Table of Contents
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

[ x ]             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 30, 2017
or
 
[    ]               TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from             to            .
 
Commission File Number 1-5480
 
Textron Inc.
(Exact name of registrant as specified in its charter)

Delaware	 	05-0315468	
(State or other jurisdiction of incorporation or organization)	 	(I.R.S. Employer Identification No.)	

40 Westminster Street, Providence, RI	 	02903	
(Address of principal executive offices)	 	(Zip code)	
 
Registrant’s Telephone Number, Including Area Code: (401) 421-2800
 
Securities registered pursuant to Section 12(b) of the Act:

 	Title of Each Class	 	Name of Each Exchange on Which Registered	 	
 	Common Stock — par value $0.125	 	New York Stock Exchange	 	
 
Securities registered pursuant to Section 12(g) of the Act: None

 
Indicat e by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes   ü   No___
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes         No   ü
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    ü   No___
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    ü   No____
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [    ü ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  [   ü ]	Accelerated filer  [       ]	
 	 	
Non-accelerated filer    [       ]	Smaller reporting company   [       ]	Emerging growth company  [       ]	
(do not check if smaller reporting company)	 	 	

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [       ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes         No    ü
 
The aggregate market value of the registrant’s Common Stock held by non-affiliates at July 1, 2017 was approximately $12.5 billion based on the New York Stock Exchange closing price for such shares on that date. The registrant has no non-voting common equity.
 
At February 3, 2018, 261,771,970 shares of Common Stock were outstanding.
 
Documents Incorporated by Reference

Part III of this Report incorporates information from certain portions of the registrant’s Definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April 25, 2018.

Table of Contents
 
Textron Inc.
Index to Annual Report on Form 10-K 
For the Fiscal Year Ended December 30, 2017

 

PART I	 	Page	
 	 	 	
Item  1.	Business	3	
 	 	 	
Item  1A.	Risk Factors	10	
 	 	 	
Item  1B.	Unresolved Staff Comments	1 5	
 	 	 	
Item  2.	Properties	15	
 	 	 	
Item  3.	Legal Proceedings	16	
 	 	 	
Item  4.	Mine Safety Disclosures	16	
 	 	 	
PART II	 	 	
 	 	 	
Item  5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16	
 	 	 	
Item  6.	Selected Financial Data	18	
 	 	 	
Item  7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19	
 	 	 	
Item  7A.	Quantitative and Qualitative Disclosures About Market Risk	34	
 	 	 	
Item  8.	Financial Statements and Supplementary Data	36	
 	 	 	
Item  9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	71	
 	 	 	
Item  9A.	Controls and Procedures	71	
 	 	 	
PART III	 	 	
 	 	 	
Item  10.	Directors, Executive Officers and Corporate Governance	73	
 	 	 	
Item  11.	Executive Compensation	73	
 	 	 	
Item  12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	73	
 	 	 	
Item  13.	Certain Relationships and Related Transactions and Director Independence	73	
 	 	 	
Item  14.	Principal Accountant Fees and Services	73	
 	 	 	
PART IV	 	 	
 	 	 	
Item  15.	Exhibits and Financial Statement Schedules	74	
 	 	 	
Item  16.	Form 10-K Summary	77	
 	 	 	
Signatures	 	78	
 
2 

Table of Contents
 
PART I 
 
Item 1. Business 
 
Textron Inc. is a multi-industry company that leverages its global network of aircraft, defense, industrial and finance businesses to provide customers with innovative products and services around the world.  We have approximately 37,000 employees worldwide.  Textron Inc. was founded in 1923 and reincorporated in Delaware on July 31, 1967. Unless otherwise indicated, references to “Textron Inc.,” the “Company,” “we,” “our” and “us” in this Annual Report on Form 10-K refer to Textron Inc. and its consolidated subsidiaries.
 
We conduct our business through five operating segments: Textron Aviation, Bell, Textron Systems and Industrial, which represent our manufacturing businesses, and Finance, which represents our finance business .  A description of the business of each of our segments is set forth below.  Our business segments include operations that are unincorporated divisions of Textron Inc. and others that are separately incorporated subsidiaries.  Financial information by business segment and geographic area appears in Note 16 to the Consolidated Financial Statements on pages 67 through 68 of this Annual Report on Form 10-K. The following description of our business should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 19 through 34 of this Annual Report on Form 10-K.  Information included in this Annual Report on Form 10-K refers to our continuing businesses unless otherwise indicated.
 
Textron Aviation Segment
Textron Aviation is a leader in general aviation. Textron Aviation manufactures, sells and services Beechcraft and Cessna aircraft, and services the Hawker brand of business jets. The segment has two principal product lines : aircraft and aftermarket . Aircraft includes sales of business jets, turboprop aircraft, piston engine aircraft, and military trainer and defense aircraft. Aftermarket includes commercial parts sales, and maintenance, inspection and repair services. Revenues in the Textron Aviation segment accounted for 33%, 36% and 36% of our total revenues in 2017, 2016 and 2015, respectively.  Revenues for Textron Aviation’s principal lines of business were as follows:

(In millions)	 	 	 	2017	 	2016	 	2015	
Aircraft	 	 	$	3,112	$	3,412	$	3,404	
Aftermarket	 	 	 	1,574	 	1,509	 	1,418	
Total revenues	 	 	$	4,686	$	4,921	$	4,822	
 
The family of jets currently produced by Textron Aviation includes the Citation M2, Citation CJ3+, Citation CJ4, Citation XLS+, Citation Latitude, Citation Sovereign+, and the Citation X+, the fastest civilian jet in the world.  In addition, the new Citation Longitude, a super-midsize jet which achieved first flight in October 2016, is expected to enter into service in early 2018.  Textron Aviation is also continuing the development of the Citation Hemisphere, a large-cabin jet.
 
Textron Aviation’s turboprop aircraft include the Beechcraft King Air C90GTx, King Air 250, King Air 350ER and King Air 350i, and the Cessna Caravan and Grand Caravan EX.  The Cessna Denali, a high-performance single engine turboprop aircraft, is expected to achieve its first flight in 2018.  In addition, Textron Aviation recently announced the Cessna Skycourier, a twin-engine, high-wing, large-utility turboprop aircraft, which is targeted for first flight in 2019 .  Textron Aviation’s piston engine aircraft include the Beechcraft Baron and Bonanza, and the Cessna Skyhawk, Skylane, and the Turbo Stationair.
 
Textron Aviation also offers the T-6 trainer, which is used to train pilots from more than 20 countries, the AT-6 light attack military aircraft, and the Scorpion. The Scorpion is a highly affordable, multi-mission aircraft designed primarily for the tactical military jet aviation market .  This aircraft is not yet in production, pending customer orders.
 
In support of its family of aircraft, Textron Aviation operates a global network of 18 service centers, two of which are co-located with Bell Helicopter, along with more than 350 authorized independent service centers located throughout the world. Textron Aviation-owned service centers provide customers with 24-hour service and maintenance. Textron Aviation also provides its customers with around-the-clock parts support and offers a mobile support program with over 60 mobile service units and several dedicated support aircraft. In addition, Able Aerospace Services, Inc., a subsidiary of Textron Aviation, also provides component and maintenance, repair and overhaul services in support of commercial and military fixed- and rotor-wing aircraft.
 
3 

Table of Contents
 
Textron Aviation markets its products worldwide through its own sales force, as well as through a network of authorized independent sales representatives. Textron Aviation has several competitors domestically and internationally in various market segments. Textron Aviation’s aircraft compete with other aircraft that vary in size, speed, range, capacity and handling characteristics on the basis of price, product quality and reliability, direct operating costs, product support and reputation.
 
Bell Segment
Bell Helicopter is one of the leading suppliers of military and commercial helicopters, tiltrotor aircraft, and related spare parts and services in the world.  Revenues for Bell accounted for 23%, 23% and 26% of our total revenues in 2017, 2016 and 2015, respectively.  Revenues by Bell’s principal lines of business were as follows:

(In millions)	 	 	 	2017	 	2016	 	2015	
Military:	 	 	 	 	 	 	 	 	
V-22 Program	 	 	$	1,129	$	1,151	$	1,194	
Other Military	 	 	 	947	 	936	 	839	
Commercial	 	 	 	1,241	 	1,152	 	1,421	
Total revenues	 	 	$	3,317	$	3,239	$	3,454	
 
Bell supplies advanced military helicopters and support to the U.S. Government and to military customers outside the United States.  Bell’s primary U.S. Government programs are the V-22 tiltrotor aircraft and the H-1 helicopters.  Bell is one of the leading suppliers of helicopters to the U.S. Government and, in association with The Boeing Company (Boeing), the only supplier of military tiltrotor aircraft. Tiltrotor aircraft are designed to provide the benefits of both helicopters and fixed-wing aircraft. Through its strategic alliance with Boeing, Bell produces and supports the V-22 tiltrotor aircraft for the U.S. Department of Defense (DoD), and also for Japan under the U.S. Government-sponsored foreign military sales program.  The H-1 helicopter program includes a utility model, the UH-1Y, and an advanced attack model, the AH-1Z, which have 84% parts commonality between them. While the U.S. Marine Corps is the primary customer for H-1 helicopters, we also sell H-1 helicopters under the U.S. Government-sponsored foreign military sales program.
 
Bell is developing the V-280 Valor, a next generation vertical lift aircraft as part of the Joint Multi Role Technology Demonstrator (JMR-TD) initiative. The JMR-TD program is the science and technology precursor to the Department of Defense’s Future Vertical Lift program. Aircraft designed through this initiative will compete to replace thousands of aging utility and attack helicopters for the U.S. Armed Forces over the next decade. The V-280 achieved its first flight in December 2017.
 
Through its commercial business, Bell is a leading supplier of commercially certified helicopters and support to corporate, offshore petroleum exploration and development, utility, charter, police, fire, rescue and emergency medical helicopter operators, and foreign governments.  Bell produces a variety of commercial aircraft types, including light single- and twin-engine helicopters and medium twin-engine helicopters, along with other related products.  The helicopters currently offered by Bell for commercial applications include the 407GXP, 412EP, 412EPI, 429, 429WLG, 505 Jet Ranger X and Huey II.  In addition, the 525 Relentless, Bell’s first super medium commercial helicopter, is expected to achieve certification in 2019.
 
For both its military programs and its commercial products, Bell provides post-sale support and service for an installed base of approximately 13,000 helicopters through a network of five Bell-operated service centers, four global parts distribution centers and over 100 independent service centers located in 35 countries.  Collectively, these service sites offer a complete range of logistics support, including parts, support equipment, technical data, training devices, pilot and maintenance training, component repair and overhaul, engine repair and overhaul, aircraft modifications, aircraft customizing, accessory manufacturing, contractor maintenance, field service and product support engineering.
 
Bell competes against a number of competitors throughout the world for its helicopter business and its parts and support business.  Competition is based primarily on price, product quality and reliability, product support, performance and reputation.
 
4 

Table of Contents
 
Textron Systems Segment
Textron Systems’ product lines consist of unmanned systems, marine and land systems, and simulation, training and other defense and aviation mission support products and services.  Textron Systems is a supplier to the defense, aerospace and general aviation markets, and represents 13%, 13% and 11% of our total revenues in 2017, 2016 and 2015, respectively.  This segment sells its products to U.S. Government customers and to customers outside the U.S. through foreign military sales sponsored by the U.S. Government and directly through commercial sales channels.  Textron Systems competes on the basis of technology, contract performance, price, product quality and reliability, product support and reputation.  Revenues by Textron Systems’ product lines were as follows:

(In millions)	 	 	 	2017	 	2016	 	2015	
Unmanned Systems	 	 	$	714	$	763	$	686	
Marine and Land Systems	 	 	 	470	 	294	 	188	
Simulation, Training and Other	 	 	 	656	 	699	 	646	
Total revenues	 	 	$	1,840	$	1,756	$	1,520	
 
Unmanned Systems
Our Unmanned Systems product line includes the offerings of the Unmanned Systems and Support Solutions businesses.  The Unmanned Systems business has designed, manufactured and fielded combat-proven unmanned aircraft systems for more than 25 years.  This business’s products include the U.S. Army’s premier tactical unmanned aircraft system, the Shadow, which has surpassed one million flight hours since its introduction, and the Aerosonde Small Unmanned Aircraft System, a multi-mission capable unmanned aircraft system that has amassed more than 200,000 flight hours in commercial and military operations around the world.  In addition, its unmanned aircraft and interoperable command and control technologies provide critical situational awareness and actionable intelligence for users worldwide. Our Support Solutions business provides logistical support for various unmanned systems as well as training and supply chain services to government and commercial customers worldwide.
 
Marine and Land Systems
Our Marine and Land Systems product line includes advanced marine craft, armored vehicles, turrets and related subsystems, in service with U.S. and international militaries, special operations forces, police forces and civilian entities.  Marine and Land Systems’ primary U.S. Government program is for the development and production of the U.S. Navy’s next generation Landing Craft Air Cushion as part of the Ship-to-Shore Connector program.
 
Simulation, Training and Other
Our Simulation, Training and Other product line includes products and services from five businesses: TRU Simulation + Training, Textron Airborne Solutions, Electronic Systems, Lycoming, and Weapons and Sensors.
 
TRU Simulation + Training designs, develops, manufactures, installs, and provides maintenance of advanced flight training courseware and devices, including full flight simulators, for both rotary- and fixed-wing aircraft for commercial airlines, aircraft original equipment manufacturers (OEMs), flight training centers and training organizations worldwide. Through its training centers, TRU Simulation + Training provides initial type-rating and recurrency training for pilots, as well as maintenance training in its Aviation Maintenance Training Academy. Textron Airborne Solutions, which includes Airborne Tactical Advantage Company, focuses on live military air-to-air and air-to-ship training and support services for U.S. Navy, Marine and Air Force pilots. Electronic Systems provides high technology test equipment, electronic warfare test and training solutions and intelligence software solutions for U.S. and international defense, intelligence and law enforcement communities.
 
Lycoming specializes in the engineering, manufacture, service and support of piston aircraft engines for the general aviation and remotely piloted aircraft markets. Weapons and Sensors offers advanced precision guided weapons systems, airborne and ground-based sensors and surveillance systems, and protection systems for the defense and aerospace industries.
 
5 

Table of Contents
 
Industrial Segment
Our Industrial segment designs and manufactures a variety of products within three principal product lines.  Industrial segment revenues, which represented 30%, 28% and 26% of our total revenues in 2017, 2016 and 2015, respectively, were as follows:

(In millions)	 	 	 	2017	 	2016	 	2015	
Fuel Systems and Functional Components	 	 	$	2,330	$	2,273	$	2,078	
Specialized Vehicles	 	 	 	1,486	 	1,080	 	1,021	
Tools and Test Equipment	 	 	 	470	 	441	 	445	
Total revenues	 	 	$	4,286	$	3,794	$	3,544	
 
Fuel Systems and Functional Components
Our Fuel Systems and Functional Components product line is produced by our Kautex business unit which is headquartered in Bonn, Germany and operates over 30 plants in 14 countries.  Kautex is a leading developer and manufacturer of blow-molded plastic fuel systems for cars, light trucks and all-terrain vehicles. Kautex also develops and manufactures clear-vision systems for automobiles and selective catalytic reduction systems used to reduce emissions from diesel engines, as well as plastic bottles and containers for medical, household, agricultural, laboratory and industrial uses. Additionally, Kautex operates a business that produces cast iron engine camshafts, crankshafts and other engine components. Kautex serves the global automobile market, with operating facilities near its major customers around the world.
 
Our automotive products have several major competitors worldwide, some of which are affiliated with the OEMs that comprise our targeted customer base. Competition typically is based on a number of factors including price, technology, environmental performance, product quality and reliability, prior experience and available manufacturing capacity.
 
Specialized Vehicles
Our Specialized Vehicles product line includes products sold by the Textron Specialized Vehicles businesses under the E-Z-GO, Textron Off Road, Arctic Cat, TUG Technologies, Douglas Equipment, Premier, Safeaero, Ransomes, Jacobsen, Cushman and Dixie Chopper brands. These businesses design, manufacture and sell golf cars, off-road utility vehicles, recreational side-by-side and all-terrain vehicles, snowmobiles, light transportation vehicles, aviation ground support equipment and professional turf-maintenance equipment, as well as specialized turf-care vehicles.  See Note 2 to the Consolidated Financial Statements for additional information regarding the acquisition of Arctic Cat that we completed on March 6, 2017.
 
These businesses have a diversified customer base that includes golf courses and resorts, government agencies and municipalities, consumers, outdoor enthusiasts, and commercial and industrial users such as factories, warehouses, airports, planned communities, hunting preserves, educational and corporate campuses, sporting venues, municipalities and landscaping professionals. Sales are made through a combination of factory direct resources and a network of independent distributors and dealers worldwide. We have two major competitors for both golf cars and professional turf-maintenance equipment, and several competitors for off-road utility vehicles, recreational all-terrain and light transportation vehicles, side-by-sides and snowmobiles, aviation ground support equipment, and specialized turf-care products. Competition is based primarily on price, product quality and reliability, product features, product support and reputation.
 
Tools and Test Equipment
The Tools and Test Equipment product line includes products sold by businesses that design and manufacture powered equipment, electrical test and measurement instruments, mechanical and hydraulic tools, cable connectors, fiber optic assemblies, underground and aerial transmission and distribution products and power utility products. This product line encompasses the Greenlee, Greenlee Communications, Greenlee Utility, HD Electric, Klauke, Sherman+Reilly and Endura businesses and brands.  Their products are used principally in the construction, maintenance, telecommunications, data communications, electrical, utility and plumbing industries, and are distributed through a global network of sales representatives and distributors, as well as through direct sales to home improvement retailers and OEMs.  The businesses have plant operations in five countries with almost half of their combined revenues coming from outside the United States.  These businesses face competition from numerous manufacturers based primarily on price, delivery lead time, product quality and reliability.
 
Finance Segment
Our Finance segment, or the Finance group, is a commercial finance business that consists of Textron Financial Corporation (TFC) and its consolidated subsidiaries. The Finance segment provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. A substantial number of the new originations in our finance receivable portfolio are cross-border transactions for aircraft sold outside of the U.S. Finance receivables originated in the U.S. are primarily for purchasers who had difficulty in accessing other sources of financing for the purchase of Textron-manufactured products.  In 2017, 2016 and 2015, our Finance group paid our Manufacturing group $174 million, $173 million and $194 million, respectively, related to the sale of Textron-manufactured products to third parties that were financed by the Finance group.
 
6 

Table of Contents
 
The commercial finance business traditionally is extremely competitive. Our Finance segment is subject to competition from various types of financing institutions, including banks, leasing companies, commercial finance companies and finance operations of equipment vendors.  Competition within the commercial finance industry primarily is focused on price, term, structure and service.
 
Our Finance segment’s largest business risk is the collectability of its finance receivable portfolio.  See “Finance Portfolio Quality” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 28 for information about the Finance segment’s credit performance.
 
Backlog
Our backlog at the end of 2017 and 2016 is summarized below:

(In millions)	 	 	 	 	 	December 30,
2017	 	December 31,
2016	
Bell	 	 	 	 	$	4,598	$	5,360	
Textron Systems	 	 	 	 	 	1,406	 	1,841	
Textron Aviation	 	 	 	 	 	1,180	 	1,041	
Total backlog	 	 	 	 	$	7,184	$	8,242	
 
Approximately 38% of our total backlog at December 30, 2017 represents orders that are not expected to be filled in 2018.
 
Backlog with the U.S. Government represented 58% of our total backlog at December 30, 2017 and excluded amounts where funding has not been formally appropriated. At December 30, 2017 and December 31, 2016, Bell’s backlog included $1.6 billion and $1.7 billion, respectively, related to a multi-year contract with the U.S. Government for the purchase of V-22 tiltrotor aircraft.
 
For information regarding the impact of the new revenue recognition accounting standard on backlog, see Note 1 to the Consolidated Financial Statements on page 48 of this Annual Report on Form 10-K.
 
U.S. Government Contracts
In 2017, approximately 22% of our consolidated revenues were generated by or resulted from contracts with the U.S. Government, excluding those contracts under the U.S. Government-sponsored foreign military sales program.  This business is subject to competition, changes in procurement policies and regulations, the continuing availability of funding, which is dependent upon congressional appropriations, national and international priorities for defense spending, world events, and the size and timing of programs in which we may participate.
 
Our contracts with the U.S. Government generally may be terminated by the U.S. Government for convenience or if we default in whole or in part by failing to perform under the terms of the applicable contract.  If the U.S. Government terminates a contract for convenience, we normally will be entitled to payment for the cost of contract work performed before the effective date of termination, including, if applicable, reasonable profit on such work, as well as reasonable termination costs.  If, however, the U.S. Government terminates a contract for default, generally: (a) we will be paid the contract price for completed supplies delivered and accepted and services rendered, an agreed-upon amount for manufacturing materials delivered and accepted and for the protection and preservation of property, and an amount for partially completed products accepted by the U.S. Government; (b) the U.S. Government may not be liable for our costs with respect to unaccepted items and may be entitled to repayment of advance payments and progress payments related to the terminated portions of the contract; (c) the U.S. Government may not be liable for assets we own and utilize to provide services under the “fee-for-service” contracts; and (d) we may be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source.
 
Research and Development
Information regarding our research and development expenditures is contained in Note 1 to the Consolidated Financial Statements on page 47 of this Annual Report on Form 10-K.
 
Patents and Trademarks
We own, or are licensed under, numerous patents throughout the world relating to products, services and methods of manufacturing. Patents developed while under contract with the U.S. Government may be subject to use by the U.S. Government. We also own or license active trademark registrations and pending trademark applications in the U.S. and in various foreign countries or regions, as well as trade names and service marks. While our intellectual property rights in the aggregate are important to the operation of our business, we do not believe that any existing patent, license, trademark or other intellectual property right is of such importance that its loss or termination would have a material adverse effect on our business taken as a whole. Some of these trademarks, trade names and service marks are used in this Annual Report on Form 10-K and other reports, including:  A- 2 PATS; Able Aerospace Services; Able Preferred; Aeronautical Accessories; AAI; acAlert; Aerosonde; AirScout; Alterra; AH-1Z; Ambush; Arctic Cat; Ascent;
 
7 

Table of Contents
 
AVCOAT; Baron; BattleHawk; Bearcat; Beechcraft; Beechcraft T-6; Bell; Bell Helicopter; Bell 505; BENDWORKS; BlackWorks McCauley; Bonanza; Cadillac Gage; CAP; Caravan; Caravan Amphibian; Caravan 675; Cessna; Cessna 350; Cessna 400; Cessna SkyCourier; Cessna Turbo Skylane JT-A; Cessna Turbo Skyhawk JT-A; Citation; CITATION ALPINE EDITION; Citation Encore+; Citation Latitude; Citation Longitude; Citation M2; Citation Sovereign; Citation X; Citation X+; Citation XLS+; CJ1+; CJ2+; CJ3; CJ3+; CJ4; Clairity; CLAW; CLEARTEST; Commando; Cushman; Customer Advantage Plans; CUSV; DataScout; Denali; Dixie Chopper; Dixie Chopper Stryker; Double Vision; Duct Dawg; Eclipse; El Tigre; ENFORCER; E-Z-GO; E-Z-GO EXPRESS; FAST-N-LATCH; FASTRAP; Firecat; Firefly; FOREVER WARRANTY; Fury; G3 Tugger; GatorEye; Gator Grips; GLOBAL MISSION SUPPORT; Gorilla; Grand Caravan; Greenlee; H-1; HAULER; HDE; Hawker; Hemisphere; Huey; Huey II; iCommand; iPress; IE2; Instinct; Integrated Command Suite; INTELLIBRAKE; INTELLI-CRIMP; Jacobsen; Jacobsen HoverKing; Jet Ranger X; Kautex; King Air; King Air C90GTx; King Air 250; King Air 350; Kiowa Warrior; Klauke; LF; LOOKOUT; Lycoming; Lynx; M1117 ASV; MADE FOR THE TRADE; McCauley; Mechtronix; MicroObserver; Millenworks; Mission Critical Support (MCS); MISSIONLINK; Motorfist; MudPro; Mustang; Next Generation Carbon Canister; Next Generation Fuel System; NGCC; NGFS; NightWarden; Odyssey; ONSLAUGHT; Overwatch; Pantera; PDCue; Power Advantage; Premier; Pro-Fit; ProFlight; ProParts; ProPropeller; Prowler; Ransomes; REALCue; REALFeel; Recoil; Relentless; ROCONNECT; RT 2 ; RXV; SABER; Safeaero; Safe-Zone; Scorpion; Shadow; Shadow Knight; Shadow Master; Sherman+Reilly; Skyhawk; Skyhawk SP; Skylane; SkyPLUS; Sno Pro; SnoCross; Sovereign; Speed Punch; Speedrack; Spider; Stampede; Stationair; ST 4X4; Super Cargomaster; Super Medium; SuperCobra; SYMTX; Synturian; TDCue; Team Arctic; Textron; Textron Airborne Solutions; Textron Aviation; Textron Defense Systems; Textron Financial Corporation; Textron GSE; Textron Marine & Land Systems; Textron Off Road; Textron Systems; Thundercat; TI-Metal; TRUESET; TRU Simulation + Training; TRUCKSTER; TTx; TUG; Turbo Skylane; Turbo Stationair; TRV; UH-1Y; Under Dawg; V-Watch; VALOR; Value-Driven MRO Solutions; V-22 Osprey; V-247; V-280; Watchman; Wildcat; Wolverine; ZR; 2FIVE; 206; 407; 407GT; 407GX; 412; 429; 505; 525 and 525 Relentless. These marks and their related trademark designs and logotypes (and variations of the foregoing) are trademarks, trade names or service marks of Textron Inc., its subsidiaries, affiliates or joint ventures.
 
Environmental Considerations
Our operations are subject to numerous laws and regulations designed to protect the environment.  Compliance with these laws and expenditures for environmental control facilities has not had a material effect on our capital expenditures, earnings or competitive position. Additional information regarding environmental matters is contained in Note 14 to the Consolidated Financial Statements on page 66 of this Annual Report on Form 10-K.
 
