussed above. At December 31, 2016 and January 2, 2016, we had approximately $186 million and $321 million, respectively, of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate in a future period. At January 2, 2016, the remaining $80 million in unrecognized tax benefits were related to discontinued operations.
In the normal course of business, we are subject to examination by tax authorities throughout the world. We are no longer subject to federal tax examinations for years before 2009, U.S. state and local income tax examinations for years before 1997, and non-U.S. income tax examinations for years before 2011.
During 2016, 2015 and 2014, we recognized net tax-related interest expense totaling approximately $5 million, $7 million and $6 million, respectively, in income tax expense. Our net accrued interest liability decreased to $5 million at December 31, 2016, from $139 million at January 2, 2016, primarily due to the federal tax settlement as discussed above.
The tax effects of temporary differences that give rise to significant portions of our net deferred tax assets and liabilities are as follows:
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Deferred tax assets |
|
|
|
|
|
|
|
|
Obligation for pension and postretirement benefits |
|
|
|
|
$ |
529 |
$ |
436 |
Accrued expenses* |
|
|
|
|
|
282 |
|
288 |
Deferred compensation |
|
|
|
|
|
175 |
|
184 |
Loss carryforwards |
|
|
|
|
|
158 |
|
142 |
Inventory |
|
|
|
|
|
49 |
|
71 |
Allowance for credit losses |
|
|
|
|
|
23 |
|
29 |
Deferred income |
|
|
|
|
|
11 |
|
9 |
Other, net |
|
|
|
|
|
56 |
|
97 |
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
|
|
|
1,283 |
|
1,256 |
Valuation allowance for deferred tax assets |
|
|
|
|
|
(116) |
|
(115) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,167 |
$ |
1,141 |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Property, plant and equipment, principally depreciation |
|
|
|
|
$ |
(168) |
$ |
(171) |
Amortization of goodwill and other intangibles |
|
|
|
|
|
(164) |
|
(156) |
Leasing transactions |
|
|
|
|
|
(147) |
|
(146) |
Prepaid pension and postretirement benefits |
|
|
|
|
|
(19) |
|
(21) |
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
|
|
|
(498) |
|
(494) |
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
|
|
|
$ |
669 |
$ |
647 |
|
|
|
|
|
|
|
|
|
*Accrued expenses includes warranty reserves, self-insured liabilities and interest.
We believe earnings during the period when the temporary differences become deductible will be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not more than likely, a valuation allowance is provided.
The following table presents the breakdown of net deferred tax assets:
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Manufacturing group: |
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
$ |
793 |
$ |
778 |
Other liabilities |
|
|
|
|
|
(4) |
|
(24) |
Finance group - Other liabilities |
|
|
|
|
|
(120) |
|
(107) |
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
|
|
|
$ |
669 |
$ |
647 |
|
|
|
|
|
|
|
|
|
Our net operating loss and credit carryforwards at December 31, 2016 are as follows:
(In millions) |
|
|
|
|
Non-U.S. net operating loss with no expiration |
|
|
$ |
182 |
Non-U.S. net operating loss expiring through 2036 |
|
|
|
65 |
U.S. federal net operating losses expiring through 2034, related to 2014 acquisitions |
|
|
|
193 |
State net operating loss and tax credits, net of tax benefits, expiring through 2036 |
|
|
|
127 |
|
|
|
|
|
|
Note 14. Commitments and Contingencies
We are subject to legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims relating to commercial and financial transactions; government contracts; alleged lack of compliance with applicable laws and regulations; production partners; product liability; patent and trademark infringement; employment disputes; and environmental, safety and health matters. Some of these legal proceedings and claims seek damages, fines or penalties in substantial amounts or remediation of environmental contamination. As a government contractor, we are subject to audits, reviews and investigations to determine whether our operations are being conducted in accordance with applicable regulatory requirements. Under federal government procurement regulations, certain claims brought by the U.S. Government could result in our suspension or debarment from U.S. Government contracting for a period of time. On the basis of information presently available, we do not believe that existing proceedings and claims will have a material effect on our financial position or results of operations.
In the ordinary course of business, we enter into standby letter of credit agreements and surety bonds with financial institutions to meet various performance and other obligations. These outstanding letter of credit arrangements and surety bonds aggregated to approximately $525 million and $612 million at December 31, 2016 and January 2, 2016, respectively.
Environmental Remediation
As with other industrial enterprises engaged in similar businesses, we are involved in a number of remedial actions under various federal and state laws and regulations relating to the environment that impose liability on companies to clean up, or contribute to the cost of cleaning up, sites on which hazardous wastes or materials were disposed or released. Our accrued environmental liabilities relate to installation of remediation systems, disposal costs, U.S. Environmental Protection Agency oversight costs, legal fees, and operating and maintenance costs for both currently and formerly owned or operated facilities. Circumstances that can affect the reliability and precision of the accruals include the identification of additional sites, environmental regulations, level of cleanup required, technologies available, number and financial condition of other contributors to remediation and the time period over which remediation may occur. We believe that any changes to the accruals that may result from these factors and uncertainties will not have a material effect on our financial position or results of operations.
Based upon information currently available, we estimate that our potential environmental liabilities are within the range of $40 million to $150 million. At December 31, 2016, environmental reserves of approximately $70 million have been established to address these specific estimated liabilities. We estimate that we will likely pay our accrued environmental remediation liabilities over the next ten years and have classified $15 million as current liabilities. Expenditures to evaluate and remediate contaminated sites were $15 million, $15 million and $13 million in 2016, 2015 and 2014, respectively.
Leases
Rental expense was $126 million, $113 million and $121 million in 2016, 2015 and 2014, respectively. Future minimum rental commitments for noncancelable operating leases in effect at December 31, 2016 totaled $79 million for 2017, $65 million for 2018, $57 million for 2019, $54 million for 2020, $29 million for 2021 and $155 million thereafter. The total future minimum rental receipts under noncancelable subleases at December 31, 2016 totaled $19 million.
|
Note 15. Supplemental Cash Flow Information
We have made the following cash payments:
(In millions) |
|
|
|
2016 |
|
2015 |
|
2014 |
Interest paid: |
|
|
|
|
|
|
|
|
Manufacturing group |
|
|
$ |
132 |
$ |
123 |
$ |
134 |
Finance group |
|
|
|
32 |
|
34 |
|
41 |
Net taxes paid: |
|
|
|
|
|
|
|
|
Manufacturing group |
|
|
|
163 |
|
187 |
|
266 |
Finance group |
|
|
|
11 |
|
11 |
|
23 |
|
|
|
|
|
|
|
|
|
|
Note 16. Segment and Geographic Data
We operate in, and report financial information for, the following five business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. The accounting policies of the segments are the same as those described in Note 1.
Textron Aviation products include Citation jets, King Air turboprops, Caravan utility turboprops, piston engine aircraft, T-6 and AT-6 military turboprop aircraft, and aftermarket sales and services sold to a diverse base of corporate and individual buyers.
Bell products include military and commercial helicopters, tiltrotor aircraft and related spare parts and services. Bell supplies military helicopters and, in association with The Boeing Company, military tiltrotor aircraft, and aftermarket services to the U.S. and non-U.S. governments. Bell also supplies commercial helicopters and aftermarket services to corporate, offshore petroleum exploration and development, utility, charter, police, fire, rescue and emergency medical helicopter operators, and foreign governments.
Textron Systems products include unmanned aircraft systems, marine and land systems, weapons and sensors, simulation, training and other defense and aviation mission support products and services primarily for U.S. and non-U.S. governments. As discussed in Note 12, in 2016, we announced a plan to discontinue production of our sensor-fuzed weapon product by the end of the first quarter of 2017.
Industrial products and markets include the following:
· |
Kautex products include blow-molded plastic fuel systems, windshield and headlamp washer systems, selective catalytic reduction systems and engine camshafts that are marketed primarily to automobile OEMs, as well as plastic bottles and containers for various uses; |
· |
Specialized Vehicles and Equipment products include golf cars, off-road utility and light transportation vehicles, aviation ground support equipment, professional turf-maintenance equipment and turf-care vehicles that are marketed primarily to golf courses, resort communities, municipalities, sporting venues, consumers, and commercial and industrial users; and |
· |
Tools and Test Equipment products include 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, principally used in the construction, maintenance, telecommunications, data communications, electrical, utility and plumbing industries. |
The Finance segment provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters.
Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses and special charges. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.
Our revenues by segment, along with a reconciliation of segment profit to income from continuing operations before income taxes, are as follows:
|
Revenues |
Segment Profit |
||||||||||
(In millions) |
|
2016 |
|
2015 |
|
2014 |
|
2016 |
|
2015 |
|
2014 |
Textron Aviation |
$ |
4,921 |
$ |
4,822 |
$ |
4,568 |
$ |
389 |
$ |
400 |
$ |
234 |
Bell |
|
3,239 |
|
3,454 |
|
4,245 |
|
386 |
|
400 |
|
529 |
Textron Systems |
|
1,756 |
|
1,520 |
|
1,624 |
|
186 |
|
129 |
|
150 |
Industrial |
|
3,794 |
|
3,544 |
|
3,338 |
|
329 |
|
302 |
|
280 |
Finance |
|
78 |
|
83 |
|
103 |
|
19 |
|
24 |
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
13,788 |
$ |
13,423 |
$ |
13,878 |
$ |
1,309 |
$ |
1,255 |
$ |
1,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses and other, net |
|
|
|
|
|
|
|
(172) |
|
(154) |
|
(161) |
Interest expense, net for Manufacturing group |
|
|
|
|
|
|
|
(138) |
|
(130) |
|
(148) |
Special charges |
|
|
|
|
|
|
|
(123) |
|
— |
|
(52) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
|
|
|
|
$ |
876 |
$ |
971 |
$ |
853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by major product type are summarized below:
(In millions) |
|
|
|
2016 |
|
2015 |
|
2014 |
Fixed-wing aircraft |
|
|
$ |
4,921 |
$ |
4,822 |
$ |
4,568 |
Rotor aircraft |
|
|
|
3,239 |
|
3,454 |
|
4,245 |
Unmanned aircraft systems, armored vehicles, precision weapons and other |
|
|
|
1,756 |
|
1,520 |
|
1,624 |
Fuel systems and functional components |
|
|
|
2,273 |
|
2,078 |
|
1,975 |
Specialized vehicles and equipment |
|
|
|
1,080 |
|
1,021 |
|
868 |
Tools and test equipment |
|
|
|
441 |
|
445 |
|
495 |
Finance |
|
|
|
78 |
|
83 |
|
103 |
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
$ |
13,788 |
$ |
13,423 |
$ |
13,878 |
|
|
|
|
|
|
|
|
|
Our revenues included sales to the U.S. Government of approximately $3.4 billion, $3.2 billion and $3.8 billion in 2016, 2015 and 2014, respectively, primarily in the Bell and Textron Systems segments.
Other information by segment is provided below:
|
Assets |
Capital Expenditures |
Depreciation and Amortization |
|||||||||||||
(In millions) |
December 31, |
|
January 2, |
|
2016 |
|
2015 |
|
2014 |
|
2016 |
|
2015 |
|
2014 | |
Textron Aviation |
$ |
4,460 |
$ |
4,039 |
$ |
157 |
$ |
124 |
$ |
96 |
$ |
140 |
$ |
134 |
$ |
137 |
Bell |
|
2,655 |
|
2,829 |
|
86 |
|
97 |
|
152 |
|
132 |
|
143 |
|
132 |
Textron Systems |
|
2,508 |
|
2,398 |
|
71 |
|
86 |
|
65 |
|
75 |
|
80 |
|
84 |
Industrial |
|
2,409 |
|
2,236 |
|
121 |
|
105 |
|
97 |
|
81 |
|
76 |
|
76 |
Finance |
|
1,280 |
|
1,316 |
|
— |
|
— |
|
— |
|
12 |
|
12 |
|
13 |
Corporate |
|
2,046 |
|
1,890 |
|
11 |
|
8 |
|
19 |
|
9 |
|
16 |
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
15,358 |
$ |
14,708 |
$ |
446 |
$ |
420 |
$ |
429 |
$ |
449 |
$ |
461 |
$ |
459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Data
Presented below is selected financial information of our continuing operations by geographic area:
|
|
|
|
Revenues* |
Property, Plant |
|||||||
(In millions) |
|
|
|
2016 |
|
2015 |
|
2014 |
|
December 31, |
|
January 2, |
United States |
|
|
$ |
8,574 |
$ |
8,299 |
$ |
8,677 |
$ |
2,116 |
$ |
2,039 |
Europe |
|
|
|
1,954 |
|
1,730 |
|
1,761 |
|
247 |
|
251 |
Asia and Australia |
|
|
|
998 |
|
1,324 |
|
1,155 |
|
78 |
|
72 |
Latin and South America |
|
|
|
977 |
|
1,101 |
|
1,261 |
|
68 |
|
51 |
Canada |
|
|
|
652 |
|
531 |
|
383 |
|
72 |
|
79 |
Middle East and Africa |
|
|
|
633 |
|
438 |
|
641 |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
13,788 |
$ |
13,423 |
$ |
13,878 |
$ |
2,581 |
$ |
2,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* Revenues are attributed to countries based on the location of the customer.
** Property, plant and equipment, net are based on the location of the asset.
|
Note 17. Subsequent Event
On January 24, 2017, we reached a definitive agreement to acquire Arctic Cat Inc. in a cash transaction valued at approximately $247 million, plus the assumption of existing debt. Arctic Cat manufactures and markets all-terrain vehicles, side-by-sides and snowmobiles, in addition to related parts, garments and accessories under the Arctic Cat® and Motorfist® brand names. Subject to customary closing conditions, we expect the transaction to close in March 2017.