We do not believe that existing or pending climate change legislation, regulation, or international treaties or accords are reasonably likely to have a material effect in the foreseeable future on our business or markets nor on our results of operations, capital expenditures or financial position. We will continue to monitor emerging developments in this area.
 
Employees
At December 30, 2017, we had approximately 37,000 employees.
 
Executive Officers of the Registrant
The following table sets forth certain information concerning our executive officers as of February 15, 2018.

Name	 	Age	 	Current Position with Textron Inc.	
Scott C. Donnelly	 	56	 	Chairman, President and Chief Executive Officer	
Frank T. Connor	 	58	 	Executive Vice President and Chief Financial Officer	
Julie G. Duffy	 	52	 	Executive Vice President, Human Resources	
E. Robert Lupone	 	58	 	Executive Vice President, General Counsel, Secretary and Chief Compliance Officer	
 
Mr. Donnelly joined Textron in June 2008 as Executive Vice President and Chief Operating Officer and was promoted to President and Chief Operating Officer in January 2009. He was appointed to the Board of Directors in October 2009 and became Chief Executive Officer of Textron in December 2009, at which time the Chief Operating Officer position was eliminated.  In July 2010, Mr. Donnelly was appointed Chairman of the Board of Directors effective September 1, 2010.  Previously, Mr. Donnelly was the President and CEO of General Electric Company’s Aviation business unit, a position he had held since July 2005.  GE’s Aviation business unit is a leading maker of commercial and military jet engines and components, as well as integrated digital, electric power and mechanical systems for aircraft. Prior to July 2005, Mr. Donnelly served as Senior Vice President of GE Global Research, one of the world’s largest and most diversified industrial research organizations with facilities in the U.S., India, China and Germany and held various other management positions since joining General Electric in 1989.
 
8 

Table of Contents
 
Mr. Connor joined Textron in August 2009 as Executive Vice President and Chief Financial Officer. Previously, Mr. Connor was head of Telecom Investment Banking at Goldman, Sachs & Co. from 2003 to 2008. Prior to that position, he served as Chief Operating Officer of Telecom, Technology and Media Investment Banking at Goldman, Sachs & Co. from 1998 to 2003. Mr. Connor joined the Corporate Finance Department of Goldman, Sachs & Co. in 1986 and became a Vice President in 1990 and a Managing Director in 1996.
 
Ms. Duffy was named Executive Vice President, Human Resources in July 2017.  Ms. Duffy joined Textron in 1997 as a member of the corporate legal team and has since held positions of increasing responsibility within the Company’s legal function, most recently serving as Vice President and Deputy General Counsel-Litigation, a position she had held since 2011.  In that role she was responsible for managing the corporate litigation staff with primary oversight of litigation throughout Textron. She has also played an active role in developing, implementing and standardizing human resources policies across the Company and served as the senior legal advisor on employment and benefits issues.
 
Mr. Lupone joined Textron in February 2012 as Executive Vice President, General Counsel, Secretary and Chief Compliance Officer.  Previously, he was senior vice president and general counsel of Siemens Corporation (U.S.) since 1999 and general counsel of Siemens AG for the Americas since 2008.  Prior to joining Siemens in 1992, Mr. Lupone was vice president and general counsel of Price Communications Corporation.
 
Available Information
We make available free of charge on our Internet Web site (www.textron.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
 
Forward-Looking Information
Certain statements in this Annual Report on Form 10-K and other oral and written statements made by us from time to time are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which may describe strategies, goals, outlook or other non-historical matters, or project revenues, income, returns or other financial measures, often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “guidance,” “project,” “target,” “potential,” “will,” “should,” “could,” “likely” or “may” and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements.  Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update or revise any forward-looking statements.  In addition to those factors described herein under “Risk Factors,” among the factors that could cause actual results to differ materially from past and projected future results are the following:
 
·      Interruptions in the U.S. Government’s ability to fund its activities and/or pay its obligations;
·      Changing priorities or reductions in the U.S. Government defense budget, including those related to military operations in foreign countries;
·      Our ability to perform as anticipated and to control costs under contracts with the U.S. Government;
·      The U.S. Government’s ability to unilaterally modify or terminate its contracts with us for the U.S. Government’s convenience or for our failure to perform, to change applicable procurement and accounting policies, or, under certain circumstances, to withhold payment or suspend or debar us as a contractor eligible to receive future contract awards;
·      Changes in foreign military funding priorities or budget constraints and determinations, or changes in government regulations or policies on the export and import of military and commercial products;
·      Volatility in the global economy or changes in worldwide political conditions that adversely impact demand for our products;
·      Volatility in interest rates or foreign exchange rates;
·      Risks related to our international business, including establishing and maintaining facilities in locations around the world and relying on joint venture partners, subcontractors, suppliers, representatives, consultants and other business partners in connection with international business, including in emerging market countries;
·      Our Finance segment’s ability to maintain portfolio credit quality or to realize full value of receivables;
·      Performance issues with key suppliers or subcontractors;
·      Legislative or regulatory actions, both domestic and foreign, impacting our operations or demand for our products;
·      Our ability to control costs and successfully implement various cost-reduction activities;
·      The efficacy of research and development investments to develop new products or unanticipated expenses in connection with the launching of significant new products or programs;
 
9 

Table of Contents
 
·      The timing of our new product launches or certifications of our new aircraft products;
·      Our ability to keep pace with our competitors in the introduction of new products and upgrades with features and technologies desired by our customers;
·      Pension plan assumptions and future contributions;
·      Demand softness or volatility in the markets in which we do business;
·      Cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption;
·      Difficulty or unanticipated expenses in connection with integrating acquired businesses;
·      The risk that acquisitions do not perform as planned, including, for example, the risk that acquired businesses will not achieve revenues and profit projections; and
·      The impact of changes in tax legislation (including the recently enacted Tax Cuts and Jobs Act).
 
Item 1A. Risk Factors 
 
Our business, financial condition and results of operations are subject to various risks, including those discussed below, which may affect the value of our securities. The risks discussed below are those that we believe currently are the most significant to our business.
 
We have customer concentration with the U.S. Government; reduction in U.S. Government defense spending may adversely affect our results of operations and financial condition.
During 2017, we derived approximately 22% of our revenues from sales to a variety of U.S. Government entities.  Our revenues from the U.S. Government largely result from contracts awarded to us under various U.S. Government defense-related programs. The funding of these programs is subject to congressional appropriation decisions and the U.S. Government budget process which includes enacting relevant legislation, such as appropriations bills and accords on the debt ceiling. Although multiple-year contracts may be planned in connection with major procurements, Congress generally appropriates funds on a fiscal year basis even though a program may continue for several years. Consequently, programs often are only partially funded initially, and additional funds are committed only as Congress makes further appropriations.  Further uncertainty with respect to ongoing programs could also result in the event that the U.S. Government finances its operations through temporary funding measures such as “continuing resolutions” rather than full-year appropriations. If we incur costs in advance or in excess of funds committed on a contract, we are at risk for non-reimbursement of those costs until additional funds are appropriated.  The reduction, termination or delay in the timing of funding for U.S. Government programs for which we currently provide or propose to provide products or services may result in a loss of anticipated future revenues that could materially and adversely impact our results of operations and financial condition. Significant changes in national and international policies or priorities for defense spending could impact the funding, or the timing of funding, of our programs, which could negatively impact our results of operations and financial condition.
 
Under the Budget Control Act of 2011, the U.S. Government committed to significantly reduce the federal deficit over ten years. As a result, long-term funding for various programs in which we participate, as well as future purchasing decisions by our U.S. Government customers, could be reduced, delayed or cancelled. In addition, these cuts could adversely affect the viability of the suppliers and subcontractors under our programs. There are many variables in how these budget cuts could be implemented that make it difficult to determine specific impacts; however, we expect that sequestration, as currently provided for under the Budget Control Act, would result in lower revenues, profits and cash flows for our company. Such circumstances may also result in an impairment of our goodwill and intangible assets.  Because our U.S. Government contracts generally require us to continue to perform even if the U.S. Government is unable to make timely payments; if, for example, the debt ceiling is not raised, and, as a result, our customer does not pay us on a timely basis, we may need to finance our continued performance of the impacted contracts from our other resources on an interim basis. An extended delay in the timely payment by the U.S. Government could result in a material adverse effect on our cash flows, results of operations and financial condition.
 
U.S. Government contracts may be terminated at any time and may contain other unfavorable provisions.
The U.S. Government typically can terminate or modify any of its contracts with us either for its convenience or if we default by failing to perform under the terms of the applicable contract.  In the event of termination for the U.S. Government’s convenience, contractors are generally protected by provisions covering reimbursement for costs incurred on the contracts and profit on those costs but not the anticipated profit that would have been earned had the contract been completed.  A termination arising out of our default for failure to perform could expose us to liability, including but not limited to, all costs incurred under the contract plus potential liability for re-procurement costs in excess of the total original contract amount, less the value of work performed and accepted by the customer under the contract.  Such an event could also have an adverse effect on our ability to compete for future contracts and orders. If any of our contracts are terminated by the U.S. Government whether for convenience or default, our backlog and anticipated revenues would be reduced by the expected value of the remaining work under such contracts.  We also enter into “fee for service” contracts with the U.S. Government where we retain ownership of, and consequently the risk of loss on, aircraft
 
10 

Table of Contents
 
and equipment supplied to perform under these contracts.  Termination of these contracts could materially and adversely impact our results of operations. On contracts for which we are teamed with others and are not the prime contractor, the U.S. Government could terminate a prime contract under which we are a subcontractor, irrespective of the quality of our products and services as a subcontractor.  In addition, in the event that the U.S. Government is unable to make timely payments, failure to continue contract performance places the contractor at risk of termination for default.  Any such event could result in a material adverse effect on our cash flows, results of operations and financial condition.
 
As a U.S. Government contractor, we are subject to procurement rules and regulations.
We must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S. Government contracts. These laws and regulations, among other things, require certification and disclosure of all cost and pricing data in connection with contract negotiation, define allowable and unallowable costs and otherwise govern our right to reimbursement under certain cost-based U.S. Government contracts, and safeguard and restrict the use and dissemination of classified information, covered defense information, and the exportation of certain products and technical data. New laws, regulations or procurement requirements or changes to current ones (including, for example, regulations related to cybersecurity) can significantly increase our costs and risks and reduce our profitability. Our failure to comply with procurement regulations and requirements could allow the U.S. Government to suspend or debar us from receiving new contracts for a period of time, reduce the value of existing contracts, issue modifications to a contract, withhold cash on contract payments, and control and potentially prohibit the export of our products, services and associated materials, any of which could negatively impact our results of operations, financial condition or liquidity. A number of our U.S. Government contracts contain provisions that require us to make disclosure to the Inspector General of the agency that is our customer if we have credible evidence that we have violated U.S. criminal laws involving fraud, conflict of interest, or bribery; the U.S. civil False Claims Act; or received a significant overpayment under a U.S. Government contract. Failure to properly and timely make disclosures under these provisions may result in a termination for default or cause, suspension and/or debarment, and potential fines.
 
As a U.S. Government contractor, our businesses and systems are subject to audit and review by the Defense Contract Audit Agency (DCAA) and the Defense Contract Management Agency (DCMA).
We operate in a highly regulated environment and are routinely audited and reviewed by the U.S. Government and its agencies such as DCAA and DCMA. These agencies review our performance under contracts, our cost structure and our compliance with laws and regulations applicable to U.S. Government contractors. The systems that are subject to review include, but are not limited to, our accounting, estimating, material management and accounting, earned value management, purchasing and government property systems. If an audit uncovers improper or illegal activities we may be subject to civil and criminal penalties and administrative sanctions that may include the termination of our contracts, forfeiture of profits, suspension of payments, fines, and, under certain circumstances, suspension or debarment from future contracts for a period of time. Whether or not illegal activities are alleged, the U.S. Government also has the ability to decrease or withhold certain payments when it deems systems subject to its review to be inadequate.  These laws and regulations affect how we conduct business with our government customers and, in some instances, impose added costs on our business.
 
The use of multi-award contracts by the U.S. Government may increase competition and pricing pressure.
The U.S. Government increasingly relies upon competitive contract award types, including indefinite-delivery, indefinite-quantity and multi-award contracts, which have the potential to create greater competition and increased pricing pressure, as well as to increase our cost by requiring that we submit multiple bids. In addition, multi-award contracts require that we make sustained efforts to obtain task orders and delivery orders under the contract. Further, the competitive bidding process is costly and demands managerial time to prepare bids and proposals for contracts that may not be awarded to us or may be split among competitors.
 
Our profitability and cash flow may vary depending on the mix of our government contracts and our ability to control costs .
Under fixed-price contracts, generally we receive a fixed price irrespective of the actual costs we incur, and, consequently, any costs in excess of the fixed price are absorbed by us. Changes in underlying assumptions, circumstances or estimates used in developing the pricing for such contracts may adversely affect our results of operations. Additionally, fixed-price contracts may require progress payments rather than performance based payments which can delay our ability to recover a significant amount of costs incurred on a contract and thus affect the timing of our cash flows.  Fixed-price incentive-based fee arrangements provide that allowable costs incurred are reimbursable but are subject to a cost-share which could negatively impact our profitability. Under time and materials contracts, we are paid for labor at negotiated hourly billing rates and for certain expenses. Under cost-reimbursement contracts that are subject to a contract-ceiling amount, we are reimbursed for allowable costs and paid a fee, which may be fixed or performance based, however, if our costs exceed the contract ceiling or are not allowable under the provisions of the contract or applicable regulations, we may not be able to obtain reimbursement for all such costs. Under each type of contract, if we are unable to control costs incurred in performing under the contract, our cash flows, results of operations and financial condition could be adversely affected. Cost overruns also may adversely affect our ability to sustain existing programs and obtain future contract awards.
 
11 

Table of Contents
 
Demand for our aircraft products is cyclical and could adversely affect our financial results.
Demand for business jets, turbo props and commercial helicopters has been cyclical and difficult to forecast. Therefore, future demand for these products could be significantly and unexpectedly less than anticipated and/or less than previous period deliveries. Similarly, t here is uncertainty as to when or whether our existing commercial backlog for aircraft products will convert to revenues as the conversion depends on production capacity, customer needs and credit availability. Changes in economic conditions may cause customers to request that firm orders be rescheduled or cancelled. Reduced demand for our aircraft products or delays or cancellations of orders could result in a material adverse effect on our cash flows, results of operations and financial condition.
 
We may make acquisitions that increase the risks of our business.
We may enter into acquisitions in an effort to expand our business and enhance shareholder value. Acquisitions involve risks and uncertainties that could result in our not achieving expected benefits.  Such risks include difficulties in integrating newly acquired businesses and operations in an efficient and cost-effective manner; challenges in achieving expected strategic objectives, cost savings and other benefits; the risk that the acquired businesses’ markets do not evolve as anticipated and that the acquired businesses’ products and technologies do not prove to be those needed to be successful in those markets; the risk that our due diligence reviews of the acquired business do not identify or adequately assess all of the material issues which impact valuation of the business or that may result in costs or liabilities in excess of what we anticipated; the risk that we pay a purchase price that exceeds what the future results of operations would have merited; the risk that the acquired business may have significant internal control deficiencies or exposure to regulatory sanctions; and the potential loss of key customers, suppliers and employees of the acquired businesses.  In addition, unanticipated delays or difficulties in effecting acquisitions may prevent the consummation of the acquisition or divert the attention of our management and resources from our existing operations.
 
If our Finance segment is unable to maintain portfolio credit quality, our financial performance could be adversely affected .
A key determinant of the financial performance of our Finance segment is the quality of loans, leases and other assets in its portfolio. Portfolio quality may be adversely affected by several factors, including finance receivable underwriting procedures, collateral value, geographic or industry concentrations, and the effect of general economic conditions. In addition, a substantial number of the new originations in our finance receivable portfolio are cross-border transactions for aircraft sold outside of the U.S.  Cross-border transactions present additional challenges and risks in realizing upon collateral in the event of borrower default, which may result in difficulty or delay in collecting on the related finance receivables.  If our Finance segment has difficulty successfully collecting its finance receivable portfolio, our cash flow, results of operations and financial condition could be adversely affected.
 
We may need to obtain financing in the future; such financing may not be available to us on satisfactory terms, if at all.
We may periodically need to obtain financing in order to meet our debt obligations as they come due, to support our operations and/or to make acquisitions. Our access to the debt capital markets and the cost of borrowings are affected by a number of factors including market conditions and the strength of our credit ratings. If we cannot obtain adequate sources of credit on favorable terms, or at all, our business, operating results, and financial condition could be adversely affected.
 
Failure to perform by our subcontractors or suppliers could adversely affect our performance.
We rely on other companies to provide raw materials, major components and subsystems for our products. Subcontractors also perform services that we provide to our customers in certain circumstances. We depend on these suppliers and subcontractors to meet our contractual obligations to our customers and conduct our operations. Our ability to meet our obligations to our customers may be adversely affected if suppliers or subcontractors do not provide the agreed-upon supplies or perform the agreed-upon services in compliance with customer requirements and in a timely and cost-effective manner. Likewise, the quality of our products may be adversely impacted if companies to whom we delegate manufacture of major components or subsystems for our products, or from whom we acquire such items, do not provide components or subsystems which meet required specifications and perform to our and our customers’ expectations. Our suppliers may be less likely than us to be able to quickly recover from natural disasters and other events beyond their control and may be subject to additional risks such as financial problems that limit their ability to conduct their operations. The risk of these adverse effects may be greater in circumstances where we rely on only one or two subcontractors or suppliers for a particular raw material, product or service. In particular, in the aircraft industry, most vendor parts are certified by the regulatory agencies as part of the overall Type Certificate for the aircraft being produced by the manufacturer. If a vendor does not or cannot supply its parts, then the manufacturer’s production line may be stopped until the manufacturer can design, manufacture and certify a similar part itself or identify and certify another similar vendor’s part, resulting in significant delays in the completion of aircraft. Such events may adversely affect our financial results, damage our reputation and relationships with our customers, and result in regulatory actions and/or litigation.
 
Our business could be negatively impacted by information technology disruptions and security threats.
Our information technology (IT) and related systems are critical to the smooth operation of our business and essential to our ability to perform day to day operations.  From time to time, we update and/or replace IT systems used by our businesses.  The implementation of new systems can present temporary disruptions of business activities as existing processes are transitioned to the new systems, resulting in productivity issues, including delays in production, shipments or other business operations.  In addition,
 
12 

Table of Contents
 
we outsource certain support functions, including certain global IT infrastructure services, to third-party service providers. Any disruption of such outsourced processes or functions also could have a material adverse impact on our operations.  In addition, as a U.S. defense contractor, we face certain security threats, including threats to our IT infrastructure, unlawful attempts to gain access to our information and threats to the physical security of our facilities and employees, as do our customers, suppliers, subcontractors and joint venture partners.  Cybersecurity threats, such as malicious software, attempts to gain unauthorized access to our confidential, classified or otherwise proprietary information or that of our employees or customers, as well as other security breaches, are persistent, continue to evolve and require highly skilled IT resources.  While we have experienced cybersecurity attacks, we have not suffered any material losses relating to such attacks, and we believe our threat detection and mitigation processes and procedures are robust.  Due to the evolving nature of these security threats, the possibility of future material incidents cannot be completely mitigated. Future attacks or breach of data security, whether of our systems or the systems of our service providers or other third parties who may have access to our data for business purposes, could disrupt our operations, cause the loss of business information or compromise confidential information, exposing us to liability or regulatory action. Such an incident also could require significant management attention and resources, increase costs, which may not be covered by insurance, and result in reputational damage, potentially adversely affecting our competitiveness and our results of operations.
 
Developing new products and technologies entails significant risks and uncertainties.
To continue to grow our revenues and segment profit, we must successfully develop new products and technologies or modify our existing products and technologies for our current and future markets. Our future performance depends, in part, on our ability to identify emerging technological trends and customer requirements and to develop and maintain competitive products and services. Delays or cost overruns in the development and acceptance of new products, or certification of new aircraft and other products, could affect our results of operations. These delays could be caused by unanticipated technological hurdles, production changes to meet customer demands, unanticipated difficulties in obtaining required regulatory certifications of new aircraft or other products, coordination with joint venture partners or failure on the part of our suppliers to deliver components as agreed. We also could be adversely affected if our research and development investments are less successful than expected or if we do not adequately protect the intellectual property developed through these efforts. Likewise, new products and technologies could generate unanticipated safety or other concerns resulting in expanded product liability risks, potential product recalls and other regulatory issues that could have an adverse impact on us. Furthermore, because of the lengthy research and development cycle involved in bringing certain of our products to market, we cannot predict the economic conditions that will exist when any new product is complete. A reduction in capital spending in the aerospace or defense industries could have a significant effect on the demand for new products and technologies under development, which could have an adverse effect on our financial condition and results of operations. In addition, our investments in equipment or technology that we believe will enable us to obtain future service contracts for our U.S. Government or other customers may not result in contracts or revenues sufficient to offset such investment. The market for our product offerings may not develop or continue to expand as we currently anticipate. Furthermore, we cannot be sure that our competitors will not develop competing technologies which gain superior market acceptance compared to our products.  A significant failure in our new product development efforts or the failure of our products or services to achieve market acceptance relative to our competitors’ products or services could have an adverse effect on our financial condition and results of operations.
 
We are subject to the risks of doing business in foreign countries.
During 2017, we derived approximately 38% of our revenues from international business, including U.S. exports, and we expect international revenues to continue to increase. Conducting business internationally exposes us to additional risks than if we conducted our business solely within the U.S. We maintain manufacturing facilities, service centers, supply centers and other facilities worldwide, including in various emerging market countries.  We also have entered into, and expect to continue to enter into, joint venture arrangements in emerging market countries, some of which may require capital investment, guaranties or other commitments.  Risks related to international operations include import, export and other trade restrictions; changing U.S. and foreign procurement policies and practices; restrictions on technology transfer; difficulties in protecting intellectual property; increasing complexity of employment and environmental, health and safety regulations; foreign investment laws; exchange controls; repatriation of earnings or cash settlement challenges, competition from foreign and multinational firms with home country advantages; economic and government instability, acts of terrorism and related safety concerns.  The impact of any one or more of these or other factors could adversely affect our business, financial condition or operating results.
 
Additionally, some international government customers require contractors to agree to specific in-country purchases, technology transfers, manufacturing agreements or financial support arrangements, known as offsets, as a condition for a contract award. The contracts generally extend over several years and may include penalties if we fail to perform in accordance with the offset requirements which are often subjective. We also are exposed to risks associated with using foreign representatives and consultants for international sales and operations and teaming with international subcontractors and suppliers in connection with international programs. In many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act. Although we maintain policies and procedures designed to facilitate compliance with these laws, a violation of such laws by any of our international representatives,
 
13 

Table of Contents
 
consultants, joint ventures, business partners, subcontractors or suppliers, even if prohibited by our policies, could have an adverse effect on our business and reputation.
 
We are subject to increasing compliance risks that could adversely affect our operating results.
As a global business, we are subject to laws and regulations in the U.S. and other countries in which we operate. Our increased focus on international sales and global operations requires importing and exporting goods and technology, some of which have military applications subjecting them to more stringent import-export controls across international borders on a regular basis. For example, we sometimes initially must obtain licenses and authorizations from various U.S. Government agencies before we are permitted to sell certain of our aerospace and defense products outside the U.S. Both U.S. and foreign laws and regulations applicable to us have been increasing in scope and complexity. For example, both U.S. and foreign governments and government agencies regulate the aviation industry, and they may impose new regulations with additional aircraft security or other requirements or restrictions, including, for example, restrictions and/or fees related to carbon emissions levels. Changes in environmental and climate change laws and regulations, including laws relating to greenhouse gas emissions, could lead to the necessity for new or additional investment in product designs or manufacturing processes and could increase environmental compliance expenditures, including costs to defend regulatory reviews. New or changing laws and regulations or related interpretation and policies could increase our costs of doing business, affect how we conduct our operations, adversely impact demand for our products, and/or limit our ability to sell our products and services. Compliance with laws and regulations of increasing scope and complexity is even more challenging in our current business environment in which reducing our operating costs is often necessary to remain competitive. In addition, a violation of U.S. and/or foreign laws by one of our employees or business partners could subject us or our employees to civil or criminal penalties, including material monetary fines, or other adverse actions, such as denial of import or export privileges and/or debarment as a government contractor which could damage our reputation and have an adverse effect on our business.
 
We are subject to legal proceedings and other claims.
We are subject to legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims relating to commercial and financial transactions; government contracts; alleged lack of compliance with applicable laws and regulations; production partners; product liability; patent and trademark infringement; employment disputes; and environmental, safety and health matters.  Due to the nature of our manufacturing business, we may be subject to liability claims arising from accidents involving our products, including claims for serious personal injuries or death caused by weather or by pilot, driver or user error. In the case of litigation matters for which reserves have not been established because the loss is not deemed probable, it is reasonably possible that such claims could be decided against us and could require us to pay damages or make other expenditures in amounts that are not presently estimable. In addition, we cannot be certain that our reserves are adequate and that our insurance coverage will be sufficient to cover one or more substantial claims. Furthermore, we may not be able to obtain insurance coverage at acceptable levels and costs in the future.  Litigation is inherently unpredictable, and we could incur judgments, receive adverse arbitration awards or enter into settlements for current or future claims that could adversely affect our financial position or our results of operations in any particular period.
 
Intellectual property infringement claims of others and the inability to protect our intellectual property rights could harm our business and our customers.
Intellectual property infringement claims may be asserted by third parties against us or our customers. Any related indemnification payments or legal costs we may be obliged to pay on behalf of our businesses, our customers or other third parties could be costly. In addition, we own the rights to many patents, trademarks, brand names, trade names and trade secrets that are important to our business. The inability to enforce these intellectual property rights may have an adverse effect on our results of operations. Additionally, our intellectual property could be at risk due to various cybersecurity threats.
 