|
Quarterly Data
(Unaudited) |
2016 |
2015 |
|||||||||||||||
(Dollars in millions, except per share amounts) |
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Textron Aviation |
$ |
1,091 |
$ |
1,196 |
$ |
1,198 |
$ |
1,436 |
$ |
1,051 |
$ |
1,124 |
$ |
1,159 |
$ |
1,488 | |
Bell |
|
814 |
|
804 |
|
734 |
|
887 |
|
813 |
|
850 |
|
756 |
|
1,035 | |
Textron Systems |
|
324 |
|
487 |
|
413 |
|
532 |
|
315 |
|
322 |
|
420 |
|
463 | |
Industrial |
|
952 |
|
1,004 |
|
886 |
|
952 |
|
872 |
|
927 |
|
828 |
|
917 | |
Finance |
|
20 |
|
20 |
|
20 |
|
18 |
|
22 |
|
24 |
|
17 |
|
20 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
$ |
3,201 |
$ |
3,511 |
$ |
3,251 |
$ |
3,825 |
$ |
3,073 |
$ |
3,247 |
$ |
3,180 |
$ |
3,923 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Textron Aviation |
$ |
73 |
$ |
81 |
$ |
100 |
$ |
135 |
$ |
67 |
$ |
88 |
$ |
107 |
$ |
138 | |
Bell |
|
82 |
|
81 |
|
97 |
|
126 |
|
76 |
|
101 |
|
99 |
|
124 | |
Textron Systems |
|
29 |
|
60 |
|
44 |
|
53 |
|
28 |
|
21 |
|
39 |
|
41 | |
Industrial |
|
91 |
|
99 |
|
66 |
|
73 |
|
82 |
|
86 |
|
61 |
|
73 | |
Finance |
|
5 |
|
7 |
|
3 |
|
4 |
|
6 |
|
10 |
|
6 |
|
2 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment profit |
|
280 |
|
328 |
|
310 |
|
391 |
|
259 |
|
306 |
|
312 |
|
378 | |
Corporate expenses and other, net |
|
(32) |
|
(31) |
|
(53) |
|
(56) |
|
(42) |
|
(33) |
|
(27) |
|
(52) | |
Interest expense, net for Manufacturing group |
|
(33) |
|
(37) |
|
(35) |
|
(33) |
|
(33) |
|
(32) |
|
(33) |
|
(32) | |
Special charges (a) |
|
— |
|
— |
|
(115) |
|
(8) |
|
— |
|
— |
|
— |
|
— |
|
Income tax benefit (expense) (b) |
|
(64) |
|
(82) |
|
192 |
|
(79) |
|
(56) |
|
(72) |
|
(76) |
|
(69) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
151 |
|
178 |
|
299 |
|
215 |
|
128 |
|
169 |
|
176 |
|
225 | |
Income (loss) from discontinued operations, net of income taxes (b) |
|
(1) |
|
(1) |
|
122 |
|
(1) |
|
— |
|
(2) |
|
— |
|
1 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
150 |
$ |
177 |
$ |
421 |
$ |
214 |
$ |
128 |
$ |
167 |
$ |
176 |
$ |
226 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
$ |
0.55 |
$ |
0.66 |
$ |
1.11 |
$ |
0.79 |
$ |
0.46 |
$ |
0.61 |
$ |
0.64 |
$ |
0.81 | |
Discontinued operations |
|
— |
|
— |
|
0.45 |
|
— |
|
— |
|
(0.01) |
|
— |
|
0.01 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
0.55 |
$ |
0.66 |
$ |
1.56 |
$ |
0.79 |
$ |
0.46 |
$ |
0.60 |
$ |
0.64 |
$ |
0.82 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic average shares outstanding (in thousands) |
|
271,660 |
|
269,888 |
|
270,560 |
|
270,986 |
|
277,902 |
|
277,715 |
|
276,334 |
|
274,776 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
$ |
0.55 |
$ |
0.66 |
$ |
1.10 |
$ |
0.78 |
$ |
0.46 |
$ |
0.60 |
$ |
0.63 |
$ |
0.81 | |
Discontinued operations |
|
— |
|
(0.01) |
|
0.45 |
|
— |
|
— |
|
— |
|
— |
|
0.01 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
$ |
0.55 |
$ |
0.65 |
$ |
1.55 |
$ |
0.78 |
$ |
0.46 |
$ |
0.60 |
$ |
0.63 |
$ |
0.82 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding (in thousands) |
|
273,022 |
|
271,316 |
|
272,099 |
|
273,114 |
|
280,077 |
|
279,935 |
|
278,039 |
|
276,653 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit margins |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Textron Aviation |
|
6.7% |
|
6.8% |
|
8.3% |
|
9.4% |
|
6.4% |
|
7.8% |
|
9.2% |
|
9.3% | |
Bell |
|
10.1 |
|
10.1 |
|
13.2 |
|
14.2 |
|
9.3 |
|
11.9 |
|
13.1 |
|
12.0 | |
Textron Systems |
|
9.0 |
|
12.3 |
|
10.7 |
|
10.0 |
|
8.9 |
|
6.5 |
|
9.3 |
|
8.9 | |
Industrial |
|
9.6 |
|
9.9 |
|
7.4 |
|
7.7 |
|
9.4 |
|
9.3 |
|
7.4 |
|
8.0 | |
Finance |
|
25.0 |
|
35.0 |
|
15.0 |
|
22.2 |
|
27.3 |
|
41.7 |
|
35.3 |
|
10.0 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit margin |
|
8.7% |
|
9.3% |
|
9.5% |
|
10.2% |
|
8.4% |
|
9.4% |
|
9.8% |
|
9.6% | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price range: |
High |
$ |
41.74 |
$ |
40.61 |
$ |
41.33 |
$ |
49.82 |
$ |
45.61 |
$ |
46.93 |
$ |
44.98 |
$ |
43.93 |
|
Low |
$ |
30.69 |
$ |
34.00 |
$ |
35.06 |
$ |
37.19 |
$ |
40.95 |
$ |
42.97 |
$ |
32.20 |
$ |
38.18 |
Dividends declared per share |
$ |
0.02 |
$ |
0.02 |
$ |
0.02 |
$ |
0.02 |
$ |
0.02 |
$ |
0.02 |
$ |
0.02 |
$ |
0.02 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
In 2016, we initiated a plan to restructure and realign our businesses by implementing headcount reductions, facility consolidations and other actions in order to improve overall operating efficiency across Textron. Special charges include restructuring charges for this plan, which primarily consist of severance costs of $66 million and asset impairments of $36 million in the third quarter of 2016. |
(b) |
The third quarter of 2016 includes 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. |
|
Schedule II — Valuation and Qualifying Accounts
(In millions) |
|
|
|
2016 |
|
2015 |
|
2014 |
Allowance for doubtful accounts |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
$ |
33 |
$ |
30 |
$ |
22 |
Charged to costs and expenses |
|
|
|
3 |
|
5 |
|
11 |
Deductions from reserves* |
|
|
|
(9) |
|
(2) |
|
(3) |
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
$ |
27 |
$ |
33 |
$ |
30 |
|
|
|
|
|
|
|
|
|
Inventory FIFO reserves |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
$ |
206 |
$ |
169 |
$ |
150 |
Charged to costs and expenses |
|
|
|
59 |
|
56 |
|
51 |
Deductions from reserves* |
|
|
|
(34) |
|
(19) |
|
(32) |
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
$ |
231 |
$ |
206 |
$ |
169 |
|
|
|
|
|
|
|
|
|
*Deductions primarily include amounts written off on uncollectable accounts (less recoveries), inventory disposals, changes to prior year estimates, and currency translation adjustments.
|
Principles of Consolidation and Financial Statement Presentation
Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems and Industrial segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation (TFC) and its consolidated subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements.
Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of Cash Flows, cash received from customers is reflected as operating activities when received from third parties. However, in the cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or eliminated in consolidation.
Collaborative Arrangements
Our Bell segment has a strategic alliance agreement with The Boeing Company (Boeing) to provide engineering, development and test services related to the V-22 aircraft, as well as to produce the V-22 aircraft, under a number of separate contracts with the U.S. Government (V-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity interest. We account for this alliance as a collaborative arrangement with Bell and Boeing reporting costs incurred and revenues generated from transactions with the U.S. Government in each company’s respective income statement. Neither Bell nor Boeing is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are allocated between Bell and Boeing on a 50%-50% basis. Negotiated profits on fixed-price contracts are also allocated 50%-50%; however, Bell and Boeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. Based on the contractual arrangement established under the alliance, Bell accounts for its rights and obligations under the specific requirements of the V-22 Contracts allocated to Bell under the work breakdown structure. We account for all of our rights and obligations, including warranty, product and any contingent liabilities, under the specific requirements of the V-22 Contracts allocated to us under the agreement. Revenues and cost of sales reflect our performance under the V-22 Contracts with revenues recognized using the units-of-delivery method. We include all assets used in performance of the V-22 Contracts that we own, including inventory and unpaid receivables and all liabilities arising from our obligations under the V-22 Contracts in our Consolidated Balance Sheets.
Use of Estimates
We prepare our financial statements in conformity with generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated Statements of Operations in the period that they are determined.
We periodically change our estimates of revenues and costs on certain long-term contracts that are accounted for under the percentage-of-completion method of accounting. These changes in estimates increased income from continuing operations before income taxes by $83 million, $78 million and $95 million in 2016, 2015 and 2014, respectively, ($52 million, $49 million and $60 million after tax, respectively, or $0.19, $0.18 and $0.21 per diluted share, respectively). For 2016, 2015 and 2014, the gross favorable program profit adjustments totaled $106 million, $111 million and $132 million, respectively, and the gross unfavorable program profit adjustments totaled $23 million, $33 million and $37 million, respectively.
Revenue Recognition
We generally recognize 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 risk and rewards of ownership. Taxes collected from customers and remitted to government authorities are recorded on a net basis.
When a sale arrangement involves multiple deliverables, such as sales of products that include customization and other services, we evaluate the arrangement to determine whether there are separate items that are required to be delivered under the arrangement that qualify as separate units of accounting. These arrangements typically involve the customization services we offer to customers who purchase Bell helicopters, and the services generally are provided within the first six months after the customer accepts the aircraft and assumes risk of loss. We consider the aircraft and the customization 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. We also consider any performance, cancellation, termination or refund-type provisions. Revenue is recognized when the recognition criteria for each unit of accounting are met.