Certain of our products are subject to laws regulating consumer products and could be subject to repurchase or recall as a result of safety issues.
As a distributor of consumer products in the U.S., certain of our products also are subject to the Consumer Product Safety Act, which empowers the U.S. Consumer Product Safety Commission (CPSC) to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the CPSC could require us to repair, replace or refund the purchase price of one or more of our products, or potentially even discontinue entire product lines, or we may voluntarily do so, but within strictures recommended by the CPSC. The CPSC also can impose fines or penalties on a manufacturer for non-compliance with its requirements. Furthermore, failure to timely notify the CPSC of a potential safety hazard can result in significant fines being assessed against us. Any repurchases or recalls of our products or an imposition of fines or penalties could be costly to us and could damage the reputation or the value of our brands. Additionally, laws regulating certain consumer products exist in some states, as well as in other countries in which we sell our products, and more restrictive laws and regulations may be adopted in the future.
 
The increasing costs of certain employee and retiree benefits could adversely affect our results.
Our earnings and cash flow may be adversely impacted by the amount of income or expense we expend or record for employee benefit plans. This is particularly true for our defined benefit pension plans, where required contributions to those plans and related
 
14 

Table of Contents
 
expenses are driven by, among other things, our assumptions of the expected long-term rate of return on plan assets, the discount rate used for future payment obligations and the rates of future cost growth. Additionally, as part of our annual evaluation of these plans, significant changes in our assumptions, due to changes in economic, legislative and/or demographic experience or circumstances, or changes in our actual investment returns could negatively impact the funded status of our plans requiring us to substantially increase our pension liability with a resulting decrease in shareholders’ equity. Also, changes in pension legislation and regulations could increase the cost associated with our defined benefit pension plans.
 
Our business could be adversely affected by strikes or work stoppages and other labor issues.
Approximately 7,200, or 27%, of our U.S. employees are unionized, and many of our non-U.S. employees are represented by organized councils. As a result, we may experience work stoppages, which could negatively impact our ability to manufacture our products on a timely basis, resulting in strain on our relationships with our customers and a loss of revenues. The presence of unions also may limit our flexibility in responding to competitive pressures in the marketplace. In addition, the workforces of many of our suppliers and customers are represented by labor unions. Work stoppages or strikes at the plants of our key suppliers could disrupt our manufacturing processes; similar actions at the plants of our customers could result in delayed or canceled orders for our products. Any of these events could adversely affect our results of operations.
 
Currency, raw material price and interest rate fluctuations may adversely affect our results.
We are exposed to a variety of market risks, including the effects of changes in foreign currency exchange rates, raw material prices and interest rates. Currency variations also contribute to variations in sales of products and services in impacted jurisdictions. Accordingly, fluctuations in foreign currency rates could adversely affect our profitability in future periods. We monitor and manage these exposures as an integral part of our overall risk management program. In some cases, we purchase derivatives or enter into contracts to insulate our results of operations from these fluctuations. Nevertheless, changes in currency exchange rates, raw material prices and interest rates can have substantial adverse effects on our results of operations.
 
We may be unable to effectively mitigate pricing pressures.
In some markets, particularly where we deliver component products and services to OEMs, we face ongoing customer demands for price reductions, which sometimes are contractually obligated. However, if we are unable to effectively mitigate future pricing pressures through technological advances or by lowering our cost base through improved operating and supply chain efficiencies, our results of operations could be adversely affected.
 
Unanticipated changes in our tax rates or exposure to additional income tax liabilities could affect our profitability.
We are subject to income taxes in the U.S. and various non-U.S. jurisdictions, and our domestic and international tax liabilities are subject to the location of income among these different jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings indefinitely reinvested offshore, changes to unrecognized tax benefits or changes in tax laws, which could affect our profitability. In particular, the carrying value of deferred tax assets is dependent on our ability to generate future taxable income, as well as changes to applicable statutory tax rates.  In addition, the amount of income taxes we pay is subject to audits in various jurisdictions, and a material assessment by a tax authority could affect our profitability.
 
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017 and significantly changed U.S. income tax law.  We have made provisional estimates of the impact of the Act on the remeasurement of our net deferred tax assets and the one-time transition tax in 2017.  However, the financial reporting effects of the Act are complex and are subject to change as guidance interpreting the Act is issued.  The effect of such guidance, as well as any additional tax reform legislation in the United States or elsewhere, could adversely affect our effective tax rate, have a material impact on the value of our deferred tax assets or increase our future U.S. tax expense.
 
Item 1B. Unresolved Staff Comments 
 
None.
 
Item 2. Properties 
 
On December 30, 2017, we operated a total of 63 plants located throughout the U.S. and 52 plants outside the U.S.  We own 61 plants and lease the remainder for a total manufacturing space of approximately 24.6 million square feet.  We consider the productive capacity of the plants operated by each of our business segments to be adequate.  We also own or lease offices, warehouses, training and service centers and other space at various locations. In general, our facilities are in good condition, are considered to be adequate for the uses to which they are being put and are substantially in regular use.
 
15 

Table of Contents
 
Item 3. Legal Proceedings 
 
As previously reported in Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, on February 7, 2012, a lawsuit was filed in the United States Bankruptcy Court, Northern District of Ohio, Eastern Division (Akron) by Brian A. Bash, Chapter 7 Trustee for Fair Finance Company against TFC, Fortress Credit Corp. and Fair Facility I, LLC. TFC provided a revolving line of credit of up to $17.5 million to Fair Finance Company from 2002 through 2007. The complaint alleges numerous counts against TFC, as Fair Finance Company’s working capital lender, including receipt of fraudulent transfers and assisting in fraud perpetrated on Fair Finance investors. The Trustee seeks avoidance and recovery of alleged fraudulent transfers in the amount of $316 million as well as damages of $223 million on the other claims. The Trustee also seeks trebled damages on all claims under Ohio law.  On November 9, 2012, the Court dismissed all claims against TFC.  The trustee appealed, and on August 23, 2016, the 6th Circuit Court of Appeals reversed the dismissal in part and remanded certain claims back to the trial court.  We are vigorously defending this lawsuit.
 
We also are subject to actual and threatened legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims relating to commercial and financial transactions; government contracts; alleged lack of compliance with applicable laws and regulations; production partners; product liability; patent and trademark infringement; employment disputes; and environmental, health and safety matters.  Some of these legal proceedings and claims seek damages, fines or penalties in substantial amounts or remediation of environmental contamination.  As a government contractor, we are subject to audits, reviews and investigations to determine whether our operations are being conducted in accordance with applicable regulatory requirements.  Under federal government procurement regulations, certain claims brought by the U.S. Government could result in our suspension or debarment from U.S. Government contracting for a period of time.  On the basis of information presently available, we do not believe that existing proceedings and claims will have a material effect on our financial position or results of operations.
 
Item 4. Mine Safety Disclosures 
 
Not applicable.
 
PART II 
 
Item 5. Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
The principal market on which our common stock is traded is the New York Stock Exchange under the symbol “TXT.”  At December 30, 2017, there were approximately 8,800 record holders of Textron common stock.  The high and low sales prices per share of our common stock as reported on the New York Stock Exchange and the dividends paid per share are provided in the following table:

 	2017	2016	
 	 	High	 	Low	 	Dividends
per Share	 	High	 	Low	 	Dividends
per Share	
First quarter	$	50.93	$	43.66	$	0.02	$	41.74	$	30.69	$	0.02	
Second quarter	 	48.67	 	45.00	 	0.02	 	40.61	 	34.00	 	0.02	
Third quarter	 	54.07	 	47.00	 	0.02	 	41.33	 	35.06	 	0.02	
Fourth quarter	 	57.71	 	51.07	 	0.02	 	49.82	 	37.19	 	0.02	
 
Issuer Repurchases of Equity Securities
The following provides information about our fourth quarter 2017 repurchases of equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:

Period (shares in thousands)	Total
Number of
Shares
Purchased *	Average Price
Paid per Share
(excluding
commissions)	Total Number of
Shares Purchased as
part of Publicly
Announced Plan *	Maximum
Number of Shares
that may yet be
Purchased under
the Plan	
October 1, 2017 – November 4, 2017	740	$	53.44	740	14,767	
November 5, 2017 – December 2, 2017	860	 	53.52	860	13,907	
December 3, 2017 – December 30, 2017	825	 	55.55	825	13,082	
Total	2,425	$	54.19	2,425	 	
* These shares were purchased pursuant to a plan authorizing the repurchase of up to 25 million shares of Textron common stock that had been announced on January 25, 2017. This plan has no expiration date.
 
16 

Table of Contents
 
Stock Performance Graph
The following graph compares the total return on a cumulative basis at the end of each year of $100 invested in our common stock on December 31, 2012 with the Standard & Poor’s (S&P) 500 Stock Index, the S&P 500 Aerospace & Defense (A&D) Index and the S&P 500 Industrials Index, all of which include Textron. The values calculated assume dividend reinvestment.

 

 	 	2012	 	 	2013	 	 	2014	 	 	2015	 	 	2016	 	 	2017	 	
Textron Inc.	$	100.00	 	$	148.69	 	$	170.68	 	$	170.59	 	$	197.59	 	$	230.63	 	
S&P 500	 	100.00	 	 	132.39	 	 	150.51	 	 	152.59	 	 	170.84	 	 	208.14	 	
S&P 500 A&D	 	100.00	 	 	154.92	 	 	172.63	 	 	182.01	 	 	216.42	 	 	305.97	 	
S&P 500 Industrials	 	100.00	 	 	131.64	 	 	147.91	 	 	152.19	 	 	167.59	 	 	205.41	 	
 
17 

Table of Contents
 
Item 6.  Selected Financial Data 

( Dollars in millions, except per share amounts )	 	2017	 	2016	 	2015	 	2014	 	2013	
Revenues	 	 	 	 	 	 	 	 	 	 	
Textron Aviation	$	4,686	$	4,921	$	4,822	$	4,568	$	2,784	
Bell	 	3,317	 	3,239	 	3,454	 	4,245	 	4,511	
Textron Systems	 	1,840	 	1,756	 	1,520	 	1,624	 	1,665	
Industrial	 	4,286	 	3,794	 	3,544	 	3,338	 	3,012	
Finance	 	69	 	78	 	83	 	103	 	132	
Total revenues	$	14,198	$	13,788	$	13,423	$	13,878	$	12,104	
Segment profit	 	 	 	 	 	 	 	 	 	 	
Textron Aviation (a)	$	303	$	389	$	400	$	234	$	(48)	
Bell	 	415	 	386	 	400	 	529	 	573	
Textron Systems	 	139	 	186	 	129	 	150	 	147	
Industrial	 	290	 	329	 	302	 	280	 	242	
Finance	 	22	 	19	 	24	 	21	 	49	
Total segment profit	 	1,169	 	1,309	 	1,255	 	1,214	 	963	
Corporate expenses and other, net	 	(132)	 	(172)	 	(154)	 	(161)	 	(166)	
Interest expense, net for Manufacturing group	 	(145)	 	(138)	 	(130)	 	(148)	 	(123)	
Special charges (b)	 	(130)	 	(123)	 	—	 	(52)	 	—	
Income tax expense (c)	 	(456)	 	(33)	 	(273)	 	(248)	 	(176)	
Income from continuing operations	$	306	$	843	$	698	$	605	$	498	
Earnings per share	 	 	 	 	 	 	 	 	 	 	
Basic earnings per share — continuing operations	$	1.15	$	3.11	$	2.52	$	2.17	$	1.78	
Diluted earnings per share — continuing operations	$	1.14	$	3.09	$	2.50	$	2.15	$	1.75	
Basic average shares outstanding ( in thousands)	 	266,380	 	270,774	 	276,682	 	279,409	 	279,299	
Diluted average shares outstanding ( in thousands)	 	268,750	 	272,365	 	278,727	 	281,790	 	284,428	
Common stock information	 	 	 	 	 	 	 	 	 	 	
Dividends declared per share	$	0.08	$	0.08	$	0.08	$	0.08	$	0.08	
Book value at year-end	$	21.60	$	20.62	$	18.10	$	15.45	$	15.54	
Price at year-end	$	56.59	$	48.56	$	42.01	$	42.17	$	36.61	
Financial position	 	 	 	 	 	 	 	 	 	 	
Total assets	$	15,340	$	15,358	$	14,708	$	14,605	$	12,944	
Manufacturing group debt	$	3,088	$	2,777	$	2,697	$	2,811	$	1,931	
Finance group debt	$	824	$	903	$	913	$	1,063	$	1,256	
Shareholders’ equity	$	5,647	$	5,574	$	4,964	$	4,272	$	4,384	
Manufacturing group debt-to-capital (net of cash)	 	26%	 	23%	 	26%	 	33%	 	15%	
Manufacturing group debt-to-capital	 	35%	 	33%	 	35%	 	40%	 	31%	
Investment data	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	$	423	$	446	$	420	$	429	$	444	
Manufacturing group depreciation	$	362	$	368	$	383	$	379	$	335	
 
(a)           Segment profit included amortization of $12 million and $63 million in 2015 and 2014, respectively, related to fair value step-up adjustments of Beechcraft acquired inventories sold during the period.
 
(b)           Special charges included $90 million and $123 million in 2017 and 2016, respectively, related to our 2016 restructuring plan. We also recorded special charges of $40 million in 2017 related to the Arctic Cat acquisition, which included restructuring, integration and transaction costs. For 2014, special charges included acquisition and restructuring costs related to the acquisition of Beechcraft.
 
(c)            Income tax expense for 2017 included a $266 million charge to reflect our provisional estimate of the net impact of the Tax Cuts and Jobs Act, which was enacted on December 22, 2017.  In 2016, we recognized an income tax benefit of $319 million, inclusive of interest, of which $206 million is attributable to continuing operations and $113 million is attributable to discontinued operations.  This benefit was a result of the final settlement with the Internal Revenue Service Office of Appeals for our 1998 to 2008 tax years.
 
18 

Table of Contents
 
Item 7. Manage m ent’s Discussion and Analysis of Financial Condition and Results of Operations 
 
Overview and Consolidated Results of Operations
 
During 2017, we maintained focus on investing in our businesses through continued development of new products and services. We also completed the strategic acquisition of Arctic Cat, a platform to expand and grow our Textron Specialized Vehicles business.  In addition, we continued to take cost reduction actions through the execution of our restructuring plans and integration activities in order to realign our businesses, improve overall operating efficiency and better position our businesses for the future. All of t hese activities support our overall strategy of long-term growth and expansion of our product portfolio and the creation of long-term shareholder value.   Financial highlights of 2017 include the following:
 
·                   Generated $947 million in cash from operating activities of our manufacturing businesses, net of a $300 million discretionary contribution to fund a U.S. pension plan.
·                   Invested $634 million in research and development activities, $423 million in capital expenditures and $316 million for the acquisition of Arctic Cat.
·                   Returned $603 million to our shareholders through share repurchases and dividend payments.
·                   Continued execution of our 2016 restructuring plan and the restructuring and integration of the Arctic Cat acquisition, resulting in special charges of $130 million.
 
An analysis of our consolidated operating results is set forth below.  A more detailed analysis of our segments’ operating results is provided in the Segment Analysis section on pages 21 to 28.
 
Revenues

 	 	 	 	 	 	 	% Change	
(Dollars in millions)	 	2017	 	2016	 	2015	 	2017	 	2016	
Revenues	$	14,198	$	13,788	$	13,423	 	3%	 	3%	
 
Revenues increased $410 million, 3%, in 2017, compared with 2016, largely driven by increases in the Industrial, Textron Systems and Bell segments, partially offset by lower revenues at the Textron Aviation segment.  The net revenue increase included the following factors:
 
·                   Higher Industrial revenues of $492 million, primarily due to the impact from the acquisition of Arctic Cat described in the Segment Analysis section below.
·                   Higher Textron Systems revenues of $84 million, primarily due to higher volume of $176 million in the Marine and Land Systems product line, partially offset by lower volume in the other products lines.
·                   Higher Bell revenues of $78 million, primarily due to an increase in commercial revenues of $89 million, largely reflecting higher commercial aircraft deliveries.
·                   Lower Textron Aviation revenues of $235 million, primarily due to lower volume and mix of $307 million, largely the result of lower military and commercial turboprop volume.
 
Revenues increased $365 million, 3%, in 2016, compared with 2015, largely driven by increases in the Industrial, Textron Systems and Textron Aviation segments, partially offset by lower revenues at the Bell segment.  The net revenue increase included the following factors:
 
·                   Higher Industrial revenues of $ 250 million, primarily due to higher volume of $ 168 million, largely in the Fuel Systems and Functional Components product line, and the impact from acquired businesses of $ 121 million.
·                   Higher Textron Systems revenues of $236 million, primarily due to higher volume of $106 million in the Marine and Land Systems product line and $77 million in the Unmanned Systems product line.
·                   Higher Textron Aviation revenues of $ 99 million, primarily due to the impact from an acquired business of $66 million and higher volume and mix of $ 42 million, largely the result of higher Citation jet volume of $ 165 million, partially offset by lower commercial turboprop volume.
·                   Lower Bell revenues of $215 million, primarily due to a decrease in commercial revenues of $269 million, largely reflecting lower commercial aircraft deliveries.
 
19 

Table of Contents
 
Cost of Sales and Selling and Administrative Expense

 	 	 	 	 	 	 	% Change	
(Dollars in millions)	 	2017	 	2016	 	2015	 	2017	 	2016	
Cost of sales	$	11,795	$	11,311	$	10,979	 	4%	 	3%	
Gross margin as a percentage of Manufacturing revenues	 	16.5%	 	17.5%	 	17.7%	 	 	 	 	
Selling and administrative expense	$	1,337	$	1,304	$	1,304	 	3%	 	—	
 
In 2017, cost of sales increased $484 million, 4%, and selling and administrative expense increased $33 million, 3%, compared with 2016, primarily due to an increase from acquired businesses, largely Arctic Cat.  Gross margin as a percentage of Manufacturing revenues decreased 100 basis points from 2016, primarily due to lower margins at the Textron Systems segment, largely reflecting an unfavorable impact from net program adjustments, and the Industrial segment, which included the impact from the Arctic Cat acquisition.
 
Cost of sales increased $332 million, 3%, in 2016, compared with 2015, largely due to higher volume at the Textron Systems,  Industrial and Textron Aviation segments, and an increase from acquired businesses.  These increases were partially offset by lower volume at the Bell segment and favorable cost performance across all of our manufacturing segments.
 
Interest Expense

 	 	 	 	 	 	 	% Change	
(Dollars in millions)	 	2017	 	2016	 	2015	 	2017	 	2016	
Interest expense	$	174	$	174	$	169	 	—	 	3%	
 
Interest expense on the Consolidated Statements of Operations includes interest for both the Finance and Manufacturing borrowing groups with interest related to intercompany borrowings eliminated.  Interest expense for the Finance segment is included within segment profit and includes intercompany interest.  Consolidated interest expense increased $5 million in 2016, compared with 2015, primarily due to higher average debt outstanding.
 
Special Charges
 
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.  Under this plan, Textron Systems discontinued production of its sensor-fuzed weapon product within its Weapons and Sensors operating unit, we combined our Jacobsen business with the Textron Specialized Vehicles business by consolidating facilities and general and administrative functions, and we reduced headcount at Textron Aviation, as well as other businesses and corporate functions.  In December 2017, we decided to take additional restructuring actions to further consolidate operating facilities and streamline product lines, primarily within the Bell, Textron Systems and Industrial segments, which resulted in additional special charges of $45 million in the fourth quarter of 2017. We recorded total special charges of $213 million since the inception of the 2016 plan, which included $97 million of severance costs, $84 million of asset impairments and $32 million in contract terminations and other costs.  Of these amounts, $83 million was incurred at Textron Systems, $63 million at Textron Aviation, $38 million at Industrial, $28 million at Bell and $1 million at Corporate. The total headcount reduction under this plan is expected to be approximately 2,100 positions, representing 5% of our workforce.
 
In connection with the acquisition of Arctic Cat, as discussed in Note 2 to the Consolidated Financial Statements, we initiated a restructuring plan in the first quarter of 2017 to integrate this business into our Textron Specialized Vehicles business within the Industrial segment and reduce operating redundancies and maximize efficiencies.  Under the Arctic Cat plan, we recorded restructuring charges of $28 million in 2017, which included $19 million of severance costs, largely related to change-of-control provisions, and $9 million of contract termination and other costs.  In addition, we recorded $12 million of acquisition-related integration and transaction costs in 2017.
 
20 

Table of Contents
 
Special charges recorded for these plans are as follows:

(In millions)	 	Severance
Costs	 	Asset
Impairments	 	Contract
Terminations
and Other	 	Acquisition
Integration/
Transaction
Costs	 	Total
Special
Charges	
2017	 	 	 	 	 	 	 	 	 	 	
Industrial	$	26	$	1	$	19	$	12	$	58	
Textron Aviation	 	11	 	17	 	—	 	—	 	28	
Bell	 	3	 	12	 	8	 	—	 	23	
Textron Systems	 	6	 	16	 	(1)	 	—	 	21	
Total	$	46	$	46	$	26	$	12	$	130	
2016	 	 	 	 	 	 	 	 	 	 	
Industrial	$	17	$	2	$	1	$	—	$	20	
Textron Aviation	 	33	 	1	 	1	 	—	 	35	
Bell	 	4	 	1	 	—	 	—	 	5	
Textron Systems	 	15	 	34	 	13	 	—	 	62	
Corporate	 	1	 	—	 	—	 	—	 	1	
Total	$	70	$	38	$	15	$	—	$	123	
 
Income Taxes

 	 	 	 	2017	 	2016	 	2015	
Effective tax rate	 	 	 	59.8%	 	3.8%	 	28.1%	
 
In 2017, our effective tax rate was significantly higher than the U.S. federal statutory tax rate of 35%, largely due to the impact from the Tax Cuts and Jobs Act (the “Act”).  In the fourth quarter of 2017, we recorded a provisional estimate of $266 million for one-time adjustments resulting from the Act.  Approximately $154 million of this provisional estimate represents a charge resulting from the remeasurement of our U.S. federal deferred tax assets and liabilities, and the remainder represents a provision for the transition tax on post-1986 earnings and profits previously deferred from U.S. income taxes.  In addition, the Act reduces the U.S. federal corporate tax rate from 35% to 21%, which is expected to lower our effective tax rate for 2018 and future years.
 
In 2016, our effective tax rate was significantly lower than the U.S. federal statutory tax rate of 35%, largely due to a settlement with the U.S. Internal Revenue Service Office of Appeals for our 1998 to 2008 tax years.  This settlement resulted in a $206 million benefit recognized in continuing operations and a $113 million benefit in discontinued operations.
 
For a full reconciliation of our effective tax rate to the U.S. federal statutory tax rate of 35% see Note 13 to the Consolidated Financial Statements.
 
Segment Analysis
 
We operate in, and report financial information for, the following five business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance.  Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses and special charges.  The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.
 
In our discussion of comparative results for the Manufacturing group, changes in revenues and segment profit typically are expressed for our commercial business in terms of volume, pricing, foreign exchange and acquisitions.  Additionally, changes in segment profit may be expressed in terms of mix, inflation and cost performance. Volume changes in revenues represent increases/decreases in the number of units delivered or services provided.  Pricing represents changes in unit pricing.  Foreign exchange is the change resulting from translating foreign-denominated amounts into U.S. dollars at exchange rates that are different from the prior period.  Revenues generated by acquired businesses are reflected in Acquisitions for a twelve-month period.  For segment profit, mix represents a change due to the composition of products and/or services sold at different profit margins.  Inflation represents higher material, wages, benefits, pension or other costs.  Performance reflects an increase or decrease in research and development, depreciation, selling and administrative costs, warranty, product liability, quality/scrap, labor efficiency, overhead, product line profitability, start-up, ramp up and cost-reduction initiatives or other manufacturing inputs.
 
21 

Table of Contents
 
Approximately 22% of our 2017 revenues were derived from contracts with the U.S. Government.  For our segments that have significant contracts with the U.S. Government, we typically express changes in segment profit related to the government business in terms of volume, changes in program performance or changes in contract mix. Changes in volume that are described in net sales typically drive corresponding changes in our segment profit based on the profit rate for a particular contract. Changes in program performance typically relate to profit recognition associated with revisions to total estimated costs at completion that reflect improved or deteriorated operating performance or award fee rates. Changes in contract mix refers to changes in operating margin due to a change in the relative volume of contracts with higher or lower fee rates such that the overall average margin rate for the segment changes.
 
Textron Aviation

 	 	 	 	 	 	 	% Change	
(Dollars in millions)	 	2017	 	2016	 	2015	 	2017	 	2016	
Revenues	$	4,686	$	4,921	$	4,822	 	(5)%	 	2%	
Operating expenses	 	4,383	 	4,532	 	4,422	 	(3)%	 	2%	
Segment profit	 	303	 	389	 	400	 	(22)%	 	(3)%	
Profit margin	 	6.5%	 	7.9%	 	8.3%	 	 	 	 	
Backlog	$	1,180	$	1,041	$	1,074	 	13%	 	(3)%	
 
Textron Aviation Revenues and Operating Expenses
Factors contributing to the 2017 year-over-year revenue change are provided below:

(In millions)	 	 	 	 	 	 	 	2017 versus
2016	
Volume and mix	 	 	 	 	 	 	$	(307)	
Other	 	 	 	 	 	 	 	72	
Total change	 	 	 	 	 	 	$	(235)	
 
Textron Aviation’s revenues decreased $235 million, 5%, in 2017, compared with 2016, primarily due to lower volume and mix of $307 million, largely the result of lower military and commercial turboprop volume. We delivered 180 Citation jets, 86 King Air turboprops and 13 Beechcraft T-6 trainers in 2017, compared with 178 Citation jets, 106 King Air turboprops and 38 Beechcraft T-6 trainers in 2016.  The portion of the segment’s revenues derived from aftermarket sales and services represented 34% of its total revenues in 2017, compared with 31% in 2016.
 