Long-Term Contracts — Revenues 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. We then recognize that estimated profit over the contract term based on either the units-of-delivery method or the cost-to-cost method (which typically is used for development effort as costs are incurred), as appropriate under the circumstances. Revenues under fixed-price contracts generally are recorded using the units-of-delivery method. Revenues under cost-reimbursement contracts are recorded using the cost-to-cost method.
Long-term contract profits are based on estimates of total contract cost and revenues utilizing current contract specifications, expected engineering requirements, the achievement of contract milestones and product deliveries. Certain contracts are awarded with fixed-price incentive fees that also are considered when estimating revenues and profit rates. Contract costs typically are incurred over a period of several years, and the estimation of these costs requires substantial judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We update our projections of costs at least semiannually or when circumstances significantly change. When adjustments are required, any changes from prior estimates are recognized using the cumulative catch-up method with the impact of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized 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. Portfolio gains/losses include impairment charges related to repossessed assets and properties and gains/losses on the sale or early termination of finance assets. We recognize interest using the interest method, which provides a constant rate of return over the terms of the receivables. Accrual of interest income is suspended if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically suspend the accrual of interest income for accounts that are contractually delinquent by more than three months unless collection is not doubtful. Cash payments on nonaccrual accounts, including finance charges, generally are applied to reduce the net investment balance. Once we conclude that the collection of all principal and interest is no longer doubtful, we resume the accrual of interest and recognize previously suspended interest income at the time either a) the loan becomes contractually current through payment according to the original terms of the loan, or b) if the loan has been modified, following a period of performance under the terms of the modification.
Cash and Equivalents
Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or estimated net realizable value. We value our inventories generally using the first-in, first-out (FIFO) method or the last-in, first-out (LIFO) method for certain qualifying inventories where LIFO provides a better matching of costs and revenues. We determine costs for our commercial helicopters on an average cost basis by model considering the expended and estimated costs for the current production release. Inventories 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 expenses. Since our inventoried costs include amounts related to contracts with long production cycles, a portion of these costs is not expected to be realized within one year. Pursuant 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. Accordingly, these advances and payments are reflected as an offset against the related inventory balances with any remaining amounts recorded as a liability in customer deposits. Customer deposits are recorded against inventory only when the right of offset exists, while all other customer deposits are recorded in Accrued liabilities.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. We capitalize expenditures for improvements that increase asset values and extend useful lives. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying value of the asset exceeds the sum of the undiscounted expected future cash flows, the asset is written down to fair value.
Goodwill and Intangible Assets
Goodwill represents the excess of the consideration paid for the acquisition of a business over the fair values assigned to intangible and other net assets of the acquired business. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to an annual impairment test. We evaluate the recoverability of these assets in the fourth quarter of each year or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate a potential impairment.
For our impairment test, we calculate the fair value of each reporting unit and indefinite-lived intangible asset primarily using discounted cash flows. A reporting unit represents the operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment, in which case such component is the reporting unit. In certain instances, we have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics. For the goodwill impairment test, the discounted cash flows incorporate assumptions for revenue growth, operating margins and discount rates that represent our best estimates of current and forecasted market conditions, cost structure, anticipated net cost reductions, and the implied rate of return that we believe a market participant would require for an investment in a business having similar risks and characteristics to the reporting unit being assessed. If the reporting unit’s estimated fair value exceeds its carrying value, there is no impairment. Otherwise, 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 acquired in a business combination. If the carrying amount of the goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. For indefinite-lived intangible assets, if the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
Acquired intangible assets with finite lives are subject to amortization. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Amortization of these intangible assets is recognized over their estimated useful lives using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. Approximately 79% of our gross intangible assets are amortized based on the cash flow streams used to value the assets, with the remaining assets amortized using the straight-line method.
Finance Receivables
Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for losses.
We maintain an allowance for losses on finance receivables at a level considered adequate to cover inherent losses in the portfolio based on management’s evaluation. For larger balance accounts specifically identified as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable’s effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying amount. The expected future cash flows consider collateral value; financial performance and liquidity of our borrower; existence and financial strength of guarantors; estimated recovery costs, including legal expenses; and costs associated with the repossession and eventual disposal of collateral. When there is a range of potential outcomes, we perform multiple discounted cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results. While our analysis is specific to each individual account, critical factors included in this analysis include industry valuation guides, age and physical condition of the collateral, payment history and existence and financial strength of guarantors.
We also establish an allowance for losses to cover probable but specifically unknown losses existing in the portfolio. This allowance is established as a percentage of non-recourse finance receivables, which have not been identified as requiring specific reserves. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values and both general economic and specific industry trends.
Finance receivables are charged off at the earlier of the date the collateral is repossessed or when no payment has been received for six months, unless management deems the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell.
Pension and Postretirement Benefit Obligations
We maintain various pension and postretirement plans for our employees globally. These plans include significant pension and postretirement benefit obligations, which are calculated based on actuarial valuations. Key assumptions used in determining these obligations and related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. We evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases.
For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to our fiscal year-end. We recognize the overfunded or underfunded status of our pension and postretirement plans in the Consolidated Balance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income in the year in which they occur. Actuarial gains and losses that are not immediately recognized as net periodic pension cost are recognized as a component of other comprehensive income (loss) (OCI) and are amortized into net periodic pension cost in future periods.
Derivatives and Hedging Activities
We are exposed to market risk primarily from changes in currency exchange rates and interest rates. We do not hold or issue derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. Credit risk related to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through periodic settlements of positions.
All derivative instruments are reported at fair value in the Consolidated Balance Sheets. Designation to support hedge accounting is performed on a specific exposure basis. For financial instruments qualifying as cash flow hedges, we record changes in the fair value of derivatives (to the extent they are effective as hedges) in OCI, net of deferred taxes. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings.
Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or substantially liquidated. We use foreign currency financing transactions to effectively hedge long-term investments in foreign operations with the same corresponding currency. Foreign currency gains and losses on the hedge of the long-term investments are recorded in the cumulative translation adjustment account.
Product Liabilities
We accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. Our estimates are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience.
Environmental Liabilities and Asset Retirement Obligations
Liabilities for environmental matters are recorded on a site-by-site basis when it is probable that an obligation has been incurred and the cost can be reasonably estimated. We estimate our accrued environmental liabilities using currently available facts, existing technology, and presently enacted laws and regulations, all of which are subject to a number of factors and uncertainties. Our environmental liabilities are not discounted and do not take into consideration possible future insurance proceeds or significant amounts from claims against other third parties.
We have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and asbestos materials used in insulation, adhesive fillers and floor tiles. There is no legal requirement to remove these items, and there currently is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset retirement obligations are not estimable, there is no related liability recorded in the Consolidated Balance Sheets.
Warranty and Product Maintenance Liabilities
We provide limited warranty and product maintenance programs for certain products for periods ranging from one to five years. A significant portion of these liabilities arises from our commercial aircraft businesses. For our product maintenance contracts, revenue is recognized 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 recognized over the contract period in proportion to the costs expected to be incurred in performing the service.
For our warranty programs, we estimate the costs that may be incurred and record a liability in the amount of such costs at the time product revenues are recognized. Factors that affect this liability include the number of products sold, historical costs per claim, contractual recoveries from vendors and historical and anticipated rates of warranty claims, including production and warranty patterns for new models. We assess the adequacy of our recorded warranty liability periodically and adjust the amounts as necessary. Additionally, we may establish a warranty liability related to the issuance of aircraft service bulletins for aircraft no longer covered under the limited warranty programs.
Research and Development Costs
Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. Government contracts. In accordance with government regulations, we recover a portion of company-funded research and development costs through overhead rate charges on our U.S. Government contracts. Research and development costs that are not reimbursable under a contract with the U.S. Government or another customer are charged to expense as incurred. Company-funded research and development costs were $677 million, $778 million and $694 million in 2016, 2015 and 2014, respectively, and are included in cost of sales.