Textron Aviation’s operating expenses decreased $149 million, 3%, in 2017, compared with 2016, largely due to lower net volume as described above.
 
Factors contributing to the 2016 year-over-year revenue change are provided below:

(In millions)	 	 	 	 	 	 	 	2016 versus
2015	
Acquisitions	 	 	 	 	 	 	$	66	
Volume and mix	 	 	 	 	 	 	 	42	
Other	 	 	 	 	 	 	 	(9)	
Total change	 	 	 	 	 	 	$	99	
 
Textron Aviation’s revenues increased $99 million, 2%, in 2016, compared with 2015, primarily due to the impact from an acquisition of a repair and overhaul business in the first quarter of 2016, and higher volume and mix of $42 million.  The increase in volume and mix was largely due to higher Citation jet volume of $165 million, partially offset by lower commercial turboprop volume.  We delivered 178 Citation jets and 106 King Air turboprops in 2016, compared with 166 Citation jets and 117 King Air turboprops in 2015.  The portion of the segment’s revenues derived from aftermarket sales and services represented 31% of its total revenues in 2016, compared with 29% in 2015, largely resulting from the acquisition.
 
Textron Aviation’s operating expenses increased $110 million, 2%, in 2016, compared with 2015, largely due to higher net volume as described above and additional operating expenses resulting from the acquisition.  These increases were partially offset by improved cost performance of $64 million, largely attributable to lower research and development costs and lower compensation expense.
 
22 

Table of Contents
 
Textron Aviation Segment Profit
Factors contributing to 2017 year-over-year segment profit change are provided below:

(In millions)	 	 	 	 	 	 	 	2017 versus
2016	
Volume and mix	 	 	 	 	 	 	$	(99)	
Pricing, net of inflation	 	 	 	 	 	 	 	56	
Performance and other	 	 	 	 	 	 	 	(43)	
Total change	 	 	 	 	 	 	$	(86)	
 
Segment profit at Textron Aviation decreased $86 million, 22%, in 2017, compared with 2016, primarily as a result of lower net volume and mix as described above.  The favorable impact of $56 million from pricing, net of inflation, was largely offset by an unfavorable impact of $43 million from performance and other, largely reflecting higher research, development and engineering costs, which included costs related to the Scorpion program in 2017.
 
Factors contributing to 2016 year-over-year segment profit change are provided below:

(In millions)	 	 	 	 	 	 	 	2016 versus
2015	
Performance and other	 	 	 	 	 	 	$	65	
Volume and mix	 	 	 	 	 	 	 	(49)	
Inflation and pricing	 	 	 	 	 	 	 	(27)	
Total change	 	 	 	 	 	 	$	(11)	
 
Segment profit at Textron Aviation decreased $11 million, 3%, in 2016, compared with 2015, primarily as a result of the mix of products sold and the unfavorable impact from inflation and pricing of $27 million. These decreases were partially offset by favorable performance and other of $65 million, largely attributable to lower research and development costs and lower compensation expense.
 
Bell

 	 	 	 	 	 	 	% Change	
(Dollars in millions)	 	2017	 	2016	 	2015	 	2017	 	2016	
Revenues:	 	 	 	 	 	 	 	 	 	 	
V-22 Program	$	1,129	$	1,151	$	1,194	 	(2)%	 	(4)%	
Other Military	 	947	 	936	 	839	 	1%	 	12%	
Commercial	 	1,241	 	1,152	 	1,421	 	8%	 	(19)%	
Total revenues	 	3,317	 	3,239	 	3,454	 	2%	 	(6)%	
Operating expenses	 	2,902	 	2,853	 	3,054	 	2%	 	(7)%	
Segment profit	 	415	 	386	 	400	 	8%	 	(4)%	
Profit margin	 	12.5%	 	11.9%	 	11.6%	 	 	 	 	
Backlog	$	4,598	$	5,360	$	5,224	 	(14)%	 	3%	

Bell’s major U.S. Government programs at this time are the V-22 tiltrotor aircraft and the H-1 helicopter platforms, which are both in the production stage and represent a significant portion of Bell’s revenues from the U.S. Government.
 
Bell Revenues and Operating Expenses
Factors contributing to the 2017 year-over-year revenue change are provided below:

(In millions)	 	 	 	 	 	 	 	2017 versus
2016	
Volume and mix	 	 	 	 	 	 	$	57	
Other	 	 	 	 	 	 	 	21	
Total change	 	 	 	 	 	 	$	78	
 
Bell’s revenues increased $78 million, 2%, in 2017, compared with 2016, primarily due to an $89 million increase in commercial revenues, largely due to higher deliveries as Bell delivered 132 commercial aircraft in 2017, compared with 114 aircraft in 2016.  Military deliveries were largely unchanged in 2017 compared with 2016, as we delivered 22 V-22 aircraft in both years and 38 H-1 aircraft in 2017, compared with 35 H-1 aircraft in 2016.
 
23 

Table of Contents
 
Bell’s operating expenses increased $49 million, 2%, in 2017, compared with 2016, primarily due to higher volume as described above.
 
Factors contributing to the 2016 year-over-year revenue change are provided below:

(In millions)	 	 	 	 	 	 	 	2016 versus
2015	
Volume and mix	 	 	 	 	 	 	$	(225)	
Other	 	 	 	 	 	 	 	10	
Total change	 	 	 	 	 	 	$	(215)	
 
Bell’s revenues decreased $215 million, 6%, in 2016, compared with 2015, primarily due to the following factors:
 
·                   $269 million decrease in commercial revenues, primarily due to lower aircraft deliveries, as we delivered 114 commercial aircraft in 2016, compared with 175 aircraft in 2015.
·                   $43 million decrease in V-22 program revenues, primarily due to lower aircraft deliveries, as we delivered 22 V-22 aircraft in 2016, compared with 24 V-22 aircraft in 2015.
·                   $97 million increase in other military revenues, primarily reflecting higher H-1 program revenues, as we delivered 35 H-1 aircraft in 2016, compared with 24 H-1 aircraft in 2015.
 
Bell’s operating expenses decreased $201 million, 7%, in 2016, compared with 2015, primarily due to lower net sales volume as described above.
 
Bell Segment Profit
Factors contributing to 2017 year-over-year segment profit change are provided below:

(In millions)	 	 	 	 	 	 	 	2017 versus
2016	
Performance and other	 	 	 	 	 	 	$	66	
Volume and mix	 	 	 	 	 	 	 	(37)	
Total change	 	 	 	 	 	 	$	29	
 
Bell’s segment profit increased $29 million, 8%, in 2017, compared with 2016, reflecting a favorable impact from performance and other of $66 million, largely the result of improved manufacturing performance and lower research and development costs, partially offset by an unfavorable impact from volume and mix of $37 million.
 
Factors contributing to 2016 year-over-year segment profit change are provided below:

(In millions)	 	 	 	 	 	 	 	2016 versus
2015	
Volume and mix	 	 	 	 	 	 	$	(46)	
Performance and other	 	 	 	 	 	 	 	32	
Total change	 	 	 	 	 	 	$	(14)	
 
Bell’s segment profit decreased $14 million, 4%, in 2016, compared with 2015.  The unfavorable impact from volume and mix was primarily due to lower commercial aircraft deliveries, while the favorable performance and other was largely the result of lower research and development costs.
 
Bell Backlog
Bell’s backlog decreased $762 million, 14%, in 2017, and increased $136 million, 3%, in 2016.  The decrease in 2017 was primarily due to deliveries on the V-22 and H-1 programs in excess of orders.
 
24 

Table of Contents
 
Textron Systems

 	 	 	 	 	 	 	% Change	
(Dollars in millions)	 	2017	 	2016	 	2015	 	2017	 	2016	
Revenues	$	1,840	$	1,756	$	1,520	 	5%	 	16%	
Operating expenses	 	1,701	 	1,570	 	1,391	 	8%	 	13%	
Segment profit	 	139	 	186	 	129	 	(25)%	 	44%	
Profit margin	 	7.6%	 	10.6%	 	8.5%	 	 	 	 	
Backlog	$	1,406	$	1,841	$	2,328	 	(24)%	 	(21)%	
 
Textron Systems Revenues and Operating Expenses
Factors contributing to the 2017 year-over-year revenue change are provided below:

(In millions)	 	 	 	 	 	 	 	2017 versus
2016	
Volume	 	 	 	 	 	 	$	67	
Acquisitions	 	 	 	 	 	 	 	10	
Other	 	 	 	 	 	 	 	7	
Total change	 	 	 	 	 	 	$	84	
 
Revenues at Textron Systems increased $84 million, 5%, in 2017, compared with 2016, primarily due to higher volume of $176 million in the Marine and Land Systems product line, partially offset by lower volume in the other product lines, largely due to the final deliveries of our discontinued sensor-fuzed weapon product in the first half of 2017.
 
Textron Systems’ operating expenses increased $131 million, 8%, in 2017, compared with 2016, primarily due to higher volume as described above and the unfavorable impact from net program adjustments described below.
 
Factors contributing to the 2016 year-over-year revenue change are provided below:

(In millions)	 	 	 	 	 	2016 versus
2015	
Volume	 	 	 	 	$	200	
Acquisitions	 	 	 	 	 	32	
Other	 	 	 	 	 	4	
Total change	 	 	 	 	$	236	
 
Revenues at Textron Systems increased $236 million, 16%, in 2016, compared with 2015, primarily due to higher volume of $106 million in the Marine and Land Systems product line and $77 million in the Unmanned Systems product line, and the impact from an acquisition of $32 million.
 
Textron Systems’ operating expenses increased $179 million, 13%, in 2016, compared with 2015, primarily due to higher volume as described above.
 
Textron Systems Segment Profit
Factors contributing to 2017 year-over-year segment profit change are provided below:

(In millions)	 	 	 	 	 	 	 	2017 versus
2016	
Performance	 	 	 	 	 	 	$	(28)	
Volume and mix	 	 	 	 	 	 	 	(13)	
Other	 	 	 	 	 	 	 	(6)	
Total change	 	 	 	 	 	 	$	(47)	
 
Textron Systems’ segment profit decreased $47 million, 25%, in 2017, compared with 2016, primarily due to unfavorable performance.  Performance reflects an unfavorable impact from net program adjustments compared with 2016, largely due to $44 million of adjustments recorded in 2017 related to the Tactical Armoured Patrol Vehicle program (TAPV).  In 2017, this program experienced inefficiencies resulting from various production issues during the ramp up and subsequent production.
 
25 

Table of Contents
 
Factors contributing to 2016 year-over-year segment profit change are provided below:

(In millions)	 	 	 	 	 	 	 	2016 versus
2015	
Performance	 	 	 	 	 	 	$	43	
Volume and mix	 	 	 	 	 	 	 	13	
Other	 	 	 	 	 	 	 	1	
Total change	 	 	 	 	 	 	$	57	
 
Textron Systems’ segment profit increased $57 million, 44%, in 2016, compared with 2015, primarily due to improved cost performance and higher volume as described above.
 
Textron Systems Backlog
Backlog at Textron Systems decreased $435 million, 24%, in 2017, primarily due to deliveries in excess of orders in the Marine and Land Systems product line as TAPV deliveries near completion, and final deliveries of our discontinued sensor-fuzed weapon product in 2017.  In 2016, backlog decreased by $487 million, 21%, primarily due to deliveries in excess of orders in the Weapons and Sensors business and Unmanned Systems product line.
 
Industrial

 	 	 	 	 	 	 	% Change	
(Dollars in millions)	 	2017	 	2016	 	2015	 	2017	 	2016	
Revenues:	 	 	 	 	 	 	 	 	 	 	
Fuel Systems and Functional Components	$	2,330	$	2,273	$	2,078	 	3%	 	9%	
Other Industrial	 	1,956	 	1,521	 	1,466	 	29%	 	4%	
Total revenues	 	4,286	 	3,794	 	3,544	 	13%	 	7%	
Operating expenses	 	3,996	 	3,465	 	3,242	 	15%	 	7%	
Segment profit	 	290	 	329	 	302	 	(12)%	 	9%	
Profit margin	 	6.8%	 	8.7%	 	8.5%	 	 	 	 	
 
Industrial Revenues and Operating Expenses
Factors contributing to the 2017 year-over-year revenue change are provided below:

(In millions)	 	 	 	 	 	 	 	2017 versus
2016	
Acquisitions	 	 	 	 	 	 	$	393	
Volume	 	 	 	 	 	 	 	77	
Foreign exchange	 	 	 	 	 	 	 	27	
Other	 	 	 	 	 	 	 	(5)	
Total change	 	 	 	 	 	 	$	492	
 
Industrial segment revenues increased $492 million, 13%, in 2017, compared with 2016, primarily due to the impact from acquired businesses of $393 million, largely related to the acquisition of Arctic Cat as described below.  Revenues were also impacted by higher volume of $77 million, primarily related to the Fuel Systems and Functional Components product line and a favorable impact of $27 million from foreign exchange, primarily related to the Euro.
 
On March 6, 2017 , we acquired Arctic Cat, a manufacturer of all-terrain vehicles, side-by-sides and snowmobiles, in addition to related parts, garments and accessories.  Arctic Cat provides a platform to expand our product portfolio and increase our distribution channel to support growth within our Textron Specialized Vehicles business.  The operating results of Arctic Cat have been included in our financial results only for the period subsequent to the completion of the acquisition.  See Note 2 to the Consolidated Financial Statements for additional information regarding this acquisition.
 
Operating expenses for the Industrial segment increased $531 million, 15%, in 2017, compared with 2016, primarily due to additional operating expenses from acquired businesses.  The increase in operating expenses was also due to higher volume as described above.
 
26 

Table of Contents
 
Factors contributing to the 2016 year-over-year revenue change are provided below:

(In millions)	 	 	 	 	 	 	 	2016 versus
2015	
Volume	 	 	 	 	 	 	$	168	
Acquisitions	 	 	 	 	 	 	 	121	
Foreign exchange	 	 	 	 	 	 	 	(35)	
Other	 	 	 	 	 	 	 	(4)	
Total change	 	 	 	 	 	 	$	250	
 
Industrial segment revenues increased $250 million, 7%, in 2016, compared with 2015, primarily due to higher volume of $168 million and the impact from acquired businesses of $121 million.  The increase in volume was primarily related to the Fuel Systems and Functional Components product line, largely reflecting automotive industry demand in Europe.
 
Operating expenses for the Industrial segment increased $223 million, 7%, in 2016, compared with 2015, primarily due to the impact from higher volume as described above and additional operating expenses from acquired businesses.
 
Industrial Segment Profit
Factors contributing to 2017 year-over-year segment profit change are provided below:

(In millions)	 	 	 	 	 	 	 	2017 versus
2016	
Pricing and inflation	 	 	 	 	 	 	$	(23)	
Performance and other	 	 	 	 	 	 	 	(10)	
Volume and mix	 	 	 	 	 	 	 	(6)	
Total change	 	 	 	 	 	 	$	(39)	
 
Industrial’s segment profit decreased $39 million, 12%, in 2017, compared with 2016, largely due to an unfavorable impact from pricing and inflation of $23 million, primarily in the Fuel Systems and Functional Components product line, and unfavorable performance and other of $10 million.  Performance and other primarily included the operating results of Arctic Cat, partially offset by favorable performance in the Fuel Systems and Functional Components product line.
 
Factors contributing to 2016 year-over-year segment profit change are provided below:

(In millions)	 	 	 	 	 	 	 	2016 versus
2015	
Inflation, net of pricing	 	 	 	 	 	 	$	19	
Foreign exchange	 	 	 	 	 	 	 	(12)	
Volume	 	 	 	 	 	 	 	11	
Performance and other	 	 	 	 	 	 	 	9	
Total change	 	 	 	 	 	 	$	27	
 
Segment profit for the Industrial segment increased $27 million, 9%, in 2016, compared with 2015, largely due to a $19 million favorable impact from inflation, net of pricing, primarily in our Specialized Vehicles product line, and higher volume as described above, partially offset by an unfavorable impact of $12 million from changes in foreign currency exchange rates.
 
Finance

(In millions)	 	 	 	2017	 	2016	 	2015	
Revenues	 	 	$	69	$	78	$	83	
Segment profit	 	 	 	22	 	19	 	24	
 
Finance segment revenues decreased in both 2017 and 2016, primarily attributable to lower average finance receivables.  Finance segment profit increased in 2017, compared with 2016, primarily due to lower provision for loan losses, partially offset by lower average finance receivables.  Finance segment profit decreased in 2016, compared with 2015, primarily due to lower average finance receivables.
 
27 

Table of Contents
 
Finance Portfolio Quality
The following table reflects information about the Finance segment’s credit performance related to finance receivables.

(Dollars in millions)	 	 	 	 	 	December 30,
2017	 	December 31,
 2016	
Finance receivables*	 	 	 	 	$	850	$	946	
Nonaccrual finance receivables	 	 	 	 	 	61	 	87	
Ratio of nonaccrual finance receivables to finance receivables	 	 	 	 	 	7.18%	 	9.20%	
60+ days contractual delinquency	 	 	 	 	$	34	$	40	
60+ days contractual delinquency as a percentage of finance receivables	 	 	 	 	 	4.00 %	 	4.23%	
* Excludes finance receivables held for sale of $30 million at December 31, 2016.
 
Liquidity and Capital Resources
 
Our financings are conducted through two separate borrowing groups.  The Manufacturing group consists of Textron consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems and Industrial segments.  The Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated subsidiaries.  We designed this framework to enhance our borrowing power by separating the Finance group.  Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services.  Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance.  To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements.
 
Key information that is utilized in assessing our liquidity is summarized below:

(Dollars in millions)	 	 	 	 	 	December 30,
2017	 	December 31,
2016	
Manufacturing group	 	 	 	 	 	 	 	 	
Cash and equivalents	 	 	 	 	$	1,079	$	1,137	
Debt	 	 	 	 	 	3,088	 	2,777	
Shareholders’ equity	 	 	 	 	 	5,647	 	5,574	
Capital (debt plus shareholders’ equity)	 	 	 	 	 	8,735	 	8,351	
Net debt (net of cash and equivalents) to capital	 	 	 	 	 	26%	 	23%	
Debt to capital	 	 	 	 	 	35%	 	33%	
Finance group	 	 	 	 	 	 	 	 	
Cash and equivalents	 	 	 	 	$	183	$	161	
Debt	 	 	 	 	 	824	 	903	
 
We believe that our calculations of debt to capital and net debt to capital are useful measures as they provide a summary indication of the level of debt financing (i.e., leverage) that is in place to support our capital structure, as well as to provide an indication of the capacity to add further leverage.  We believe that we will have sufficient cash to meet our future needs, based on our existing cash balances, the cash we expect to generate from our manufacturing operations and other available funding alternatives, as appropriate.
 
Textron has 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 30, 2017, there were no amounts borrowed against the facility and there were $11 million of letters of credit issued against it.
 
We also maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to issue an unlimited amount of public debt and other securities.  During 2017, we issued $1.0 billion of public debt under this registration statement, which consisted of $350 million in 3.65% Notes due March 2027, $300 million in 3.375% Notes due March 2028, and $350 million of Floating Rate Notes due November 2020.
 
28 

Table of Contents
 
Manufacturing Group Cash Flows
Cash flows from continuing operations for the Manufacturing group as presented in our Consolidated Statements of Cash Flows are summarized below:

(In millions)	 	 	 	2017	 	2016	 	2015	
Operating activities	 	 	$	947	$	988	$	1,038	
Investing activities	 	 	 	(745 )	 	(621 )	 	(496)	
Financing activities	 	 	 	(266)	 	(146)	 	(308)	
 
In 2017, cash flows provided by operating activities was $947 million, compared with $988 million in 2016, a 4% decrease, as higher pension contributions of $308 million and lower earnings were largely offset by improvements in working capital.  Significant factors contributing to the favorable change in working capital included an increase in cash flows of $769 million related to changes in inventory between the periods, principally in the Textron Aviation and Textron Systems segments, $333 million related to changes in customer deposits and $179 million from changes in net taxes paid/received, partially offset by changes in accounts payable and accounts receivable.  The increase in cash flows from customer deposits between the periods is primarily related to lower performance-based payments received on certain military contracts in the Bell segment in 2016.
 
Cash flows provided by operating activities was $988 million in 2016, compared with $1,038 million in 2015, a 5% decrease.  This decrease was primarily the result of changes in working capital, which included lower customer deposits of $257 million largely related to performance-based payments on certain military contracts in the Bell segment, along with a $34 million reduction in dividends received from the Finance group. These decreases were partially offset by a $75 million increase in cash proceeds from the settlements of corporate-owned life insurance policies and $42 million in lower payments for taxes and pension contributions as disclosed below.
 
Net tax (receipts)/payments were $(16) million, $163 million and $187 million in 2017, 2016 and 2015, respectively. P ension contributions were $358 million, $50 million and $68 million in 2017, 2016 and 2015, respectively.  In 2017, pension contributions included a $300 million discretionary contribution to fund a U.S. pension plan.
 
Investing cash flows included capital expenditures of $423 million, $446 million and $420 million in 2017, 2016 and 2015, respectively.  In 2017, cash flows from investing activities included a $316 million aggregate cash payment, including the repayment of debt and net of cash acquired, for the acquisition of Arctic Cat.  Investing cash flows also included cash used for acquisitions of $186 million and $81 million in 2016 and 2015, respectively.
 
Total financing cash flows included proceeds from long-term debt of $992 million and $345 million in 2017 and 2016, respectively .  In 2017, 2016 and 2015, financing activities also included the repayment of outstanding debt of $704 million, $254 million and $100 million, respectively.
 
Share Repurchases
On January 25, 2017, we announced the adoption of a plan authorizing the repurchase of up to 25 million shares of Textron common stock to offset the impact of dilution from share-based compensation and benefit plans and for opportunistic capital management purposes.  This plan has no expiration date and replaced the previous plan adopted in 2013 that had 4.0 million remaining shares available for repurchase.  During 2017, we repurchased an aggregate of 11.9 million shares of our outstanding common stock for $582 million under this plan.  Under the 2013 share repurchase authorization, we repurchased an aggregate of 6.9 million and 5.2 million shares of our outstanding common stock in 2016 and 2015, respectively, for $241 million and $219 million, respectively.
 
Dividends
Dividend payments to shareholders totaled $21 million, $22 million and $22 million in 2017, 2016 and 2015, respectively.
 
Dividends received from the Finance group, which totaled $29 million and $63 million in 2016 and 2015, respectively, are included within cash flows from operating activities for the Manufacturing group as they represent a return on investment.
 
29 

Table of Contents
 
Finance Group Cash Flows
The cash flows from continuing operations for the Finance group as presented in our Consolidated Statements of Cash Flows are summarized below:

(In millions)	 	 	 	2017	 	2016	 	2015	
Operating activities	 	 	$	(24)	$	11	$	30	
Investing activities	 	 	 	140	 	142	 	197	
Financing activities	 	 	 	(94)	 	(51)	 	(259)	
 
The Finance group’s cash flows from operating activities included net tax payments of $48 million, $11 million and $11 million in 2017, 2016 and 2015, respectively.  Cash flows from investing activities primarily included collections on finance receivables totaling $273 million, $292 million and $351 million in 2017, 2016 and 2015, respectively, partially offset by finance receivable originations of $174 million, $173 million and $194 million, respectively.
 
Cash flows used in financing activities included payments on long-term and nonrecourse debt of $137 million, $203 million and $256 million in 2017, 2016 and 2015, respectively, which were partially offset by proceeds from long-term debt of $44 million, $180 million and $61 million, respectively. In 2016 and 2015, dividend payments to the Manufacturing group totaled $29 million and $63 million, respectively.
 
Consolidated Cash Flows
The consolidated cash flows from continuing operations, after elimination of activity between the borrowing groups, are summarized below:

(In millions)	 	 	 	2017	 	2016	 	2015	
Operating activities	 	 	$	980	$	1,014	$	1,094	
Investing activities	 	 	 	(662 )	 	(523 )	 	(388)	
Financing activities	 	 	 	(360)	 	(168)	 	(504)	
 
Consolidated cash flows provided by operating activities was $980 million in 2017, compared with $1,014 million in 2016, a 3% decrease, as higher pension contributions of $308 million and lower earnings were largely offset by improvements in working capital.  Significant factors contributing to the favorable change in working capital included an increase in cash flows of $764 million related to changes in inventory between the periods, principally in the Textron Aviation and Textron Systems segments, $333 million related to changes in customer deposits and $142 million of lower net tax payments, partially offset by changes in accounts payable and accounts receivable.  The increase in cash flows from customer deposits between the periods is primarily related to lower performance-based payments received on certain military contracts in the Bell segment in 2016.
 
Cash flows provided by operating activities was $1,014 million in 2016, compared with $1,094 million in 2015, a 7% decrease.   This decrease was primarily the result of changes in working capital, which included lower customer deposits of $257 million largely related to performance-based payments on certain military contracts in the Bell segment. These decreases were partially offset by a $75 million increase in cash proceeds from the settlements of corporate-owned life insurance policies and $42 million in lower payments for taxes and pension contributions as disclosed below.
 
Net tax payments were $32 million, $174 million and $198 million in 2017, 2016 and 2015, respectively.  P ension contributions were $358 million, $50 million and $68 million in 2017, 2016 and 2015, respectively.  In 2017, pension contributions included a $300 million discretionary contribution to fund a U.S. pension plan.
 
Investing cash flows included capital expenditures of $423 million, $446 million and $420 million in 2017, 2016 and 2015, respectively.  In 2017, cash flows from investing activities included a $316 million aggregate cash payment, including the repayment of debt and net of cash acquired, for the acquisition of Arctic Cat.  Investing cash flows also included cash used for acquisitions of $186 million and $81 million in 2016 and 2015, respectively.
 
In 2017, 2016 and 2015, cash used in financing activities included the repayment of outstanding debt of $841 million, $457 million and $356 million, respectively, and share repurchases of $582 million, $241 million and $219 million, respectively, partially offset by proceeds from long-term debt of $1.0 billion, $525 million and $61 million, respectively.
 