Income Taxes
The provision for income tax expense is calculated on reported Income from continuing operations before income taxes based on current tax law and includes, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Tax laws may require items to be included in the determination of taxable income at different times from when the items are reflected in the financial statements. Deferred tax balances reflect the effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and their tax bases, as well as from net operating losses and tax credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered. Deferred tax assets represent tax benefits for tax deductions or credits available in future years and require certain estimates and assumptions to determine whether it is more likely than not that all or a portion of the benefit will not be realized. The recoverability of these future tax deductions and credits is determined by assessing the adequacy of future expected taxable income from all sources, including the future reversal of existing taxable temporary differences, taxable income in carryback years, estimated future taxable income and available tax planning strategies. Should a change in facts or circumstances lead to a change in judgment about the ultimate recoverability of a deferred tax asset, we record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in income tax expense.
We record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the reporting date. To be recognized in the financial statements, the tax position must meet the more-likely-than-not threshold that the position will be sustained upon examination by the tax authority based on technical merits assuming the tax authority has full knowledge of all relevant information. For positions meeting this recognition threshold, the benefit is measured as the largest amount of benefit that meets the more-likely-than-not threshold to be sustained. We periodically evaluate these tax positions based on the latest available information. For tax positions that do not meet the threshold requirement, we recognize net tax-related interest and penalties for continuing operations in income tax expense.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, that outlines a five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In July 2015, the FASB approved a one-year deferral of the effective date of the standard to the beginning of 2018 for public companies, with an option to adopt the standard as early as the original effective date of 2017. The standard may be adopted either retrospectively or on a modified retrospective basis. We will adopt the standard in 2018 and expect to apply it on a modified retrospective basis, with a cumulative catch-up adjustment recognized at the beginning of 2018. The standard will primarily impact our businesses under long-term production contracts with the U.S. Government as these contracts currently use the units-of-delivery accounting method; under the new standard, these contracts will transition to a model that recognizes revenue over time, principally as costs are incurred, resulting in earlier revenue recognition. In 2016, approximately 25% of our revenues were from contracts with the U.S. Government. Given the complexity of our contracts, we are continuing to assess the potential effect that the standard is expected to have on our consolidated financial statements.
In February 2016, the 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, while lease expenses would continue to be recognized in the statement of operations in a manner similar to current accounting guidance. Under the 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 and early adoption is permitted. Entities must adopt the standard on a modified retrospective basis whereby it would be applied at the beginning of the earliest comparative year. While we continue to evaluate the impact of the standard on our consolidated financial statements, we expect that it will materially increase our assets and liabilities on our consolidated balance sheet as we recognize the rights and corresponding obligations related to our operating leases.
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.
|
(In millions) |
|
Textron |
|
Bell |
|
Textron |
|
Industrial |
|
Total |
Balance at January 3, 2015 |
$ |
554 |
$ |
31 |
$ |
1,057 |
$ |
385 |
$ |
2,027 |
Acquisitions |
|
6 |
|
— |
|
— |
|
10 |
|
16 |
Foreign currency translation |
|
— |
|
— |
|
(6) |
|
(14) |
|
(20) |
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2016 |
|
560 |
|
31 |
|
1,051 |
|
381 |
|
2,023 |
|
|
|
|
|
|
|
|
|
|
|
Acquisitions |
|
54 |
|
— |
|
36 |
|
7 |
|
97 |
Foreign currency translation |
|
(1) |
|
— |
|
— |
|
(6) |
|
(7) |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
$ |
613 |
$ |
31 |
$ |
1,087 |
$ |
382 |
$ |
2,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
January 2, 2016 |
||||||||
(Dollars in millions) |
|
Weighted-Average |
|
Gross |
|
Accumulated |
|
Net |
|
Gross |
|
Accumulated |
|
Net |
Patents and technology |
|
15 |
$ |
537 |
$ |
(158) |
$ |
379 |
$ |
513 |
$ |
(120) |
$ |
393 |
Customer relationships and contractual agreements |
|
15 |
|
384 |
|
(226) |
|
158 |
|
375 |
|
(220) |
|
155 |
Trade names and trademarks |
|
16 |
|
264 |
|
(36) |
|
228 |
|
263 |
|
(32) |
|
231 |
Other |
|
9 |
|
18 |
|
(16) |
|
2 |
|
23 |
|
(19) |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
1,203 |
$ |
(436) |
$ |
767 |
$ |
1,174 |
$ |
(391) |
$ |
783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Commercial |
|
|
|
|
$ |
797 |
$ |
841 |
U.S. Government contracts |
|
|
|
|
|
294 |
|
239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,091 |
|
1,080 |
Allowance for doubtful accounts |
|
|
|
|
|
(27) |
|
(33) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
1,064 |
$ |
1,047 |
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Finance receivables* |
|
|
|
|
$ |
976 |
$ |
1,135 |
Allowance for losses |
|
|
|
|
|
(41) |
|
(48) |
|
|
|
|
|
|
|
|
|
Total finance receivables, net |
|
|
|
|
$ |
935 |
$ |
1,087 |
|
|
|
|
|
|
|
|
|
* Includes finance receivables held for sale of $30 million at both December 31, 2016 and January 2, 2016.
(Dollars in millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Performing |
|
|
|
|
$ |
758 |
$ |
891 |
Watchlist |
|
|
|
|
|
101 |
|
130 |
Nonaccrual |
|
|
|
|
|
87 |
|
84 |
|
|
|
|
|
|
|
|
|
Nonaccrual as a percentage of finance receivables |
|
|
|
|
|
9.20% |
|
7.60% |
|
|
|
|
|
|
|
|
|
Less than 31 days past due |
|
|
|
|
$ |
857 |
$ |
950 |
31-60 days past due |
|
|
|
|
|
49 |
|
86 |
61-90 days past due |
|
|
|
|
|
18 |
|
42 |
Over 90 days past due |
|
|
|
|
|
22 |
|
27 |
|
|
|
|
|
|
|
|
|
60+ days contractual delinquency as a percentage of finance receivables |
|
|
|
|
|
4.23% |
|
6.24% |
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Recorded investment: |
|
|
|
|
|
|
|
|
Impaired loans with related allowance for losses |
|
|
|
|
$ |
55 |
$ |
62 |
Impaired loans with no related allowance for losses |
|
|
|
|
|
65 |
|
42 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
120 |
$ |
104 |
|
|
|
|
|
|
|
|
|
Unpaid principal balance |
|
|
|
|
$ |
125 |
$ |
113 |
Allowance for losses on impaired loans |
|
|
|
|
|
11 |
|
17 |
Average recorded investment |
|
|
|
|
|
101 |
|
102 |
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Balance at beginning of year |
|
|
|
|
$ |
48 |
$ |
51 |
Provision for losses |
|
|
|
|
|
(1) |
|
(2) |
Charge-offs |
|
|
|
|
|
(16) |
|
(14) |
Recoveries |
|
|
|
|
|
10 |
|
13 |
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
|
|
$ |
41 |
$ |
48 |
|
|
|
|
|
|
|
|
|
Allowance based on collective evaluation |
|
|
|
|
$ |
30 |
$ |
31 |
Allowance based on individual evaluation |
|
|
|
|
|
11 |
|
17 |
Finance receivables evaluated collectively |
|
|
|
|
|
727 |
|
883 |
Finance receivables evaluated individually |
|
|
|
|
|
120 |
|
104 |
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Finished goods |
|
|
|
|
$ |
1,947 |
$ |
1,735 |
Work in process |
|
|
|
|
|
2,742 |
|
2,921 |
Raw materials and components |
|
|
|
|
|
724 |
|
605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,413 |
|
5,261 |
Progress/milestone payments |
|
|
|
|
|
(949) |
|
(1,117) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
4,464 |
$ |
4,144 |
|
|
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
|
|
Useful Lives |
|
December 31, |
|
January 2, |
Land and buildings |
|
|
|
3 – 40 |
$ |
1,884 |
$ |
1,859 |
Machinery and equipment |
|
|
|
1 – 20 |
|
4,820 |
|
4,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,704 |
|
6,407 |
Accumulated depreciation and amortization |
|
|
|
|
|
(4,123) |
|
(3,915) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
2,581 |
$ |
2,492 |
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Customer deposits |
|
|
|
|
$ |
991 |
$ |
1,323 |
Salaries, wages and employer taxes |
|
|
|
|
|
301 |
|
315 |
Current portion of warranty and product maintenance contracts |
|
|
|
|
|
151 |
|
137 |
Other |
|
|
|
|
|
814 |
|
692 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
2,257 |
$ |
2,467 |
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
2016 |
|
2015 |
|
2014 |
Balance at beginning of year |
|
|
$ |
143 |
$ |
148 |
$ |
121 |
Provision |
|
|
|
79 |
|
78 |
|
75 |
Settlements |
|
|
|
(70) |
|
(72) |
|
(71) |
Acquisitions |
|
|
|
2 |
|
3 |
|
43 |
Adjustments* |
|
|
|
(16) |
|
(14) |
|
(20) |
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
$ |
138 |
$ |
143 |
$ |
148 |
|
|
|
|
|
|
|
|
|
* Adjustments include changes to prior year estimates, new issues on prior year sales and currency translation adjustments.