30 

Table of Contents
 
Captive Financing and Other Intercompany Transactions
The Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters manufactured by our Manufacturing group, otherwise known as captive financing.  In the Consolidated Statements of Cash Flows, cash received from customers is reflected as operating activities when received from third parties.  However, in the cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected based on the operations of each group.  For example, when product is sold by our Manufacturing group to a customer and is financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in the Finance group’s statement of cash flows.  Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow.  Although cash is transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of the original financing.  These captive financing activities, along with all significant intercompany transactions, are reclassified or eliminated from the Consolidated Statements of Cash Flows.
 
Reclassification adjustments included in the Consolidated Statements of Cash Flows are summarized below:

(In millions)	 	 	 	2017	 	2016	 	2015	
Reclassification adjustments from investing activities:	 	 	 	 	 	 	 	 	
Cash received from customers	 	 	$	241	$	248	$	284	
Finance receivable originations for Manufacturing group inventory sales	 	 	 	( 174 )	 	( 173 )	 	( 194 )	
Other	 	 	 	( 10 )	 	( 31 )	 	(1)	
Total reclassification adjustments from investing activities	 	 	 	57	 	44	 	89	
Reclassification adjustments from financing activities:	 	 	 	 	 	 	 	 	
Dividends received by Manufacturing group from Finance group	 	 	 	—	 	( 29 )	 	(63)	
Total reclassification adjustments to cash flow from operating activities	 	 	$	57	$	15	$	26	
 
Under a Support Agreement between Textron and TFC, Textron is required to maintain a controlling interest in TFC.  The agreement, as amended in December 2015, also requires Textron to ensure that TFC maintains fixed charge coverage of no less than 125% and consolidated shareholder’s equity of no less than $125 million.  There were no cash contributions required to be paid to TFC in 2017, 2016 and 2015 to maintain compliance with the support agreement.
 
Contractual Obligations
 
Manufacturing Group
The following table summarizes the known contractual obligations, as defined by reporting regulations, of our Manufacturing group as of December 30, 2017:

 	 	 	Payments Due by Period	
(In millions)	 	Total	 	Year 1	 	Years 2-3	 	Years 4-5	 	More Than 5
Years	
Debt	$	3,108	$	14	$	820	$	514	$	1,760	
Purchase obligations not reflected in balance sheet	 	2,360	 	2,111	 	232	 	17	 	—	
Interest on borrowings	 	775	 	133	 	252	 	156	 	234	
Pension benefits for unfunded plans	 	404	 	27	 	51	 	47	 	279	
Postretirement benefits other than pensions	 	289	 	31	 	55	 	46	 	157	
Other long-term liabilities	 	476	 	111	 	125	 	72	 	168	
Operating leases	 	397	 	80	 	115	 	65	 	137	
Total Manufacturing group	$	7,809	$	2,507	$	1,650	$	917	$	2,735	
 
Pension and Postretirement Benefits
We maintain defined benefit pension plans and postretirement benefit plans other than pensions as described in Note 11 to the Consolidated Financial Statements. Included in the above table are discounted estimated benefit payments we expect to make related to unfunded pension and other postretirement benefit plans. Actual benefit payments are dependent on a number of factors, including mortality assumptions, expected retirement age, rate of compensation increases and medical trend rates, which are subject to change in future years. Our policy for funding pension plans is to make contributions annually, consistent with applicable laws and regulations; however, future contributions to our pension plans are not included in the above table.  In 2018, we expect to make approximately $27 million of contributions to our funded pension plans and the Retirement Account Plan. Based on our current assumptions, which may change with changes in market conditions, our current contribution for each of the years from 2019 through 2022 are estimated to be in the range of approximately $50 million to $55 million under the plan provisions in place at this time.
 
31 

Table of Contents
 
Other Long-Term Liabilities
Other long-term liabilities consist of undiscounted amounts in the Consolidated Balance Sheets that primarily include obligations under deferred compensation arrangements, estimated environmental remediation costs, and a one-time transition tax, as disclosed in Note 13 to the Consolidated Financial Statements, that will be paid over an eight-year period. Payments under deferred compensation arrangements have been estimated based on management’s assumptions of expected retirement age, mortality, stock price and rates of return on participant deferrals.  The timing of cash flows associated with environmental remediation costs is largely based on historical experience. Certain other long-term liabilities, such as deferred taxes, unrecognized tax benefits and product liability, warranty and litigation reserves, have been excluded from the table due to the uncertainty of the timing of payments combined with the absence of historical trends to be used as a predictor for such payments.
 
Purchase Obligations
Purchase obligations include undiscounted amounts committed under legally enforceable contracts or purchase orders for goods and services with defined terms as to price, quantity and delivery dates. Approximately 33% of the purchase obligations we disclose represent purchase orders issued for goods and services to be delivered under firm contracts with the U.S. Government for which we have full recourse under customary contract termination clauses.
 
Finance Group
The following table summarizes the known contractual obligations, as defined by reporting regulations, of our Finance group as of December 30, 2017:

 	 	 	Payments Due by Period	
(In millions)	 	Total	 	Year 1	 	Years 2-3	 	Years 4-5	 	More Than 5
Years	
Term debt	$	525	$	22	$	401	$	50	$	52	
Subordinated debt	 	299	 	—	 	—	 	—	 	299	
Interest on borrowings	 	182	 	23	 	34	 	24	 	101	
Total Finance group	$	1,006	$	45	$	435	$	74	$	452	
 	 	 	 	 	 	 	 	 	 	 	
At December 30, 2017, the Finance group also had $38 million in other liabilities that are payable within the next 12 months.
 
Critical Accounting Estimates
 
To prepare our Consolidated Financial Statements to be in conformity with generally accepted accounting principles, we must make complex and subjective judgments in the selection and application of accounting policies.  The accounting policies that we believe are most critical to the portrayal of our financial condition and results of operations are listed below.  We believe these policies require our most difficult, subjective and complex judgments in estimating the effect of inherent uncertainties.  This section should be read in conjunction with Note 1 to the Consolidated Financial Statements, which includes other significant accounting policies.
 
Long-Term Contracts
We make a substantial portion of our sales to government customers pursuant to long-term contracts.  These contracts require development and delivery of products over multiple years and may contain fixed-price purchase options for additional products.  We account for these long-term contracts under the percentage-of-completion method of accounting.  Under this method, we estimate profit as the difference between total estimated revenues and cost of a contract.  The percentage-of-completion method of accounting involves the use of various estimating techniques to project costs at completion and, in some cases, includes estimates of recoveries asserted against the customer for changes in specifications.  Due to the size, length of time and nature of many of our contracts, the estimation of total contract costs and revenues through completion is complicated and subject to many variables relative to the outcome of future events over a period of several years.  We are required to make numerous assumptions and estimates relating to items such as expected engineering requirements, complexity of design and related development costs, product performance, performance of subcontractors, availability and cost of materials, labor productivity and cost, overhead and capital costs, manufacturing efficiencies and the achievement of contract milestones, including product deliveries, technical requirements, or schedule.
 
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.  Adjustments to projected costs are recognized in earnings when determinable.  Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.  Due to the significance of judgment in the estimation process described above, it is likely that materially different revenues and/or cost of sales amounts could be recorded if we used different assumptions or if the underlying circumstances were to change.  Our earnings could be reduced by a material amount resulting in a charge to earnings if (a) total estimated contract costs are significantly higher than expected due to changes in customer specifications prior to contract amendment, (b) total estimated contract costs are significantly higher than previously estimated due to cost overruns
 
32 

Table of Contents
 
or inflation, (c) there is a change in engineering efforts required during the development stage of the contract or (d) we are unable to meet contract milestones.
 
At the outset of each contract, we estimate the initial profit booking rate. The initial profit booking rate of each contract considers risks surrounding the ability to achieve the technical requirements (for example, a newly-developed product versus a mature product), schedule (for example, the number and type of milestone events), and costs by contract requirements in the initial estimated costs at completion. Profit booking rates may increase during the performance of the contract if we successfully retire risks surrounding the technical, schedule, and costs aspects of the contract. Likewise, the profit booking rate may decrease if we are not successful in retiring the risks; and, as a result, our estimated costs at completion increase. All of the estimates are subject to change during the performance of the contract and, therefore, may affect the profit booking rate. 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.
 
The following table sets forth the aggregate gross amount of all program profit adjustments that are included within segment profit for the three years ended December 30, 2017:

(In millions)	 	 	 	2017	 	2016	 	2015	
Gross favorable	 	 	$	92	$	106	$	111	
Gross unfavorable	 	 	 	( 87 )	 	(23)	 	(33)	
Net adjustments	 	 	$	5	$	83	$	78	
 
Goodwill
We evaluate the recoverability of goodwill annually in the fourth quarter or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value of a reporting unit might be impaired.  The reporting unit represents the operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment, in which case such component is the reporting unit.  In certain instances, we have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics.
 
We calculate the fair value of each reporting unit, primarily using discounted cash flows. These cash flows incorporate assumptions for short- and long-term revenue growth rates, operating margins and discount rates that represent our best estimates of current and forecasted market conditions, cost structure, anticipated net cost reductions, and the implied rate of return that we believe a market participant would require for an investment in a business having similar risks and business characteristics to the reporting unit being assessed.  The revenue growth rates and operating margins used in our discounted cash flow analysis are based on our strategic plans and long-range planning forecasts.  The long-term growth rate we use to determine the terminal value of the business is based on our assessment of its minimum expected terminal growth rate, as well as its past historical growth and broader economic considerations such as gross domestic product, inflation and the maturity of the markets we serve.  We utilize a weighted-average cost of capital in our impairment analysis that makes assumptions about the capital structure that we believe a market participant would make and include a risk premium based on an assessment of risks related to the projected cash flows of each reporting unit.  We believe this approach yields a discount rate that is consistent with an implied rate of return that an independent investor or market participant would require for an investment in a company having similar risks and business characteristics to the reporting unit being assessed.
 
If the reporting unit’s estimated fair value exceeds its carrying value, there is no impairment, and no further analysis is performed.  Otherwise, 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, including any unrecognized intangible assets, 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.
 
Based on our annual impairment review, the fair value of all of our reporting units exceeded their carrying values, and we do not believe that there is a reasonable possibility that any units might fail the initial step of the impairment test in the foreseeable future.
 
33 

Table of Contents
 
Retirement Benefits
We maintain various pension and postretirement plans for our employees globally.  These plans include significant pension and postretirement benefit obligations, which are calculated based on actuarial valuations.  Key assumptions used in determining these obligations and related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections.  We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases.  We evaluate and update these assumptions annually.
 
To determine the weighted-average expected long-term rate of return on plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class.  A lower expected rate of return on plan assets will increase pension expense.  For 2017, the assumed expected long-term rate of return on plan assets used in calculating pension expense was 7.57%, compared with 7.58% in 2016.  For the last six years, the assumed rate of return for our domestic plans, which represent approximately 91% of our total pension assets, was 7.75%.  A 50 basis-point decrease in this long-term rate of return in 2017 would have increased pension cost for our domestic plans by approximately $30 million.
 
The discount rate enables us to state expected future benefit payments as a present value on the measurement date, reflecting the current rate at which the pension liabilities could be effectively settled.  This rate should be in line with rates for high-quality fixed income investments available for the period to maturity of the pension benefits, which fluctuate as long-term interest rates change.  A lower discount rate increases the present value of the benefit obligations and increases pension expense.  In 2017, the weighted-average discount rate used in calculating pension expense was 4.13%, compared with 4.66% in 2016.  For our domestic plans, the assumed discount rate was 4.25% in 2017, compared with 4.75% in 2016.  A 50 basis-point decrease in the weighted-average discount rate would have increased pension cost for our domestic plans by approximately $37 million in 2017.
 
The trend in healthcare costs is difficult to estimate and has an important effect on postretirement liabilities.  The 2017 medical and prescription drug healthcare cost trend rates represent the weighted-average annual projected rate of increase in the per capita cost of covered benefits.  In 2017, we assumed a trend rate of 7.25% for both medical and prescription drug healthcare rates and assumed this rate would gradually decline to 5% by 2024 and then remain at that level.  See Note 11 to the Consolidated Financial Statements for the impact of a one-percentage-point change in the cost trend rate.
 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 
 
Foreign Currency Exchange Risks
Our financial results are affected by changes in foreign currency exchange rates in the various countries in which our products are manufactured and/or sold.  For our manufacturing operations, we manage our foreign currency transaction exposures by entering into foreign currency exchange contracts. These contracts generally are used to fix the local currency cost of purchased goods or services or selling prices denominated in currencies other than the functional currency.  The notional amount of outstanding foreign currency exchange contracts was approximately $426 million and $665 million at December 30, 2017 and December 31, 2016, respectively.  We also manage exposures to foreign currency assets and earnings primarily by funding certain foreign currency-denominated assets with liabilities in the same currency so that certain exposures are naturally offset.  We primarily use borrowings denominated in British pound sterling for these purposes.  The impact of foreign currency exchange rate changes on our Consolidated Financial Statements are as follows:

(In millions)	 	 	 	2017	 	2016	 	2015	
Increase (decrease) in revenues	 	 	$	27	$	(36)	$	(244)	
Decrease in segment profit	 	 	 	(1)	 	(12)	 	(20)	
 
Interest Rate Risks
Our financial results are affected by changes in interest rates.  As part of managing this risk, we seek to achieve a prudent balance between floating- and fixed-rate exposures.  We continually monitor our mix of these exposures and adjust the mix, as necessary.  For our Finance group, we limit our risk to changes in interest rates with a strategy of matching floating-rate assets with floating-rate liabilities.
 
Quantitative Risk Measures
In the normal course of business, we enter into financial instruments for purposes other than trading.  The financial instruments that are subject to market risk include finance receivables (excluding leases), debt (excluding capital lease obligations) and foreign currency exchange contracts.  To quantify the market risk inherent in these financial instruments, we utilize a sensitivity analysis that includes a hypothetical change in fair value assuming a 10% decrease in interest rates and a 10% strengthening in foreign exchange rates against the U.S. dollar.  The fair value of these financial instruments is estimated using discounted cash flow analysis and indicative market pricing as reported by leading financial news and data providers.
 
34 

Table of Contents
 
At the end of each year, the table below provides the carrying and fair values of these financial instruments along with the sensitivity of fair value to the hypothetical changes discussed above.  This sensitivity analysis is most likely not indicative of actual results in the future.

 	December 30, 2017	December 31, 2016	
( In millions )	 	Carrying
Value*	 	Fair
Value*	 	Sensitivity of
Fair Value
to a 10%
Change	 	Carrying
Value*	 	Fair
Value*	 	Sensitivity of
Fair Value
to a 10%
Change	
Manufacturing group	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign exchange rate risk	 	 	 	 	 	 	 	 	 	 	 	 	
Debt	$	(212)	$	(232)	$	(23)	$	(187)	$	(211)	$	(21)	
Foreign currency exchange contracts	 	11	 	11	 	26	 	(3)	 	(3)	 	29	
 	$	(201)	$	(221)	$	3	$	(190)	$	(214)	$	8	
Interest rate risk	 	 	 	 	 	 	 	 	 	 	 	 	
Debt	$	(3,007)	$	(3,136)	$	(33)	$	(2,690)	$	(2,809)	$	(22)	
Finance group	 	 	 	 	 	 	 	 	 	 	 	 	
Interest rate risk	 	 	 	 	 	 	 	 	 	 	 	 	
Finance receivables	$	643	$	675	$	14	$	759	$	788	$	15	
Debt	 	(824)	 	(799)	 	2	 	(903)	 	(831)	 	20	
* The value represents an asset or (liability).
 
35 

Table of Contents
 
Item 8. Financial Statements and Supplementary Data 
 
Our Consolidated Financial Statements and the related report of our independent registered public accounting firm thereon are included in this Annual Report on Form 10-K on the pages indicated below:

 	Page	
 	 	
Consolidated Statements of Operations for each of the years in the three-year period ended December 30, 2017	37	
 	 	
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 30, 2017	38	
 	 	
Consolidated Balance Sheets as of December 30, 2017 and December 31, 2016	39	
 	 	
Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended December 30, 2017	40	
 	 	
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 30, 2017	41	
 	 	
Notes to the Consolidated Financial Statements	 	
 	 	
Note 1.                        Summary of Significant Accounting Policies	43	
Note 2.                        Business Acquisitions, Goodwill and Intangible Assets	48	
Note 3.                        Accounts Receivable and Finance Receivables	50	
Note 4.                        Inventories	52	
Note 5.                         Property, Plant and Equipment, Net	52	
Note 6.                         Accrued Liabilities	52	
Note 7.                         Debt and Credit Facilities	53	
Note 8.                         Derivative Instruments and Fair Value Measurements	54	
Note 9.                         Shareholders’ Equity	55	
Note 10.                   Share-Based Compensation	56	
Note 11.                   Retirement Plans	58	
Note 12.                   Special Charges	62	
Note 13.                   Income Taxes	63	
Note 14.                   Commitments and Contingencies	66	
Note 15.                   Supplemental Cash Flow Information	67	
Note 16.                   Segment and Geographic Data	67	
 	 	
Report of Independent Registered Public Accounting Firm	69	
 	 	
Supplementary Information:	 	
 	 	
Quarterly Data for 2017 and 2016 (Unaudited)	70	
Schedule II – Valuation and Qualifying Accounts	71	
 
All other schedules are omitted either because they are not applicable or not required or because the required information is included in the financial statements or notes thereto.
 
36 

Table of Contents
 
Consolidated Statements of Operations 
 
For each of the years in the three-year period ended December 30, 2017

(In millions, except per share data)	 	 	 	2017	 	2016	 	2015	
Revenues	 	 	 	 	 	 	 	 	
Manufacturing revenues	 	 	$	14,129	$	13,710	$	13,340	
Finance revenues	 	 	 	69	 	78	 	83	
Total revenues	 	 	 	14,198	 	13,788	 	13,423	
Costs, expenses and other	 	 	 	 	 	 	 	 	
Cost of sales	 	 	 	11,795	 	11,311	 	10,979	
Selling and administrative expense	 	 	 	1,337	 	1,304	 	1,304	
Interest expense	 	 	 	174	 	174	 	169	
Special charges	 	 	 	130	 	123	 	—	
Total costs, expenses and other	 	 	 	13,436	 	12,912	 	12,452	
Income from continuing operations before income taxes	 	 	 	762	 	876	 	971	
Income tax expense	 	 	 	456	 	33	 	273	
Income from continuing operations	 	 	 	306	 	843	 	698	
Income (loss) from discontinued operations, net of income taxes*	 	 	 	1	 	119	 	(1)	
Net income	 	 	$	307	$	962	$	697	
Basic earnings per share	 	 	 	 	 	 	 	 	
Continuing operations	 	 	$	1.15	$	3.11	$	2.52	
Discontinued operations	 	 	 	—	 	0.44	 	—	
Basic earnings per share	 	 	$	1.15	$	3.55	$	2.52	
Diluted earnings per share	 	 	 	 	 	 	 	 	
Continuing operations	 	 	$	1.14	$	3.09	$	2.50	
Discontinued operations	 	 	 	—	 	0.44	 	—	
Diluted earnings per share	 	 	$	1.14	$	3.53	$	2.50	
 
* See Note 13 to the Consolidated Financial Statements for additional information regarding the year ended December 31, 2016.
 
See Notes to the Consolidated Financial Statements.
 
37 

Table of Contents
 
Consolidated Statements of Comprehensive Income 
 
For each of the years in the three-year period ended December 30, 2017

(In millions)	 	 	 	2017	 	2016	 	2015	
Net income	 	 	$	307	$	962	$	697	
Other comprehensive income (loss), net of tax:	 	 	 	 	 	 	 	 	
Pension and postretirement benefits adjustments, net of reclassifications	 	 	 	109	 	(178)	 	184	
Foreign currency translation adjustments	 	 	 	107	 	(49)	 	(65)	
Deferred gains (losses) on hedge contracts, net of reclassifications	 	 	 	14	 	20	 	(11)	
Other comprehensive income (loss)	 	 	 	230	 	(207)	 	108	
Comprehensive income	 	 	$	537	$	755	$	805	
 
See Notes to the Consolidated Financial Statements.
 
38 

Table of Contents
 
Consolidated Balance Sheets 

 	 	 	 	 	 	 	 	 	
(In millions, except share data)	 	December 30,
2017	 	December 31,
2016	
Assets	 	 	 	 	
Manufacturing group	 	 	 	 	
Cash and equivalents	$	1,079	$	1,137	
Accounts receivable, net	 	1,363	 	1,064	
Inventories	 	4,150	 	4,464	
Other current assets	 	435	 	388	
Total current assets	 	7,027	 	7,053	
Property, plant and equipment, net	 	2,721	 	2,581	
Goodwill	 	2,364	 	2,113	
Other assets	 	2,059	 	2,331	
Total Manufacturing group assets	 	14,171	 	14,078	
Finance group	 	 	 	 	
Cash and equivalents	 	183	 	161	
Finance receivables, net	 	819	 	935	
Other assets	 	167	 	184	
Total Finance group assets	 	1,169	 	1,280	
Total assets	$	15,340	$	15,358	
Liabilities and shareholders’ equity	 	 	 	 	
Liabilities	 	 	 	 	
Manufacturing group	 	 	 	 	
Short-term debt and current portion of long-term debt	$	14	$	363	
Accounts payable	 	1,205	 	1,273	
Accrued liabilities	 	2,441	 	2,257	
Total current liabilities	 	3,660	 	3,893	
Other liabilities	 	2,006	 	2,354	
Long-term debt	 	3,074	 	2,414	
Total Manufacturing group liabilities	 	8,740	 	8,661	
Finance group	 	 	 	 	
Other liabilities	 	129	 	220	
Debt	 	824	 	903	
Total Finance group liabilities	 	953	 	1,123	
Total liabilities	 	9,693	 	9,784	
Shareholders’ equity	 	 	 	 	
Common stock (262.3 million and 270.3 million shares issued, respectively,
and 261.5 million and 270.3 million shares outstanding, respectively)	 	33	 	34	
Capital surplus	 	1,669	 	1,599	
Treasury stock	 	(48)	 	—	
Retained earnings	 	5,368	 	5,546	
Accumulated other comprehensive loss	 	(1,375)	 	(1,605)	
Total shareholders’ equity	 	5,647	 	5,574	
Total liabilities and shareholders’ equity	$	15,340	$	15,358	
 
See Notes to the Consolidated Financial Statements.
 
39 

Table of Contents
 
Consolidated Statements of Shareholders’ Equity 

 	 	 	 	 	 	 	 	 	
(In millions, except per share data)	 	Common
Stock	 	Capital
Surplus	 	Treasury
Stock	 	Retained
Earnings	 	Accumulated
Other
Comprehensive
Loss	 	Total
Shareholders’
Equity	
Balance at January 3, 2015	$	36	$	1,459	$	(340)	$	4,623	$	(1,506)	$	4,272	
Net income	 	 	 	 	 	 	 	697	 	 	 	697	
Other comprehensive income	 	 	 	 	 	 	 	 	 	108	 	108	
Dividends declared ($0.08 per share)	 	 	 	 	 	 	 	(22)	 	 	 	(22)	
Share-based compensation activity	 	 	 	126	 	 	 	 	 	 	 	126	
Purchases of common stock	 	 	 	 	 	(219)	 	 	 	 	 	(219)	
Other	 	 	 	2	 	 	 	 	 	 	 	2	
Balance at January 2, 2016	 	36	 	1,587	 	(559)	 	5,298	 	(1,398)	 	4,964	
Net income	 	 	 	 	 	 	 	962	 	 	 	962	
Other comprehensive loss	 	 	 	 	 	 	 	 	 	(207)	 	(207)	
Dividends declared ($0.08 per share)	 	 	 	 	 	 	 	(22)	 	 	 	(22)	
Share-based compensation activity	 	1	 	119	 	 	 	 	 	 	 	120	
Purchases of common stock	 	 	 	 	 	(241)	 	 	 	 	 	(241)	
Retirement of treasury stock	 	(3)	 	(105)	 	800	 	(692)	 	 	 	—	
Other	 	 	 	(2)	 	 	 	 	 	 	 	(2)	
Balance at December 31, 2016	 	34	 	1,599	 	—	 	5,546	 	(1,605)	 	5,574	
Net income	 	 	 	 	 	 	 	307	 	 	 	307	
Other comprehensive income	 	 	 	 	 	 	 	 	 	230	 	230	
Dividends declared ($0.08 per share)	 	 	 	 	 	 	 	(21)	 	 	 	(21)	
Share-based compensation activity	 	 	 	139	 	 	 	 	 	 	 	139	
Purchases of common stock	 	 	 	 	 	(582)	 	 	 	 	 	(582)	
Retirement of treasury stock	 	(1)	 	(69)	 	534	 	(464)	 	 	 	—	
Balance at December 30, 2017	$	33	$	1,669	$	(48)	$	5,368	$	(1,375)	$	5,647	
 
See Notes to the Consolidated Financial Statements.
 
40 

Table of Contents
 
Consolidated Statements of Cash Flows 
 
For each of the years in the three-year period ended December 30, 2017

 	 	 	 	 	 	 	 	 	
 	Consolidated	
(In millions)	 	2017	 	2016	 	2015	
Cash flows from operating activities	 	 	 	 	 	 	
Net income	$	307	$	962	$	697	
Less: Income (loss) from discontinued operations	 	1	 	119	 	(1)	
Income from continuing operations	 	306	 	843	 	698	
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:	 	 	 	 	 	 	
Non-cash items:	 	 	 	 	 	 	
Depreciation and amortization	 	447	 	449	 	461	
Asset impairments	 	47	 	40	 	7	
Deferred income taxes	 	346	 	48	 	4	
Other, net	 	90	 	92	 	99	
Changes in assets and liabilities:	 	 	 	 	 	 	
Accounts receivable, net	 	(236)	 	(33)	 	(14)	
Inventories	 	412	 	(352)	 	(239)	
Other assets	 	(27)	 	72	 	(36)	
Accounts payable	 	(156)	 	215	 	43	
Accrued and other liabilities	 	(113)	 	(281)	 	(155)	
Income taxes, net	 	78	 	(189)	 	71	
Pension, net	 	(277)	 	25	 	69	
Captive finance receivables, net	 	67	 	75	 	90	
Other operating activities, net	 	(4)	 	10	 	(4)	
Net cash provided by operating activities of continuing operations	 	980	 	1,014	 	1,094	
Net cash used in operating activities of discontinued operations	 	(27)	 	(2)	 	(4)	
Net cash provided by operating activities	 	953	 	1,012	 	1,090	
Cash flows from investing activities	 	 	 	 	 	 	
Capital expenditures	 	(423)	 	(446)	 	(420)	
Net cash used in acquisitions	 	(331)	 	(186)	 	(81)	
Finance receivables repaid	 	32	 	44	 	67	
Other investing activities, net	 	60	 	65	 	46	
Net cash used in investing activities	 	(662)	 	(523)	 	(388)	
Cash flows from financing activities	 	 	 	 	 	 	
Proceeds from long-term debt	 	1,036	 	525	 	61	
Principal payments on long-term debt and nonrecourse debt	 	(841)	 	(457)	 	(356)	
Purchases of Textron common stock	 	(582)	 	(241)	 	(219)	
Proceeds from exercise of stock options	 	52	 	36	 	32	
Dividends paid	 	(21)	 	(22)	 	(22)	
Other financing activities, net	 	(4)	 	(9)	 	—	
Net cash used in financing activities	 	(360)	 	(168)	 	(504)	
Effect of exchange rate changes on cash and equivalents	 	33	 	(28)	 	(15)	
Net increase (decrease) in cash and equivalents	 	(36)	 	293	 	183	
Cash and equivalents at beginning of year	 	1,298	 	1,005	 	822	
Cash and equivalents at end of year	$	1,262	$	1,298	$	1,005	
 
See Notes to the Consolidated Financial Statements.
 
41 

Table of Contents
 
Consolidated Statements of Cash Flows continued
 
For each of the years in the three-year period ended December 30, 2017

 	Manufacturing Group	Finance Group	
(In millions)	 	2017	 	2016	 	2015	 	2017	 	2016	 	2015	
Cash flows from operating activities	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	$	248	$	951	$	683	$	59	$	11	$	14	
Less: Income (loss) from discontinued operations	 	1	 	119	 	(1)	 	—	 	—	 	—	
Income from continuing operations	 	247	 	832	 	684	 	59	 	11	 	14	
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Non-cash items:	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	435	 	437	 	449	 	12	 	12	 	12	
Asset impairments	 	47	 	40	 	7	 	—	 	—	 	—	
Deferred income taxes	 	390	 	36	 	14	 	(44)	 	12	 	(10)	
Other, net	 	94	 	90	 	90	 	(4)	 	2	 	9	
Changes in assets and liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Accounts receivable, net	 	(236)	 	(33)	 	(14)	 	—	 	—	 	—	
Inventories	 	422	 	(347)	 	(241)	 	—	 	—	 	—	
Other assets	 	(26)	 	104	 	(40)	 	(1)	 	(6)	 	4	
Accounts payable	 	(156)	 	215	 	43	 	—	 	—	 	—	
Accrued and other liabilities	 	(108)	 	(276)	 	(144)	 	(5)	 	(5)	 	(8)	
Income taxes, net	 	119	 	(174)	 	62	 	(41)	 	(15)	 	9	
Pension, net	 	(277)	 	25	 	69	 	—	 	—	 	—	
Dividends received from Finance group	 	—	 	29	 	63	 	—	 	—	 	—	
Other operating activities, net	 	(4)	 	10	 	(4)	 	—	 	—	 	—	
Net cash provided by (used in) operating activities of continuing operations	 	947	 	988	 	1,038	 	(24)	 	11	 	30	
Net cash used in operating activities of discontinued operations	 	(27)	 	(2)	 	(4)	 	—	 	—	 	—	
Net cash provided by (used in) operating activities	 	920	 	986	 	1,034	 	(24)	 	11	 	30	
Cash flows from investing activities	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	(423)	 	(446)	 	(420)	 	—	 	—	 	—	
Net cash used in acquisitions	 	(331)	 	(186)	 	(81)	 	—	 	—	 	—	
Finance receivables repaid	 	—	 	—	 	—	 	273	 	292	 	351	
Finance receivables originated	 	—	 	—	 	—	 	(174)	 	(173)	 	(194)	
Other investing activities, net	 	9	 	11	 	5	 	41	 	23	 	40	
Net cash provided by (used in) investing activities	 	(745)	 	(621)	 	(496)	 	140	 	142	 	197	
Cash flows from financing activities	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from long-term debt	 	992	 	345	 	—	 	44	 	180	 	61	
Principal payments on long-term debt and nonrecourse debt	 	(704)	 	(254)	 	(100)	 	(137)	 	(203)	 	(256)	
Purchases of Textron common stock	 	(582)	 	(241)	 	(219)	 	—	 	—	 	—	
Proceeds from exercise of stock options	 	52	 	36	 	32	 	—	 	—	 	—	
Dividends paid	 	(21)	 	(22)	 	(22)	 	—	 	(29)	 	(63)	
Other financing activities, net	 	(3)	 	(10)	 	1	 	(1)	 	1	 	(1)	
Net cash used in financing activities	 	(266)	 	(146)	 	(308)	 	(94)	 	(51)	 	(259)	
Effect of exchange rate changes on cash and equivalents	 	33	 	(28)	 	(15)	 	—	 	—	 	—	
Net increase (decrease) in cash and equivalents	 	(58)	 	191	 	215	 	22	 	102	 	(32)	
Cash and equivalents at beginning of year	 	1,137	 	946	 	731	 	161	 	59	 	91	
Cash and equivalents at end of year	$	1,079	$	1,137	$	946	$	183	$	161	$	59	
 
See Notes to the Consolidated Financial Statements.
 
42 

Table of Contents
 
Notes to the Consolidated Financial Statements 
 
Note 1. Summary of Significant Accounting Policies 
 
Principles of Consolidation and Financial Statement Presentation
Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries.  Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems and Industrial segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation (TFC) and its consolidated subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services.  Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance.  To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements.
 
Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters manufactured by our Manufacturing group, otherwise known as captive financing.  In the Consolidated Statements of Cash Flows, cash received from customers is reflected as operating activities when received from third parties.  However, in the cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected based on the operations of each group.  For example, when product is sold by our Manufacturing group to a customer and is financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in the Finance group’s statement of cash flows.  Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow.  Although cash is transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of the original financing.  These captive financing activities, along with all significant intercompany transactions, are reclassified or eliminated in consolidation.
 
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 currently 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 $5 million, $83 million and $78 million in 2017, 2016 and 2015, respectively, ($3 million, $52 million and $49 million after tax, respectively, or $0.01, $0.19 and $0.18 per diluted share, respectively).  For 2017, 2016 and 2015, the gross favorable program profit adjustments totaled $92 million, $106 million and $111 million, respectively, and the gross unfavorable program profit adjustments totaled $87 million, $23 million and $33 million, respectively.  Gross unfavorable program adjustments for 2017 included $44 million related to the Tactical Armoured Patrol Vehicle program. In 2017, this program experienced inefficiencies resulting from various production issues during the ramp up and subsequent production.
 
43 

Table of Contents
 
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
 
44 

Table of Contents
 
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 78% 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.
 
45 

Table of Contents
 
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.
 
46 

Table of Contents
 
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 $634 million, $677 million and $778 million in 2017, 2016 and 2015, 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 Standards
 
Revenue Recognition
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. This new standard became effective for us at the beginning of 2018, and will be adopted using the modified retrospective transition method. Under this method, we will record the cumulative effect of adopting the new standard in the first quarter of 2018.
 
Based on review and analysis of our contracts, the standard primarily impacts our Bell and Textron Systems segments, which have long-term production contracts with the U.S. Government.  Prior to adoption of the new standard, revenue was generally recognized for these contracts as units were delivered, while under the new standard, revenue will be recognized over time, principally as costs are incurred.  This change will generally result in an acceleration of revenue for these contracts.  At the adoption date, the impact of recognizing these revenues under the new standard for historical periods ending prior to December 31, 2017 will result in a cumulative after-tax transition adjustment to increase retained earnings by approximately $90 million, largely related to the Bell segment.  In addition, the transition adjustment will establish contract assets of approximately $350 million, with corresponding decreases in inventory of approximately $200 million and in contract liabilities (deferred revenue and customer deposits) and accounts receivables, primarily reflecting the conversion of contracts to the cost-to-cost method.  This change is not expected to have a significant impact on our future operating results as the revenues that would have been recognized under the units-of-delivery method in future years, will essentially be replaced by the acceleration of revenue on other contracts into earlier periods using the
 
47 

Table of Contents
 
cost-to-cost method. The new standard will have no impact on cash flows and does not affect the economics of our underlying customer contracts.  The standard does not have a significant impact on revenue recognition for our Textron Aviation and Industrial segments, which will continue to primarily recognize revenue at the point in time when the customer accepts delivery of the goods provided.
 
At the end of 2017, our backlog excluded amounts where funding from the U.S. Government had not been formally appropriated.  Under the new standard, backlog will generally include these unfunded amounts as backlog will be the equivalent of the transaction price allocated to our remaining performance obligations, which represents the revenue we expect to recognize under our contracts in future periods for which work has not yet been performed.  At adoption, the increase in our backlog for the unfunded amounts will be fully offset by the decrease due to the acceleration of revenues in the transition adjustment.  We expect backlog at the Bell segment to decrease by approximately 15% at the adoption date, which will partially be offset by an increase of approximately 7% at the Textron Systems segment.
 
We have updated the accounting policies affected by this standard, redesigned our related internal controls over financial reporting and are expanding the disclosures to be included in our first quarter Form 10-Q to meet the new requirements.
 
Other Standards
In March 2017, the FASB issued ASU No. 2017-07,  Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost .  This standard requires companies to present only the service cost component of net periodic benefit costs in operating income in the same line as other employee compensation costs, while the other components of net periodic benefit costs must be excluded from operating income. In addition, only the service cost component will be eligible for capitalization into inventory.  This standard is effective for our company at the beginning of 2018.  The reclassification of the other components of net periodic benefit cost out of operating income must be applied retrospectively, while the change in the amount companies may capitalize into inventory can be applied prospectively.  This standard will not have a material impact on our consolidated financial statements and will not change our segment reporting.
 
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 the assets and liabilities on our consolidated balance sheet as we recognize the rights and corresponding obligations related to 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 
 
2017 Acquisitions
On March 6, 2017 , we completed the acquisition of Arctic Cat Inc. (Arctic Cat), a publicly-held company (NASDAQ: ACAT), pursuant to a cash tender offer for $18.50 per share, followed by a short-form merger.  Arctic Cat manufactures and markets all-terrain vehicles, side-by-sides and snowmobiles, in addition to related parts, garments and accessories.  The cash paid for this business, including repayment of debt and net of cash acquired, totaled $316 million.  Arctic Cat provides a platform to expand our product portfolio and increase our distribution channel to support growth within our Textron Specialized Vehicles business in the Industrial segment.  The operating results of Arctic Cat are included in the Consolidated Statements of Operations since the closing date.
 
We allocated the consideration paid for this business on a preliminary basis to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.  We expect to finalize the purchase accounting in the first quarter of 2018.  Based on the preliminary allocation, $230 million has been allocated to goodwill, related to expected synergies and the value of the assembled workforce, and $75 million to intangible assets, which included $18 million of indefinite-lived assets related to tradenames. The definite-lived intangible assets are primarily related to customer/dealer relationships and technology, which will be amortized over 8 to 20 years. We determined the value of the intangible assets using the relief-from-royalty and multi-period excess
 
48 

Table of Contents
 
earnings methods, which utilize significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy.  Under these valuation methods, we are required to make estimates and assumptions about sales, operating margins, growth rates, royalty rates and discount rates based on anticipated cash flows and marketplace data.  Approximately $5 million of the goodwill is deductible for tax purposes.
 
2016 and 2015 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. in the first quarter of 2016 represented the largest of these businesses and is included in the Textron Aviation segment.  During 2015, we made aggregate cash payments for acquisitions of $81 million, which included three businesses within our Industrial and Textron Aviation segments.
 
Goodwill
The changes in the carrying amount of goodwill by segment are as follows:

 	 	 	 	 	
(In millions)	 	Textron
Aviation	 	Bell	 	Textron
Systems	 	Industrial	 	Total	
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	
Acquisitions	 	—	 	—	 	—	 	234	 	234	
Foreign currency translation	 	1	 	—	 	—	 	16	 	17	
Balance at December 30, 2017	$	614	$	31	$	1,087	$	632	$	2,364	

Intangible Assets
Our intangible assets are summarized below:

 	 	 	 	 	 	 	 	 	 	 	
 	 	 	December 30, 2017	December 31, 2016	
(Dollars in millions)	 	Weighted-Average
Amortization
Period (in years)	 	Gross
Carrying
Amount	 	Accumulated
Amortization	 	Net	 	Gross
Carrying
Amount	 	Accumulated
Amortization	 	Net	
Patents and technology	 	14	$	545	$	(188)	$	357	$	537	$	(158)	$	379	
Customer relationships and
contractual agreements	 	15	 	418	 	(255)	 	163	 	384	 	(226)	 	158	
Trade names and trademarks	 	15	 	284	 	(40)	 	244	 	264	 	(36)	 	228	
Other	 	9	 	18	 	(17)	 	1	 	18	 	(16)	 	2	
Total	 	 	$	1,265	$	(500)	$	765	$	1,203	$	(436)	$	767	
 
Trade names and trademarks in the table above include $222 million and $204 million of indefinite-lived intangible assets at December 30, 2017 and December 31, 2016, respectively.  Amortization expense totaled $69 million, $66 million and $61 million in 2017, 2016 and 2015, respectively. Amortization expense is estimated to be approximately $68 million, $66 million, $61 million, $58 million and $58 million in 2018, 2019, 2020, 2021 and 2022, respectively.
 
49 

Table of Contents
 
Note 3. Accounts Receivable and Finance Receivables 
 
Accounts Receivable
Accounts receivable is composed of the following:

(In millions)	 	 	 	 	 	December 30,
2017	 	December 31,
2016	
Commercial	 	 	 	 	$	1,007	$	797	
U.S. Government contracts	 	 	 	 	 	383	 	294	
 	 	 	 	 	 	1,390	 	1,091	
Allowance for doubtful accounts	 	 	 	 	 	(27)	 	(27)	
Total	 	 	 	 	$	1,363	$	1,064	
 
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 $179 million at December 30, 2017 and $178 million at December 31, 2016.
 
Finance Receivables
Finance receivables are presented in the following table:

(In millions)	 	 	 	 	 	December 30,
2017	 	December 31,
2016	
Finance receivables*	 	 	 	 	$	850	$	976	
Allowance for losses	 	 	 	 	 	(31)	 	(41)	
Total finance receivables, net	 	 	 	 	$	819	$	935	
 
* Included finance receivables held for sale of $30 million at December 31, 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 30, 2017.  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 30, 2017, 56% of our finance receivables were distributed internationally and 44% throughout the U.S., compared with 61% and 39%, respectively, at the end of 2016.  At December 30, 2017 and December 31, 2016, finance receivables of $257 million and $411 million, respectively, have been pledged as collateral for TFC’s debt of $175 million and $244 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.
 
50 

Table of Contents
 
Finance receivables categorized based on the credit quality indicators and by delinquency aging category are summarized as follows:

(Dollars in millions)	 	 	 	 	 	December 30,
2017	 	December 31,
2016	
Performing	 	 	 	 	$	733	$	758	
Watchlist	 	 	 	 	 	56	 	101	
Nonaccrual	 	 	 	 	 	61	 	87	
Nonaccrual as a percentage of finance receivables	 	 	 	 	 	7.18%	 	9.20%	
Less than 31 days past due	 	 	 	 	$	791	$	857	
31-60 days past due	 	 	 	 	 	25	 	49	
61-90 days past due	 	 	 	 	 	14	 	18	
Over 90 days past due	 	 	 	 	 	20	 	22	
60+ days contractual delinquency as a percentage of finance receivables	 	 	 	 	 	4.00%	 	4.23%	
 
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 2017 or 2016.
 
A summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment is provided below:

(In millions)	 	 	 	 	 	December 30,
2017	 	December 31,
2016	
Recorded investment:	 	 	 	 	 	 	 	 	
Impaired loans with related allowance for losses	 	 	 	 	$	24	$	55	
Impaired loans with no related allowance for losses	 	 	 	 	 	70	 	65	
Total	 	 	 	 	$	94	$	120	
Unpaid principal balance	 	 	 	 	$	106	$	125	
Allowance for losses on impaired loans	 	 	 	 	 	6	 	11	
Average recorded investment	 	 	 	 	 	92	 	101	
 
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 $98 million and $99 million of leveraged leases at December 30, 2017 and December 31, 2016, respectively, in accordance with U.S. generally accepted accounting principles.

(In millions)	 	 	 	 	 	December 30,
2017	 	December 31,
2016	
Balance at beginning of year	 	 	 	 	$	41	$	48	
Provision for losses	 	 	 	 	 	(11)	 	(1)	
Charge-offs	 	 	 	 	 	(6)	 	(16)	
Recoveries	 	 	 	 	 	7	 	10	
Balance at end of year	 	 	 	 	$	31	$	41	
Allowance based on collective evaluation	 	 	 	 	$	25	$	30	
Allowance based on individual evaluation	 	 	 	 	 	6	 	11	
Finance receivables evaluated collectively	 	 	 	 	 	658	 	727	
Finance receivables evaluated individually	 	 	 	 	 	94	 	120	
 
51 

Table of Contents
 
Note 4. Inventories 
 
Inventories are composed of the following:

(In millions)	 	 	 	 	 	December 30,
2017	 	December 31,
2016	
Finished goods	 	 	 	 	$	1,790	$	1,947	
Work in process	 	 	 	 	 	2,238	 	2,742	
Raw materials and components	 	 	 	 	 	804	 	724	
 	 	 	 	 	 	4,832	 	5,413	
Progress/milestone payments	 	 	 	 	 	(682)	 	(949)	
Total	 	 	 	 	$	4,150	$	4,464	
 
Inventories valued by the LIFO method totaled $2.2 billion and $1.9 billion at December 30, 2017 and December 31, 2016, respectively, and the carrying values of these inventories would have been higher by approximately $452 million and $457 million, respectively, had our LIFO inventories been valued at current costs. Inventories related to long-term contracts, net of progress/milestone payments, were $387 million and $557 million at December 30, 2017 and December 31, 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
(in years)	 	December 30,
2017	 	December 31,
2016	
Land and buildings	 	 	 	3 – 40	$	1,948	$	1,884	
Machinery and equipment	 	 	 	1 – 20	 	4,893	 	4,820	
 	 	 	 	 	 	6,841	 	6,704	
Accumulated depreciation and amortization	 	 	 	 	 	(4,120)	 	(4,123)	
Total	 	 	 	 	$	2,721	$	2,581	
 
At December 30, 2017 and December 31, 2016, assets under capital leases totaled $290 million and $284 million, respectively, and had accumulated amortization of $94 million and $85 million, respectively. The Manufacturing group’s depreciation expense, which included amortization expense on capital leases, totaled $362 million, $368 million and $383 million in 2017, 2016 and 2015, respectively.
 
Note 6. Accrued Liabilities 
 
The accrued liabilities of our Manufacturing group are summarized below:

(In millions)	 	 	 	 	 	December 30,
2017	 	December 31,
2016	
Customer deposits	 	 	 	 	$	1,007	$	991	
Salaries, wages and employer taxes	 	 	 	 	 	329	 	301	
Current portion of warranty and product maintenance contracts	 	 	 	 	 	190	 	151	
Other	 	 	 	 	 	915	 	814	
Total	 	 	 	 	$	2,441	$	2,257	
 
Changes in our warranty liability are as follows:

(In millions)	 	 	 	2017	 	2016	 	2015	
Balance at beginning of year	 	 	$	138	$	143	$	148	
Provision	 	 	 	81	 	79	 	78	
Settlements	 	 	 	(69)	 	(70)	 	(72)	
Acquisitions	 	 	 	35	 	2	 	3	
Adjustments*	 	 	 	(21)	 	(16)	 	(14)	
Balance at end of year	 	 	$	164	$	138	$	143	
 
* Adjustments include changes to prior year estimates, new issues on prior year sales and currency translation adjustments.
 
52 

Table of Contents
 
Note 7. Debt and Credit Facilities 
 
Our debt is summarized in the table below:

(In millions)	 	 	 	 	 	December 30,
2017	 	December 31,
2016	
Manufacturing group	 	 	 	 	 	 	 	 	
5.60% due 2017	 	 	 	 	$	—	$	350	
Variable-rate note due 2018 (2.09%)	 	 	 	 	 	—	 	150	
Variable-rate notes due 2019 (1.95%)	 	 	 	 	 	—	 	200	
7.25% due 2019	 	 	 	 	 	250	 	250	
6.625% due 2020	 	 	 	 	 	201	 	184	
Variable-rate notes due 2020 (1.96%)	 	 	 	 	 	350	 	—	
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	 	350	
3.65% due 2027	 	 	 	 	 	350	 	—	
3.375% due 2028	 	 	 	 	 	300	 	—	
Other (weighted-average rate of 3.04% and 2.86%, respectively)	 	 	 	 	 	87	 	93	
Total Manufacturing group debt	 	 	 	 	$	3,088	$	2,777	
Less: Short-term debt and current portion of long-term debt	 	 	 	 	 	(14)	 	(363)	
Total Long-term debt	 	 	 	 	$	3,074	$	2,414	
Finance group	 	 	 	 	 	 	 	 	
Fixed-rate notes due 2017 (weighted-average rate of 4.59%) (a)	 	 	 	 	$	—	$	10	
Variable-rate note due 2019 (2.38% and 1.89%, respectively)	 	 	 	 	 	200	 	200	
2.26% note due 2019	 	 	 	 	 	150	 	150	
Fixed-rate notes due 2017-2028 (weighted-average rate of 3.15% and 2.87%, respectively) (a) (b)	 	 	 	 	 	131	 	202	
Variable-rate notes due 2017-2027 (weighted-average rate of 2.99% and 1.97%, respectively) (a) (b)	 	 	 	 	 	44	 	42	
Fixed-to-Floating Rate Junior Subordinated Notes (3.15% and 6.00%, respectively)	 	 	 	 	 	299	 	299	
Total Finance group debt	 	 	 	 	$	824	$	903	
 
(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 30, 2017:

(In millions)	 	2018	 	2019	 	2020	 	2021	 	2022	
Manufacturing group	$	14	$	257	$	563	$	507	$	7	
Finance group	 	22	 	373	 	28	 	25	 	25	
Total	$	36	$	630	$	591	$	532	$	32	
 
Textron has 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 30, 2017, there were no amounts borrowed against the facility and there were $11 million of letters of credit issued against it.
 
Fixed-to-Floating Rate Junior Subordinated Notes
The Finance group’s $299 million of Fixed-to-Floating Rate Junior Subordinated Notes are unsecured and rank junior to all of its existing and future senior debt.  The notes mature on February 15, 2067; however, we have the right to redeem the notes at par at any time and we are obligated to redeem the notes beginning on February 15, 2042.  Interest on the notes was fixed at 6% through February 15, 2017 and is now variable at the three-month London Interbank Offered Rate + 1.735%.
 
Support Agreement
Under a Support Agreement, as amended in December 2015, Textron Inc. is required to ensure that TFC maintains fixed charge coverage of no less than 125% and consolidated shareholder’s equity of no less than $125 million.  There were no cash contributions required to be paid to TFC in 2017, 2016 and 2015 to maintain compliance with the support agreement.
 
53 

Table of Contents
 
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 30, 2017 and December 31, 2016, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $426 million and $665 million, respectively.  At December 30, 2017, the fair value amounts of our foreign currency exchange contracts were a $13 million asset and a $7 million liability. At December 31, 2016, the fair value amounts of our foreign currency exchange contracts were a $7 million asset and a $17 million liability.
 
We hedge our net investment position in major currencies and generate foreign currency interest payments that offset other transactional exposures in these currencies.  To accomplish this, we borrow directly in foreign currency and designate a portion of foreign currency debt as a hedge of a net investment. We record changes in the fair value of these contracts in other comprehensive income to the extent they are effective as cash flow hedges.  Currency effects on the effective portion of these hedges, which are reflected in the foreign currency translation adjustments within Accumulated other comprehensive loss, were not significant in the periods presented.
 
Assets and Liabilities Not Recorded at Fair Value
The carrying value and estimated fair value of our financial instruments that are not reflected in the financial statements at fair value are as follows:

 	 	December 30, 2017	 	December 31, 2016	
(In millions)	 	Carrying
Value	 	Estimated 
Fair Value	 	Carrying
Value	 	Estimated 
Fair Value	
Manufacturing group	 	 	 	 	 	 	 	 	
Debt, excluding leases	$	(3,007)	$	(3,136)	$	(2,690)	$	(2,809)	
Finance group	 	 	 	 	 	 	 	 	
Finance receivables, excluding leases	 	643	 	675	 	729	 	758	
Debt	 	(824)	 	(799)	 	(903)	 	(831)	
 
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.
 
54 

Table of Contents
 
Note 9. Shareholders’ Equity 
 
Capital Stock
We have authorization for 15 million shares of preferred stock with a par value of $0.01 and 500 million shares of common stock with a par value of $0.125.  Outstanding common stock activity is presented below:

(In thousands)	 	 	 	2017	 	2016	 	2015	
Balance at beginning of year	 	 	 	270,287	 	274,228	 	276,582	
Stock repurchases	 	 	 	(11,917)	 	(6,898)	 	(5,197)	
Share-based compensation activity	 	 	 	3,101	 	2,957	 	2,843	
Balance at end of year	 	 	 	261,471	 	270,287	 	274,228	
 
Earnings Per Share
We calculate basic and diluted earnings per share (EPS) based on net income, which approximates income available to common shareholders for each period.  Basic EPS is calculated using the two-class method, which includes the weighted-average number of common shares outstanding during the period and restricted stock units to be paid in stock that are deemed participating securities as they provide nonforfeitable rights to dividends.  Diluted EPS considers the dilutive effect of all potential future common stock, including stock options.
 