|
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Manufacturing group |
|
|
|
|
|
|
|
|
4.625% due 2016 |
|
|
|
|
$ |
— |
$ |
250 |
5.60% due 2017 |
|
|
|
|
|
350 |
|
350 |
Variable-rate note due 2018 (2.09% and 1.58%, respectively) |
|
|
|
|
|
150 |
|
150 |
7.25% due 2019 |
|
|
|
|
|
250 |
|
250 |
Variable-rate note due 2019 (1.95% and 1.59%, respectively) |
|
|
|
|
|
200 |
|
200 |
6.625% due 2020 |
|
|
|
|
|
184 |
|
222 |
3.65% due 2021 |
|
|
|
|
|
250 |
|
250 |
5.95% due 2021 |
|
|
|
|
|
250 |
|
250 |
4.30% due 2024 |
|
|
|
|
|
350 |
|
350 |
3.875% due 2025 |
|
|
|
|
|
350 |
|
350 |
4.00% due 2026 |
|
|
|
|
|
350 |
|
— |
Other (weighted-average rate of 2.86% and 1.29%, respectively) |
|
|
|
|
|
93 |
|
75 |
Total Manufacturing group debt |
|
|
|
|
$ |
2,777 |
$ |
2,697 |
Less: Short-term debt and current portion of long-term debt |
|
|
|
|
|
(363) |
|
(262) |
Total Long-term debt |
|
|
|
|
$ |
2,414 |
$ |
2,435 |
Finance group |
|
|
|
|
|
|
|
|
Fixed-rate notes due 2016-2017 (weighted-average rate of 4.59%) (a) |
|
|
|
|
$ |
10 |
$ |
21 |
Variable-rate note due 2018 (weighted-average rate of 1.89% and 1.53%, respectively) |
|
|
|
|
|
200 |
|
200 |
2.26% note due 2019 |
|
|
|
|
|
150 |
|
— |
Fixed-rate notes due 2017-2025 (weighted-average rate of 2.87% and 2.79%, respectively) (a) (b) |
|
|
|
|
|
202 |
|
300 |
Variable-rate notes due 2016-2025 (weighted-average rate of 1.97% and 1.54%, respectively) (a) (b) |
|
|
|
|
|
42 |
|
52 |
Securitized debt (weighted-average rate of 1.71%) |
|
|
|
|
|
— |
|
41 |
6% Fixed-to-Floating Rate Junior Subordinated Notes |
|
|
|
|
|
299 |
|
299 |
Total Finance group debt |
|
|
|
|
$ |
903 |
$ |
913 |
|
|
|
|
|
|
|
|
|
(a) |
Notes amortize on a quarterly or semi-annual basis. |
(b) |
Notes are secured by finance receivables as described in Note 3. |
(In millions) |
|
2017 |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
Manufacturing group |
$ |
363 |
$ |
157 |
$ |
457 |
$ |
195 |
$ |
507 |
Finance group |
|
64 |
|
239 |
|
188 |
|
36 |
|
23 |
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
427 |
$ |
396 |
$ |
645 |
$ |
231 |
$ |
530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
January 2, 2016 |
||||
(In millions) |
|
Carrying |
|
Estimated |
|
Carrying |
|
Estimated |
Manufacturing group |
|
|
|
|
|
|
|
|
Debt, excluding leases |
$ |
(2,690) |
$ |
(2,809) |
$ |
(2,628) |
$ |
(2,744) |
Finance group |
|
|
|
|
|
|
|
|
Finance receivables, excluding leases |
|
729 |
|
758 |
|
863 |
|
820 |
Debt |
|
(903) |
|
(831) |
|
(913) |
|
(840) |
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
Postretirement Benefits |
||||||||||
(In millions) |
|
2016 |
|
2015 |
|
2014 |
|
2016 |
|
2015 |
|
2014 |
Net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
$ |
98 |
$ |
113 |
$ |
109 |
$ |
3 |
$ |
4 |
$ |
4 |
Interest cost |
|
338 |
|
327 |
|
334 |
|
16 |
|
15 |
|
19 |
Expected return on plan assets |
|
(490) |
|
(483) |
|
(462) |
|
— |
|
— |
|
— |
Amortization of prior service cost (credit) |
|
15 |
|
16 |
|
15 |
|
(22) |
|
(25) |
|
(23) |
Amortization of net actuarial loss |
|
104 |
|
148 |
|
112 |
|
— |
|
2 |
|
2 |
Curtailment and other charges |
|
— |
|
6 |
|
— |
|
— |
|
— |
|
— |
Net periodic benefit cost (credit) |
$ |
65 |
$ |
127 |
$ |
108 |
$ |
(3) |
$ |
(4) |
$ |
2 |
Other changes in plan assets and benefit obligations recognized in OCI |
|
|
|
|
|
|
|
|
|
|
|
|
Current year actuarial loss (gain) |
$ |
399 |
$ |
(107) |
$ |
729 |
$ |
(17) |
$ |
(29) |
$ |
5 |
Current year prior service cost (credit) |
|
— |
|
— |
|
12 |
|
(12) |
|
— |
|
(30) |
Amortization of net actuarial loss |
|
(104) |
|
(148) |
|
(112) |
|
— |
|
(2) |
|
(2) |
Amortization of prior service credit (cost) |
|
(15) |
|
(18) |
|
(15) |
|
22 |
|
25 |
|
23 |
Total recognized in OCI, before taxes |
$ |
280 |
$ |
(273) |
$ |
614 |
$ |
(7) |
$ |
(6) |
$ |
(4) |
Total recognized in net periodic benefit cost and OCI |
$ |
345 |
$ |
(146) |
$ |
722 |
$ |
(10) |
$ |
(10) |
$ |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
Pension |
|
Postretirement |
Net actuarial loss (gain) |
|
|
|
|
$ |
137 |
$ |
(1) |
Prior service cost (credit) |
|
|
|
|
|
15 |
|
(8) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
$ |
152 |
$ |
(9) |
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
Postretirement Benefits |
||||||
(In millions) |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Change in benefit obligation |
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
$ |
7,476 |
$ |
8,006 |
$ |
364 |
$ |
413 |
Service cost |
|
98 |
|
113 |
|
3 |
|
4 |
Interest cost |
|
338 |
|
327 |
|
16 |
|
15 |
Plan participants’ contributions |
|
— |
|
— |
|
5 |
|
5 |
Actuarial losses (gains) |
|
571 |
|
(470) |
|
(17) |
|
(29) |
Benefits paid |
|
(410) |
|
(423) |
|
(42) |
|
(44) |
Plan amendment |
|
— |
|
— |
|
(12) |
|
— |
Curtailments and special termination benefits |
|
(7) |
|
(4) |
|
— |
|
— |
Foreign exchange rate changes and other |
|
(75) |
|
(73) |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year |
$ |
7,991 |
$ |
7,476 |
$ |
317 |
$ |
364 |
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets |
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
$ |
6,668 |
$ |
6,979 |
|
|
|
|
Actual return on plan assets |
|
655 |
|
113 |
|
|
|
|
Employer contributions |
|
40 |
|
55 |
|
|
|
|
Benefits paid |
|
(410) |
|
(423) |
|
|
|
|
Foreign exchange rate changes and other |
|
(79) |
|
(56) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
$ |
6,874 |
$ |
6,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year |
$ |
(1,117) |
$ |
(808) |
$ |
(317) |
$ |
(364) |
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
Postretirement Benefits |
||||||
(In millions) |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Non-current assets |
$ |
63 |
$ |
73 |
$ |
— |
$ |
— |
Current liabilities |
|
(26) |
|
(26) |
|
(35) |
|
(40) |
Non-current liabilities |
|
(1,154) |
|
(855) |
|
(282) |
|
(324) |
Recognized in Accumulated other comprehensive loss, pre-tax: |
|
|
|
|
|
|
|
|
Net loss |
|
2,187 |
|
1,915 |
|
(8) |
|
9 |
Prior service cost (credit) |
|
78 |
|
92 |
|
(40) |
|
(50) |
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
2016 |
|
2015 |
Projected benefit obligation |
|
|
|
|
$ |
7,799 |
$ |
2,881 |
Accumulated benefit obligation |
|
|
|
|
|
7,422 |
|
2,708 |
Fair value of plan assets |
|
|
|
|
|
6,627 |
|
2,091 |
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
Postretirement Benefits |
||||||||||
|
|
2016 |
|
2015 |
|
2014 |
|
2016 |
|
2015 |
|
2014 |
Net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
4.66% |
|
4.25% |
|
4.92% |
|
4.50% |
|
4.00% |
|
4.50% |
Expected long-term rate of return on assets |
|
7.58% |
|
7.57% |
|
7.60% |
|
|
|
|
|
|
Rate of compensation increase |
|
3.49% |
|
3.49% |
|
3.50% |
|
|
|
|
|
|
Benefit obligations at year-end |
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