The weighted-average shares outstanding for basic and diluted EPS are as follows:

(In thousands)	 	 	 	2017	 	2016	 	2015	
Basic weighted-average shares outstanding	 	 	 	266,380	 	270,774	 	276,682	
Dilutive effect of stock options	 	 	 	2,370	 	1,591	 	2,045	
Diluted weighted-average shares outstanding	 	 	 	268,750	 	272,365	 	278,727	
 
In 2017, 2016 and 2015, stock options to purchase 1.6 million, 2.0 million and 2.1 million shares, respectively, of common stock are excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive.
 
Accumulated Other Comprehensive Loss
The components of Accumulated Other Comprehensive Loss are presented below:

(In millions)	 	Pension and
Postretirement
Benefits
Adjustments	 	Foreign
Currency
Translation
Adjustments	 	Deferred
Gains (Losses)
on Hedge
Contracts	 	Accumulated
Other
Comprehensive
Loss	
Balance at January 2, 2016	$	(1,327)	$	(47)	$	(24)	$	(1,398)	
Other comprehensive income (loss) before reclassifications	 	(240)	 	(49)	 	7	 	(282)	
Reclassified from Accumulated other comprehensive loss	 	62	 	—	 	13	 	75	
Other comprehensive income (loss)	 	(178)	 	(49)	 	20	 	(207)	
Balance at December 31, 2016	$	(1,505)	$	(96)	$	(4)	$	(1,605)	
Other comprehensive income before reclassifications	 	16	 	107	 	8	 	131	
Reclassified from Accumulated other comprehensive loss	 	93	 	—	 	6	 	99	
Other comprehensive income	 	109	 	107	 	14	 	230	
Balance at December 30, 2017	$	(1,396)	$	11	$	10	$	(1,375)	
 
55 

Table of Contents
 
Other Comprehensive Income (Loss)
The before and after-tax components of other comprehensive income (loss) are presented below:

 	 	2017	 	2016	 	2015	
(In millions)	 	Pre-Tax
Amount	 	Tax 
(Expense)
Benefit	 	After-Tax 
Amount	 	Pre-Tax
Amount	 	Tax 
(Expense)
Benefit	 	After-Tax 
Amount	 	Pre-Tax
Amount	 	Tax 
(Expense)
Benefit	 	After-Tax 
Amount	
Pension and postretirement benefits
adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized gains (losses)	$	18	$	(1)	$	17	$	(382)	$	135	$	(247)	$	136	$	(44)	$	92	
Amortization of net actuarial loss*	 	136	 	(48)	 	88	 	104	 	(39)	 	65	 	150	 	(53)	 	97	
Amortization of prior service cost (credit)*	 	7	 	(2)	 	5	 	(7)	 	4	 	(3)	 	(7)	 	2	 	(5)	
Recognition of prior service credit (cost)	 	(1)	 	—	 	(1)	 	12	 	(5)	 	7	 	—	 	—	 	—	
Pension and postretirement benefits
adjustments, net	 	160	 	(51)	 	109	 	(273)	 	95	 	(178)	 	279	 	(95)	 	184	
Deferred gains (losses) on hedge contracts:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current deferrals	 	10	 	(2)	 	8	 	11	 	(4)	 	7	 	(33)	 	7	 	(26)	
Reclassification adjustments	 	7	 	(1)	 	6	 	17	 	(4)	 	13	 	19	 	(4)	 	15	
Deferred gains (losses) on hedge
contracts, net	 	17	 	(3)	 	14	 	28	 	(8)	 	20	 	(14)	 	3	 	(11)	
Foreign currency translation adjustments	 	100	 	7	 	107	 	(36)	 	(13)	 	(49)	 	(55)	 	(10)	 	(65)	
Total	$	277	$	(47)	$	230	$	(281)	$	74	$	(207)	$	210	$	(102)	$	108	

*These components of other comprehensive income (loss) are included in the computation of net periodic pension cost. See Note 11 for additional information.
 
Note 10. Share-Based Compensation 
 
Our 2015 Long-Term Incentive Plan (Plan), which replaced our 2007 Long-Term Incentive Plan in April 2015, authorizes awards to selected employees in the form of stock options, restricted stock, restricted stock units, stock appreciation rights, performance stock, performance share units and other awards.  A maximum of 17 million shares is authorized for issuance for all purposes under the Plan plus any shares that become available upon cancellation, forfeiture or expiration of awards granted under the 2007 Long-Term Incentive Plan.  No more than 17 million shares may be awarded pursuant to incentive stock options, and no more than 4.25 million shares may be issued pursuant to awards of restricted stock, restricted stock units, performance stock or other awards that are payable in shares.
 
Through our Deferred Income Plan for Textron Executives, we provide certain executives the opportunity to voluntarily defer up to 80% of their base salary, along with incentive compensation.  Elective deferrals may be put into either a stock unit account or an interest-bearing account. Participants cannot move amounts between the two accounts while actively employed by us and cannot receive distributions until termination of employment.  The intrinsic value of amounts paid under this deferred income plan was not significant in 2017, 2016 and 2015.
 
Share-based compensation costs are reflected primarily in selling and administrative expense.  Compensation expense included in net income for our share-based compensation plans is as follows:

(In millions)	 	 	 	2017	 	2016	 	2015	
Compensation expense	 	 	$	77	$	71	$	63	
Income tax benefit	 	 	 	(28)	 	(26)	 	(23)	
Total net compensation expense included in net income	 	 	$	49	$	45	$	40	
 
Compensation expense included $20 million, $20 million and $21 million in 2017, 2016 and 2015, respectively, for a portion of the fair value of stock options issued and the portion of previously granted options for which the requisite service has been rendered.
 
Compensation cost for awards subject only to service conditions that vest ratably are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. As of December 30, 2017 , we had not recognized $45 million of total compensation costs associated with unvested awards subject only to service conditions. We expect to recognize compensation expense for these awards over a weighted-average period of approximately two years.
 
56 

Table of Contents
 
Stock Options
Options to purchase our shares have a maximum term of ten years and generally vest ratably over a three-year period. The stock option compensation cost calculated under the fair value approach is recognized over the vesting period of the stock options.  We estimate the fair value of options granted on the date of grant using the Black-Scholes option-pricing model.  Expected volatilities are based on implied volatilities from traded options on our common stock, historical volatilities and other factors.  The expected term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior.
 
The weighted-average fair value of options granted during the past three years and the assumptions used in our option-pricing model for such grants are as follows:

 	 	 	 	2017	 	2016	 	2015	
Fair value of options at grant date	 	 	$	13.80	$	10.33	$	14.03	
Dividend yield	 	 	 	0.2%	 	0.2%	 	0.2%	
Expected volatility	 	 	 	29.2%	 	33.6%	 	34.9%	
Risk-free interest rate	 	 	 	1.9%	 	1.2%	 	1.5%	
Expected term (in years)	 	 	 	4.7	 	4.8	 	4.8	
 
The stock option activity during 2017 is provided below:

(Options in thousands)	 	 	 	 	 	Number of
Options	 	Weighted-
Average
Exercise Price	
Outstanding at beginning of year	 	 	 	 	 	9,264	$	33.61	
Granted	 	 	 	 	 	1,840	 	50.34	
Exercised	 	 	 	 	 	(1,626)	 	(31.99)	
Forfeited or expired	 	 	 	 	 	(240)	 	(41.92)	
Outstanding at end of year	 	 	 	 	 	9,238	$	37.02	
Exercisable at end of year	 	 	 	 	 	5,865	$	32.79	
 
At December 30, 2017, our outstanding options had an aggregate intrinsic value of $181 million and a weighted-average remaining contractual life of six years.  Our exercisable options had an aggregate intrinsic value of $140 million and a weighted-average remaining contractual life of five years at December 30, 2017.  The total intrinsic value of options exercised during 2017, 2016 and 2015 was $29 million, $15 million and $23 million, respectively.
 
Restricted Stock Units
We issue restricted stock units settled in both cash and stock (vesting one-third each in the third, fourth and fifth year following the year of the grant), which include the right to receive dividend equivalents. The fair value of these units is based on the trading price of our common stock and is recognized ratably over the vesting period.  For units payable in stock, we use the trading price on the grant date, while units payable in cash are remeasured using the price at each reporting period date.
 
The 2017 activity f or restricted stock units is provided below:

 	 	Units Payable in Stock	 	Units Payable in Cash	
(Shares/Units in thousands)	 	Number of
Shares	 	Weighted-
Average Grant 
Date Fair Value	 	Number of
Units	 	Weighted-
Average Grant
Date Fair Value	
Outstanding at beginning of year, nonvested	 	797	$	35.94	 	1,444	$	36.33	
Granted	 	154	 	49.57	 	310	 	49.65	
Vested	 	(252)	 	(32.07)	 	(378)	 	(31.57)	
Forfeited	 	(31)	 	(35.42)	 	(113)	 	(39.33)	
Outstanding at end of year, nonvested	 	668	$	40.55	 	1,263	$	40.75	
 
The fair value of the restricted stock unit awards that vested and/or amounts paid under these awards is as follows:

(In millions)	 	 	 	2017	 	2016	 	2015	
Fair value of awards vested	 	 	$	27	$	20	$	25	
Cash paid	 	 	 	19	 	12	 	20	
 
57 

Table of Contents
 
Performance Share Units
The fair value of share-based compensation awards accounted for as liabilities includes performance share units, which are paid in cash in the first quarter of the year following vesting.  Payouts under performance share units vary based on certain performance criteria generally set for each year of a three-year performance period.  The performance share units vest at the end of three years.  The fair value of these awards is based on the trading price of our common stock and is remeasured at each reporting period date.
 
The 2017 a ctivity for our performance share units is as follows:

(Units in thousands)	 	 	 	 	 	Number of
Units	 	Weighted- 
Average Grant
Date Fair Value	
Outstanding at beginning of year, nonvested	 	 	 	 	 	535	$	39.13	
Granted	 	 	 	 	 	231	 	49.58	
Vested	 	 	 	 	 	(262)	 	(44.15)	
Forfeited	 	 	 	 	 	(19)	 	(39.18)	
Outstanding at end of year, nonvested	 	 	 	 	 	485	$	41.34	
 
The fair value of the performance share units that vested and/or amounts paid under these awards is as follows:

(In millions)	 	 	 	2017	 	2016	 	2015	
Fair value of awards vested	 	 	$	15	$	14	$	16	
Cash paid	 	 	 	15	 	13	 	17	
 
Note 11. Retirement Plans 
 
Our defined benefit and contribution plans cover substantially all of our employees.  A significant number of our U.S.-based employees participate in the Textron Retirement Plan, which is designed to be a “floor-offset” arrangement with both a defined benefit component and a defined contribution component. The defined benefit component of the arrangement includes the Textron Master Retirement Plan (TMRP) and the Bell Helicopter Textron Master Retirement Plan (BHTMRP), and the defined contribution component is the Retirement Account Plan (RAP).  The defined benefit component provides a minimum guaranteed benefit (or “floor” benefit). Under the RAP, participants are eligible to receive contributions from Textron of 2% of their eligible compensation, but may not make contributions to the plan.  Upon retirement, participants receive the greater of the floor benefit or the value of the RAP.  Both the TMRP and the BHTMRP are subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).  Effective on January 1, 2010, the Textron Retirement Plan was closed to new participants, and employees hired after that date receive an additional 4% annual cash contribution to their Textron Savings Plan account based on their eligible compensation.
 
We also have other funded and unfunded defined benefit pension plans that cover certain of our U.S. and Non-U.S. employees.  In addition, several defined contribution plans are sponsored by our various businesses, of which the largest plan is the Textron Savings Plan, which is a qualified 401(k) plan subject to ERISA.  Our defined contribution plans cost $123 million, $110 million and $103 million in 2017, 2016 and 2015, respectively, which included $13 million, $10 million and $12 million, respectively, in contributions to the RAP. We also provide postretirement benefits other than pensions for certain retired employees in the U.S. that include healthcare, dental care, Medicare Part B reimbursement and life insurance.
 
58 

Table of Contents
 
Periodic Benefit Cost (Credit)
The components of net periodic benefit cost (credit) and other amounts recognized in OCI are as follows:

 	Pension Benefits	Postretirement Benefits 
Other than Pensions	
(In millions)	 	2017	 	2016	 	2015	 	2017	 	2016	 	2015	
Net periodic benefit cost (credit)	 	 	 	 	 	 	 	 	 	 	 	 	
Service cost	$	100	$	98	$	113	$	3	$	3	$	4	
Interest cost	 	323	 	338	 	327	 	12	 	16	 	15	
Expected return on plan assets	 	(507)	 	(490)	 	(483)	 	—	 	—	 	—	
Amortization of prior service cost (credit)	 	15	 	15	 	16	 	(8)	 	(22)	 	(25)	
Amortization of net actuarial loss (gain)	 	137	 	104	 	148	 	(1)	 	—	 	2	
Curtailment and other charges	 	—	 	—	 	6	 	—	 	—	 	—	
Net periodic benefit cost (credit)	$	68	$	65	$	127	$	6	$	(3)	$	(4)	
Other changes in plan assets and benefit obligations recognized in OCI	 	 	 	 	 	 	 	 	 	 	 	 	
Current year actuarial loss (gain)	$	(11)	$	399	$	(107)	$	(7)	$	(17)	$	(29)	
Current year prior service cost (credit)	 	1	 	—	 	—	 	—	 	(12)	 	—	
Amortization of net actuarial gain (loss)	 	(137)	 	(104)	 	(148)	 	1	 	—	 	(2)	
Amortization of prior service credit (cost)	 	(15)	 	(15)	 	(18)	 	8	 	22	 	25	
Total recognized in OCI, before taxes	$	(162)	$	280	$	(273)	$	2	$	(7)	$	(6)	
Total recognized in net periodic benefit cost (credit) and OCI	$	(94)	$	345	$	(146)	$	8	$	(10)	$	(10)	
 
The estimated amount that will be amortized from Accumulated other comprehensive loss into net periodic pension costs in 2018 is as follows:

(In millions)	 	 	 	 	 	Pension
Benefits	 	Postretirement
Benefits 
Other than
Pensions	
Net actuarial loss (gain)	 	 	 	 	$	154	$	(1)	
Prior service cost (credit)	 	 	 	 	 	15	 	(6)	
Total	 	 	 	 	$	169	$	(7)	
 
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
Other than Pensions	
(In millions)	 	2017	 	2016	 	2017	 	2016	
Change in projected benefit obligation	 	 	 	 	 	 	 	 	
Projected benefit obligation at beginning of year	$	7,991	$	7,476	$	317	$	364	
Service cost	 	100	 	98	 	3	 	3	
Interest cost	 	323	 	338	 	12	 	16	
Plan participants’ contributions	 	—	 	—	 	5	 	5	
Actuarial losses (gains)	 	494	 	571	 	(7)	 	(17)	
Benefits paid	 	(413)	 	(410)	 	(41)	 	(42)	
Plan amendment	 	1	 	—	 	—	 	(12)	
Curtailments and special termination benefits	 	—	 	(7)	 	—	 	—	
Foreign exchange rate changes and other	 	67	 	(75)	 	—	 	—	
Projected benefit obligation at end of year	$	8,563	$	7,991	$	289	$	317	
Change in fair value of plan assets	 	 	 	 	 	 	 	 	
Fair value of plan assets at beginning of year	$	6,874	$	6,668	 	 	 	 	
Actual return on plan assets	 	1,011	 	655	 	 	 	 	
Employer contributions*	 	345	 	40	 	 	 	 	
Benefits paid	 	(413)	 	(410)	 	 	 	 	
Foreign exchange rate changes and other	 	60	 	(79)	 	 	 	 	
Fair value of plan assets at end of year	$	7,877	$	6,874	 	 	 	 	
Funded status at end of year	$	(686)	$	(1,117)	$	(289)	$	(317)	
 
*In 2017, employer contributions included a $300 million discretionary contribution to fund a U.S. pension plan.
 
59 

Table of Contents
 
Amounts recognized in our balance sheets are as follows:

 	Pension Benefits	Postretirement Benefits
Other than Pensions	
(In millions)	 	2017	 	2016	 	2017	 	2016	
Non-current assets	$	106	$	63	$	—	$	—	
Current liabilities	 	(27)	 	(26)	 	(31)	 	(35)	
Non-current liabilities	 	(765)	 	(1,154)	 	(258)	 	(282)	
Recognized in Accumulated other comprehensive loss, pre-tax:	 	 	 	 	 	 	 	 	
Net loss (gain)	 	2,055	 	2,187	 	(13)	 	(8)	
Prior service cost (credit)	 	64	 	78	 	(33)	 	(40)	
 
The accumulated benefit obligation for all defined benefit pension plans was $8.1 billion and $7.6 billion at December 30, 2017 and December 31, 2016, respectively, which included $404 million and $387 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)	 	 	 	 	 	2017	 	2016	
Projected benefit obligation	 	 	 	 	$	741	$	7,799	
Accumulated benefit obligation	 	 	 	 	 	670	 	7,422	
Fair value of plan assets	 	 	 	 	 	237	 	6,627	
 
Assumptions
The weighted-average assumptions we use for our pension and postretirement plans are as follows:

 	Pension Benefits	Postretirement Benefits
Other than Pensions	
 	 	2017	 	2016	 	2015	 	2017	 	2016	 	2015	
Net periodic benefit cost	 	 	 	 	 	 	 	 	 	 	 	 	
Discount rate	 	4.13%	 	4.66%	 	4.25%	 	4.00%	 	4.50%	 	4.00%	
Expected long-term rate of return on assets	 	7.57%	 	7.58%	 	7.57%	 	 	 	 	 	 	
Rate of compensation increase	 	3.50%	 	3.49%	 	3.49%	 	 	 	 	 	 	
Benefit obligations at year-end	 	 	 	 	 	 	 	 	 	 	 	 	
Discount rate	 	3.66%	 	4.13%	 	4.66%	 	3.50%	 	4.00%	 	4.50%	
Rate of compensation increase	 	3.50%	 	3.50%	 	3.49%	 	 	 	 	 	 	
 
Our assumed healthcare cost trend rate for both the medical and prescription drug cost was 7.25% in both 2017 and 2016.  We expect this rate to gradually decline to 5% by 2024 where we assume it will remain.  A one-percentage-point change in these assumed healthcare cost trend rates would have the following effects:

(In millions)	 	 	 	 	 	One-
Percentage-
Point
Increase	 	One-
Percentage-
Point
Decrease	
Effect on total of service and interest cost components	 	 	 	 	$	1	$	(1)	
Effect on postretirement benefit obligations other than pensions	 	 	 	 	 	12	 	(11)	
 
Pension Assets
The expected long-term rate of return on plan assets is determined based on a variety of considerations, including the established asset allocation targets and expectations for those asset classes, historical returns of the plans’ assets and other market considerations.  We invest our pension assets with the objective of achieving a total rate of return over the long term that will be sufficient to fund future pension obligations and to minimize future pension contributions.  We are willing to tolerate a commensurate level of risk to achieve this objective based on the funded status of the plans and the long-term nature of our pension liability.  Risk is controlled by maintaining a portfolio of assets that is diversified across a variety of asset classes, investment styles and investment managers.  Where possible, investment managers are prohibited from owning our securities in the portfolios that they manage on our behalf.
 
60 

Table of Contents
 
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	 	58% to 61%	
Debt securities	 	31% to 34%	
Real estate	 	8%	
 
The fair value of our pension plan assets by major category and valuation method is as follows:

 	 	December 30, 2017	 	December 31, 2016	
(In millions)	 	Level 1	 	Level 2	 	Level 3	 	Not
Subject to
Leveling	 	Level 1	 	Level 2	 	Level 3	 	Not
Subject to
Leveling	
Cash and equivalents	$	22	$	10	$	—	$	149	$	26	$	8	$	—	$	156	
Equity securities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Domestic	 	1,404	 	—	 	—	 	665	 	1,262	 	—	 	—	 	618	
International	 	919	 	—	 	—	 	636	 	773	 	—	 	—	 	510	
Mutual funds	 	387	 	—	 	—	 	—	 	309	 	—	 	—	 	—	
Debt securities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
National, state and local governments	 	645	 	289	 	—	 	56	 	341	 	246	 	—	 	44	
Corporate debt	 	—	 	912	 	—	 	148	 	—	 	769	 	—	 	121	
Asset-backed securities	 	—	 	—	 	—	 	103	 	—	 	45	 	—	 	100	
Private investment partnerships	 	—	 	—	 	—	 	591	 	—	 	—	 	—	 	506	
Real estate	 	—	 	—	 	460	 	284	 	—	 	—	 	494	 	292	
Hedge funds	 	—	 	—	 	—	 	197	 	—	 	—	 	—	 	254	
Total	$	3,377	$	1,211	$	460	$	2,829	$	2,711	$	1,068	$	494	$	2,601	
 
Cash and equivalents, equity securities and debt securities include comingled funds, which represent investments in funds offered to institutional investors that are similar to mutual funds in that they provide diversification by holding various equity and debt securities. Since these comingled funds are not quoted on any active market, they are priced based on the relative value of the underlying equity and debt investments and their individual prices at any given time; these funds are not subject to leveling within the fair value hierarchy.  Debt securities are valued based on same day actual trading prices, if available.  If such prices are not available, we use a matrix pricing model with historical prices, trends and other factors.
 
Private investment partnerships represents interests in funds which invest in equity, debt and other financial assets.  These funds are generally not publicly traded so the interests therein are valued using income and market methods that include cash flow projections and market multiples for various comparable investments.  Real estate includes owned properties and limited partnership interests in real estate partnerships.  Owned properties are valued using certified appraisals at least every three years that are updated at least annually by the real estate investment manager based on current market trends and other available information. These appraisals generally use the standard methods for valuing real estate, including forecasting income and identifying current transactions for comparable real estate to arrive at a fair value.  Limited partnership interests in real estate partnerships are valued similarly to private investment partnerships, with the general partner using standard real estate valuation methods to value the real estate properties and securities held within their portfolios.  Neither private investment nor real estate partnerships are subject to leveling within the fair value hierarchy.
 
The hedge funds category represents 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
 
61 

Table of Contents
 
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)	 	 	 	 	 	2017	 	2016	
Balance at beginning of year	 	 	 	 	$	494	$	436	
Unrealized gains (losses), net	 	 	 	 	 	(6)	 	6	
Realized gains, net	 	 	 	 	 	24	 	10	
Purchases, sales and settlements, net	 	 	 	 	 	(52)	 	42	
Balance at end of year	 	 	 	 	$	460	$	494	
 
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 2018, 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 2017.  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)	 	2018	 	2019	 	2020	 	2021	 	2022	 	2023-2027	
Pension benefits	$	413	$	419	$	426	$	436	$	444	$	2,352	
Post-retirement benefits other than pensions	 	32	 	30	 	29	 	27	 	26	 	104	
 
Note 12. Special Charges 
 
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.  Under this plan, Textron Systems discontinued production of its sensor-fuzed weapon product within its Weapons and Sensors operating unit, we combined our Jacobsen business with the Textron Specialized Vehicles business by consolidating facilities and general and administrative functions, and we reduced headcount at Textron Aviation, as well as other businesses and corporate functions.  In December 2017, we decided to take additional restructuring actions to further consolidate operating facilities and streamline product lines, primarily within the Bell, Textron Systems and Industrial segments, which resulted in additional special charges of $45 million in the fourth quarter of 2017. We recorded total special charges of $213 million since the inception of the 2016 plan, which included $97 million of severance costs, $84 million of asset impairments and $32 million in contract terminations and other costs.  Of these amounts, $83 million was incurred at Textron Systems, $63 million at Textron Aviation, $38 million at Industrial, $28 million at Bell and $1 million at Corporate. The total headcount reduction under this plan is expected to be approximately 2,100 positions, representing 5% of our workforce.
 
In connection with the acquisition of Arctic Cat, as discussed in Note 2, we initiated a restructuring plan in the first quarter of 2017 to integrate this business into our Textron Specialized Vehicles business within the Industrial segment and reduce operating redundancies and maximize efficiencies.  Under the Arctic Cat plan, we recorded restructuring charges of $28 million in 2017, which included $19 million of severance costs, largely related to change-of-control provisions, and $9 million of contract termination and other costs.  In addition, we recorded $12 million of acquisition-related integration and transaction costs in 2017.
 
62 

Table of Contents
 
Special charges recorded for these plans are as follows:

(In millions)	 	Severance
Costs	 	Asset
Impairments	 	Contract
Terminations
and Other	 	Acquisition
Integration/
Transaction
Costs	 	Total
Special
Charges	
2017	 	 	 	 	 	 	 	 	 	 	
Industrial	$	26	$	1	$	19	$	12	$	58	
Textron Aviation	 	11	 	17	 	—	 	—	 	28	
Bell	 	3	 	12	 	8	 	—	 	23	
Textron Systems	 	6	 	16	 	(1)	 	—	 	21	
Total	$	46	$	46	$	26	$	12	$	130	
2016	 	 	 	 	 	 	 	 	 	 	
Industrial	$	17	$	2	$	1	$	—	$	20	
Textron Aviation	 	33	 	1	 	1	 	—	 	35	
Bell	 	4	 	1	 	—	 	—	 	5	
Textron Systems	 	15	 	34	 	13	 	—	 	62	
Corporate	 	1	 	—	 	—	 	—	 	1	
Total	$	70	$	38	$	15	$	—	$	123	
 
An analysis of our restructuring reserve activity for both plans is summarized below:

(In millions)	 	 	 	 	 	Severance
Costs	 	Contract
Terminations
and Other	 	Total	
Provision for 2016 plan	 	 	 	 	$	75	$	15	$	90	
Reversals	 	 	 	 	 	(5)	 	—	 	(5)	
Cash paid	 	 	 	 	 	(20)	 	(2)	 	(22)	
Balance at December 31, 2016	 	 	 	 	 	50	 	13	 	63	
Provision for 2016 plan	 	 	 	 	 	33	 	25	 	58	
Provision for Arctic Cat plan	 	 	 	 	 	19	 	9	 	28	
Cash paid	 	 	 	 	 	(72)	 	(15)	 	(87)	
Reversals*	 	 	 	 	 	(6)	 	(8)	 	(14)	
Non-cash utilization	 	 	 	 	 	—	 	(4)	 	(4)	
Balance at December 30, 2017	 	 	 	 	$	24	$	20	$	44	
 
*Primarily related to favorable contract negotiations in the Textron Systems segment.
 