4.13% |
|
4.66% |
|
4.18% |
|
4.00% |
|
4.50% |
|
4.00% |
Rate of compensation increase |
|
3.50% |
|
3.49% |
|
3.49% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
One- |
|
One- |
Effect on total of service and interest cost components |
|
|
|
|
$ |
1 |
$ |
(1) |
Effect on postretirement benefit obligations other than pensions |
|
|
|
|
14 |
|
(12) | |
|
|
|
|
|
|
|
|
U.S. Plan Assets |
|
|
Domestic equity securities |
|
20% to 35% |
International equity securities |
|
8% to 19% |
Global equities |
|
0% to 12% |
Debt securities |
|
27% to 38% |
Real estate |
|
7% to 13% |
Private investment partnerships |
|
5% to 11% |
Hedge funds |
|
0% to 5% |
Non-U.S. Plan Assets |
|
|
Equity securities |
|
51% to 74% |
Debt securities |
|
26% to 46% |
Real estate |
|
3% to 15% |
|
|
December 31, 2016 |
|
January 2, 2016 |
||||||||||||
(In millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Not |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Not |
Cash and equivalents |
$ |
26 |
$ |
8 |
$ |
— |
$ |
156 |
$ |
27 |
$ |
11 |
$ |
— |
$ |
173 |
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
1,262 |
|
— |
|
— |
|
618 |
|
1,252 |
|
— |
|
— |
|
595 |
International |
|
773 |
|
— |
|
— |
|
510 |
|
812 |
|
— |
|
— |
|
360 |
Mutual funds |
|
309 |
|
— |
|
— |
|
— |
|
251 |
|
— |
|
— |
|
— |
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
National, state and local governments |
|
341 |
|
246 |
|
— |
|
44 |
|
410 |
|
314 |
|
— |
|
43 |
Corporate debt |
|
— |
|
769 |
|
— |
|
121 |
|
— |
|
752 |
|
— |
|
126 |
Asset-backed securities |
|
— |
|
45 |
|
— |
|
100 |
|
— |
|
92 |
|
— |
|
— |
Real estate |
|
— |
|
— |
|
494 |
|
292 |
|
— |
|
— |
|
436 |
|
322 |
Private investment partnerships |
|
— |
|
— |
|
— |
|
506 |
|
— |
|
— |
|
— |
|
441 |
Hedge funds |
|
— |
|
— |
|
— |
|
254 |
|
— |
|
— |
|
— |
|
251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
2,711 |
$ |
1,068 |
$ |
494 |
$ |
2,601 |
$ |
2,752 |
$ |
1,169 |
$ |
436 |
$ |
2,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
2016 |
|
2015 |
Balance at beginning of year |
|
|
|
|
$ |
436 |
$ |
436 |
Unrealized gains, net |
|
|
|
|
|
6 |
|
46 |
Realized gains (losses), net |
|
|
|
|
|
10 |
|
(17) |
Purchases, sales and settlements, net |
|
|
|
|
|
42 |
|
(29) |
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
|
|
$ |
494 |
$ |
436 |
|
|
|
|
|
|
|
|
|
(In millions) |
|
2017 |
|
2018 |
|
2019 |
|
2020 |
|
2021 |
|
2022-2026 |
Pension benefits |
$ |
407 |
$ |
411 |
$ |
417 |
$ |
425 |
$ |
434 |
$ |
2,290 |
Post-retirement benefits other than pensions |
|
36 |
|
34 |
|
32 |
|
31 |
|
29 |
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
Severance |
|
Asset |
|
Contract |
|
Total |
Textron Systems |
$ |
15 |
$ |
34 |
$ |
13 |
$ |
62 |
Textron Aviation |
|
33 |
|
1 |
|
1 |
|
35 |
Industrial |
|
17 |
|
2 |
|
1 |
|
20 |
Bell |
|
4 |
|
1 |
|
— |
|
5 |
Corporate |
|
1 |
|
— |
|
— |
|
1 |
|
|
|
|
|
|
|
|
|
|
$ |
70 |
$ |
38 |
$ |
15 |
$ |
123 |
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
Severance |
|
Contract |
|
Total |
Provision |
|
|
$ |
75 |
$ |
15 |
$ |
90 |
Reversals |
|
|
|
(5) |
|
— |
|
(5) |
Cash paid |
|
|
|
(20) |
|
(2) |
|
(22) |
|
|
|
|
|
|
|
|
|
End of year |
|
|
$ |
50 |
$ |
13 |
$ |
63 |
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
2016 |
|
2015 |
|
2014 |
U.S. |
|
|
$ |
652 |
$ |
745 |
$ |
553 |
Non-U.S. |
|
|
|
224 |
|
226 |
|
300 |
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
$ |
876 |
$ |
971 |
$ |
853 |
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
2016 |
|
2015 |
|
2014 |
Current: |
|
|
|
|
|
|
|
|
Federal |
|
|
$ |
(74) |
$ |
212 |
$ |
195 |
State |
|
|
|
18 |
|
16 |
|
18 |
Non-U.S. |
|
|
|
41 |
|
41 |
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(15) |
|
269 |
|
267 |
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
|
|
47 |
|
17 |
|
(12) |
State |
|
|
|
(7) |
|
(14) |
|
(4) |
Non-U.S. |
|
|
|
8 |
|
1 |
|
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
48 |
|
4 |
|
(19) |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
$ |
33 |
$ |
273 |
$ |
248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
2015 |
|
2014 |
U.S. Federal statutory income tax rate |
|
|
|
35.0% |
|
35.0% |
|
35.0% |
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
Federal tax settlement |
|
|
|
(23.5) |
|
— |
|
— |
State income taxes (net of federal impact) (a) |
|
|
|
0.8 |
|
0.2 |
|
1.0 |
Non-U.S. tax rate differential and foreign tax credits (b) |
|
|
|
(2.7) |
|
(3.6) |
|
(5.8) |
Domestic manufacturing deduction |
|
|
|
(1.6) |
|
(2.7) |
|
(1.1) |
Research credit |
|
|
|
(3.2) |
|
(1.5) |
|
(1.5) |
Other, net |
|
|
|
(1.0) |
|
0.7 |
|
1.5 |
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
|
3.8% |
|
28.1% |
|
29.1% |
|
|
|
|
|
|
|
|
|
(a) |
Includes a favorable impact of (0.7)% in 2015 and (0.2)% in 2014 related to valuation allowance releases. |
(b) |
Includes a favorable impact of (1.4)% in 2015 and (0.6)% in 2014 related to a net change in valuation allowances. |
(In millions) |
|
|
|
December 31, |
|
January 2, |
|
January 3, |
Balance at beginning of year |
|
|
$ |
401 |
$ |
385 |
$ |
284 |
Additions for tax positions related to current year |
|
|
|
12 |
|
12 |
|
10 |
Additions for tax positions of prior years |
|
|
|
— |
|
6 |
|
— |
Additions for acquisitions |
|
|
|
— |
|
1 |
|
100 |
Reductions for settlements and expiration of statute of limitations |
|
|
|
(219) |
|
(2) |
|
(3) |
Reductions for tax positions of prior years |
|
|
|
(8) |
|
(1) |
|
(6) |
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
$ |
186 |
$ |
401 |
$ |
385 |
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Deferred tax assets |
|
|
|
|
|
|
|
|
Obligation for pension and postretirement benefits |
|
|
|
|
$ |
529 |
$ |
436 |
Accrued expenses* |
|
|
|
|
|
282 |
|
288 |
Deferred compensation |
|
|
|
|
|
175 |
|
184 |
Loss carryforwards |
|
|
|
|
|
158 |
|
142 |
Inventory |
|
|
|
|
|
49 |
|
71 |
Allowance for credit losses |
|
|
|
|
|
23 |
|
29 |
Deferred income |
|
|
|
|
|
11 |
|
9 |
Other, net |
|
|
|
|
|
56 |
|
97 |
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
|
|
|
1,283 |
|
1,256 |
Valuation allowance for deferred tax assets |
|
|
|
|
|
(116) |
|
(115) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,167 |
$ |
1,141 |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Property, plant and equipment, principally depreciation |
|
|
|
|
$ |
(168) |
$ |
(171) |
Amortization of goodwill and other intangibles |
|
|
|
|
|
(164) |
|
(156) |
Leasing transactions |
|
|
|
|
|
(147) |
|
(146) |
Prepaid pension and postretirement benefits |
|
|
|
|
|
(19) |
|
(21) |
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
|
|
|
(498) |
|
(494) |
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
|
|
|
$ |
669 |
$ |
647 |
|
|
|
|
|
|
|
|
|
*Accrued expenses includes warranty reserves, self-insured liabilities and interest.
(In millions) |
|
|
|
|
|
December 31, |
|
January 2, |
Manufacturing group: |
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
$ |
793 |
$ |
778 |
Other liabilities |
|
|
|
|
|
(4) |
|
(24) |
Finance group - Other liabilities |
|
|
|
|
|
(120) |
|
(107) |
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
|
|
|
$ |
669 |
$ |
647 |
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
|
Non-U.S. net operating loss with no expiration |
|
|
$ |
182 |
Non-U.S. net operating loss expiring through 2036 |
|
|
|
65 |
U.S. federal net operating losses expiring through 2034, related to 2014 acquisitions |
|
|
|
193 |
State net operating loss and tax credits, net of tax benefits, expiring through 2036 |
|
|
|
127 |
|
|
|
|
|
|
(In millions) |
|
|
|
2016 |
|
2015 |
|
2014 |
Interest paid: |
|
|
|
|
|
|
|
|
Manufacturing group |
|
|
$ |
132 |
$ |
123 |
$ |
134 |
Finance group |
|
|
|
32 |
|
34 |
|
41 |
Net taxes paid: |
|
|
|
|
|
|
|
|
Manufacturing group |
|
|
|
163 |
|
187 |
|
266 |
Finance group |
|
|
|
11 |
|
11 |
|
23 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
Segment Profit |
||||||||||
(In millions) |
|
2016 |
|
2015 |
|
2014 |
|
2016 |
|
2015 |
|
2014 |
Textron Aviation |
$ |
4,921 |
$ |
4,822 |
$ |
4,568 |
$ |
389 |
$ |
400 |
$ |
234 |
Bell |
|
3,239 |
|
3,454 |
|
4,245 |
|
386 |
|
400 |
|
529 |
Textron Systems |
|
1,756 |
|
1,520 |
|
1,624 |
|
186 |
|
129 |
|
150 |
Industrial |
|
3,794 |
|
3,544 |
|
3,338 |
|
329 |
|
302 |
|
280 |
Finance |
|
78 |
|
83 |
|
103 |
|
19 |
|
24 |
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
13,788 |
$ |
13,423 |
$ |
13,878 |
$ |
1,309 |
$ |
1,255 |
$ |
1,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses and other, net |
|
|
|
|
|
|
|
(172) |
|
(154) |
|
(161) |
Interest expense, net for Manufacturing group |
|
|
|
|
|
|
|
(138) |
|
(130) |
|
(148) |
Special charges |
|
|
|
|
|
|
|
(123) |
|
— |
|
(52) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
|
|
|
|
$ |
876 |
$ |
971 |
$ |
853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
|
|
2016 |
|
2015 |
|
2014 |
Fixed-wing aircraft |
|
|
$ |
4,921 |
$ |
4,822 |
$ |
4,568 |
Rotor aircraft |
|
|
|
3,239 |
|
3,454 |
|
4,245 |
Unmanned aircraft systems, armored vehicles, precision weapons and other |
|
|
|
1,756 |
|
1,520 |
|
1,624 |
Fuel systems and functional components |
|
|
|
2,273 |
|
2,078 |
|
1,975 |
Specialized vehicles and equipment |
|
|
|
1,080 |
|
1,021 |
|
868 |
Tools and test equipment |
|
|
|
441 |
|
445 |
|
495 |
Finance |
|
|
|
78 |
|
83 |
|
103 |
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
$ |
13,788 |
$ |
13,423 |
$ |
13,878 |
|
|
|
|
|
|
|
|
|
|
Assets |
Capital Expenditures |
Depreciation and Amortization |
|||||||||||||
(In millions) |
December 31, |
|
January 2, |
|
2016 |
|
2015 |
|
2014 |
|
2016 |
|
2015 |
|
2014 | |
Textron Aviation |
$ |
4,460 |
$ |
4,039 |
$ |
157 |
$ |
124 |
$ |
96 |
$ |
140 |
$ |
134 |
$ |
137 |
Bell |
|
2,655 |
|
2,829 |
|
86 |
|
97 |
|
152 |
|
132 |
|
143 |
|
132 |
Textron Systems |
|
2,508 |
|
2,398 |
|
71 |
|
86 |
|
65 |
|
75 |
|
80 |
|
84 |
Industrial |
|
2,409 |
|
2,236 |
|
121 |
|
105 |
|
97 |
|
81 |
|
76 |
|
76 |
Finance |
|
1,280 |
|
1,316 |
|
— |
|
— |
|
— |
|
12 |
|
12 |
|
13 |
Corporate |
|
2,046 |
|
1,890 |
|
11 |
|
8 |
|
19 |
|
9 |
|
16 |
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
15,358 |
$ |
14,708 |
$ |
446 |
$ |
420 |
$ |
429 |
$ |
449 |
$ |
461 |
$ |
459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues* |
Property, Plant |
|||||||
(In millions) |
|
|
|
2016 |
|
2015 |
|
2014 |
|
December 31, |
|
January 2, |
United States |
|
|
$ |
8,574 |
$ |
8,299 |
$ |
8,677 |
$ |
2,116 |
$ |
2,039 |
Europe |
|
|
|
1,954 |
|
1,730 |
|
1,761 |
|
247 |
|
251 |
Asia and Australia |
|
|
|
998 |
|
1,324 |
|
1,155 |
|
78 |
|
72 |
Latin and South America |
|
|
|
977 |
|
1,101 |
|
1,261 |
|
68 |
|
51 |
Canada |
|
|
|
652 |
|
531 |
|
383 |
|
72 |
|
79 |
Middle East and Africa |
|
|
|
633 |
|
438 |
|
641 |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
13,788 |
$ |
13,423 |
$ |
13,878 |
$ |
2,581 |
$ |
2,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* Revenues are attributed to countries based on the location of the customer.
** Property, plant and equipment, net are based on the location of the asset.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|