Both the 2016 plan and Arctic Cat plan are substantially completed with the majority of the remaining cash outlays of $44 million expected to be paid in the first half of 2018.  Severance costs generally are paid on a lump-sum basis and include outplacement costs, which are paid in accordance with normal payment terms.
 
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)	 	 	 	2017	 	2016	 	2015	
U.S.	 	 	$	428	$	652	$	745	
Non-U.S.	 	 	 	334	 	224	 	226	
Income from continuing operations before income taxes	 	 	$	762	$	876	$	971	
 
63 

Table of Contents
 
Income tax expense for continuing operations is summarized as follows:

(In millions)	 	 	 	2017	 	2016	 	2015	
Current expense (benefit):	 	 	 	 	 	 	 	 	
Federal	 	 	$	29	$	(74 )	$	212	
State	 	 	 	(9)	 	18	 	16	
Non -U.S.	 	 	 	79	 	41	 	41	
 	 	 	 	99	 	(15)	 	269	
Deferred expense (benefit):	 	 	 	 	 	 	 	 	
Federal	 	 	 	358	 	47	 	17	
State	 	 	 	(14)	 	(7)	 	(14)	
Non -U.S.	 	 	 	13	 	8	 	1	
 	 	 	 	357	 	48	 	4	
Income tax expense	 	 	$	456	$	33	$	273	
 
The following table reconciles the federal statutory income tax rate to our effective income tax rate for continuing operations:

 	 	 	 	2017	 	2016	 	2015	
U.S. Federal statutory income tax rate	 	 	 	35.0%	 	35.0%	 	35.0%	
Increase (decrease) resulting from:	 	 	 	 	 	 	 	 	
U.S. tax reform impact	 	 	 	34.9	 	—	 	—	
Federal tax settlement of 1998 to 2008	 	 	 	—	 	(23.5)	 	—	
State income taxes (net of federal impact)	 	 	 	(1.9)	 	0.8	 	0.2	
Non-U.S. tax rate differential and foreign tax credits*	 	 	 	(2.9)	 	(2.7)	 	(3.6)	
Domestic manufacturing deduction	 	 	 	(1.1)	 	(1.6)	 	(2.7)	
Research credit	 	 	 	(2.6)	 	(3.2)	 	(1.5)	
Other, net	 	 	 	(1.6)	 	(1.0)	 	0.7	
Effective income tax rate	 	 	 	59.8%	 	3.8%	 	28.1%	
 
* Included a favorable impact of (1.4)% in 2015 related to a net change in valuation allowances.
 
U.S. Tax Reform
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. Among other things, the Act reduces the U.S. federal corporate tax rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred.  We have reasonably estimated the effects of the Act and recorded provisional amounts in the fourth quarter of 2017 totaling $266 million. Our provisional estimate included a $154 million charge to remeasure our U.S. federal deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%.  In addition, the provisional estimate included $112 million in expense for the one-time transition tax. This tax was based on approximately $1.6 billion of our post-1986 earnings and profits that were previously deferred from U.S. income taxes, and on the amount of those earnings held in cash and other specified net assets.
 
The U.S. Government and state tax authorities are expected to continue to issue guidance regarding the Act, which may result in adjustments to our provisional estimates. We are continuing to analyze certain aspects of the Act and may refine our estimates, which could potentially affect the measurement of our net deferred tax assets or give rise to new deferred tax amounts.  The final determination of the remeasurement of our net deferred tax assets and the transition tax will be completed as additional information becomes available, but no later than one year from the enactment date.
 
No additional income taxes related to outside basis differences have been provided as all such amounts continue to be indefinitely reinvested in foreign operations.  Should these earnings be distributed in the future in the form of dividends or otherwise, we would be subject to withholding taxes payable to various non-U.S. jurisdictions and U.S. states. It is not practicable to determine the amount of unrecognized deferred tax liability related to any undistributed foreign earnings.   We will continue to assess our ability and intent to repatriate these earnings during the measurement period.
 
Federal Tax Settlement of 1998 to 2008
For 2016, the provision for income taxes 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.
 
64 

Table of Contents
 
Unrecognized Tax Benefits
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 is as follows:

(In millions)	 	 	 	December 30,
2017	 	December 31,
2016	 	January 2,
2016	
Balance at beginning of year	 	 	$	186	$	401	$	385	
Additions for tax positions related to current year	 	 	 	8	 	12	 	12	
Additions for tax positions of prior years	 	 	 	16	 	—	 	6	
Additions for acquisitions	 	 	 	4	 	—	 	1	
Reductions for settlements and expiration of statute of limitations	 	 	 	(17)	 	(219)	 	(2)	
Reductions for tax positions of prior years	 	 	 	(15)	 	(8)	 	(1)	
Balance at end of year	 	 	$	182	$	186	$	401	
 
At the end of 2017 and 2016, if these unrecognized tax benefits were recognized in future periods, they would favorably impact our effective tax rate.
 
In the normal course of business, we are subject to examination by tax authorities throughout the world.  We are no longer subject to U.S. federal tax examinations for years before 2012, U.S. state and local income tax examinations for years before 1997, and non-U.S. income tax examinations for years before 2011.
 
Deferred Taxes
The tax effects of temporary differences that give rise to significant portions of our net deferred tax assets and liabilities are provided below:

(In millions)	 	 	 	 	 	December 30,
2017	 	December 31,
2016	
Deferred tax assets	 	 	 	 	 	 	 	 	
Obligation for pension and postretirement benefits	 	 	 	 	$	247	$	529	
Accrued expenses*	 	 	 	 	 	260	 	282	
Deferred compensation	 	 	 	 	 	103	 	175	
Loss carryforwards	 	 	 	 	 	214	 	158	
Inventory	 	 	 	 	 	8	 	49	
Allowance for credit losses	 	 	 	 	 	13	 	23	
Other, net	 	 	 	 	 	32	 	67	
Total deferred tax assets	 	 	 	 	 	877	 	1,283	
Valuation allowance for deferred tax assets	 	 	 	 	 	(148)	 	(116)	
 	 	 	 	 	 	729	 	1,167	
Deferred tax liabilities	 	 	 	 	 	 	 	 	
Property, plant and equipment, principally depreciation	 	 	 	 	 	(125)	 	(168)	
Amortization of goodwill and other intangibles	 	 	 	 	 	(154)	 	(164)	
Leasing transactions	 	 	 	 	 	(81)	 	(147)	
Prepaid pension benefits	 	 	 	 	 	(21)	 	(19)	
Total deferred tax liabilities	 	 	 	 	 	(381)	 	(498)	
Net deferred tax asset	 	 	 	 	$	348	$	669	
 
* Accrued expenses included 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.  In 2017, we recorded $46 million in deferred tax assets, along with a $33 million valuation allowance, related to state loss carryforwards as the likelihood that we will be able to utilize these carryforwards is no longer deemed remote predominately due to a consolidated filing election made during the year.
 
65 

Table of Contents
 
The following table presents the breakdown of net deferred tax assets:

(In millions)	 	 	 	 	 	December 30,
2017	 	December 31,
2016	
Manufacturing group:	 	 	 	 	 	 	 	 	
Other assets	 	 	 	 	$	430	$	793	
Other liabilities	 	 	 	 	 	(7)	 	(4)	
Finance group - Other liabilities	 	 	 	 	 	(75)	 	(120)	
Net deferred tax asset	 	 	 	 	$	348	$	669	
 
Our net operating loss and credit carryforwards at December 30, 2017 are as follows:

(In millions)	 	 	 	 	
Non-U.S. net operating loss with no expiration	 	 	$	201	
Non-U.S. net operating loss expiring through 2036	 	 	 	59	
U.S. federal net operating losses expiring through 2036	 	 	 	269	
State net operating loss and tax credits, net of tax benefits, expiring through 2036	 	 	 	290	
 
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 $380 million and $525 million at December 30, 2017 and December 31, 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 $140 million. At December 30, 2017, environmental reserves of approximately $65 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 $13 million as current liabilities. Expenditures to evaluate and remediate contaminated sites were $18 million, $15 million and $15 million in 2017, 2016 and 2015, respectively.
 
Leases
Rental expense was $122 million, $126 million and $113 million in 2017, 2016 and 2015, respectively.  Future minimum rental commitments for noncancelable operating leases in effect at December 30, 2017 totaled $80 million for 2018, $64 million for 2019, $51 million for 2020, $35 million for 2021, $30 million for 2022 and $137 million thereafter. The total future minimum rental receipts under noncancelable subleases at December 30, 2017 totaled $19 million.
 
66 

Table of Contents
 
Note 15. Supplemental Cash Flow Information 
 
Our cash payments and receipts are as follows:

(In millions)	 	 	 	2017	 	2016	 	2015	
Interest paid:	 	 	 	 	 	 	 	 	
Manufacturing group	 	 	$	133	$	132	$	123	
Finance group	 	 	 	29	 	32	 	34	
Net taxes paid/(received):	 	 	 	 	 	 	 	 	
Manufacturing group	 	 	 	(16)	 	163	 	187	
Finance group	 	 	 	48	 	11	 	11	
 
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 and Caravan turboprop aircraft, piston engine aircraft, military turboprop aircraft, and aftermarket part sales and services sold to a diverse base of corporate and individual buyers.
 
Bell products include military and commercial helicopters, tiltrotor aircraft and related spare parts and services.  Bell supplies military helicopters and, in association with The Boeing Company, military tiltrotor aircraft, and aftermarket services to the U.S. and non-U.S. governments.  Bell also supplies commercial helicopters and aftermarket services to corporate, offshore petroleum exploration and development, utility, charter, police, fire, rescue and emergency medical helicopter operators, and foreign governments.
 
Textron Systems products include unmanned aircraft systems, marine and land systems, simulation, training and other defense and aviation mission support products and services primarily for U.S. and non-U.S. governments.
 
Industrial products and markets include the following:
 
·                   Kautex products include blow-molded plastic fuel systems, clear-vision systems, selective catalytic reduction systems and cast iron engine components that are marketed primarily to automobile OEMs, as well as plastic bottles and containers for various uses;
·                   Specialized Vehicles products include golf cars, off-road utility vehicles, recreational side-by-side and all-terrain vehicles, snowmobiles, light transportation vehicles, aviation ground support equipment, professional turf-maintenance equipment and turf-care vehicles that are marketed primarily to golf courses and resorts, government agencies and municipalities, consumers, 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.
 
67 

Table of Contents
 
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)	 	2017	 	2016	 	2015	 	2017	 	2016	 	2015	
Textron Aviation	$	4,686	$	4,921	$	4,822	$	303	$	389	$	400	
Bell	 	3,317	 	3,239	 	3,454	 	415	 	386	 	400	
Textron Systems	 	1,840	 	1,756	 	1,520	 	139	 	186	 	129	
Industrial	 	4,286	 	3,794	 	3,544	 	290	 	329	 	302	
Finance	 	69	 	78	 	83	 	22	 	19	 	24	
Total	$	14,198	$	13,788	$	13,423	$	1,169	$	1,309	$	1,255	
Corporate expenses and other, net	 	 	 	 	 	 	 	(132)	 	(172)	 	(154)	
Interest expense, net for Manufacturing group	 	 	 	 	 	 	 	(145)	 	(138)	 	(130)	
Special charges	 	 	 	 	 	 	 	(130)	 	(123)	 	—	
Income from continuing operations before income taxes	 	 	 	 	 	 	$	762	$	876	$	971	
 
Revenues by major product type are summarized below:

(In millions)	 	 	 	2017	 	2016	 	2015	
Fixed-wing aircraft	 	 	$	4,686	$	4,921	$	4,822	
Rotor aircraft	 	 	 	3,317	 	3,239	 	3,454	
Unmanned aircraft systems, advanced marine craft, armored vehicles and other	 	 	 	1,840	 	1,756	 	1,520	
Fuel systems and functional components	 	 	 	2,330	 	2,273	 	2,078	
Specialized vehicles	 	 	 	1,486	 	1,080	 	1,021	
Tools and test equipment	 	 	 	470	 	441	 	445	
Finance	 	 	 	69	 	78	 	83	
Total revenues	 	 	$	14,198	$	13,788	$	13,423	
 
Our revenues included sales to the U.S. Government of approximately $3.1 billion, $3.4 billion and $3.2 billion in 2017, 2016 and 2015, 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 30,
2017	 	December 31,
2016	 	2017	 	2016	 	2015	 	2017	 	2016	 	2015	
Textron Aviation	$	4,403	$	4,460	$	128	$	157	$	124	$	139	$	140	$	134	
Bell	 	2,660	 	2,655	 	73	 	86	 	97	 	117	 	132	 	143	
Textron Systems	 	2,330	 	2,508	 	60	 	71	 	86	 	65	 	75	 	80	
Industrial	 	3,360	 	2,409	 	158	 	121	 	105	 	105	 	81	 	76	
Finance	 	1,169	 	1,280	 	—	 	—	 	—	 	12	 	12	 	12	
Corporate	 	1,418	 	2,046	 	4	 	11	 	8	 	9	 	9	 	16	
Total	$	15,340	$	15,358	$	423	$	446	$	420	$	447	$	449	$	461	
 
Geographic Data
Presented below is selected financial information of our continuing operations by geographic area:

 	 	 	Revenues*	Property, Plant
and Equipment, net**	
(In millions)	 	 	 	2017	 	2016	 	2015	 	December 30,
2017	 	December 31,
2016	
United States	 	 	$	8,786	$	8,574	$	8,299	$	2,172	$	2,116	
Europe	 	 	 	1,962	 	1,954	 	1,730	 	328	 	247	
Asia and Australia	 	 	 	1,206	 	998	 	1,324	 	84	 	78	
Canada	 	 	 	913	 	652	 	531	 	69	 	72	
Latin and South America	 	 	 	883	 	977	 	1,101	 	68	 	68	
Middle East and Africa	 	 	 	448	 	633	 	438	 	—	 	—	
Total	 	 	$	14,198	$	13,788	$	13,423	$	2,721	$	2,581	
* 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.
 
68 

Table of Contents
 
Report of Independent Registered Public Accounting Firm 
 
To the Board of Directors and the Shareholders of Textron Inc.
 
Opinion on the Financial Statements
 
We have audited the accompanying Consolidated Balance Sheets of Textron Inc. (the Company) as of December 30, 2017 and December 31, 2016, the related Consolidated Statements of Operations, Comprehensive Income, Shareholders’ Equity and Cash Flows for each of the three years in the period ended December 30, 2017, and the related notes and financial statement schedule contained on page 71 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 30, 2017 and December 31, 2016 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 30, 2017, in conformity with U.S. generally accepted accounting principles.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 30, 2017, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 15, 2018 expressed an unqualified opinion thereon.
 
Basis for Opinion
 
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP
 
We have served as the Company’s auditor since 1957.
 
Boston, Massachusetts
February 15, 2018
 
69 

Table of Contents
 
Quarterly Data 

(Unaudited)	 	2017	 	2016	
(Dollars in millions, except per share amounts)	 	Q1	 	Q2	 	Q3	 	Q4	 	Q1	 	Q2	 	Q3	 	Q4	
Revenues	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Textron Aviation	$	970	$	1,171	$	1,154	$	1,391	$	1,091	$	1,196	$	1,198	$	1,436	
Bell	 	697	 	825	 	812	 	983	 	814	 	804	 	734	 	887	
Textron Systems	 	416	 	477	 	458	 	489	 	324	 	487	 	413	 	532	
Industrial	 	992	 	1,113	 	1,042	 	1,139	 	952	 	1,004	 	886	 	952	
Finance	 	18	 	18	 	18	 	15	 	20	 	20	 	20	 	18	
Total revenues	$	3,093	$	3,604	$	3,484	$	4,017	$	3,201	$	3,511	$	3,251	$	3,825	
Segment profit	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Textron Aviation	$	36	$	54	$	93	$	120	$	73	$	81	$	100	$	135	
Bell	 	83	 	112	 	106	 	114	 	82	 	81	 	97	 	126	
Textron Systems	 	20	 	42	 	40	 	37	 	29	 	60	 	44	 	53	
Industrial	 	76	 	82	 	49	 	83	 	91	 	99	 	66	 	73	
Finance	 	4	 	5	 	7	 	6	 	5	 	7	 	3	 	4	
Total segment profit	 	219	 	295	 	295	 	360	 	280	 	328	 	310	 	391	
Corporate expenses and other, net	 	(27)	 	(31)	 	(30)	 	(44)	 	(32)	 	(31)	 	(53)	 	(56)	
Interest expense, net for Manufacturing group	 	(34)	 	(36)	 	(37)	 	(38)	 	(33)	 	(37)	 	(35)	 	(33)	
Special charges (a)	 	(37)	 	(13)	 	(25)	 	(55)	 	—	 	—	 	(115)	 	(8)	
Income tax benefit (expense) (b)	 	(21)	 	(62)	 	(44)	 	(329)	 	(64)	 	(82)	 	192	 	(79)	
Income (loss) from continuing operations	 	100	 	153	 	159	 	(106)	 	151	 	178	 	299	 	215	
Income (loss) from discontinued operations, net of income taxes (b)	 	1	 	—	 	—	 	—	 	(1)	 	(1)	 	122	 	(1)	
Net income (loss)	$	101	$	153	$	159	$	(106)	$	150	$	177	$	421	$	214	
Basic earnings per share	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	$	0.37	$	0.57	$	0.60	$	(0.40)	$	0.55	$	0.66	$	1.11	$	0.79	
Discontinued operations	 	—	 	—	 	—	 	—	 	—	 	—	 	0.45	 	—	
Basic earnings per share	$	0.37	$	0.57	$	0.60	$	(0.40)	$	0.55	$	0.66	$	1.56	$	0.79	
Basic average shares outstanding (in thousands)	 	270,489	 	267,114	 	264,624	 	263,295	 	271,660	 	269,888	 	270,560	 	270,986	
Diluted earnings per share (c)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	$	0.37	$	0.57	$	0.60	$	(0.40)	$	0.55	$	0.66	$	1.10	$	0.78	
Discontinued operations	 	—	 	—	 	—	 	—	 	—	 	(0.01)	 	0.45	 	—	
Diluted earnings per share	$	0.37	$	0.57	$	0.60	$	(0.40)	$	0.55	$	0.65	$	1.55	$	0.78	
Diluted average shares outstanding (in thousands)	 	272,830	 	269,299	 	266,989	 	263,295	 	273,022	 	271,316	 	272,099	 	273,114	
Segment profit margins	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Textron Aviation	 	3.7%	 	4.6%	 	8.1%	 	8.6%	 	6.7%	 	6.8%	 	8.3%	 	9.4%	
Bell	 	11.9	 	13.6	 	13.1	 	11.6	 	10.1	 	10.1	 	13.2	 	14.2	
Textron Systems	 	4.8	 	8.8	 	8.7	 	7.6	 	9.0	 	12.3	 	10.7	 	10.0	
Industrial	 	7.7	 	7.4	 	4.7	 	7.3	 	9.6	 	9.9	 	7.4	 	7.7	
Finance	 	22.2	 	27.8	 	38.9	 	40.0	 	25.0	 	35.0	 	15.0	 	22.2	
Segment profit margin	 	7.1%	 	8.2%	 	8.5%	 	9.0%	 	8.7%	 	9.3%	 	9.5%	 	10.2%	
Common stock information	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Price range: High	$	50.93	$	48.67	$	54.07	$	57.71	$	41.74	$	40.61	$	41.33	$	49.82	
Low	$	43.66	$	45.00	$	47.00	$	51.07	$	30.69	$	34.00	$	35.06	$	37.19	
Dividends declared per share	$	0.02	$	0.02	$	0.02	$	0.02	$	0.02	$	0.02	$	0.02	$	0.02	
 
(a)        Special charges related to our 2016 restructuring plan were $15 million, $12 million, $15 million and $48 million in the first, second, third and fourth quarters of 2017, respectively, and $115 million and $8 million in the third and fourth quarters of 2016, respectively.  In addition, we recorded special charges of $22 million, $1 million, $10 million and $7 million in the first, second, third and fourth quarters of 2017, respectively, related to the Arctic Cat acquisition, which included restructuring, integration and transaction costs.
 
(b)        Income tax expense for the fourth quarter of 2017 included a $266 million charge to reflect our provisional estimate of the net impact of the Tax Cuts and Jobs Act, which was enacted on December 22, 2017.  The third quarter of 2016 included 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.
 
(c)        For the fourth quarter of 2017, the diluted average shares outstanding excluded potential common shares (stock options and restricted stock units) due to their antidilutive effect resulting from the net loss.
 
70 

Table of Contents
 
Schedule II — Valuation and Qualifying Accounts 

(In millions)	 	 	 	2017	 	2016	 	2015	
Allowance for doubtful accounts	 	 	 	 	 	 	 	 	
Balance at beginning of year	 	 	$	27	$	33	$	30	
Charged to costs and expenses	 	 	 	3	 	3	 	5	
Deductions from reserves*	 	 	 	(3)	 	(9)	 	(2)	
Balance at end of year	 	 	$	27	$	27	$	33	
Inventory FIFO reserves	 	 	 	 	 	 	 	 	
Balance at beginning of year	 	 	$	231	$	206	$	169	
Charged to costs and expenses	 	 	 	63	 	59	 	56	
Deductions from reserves*	 	 	 	(32)	 	(34)	 	(19)	
Balance at end of year	 	 	$	262	$	231	$	206	
*Deductions primarily include amounts written off on uncollectable accounts (less recoveries), inventory disposals, changes to prior year estimates, and currency translation adjustments.
 
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 
 
None.
 
Item 9A. Controls and Procedures 
 
Disclosure Controls and Procedures
We performed an evaluation of the effectiveness of our disclosure controls and procedures as of December 30, 2017. The evaluation was performed with the participation of senior management of each business segment and key Corporate functions, under the supervision of our Chairman, President and Chief Executive Officer (CEO) and our Executive Vice President and Chief Financial Officer (CFO). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were operating and effective as of December 30, 2017.
 
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of the fiscal year covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for Textron Inc. as such term is defined in Exchange Act Rules 13a-15(f).  Our internal control structure is designed to provide reasonable assurance, at appropriate cost, that assets are safeguarded and that transactions are properly executed and recorded.  The internal control structure includes, among other things, established policies and procedures, an internal audit function, the selection and training of qualified personnel as well as management oversight.
 
With the participation of our management, we performed an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation under the 2013 Framework, we have concluded that Textron Inc. maintained, in all material respects, effective internal control over financial reporting as of December 30, 2017.
 
The independent registered public accounting firm, Ernst & Young LLP, has audited the Consolidated Financial Statements of Textron Inc. and has issued an attestation report on Textron’s internal controls over financial reporting as of December 30, 2017, as stated in its report, which is included herein.
 
71 

Table of Contents
 
Report of Independent Registered Public Accounting Firm
 
To the Board of Directors and the Shareholders of Textron Inc.
 
Opinion on Internal Control over Financial Reporting
 
We have audited Textron Inc.’s internal control over financial reporting as of December 30, 2017, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), (the COSO criteria). In our opinion, Textron, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 30, 2017, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Consolidated Balance Sheets of the Company as of December 30, 2017 and December 31, 2016, and the related Consolidated Statements of Operations, Comprehensive Income, Shareholder’s Equity and Cash Flows for each of the three years in the period ended December 30, 2017, and the related notes and financial statement schedule contained on page 71, of the Company and our report dated February 15, 2018 expressed an unqualified opinion thereon.
 
Basis for Opinion
 
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting.  Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
 
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
Definition and Limitations of Internal Control Over Financial Reporting
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP
 
Boston, Massachusetts
February 15, 2018
 
72 

Table of Contents
 
PART   III
 
Item 10. Directors, Executive Officers and Corpor  ate Governance
 
The information appearing under “ELECTION OF DIRECTORS— Nominees for Director,” “CORPORATE GOVERNANCE—Corporate Governance Guidelines and Policies,” “— Code of Ethics,” “–Board Committees— Audit Committee ,” and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April 25, 2018 is incorporated by reference into this Annual Report on Form 10-K.
 
Information regarding our executive officers is contained in Part I of this Annual Report on Form 10-K.
 
Item 11. Executive Compensati  on
 
The information appearing under “CORPORATE GOVERNANCE —Compensation of Directors,” “COMPENSATION COMMITTEE REPORT,” “COMPENSATION DISCUSSION AND ANALYSIS” and “EXECUTIVE COMPENSATION” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April 25, 2018 is incorporated by reference into this Annual Report on Form 10-K.
 
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Ma  tters
 
The information appearing under “SECURITY OWNERSHIP” and “EXECUTIVE COMPENSATION – Equity Compensation Plan Information” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April 25, 2018 is incorporated by reference into this Annual Report on Form 10-K.
 
Item 13. Certain Relationships and Related Transactions and Director Indepen  dence
 
The information appearing under “CORPORATE GOVERNANCE--Director Independence” and “EXECUTIVE COMPENSATION — Transactions with Related Persons” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April 25, 2018 is incorporated by reference into this Annual Report on Form 10-K.
 
Item 14. Principal Accountant Fees and Servi  ces
 
The information appearing under “RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM — Fees to Independent Auditors” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April 25, 2018 is incorporated by reference into this Annual Report on Form 10-K.
 
73 

Table of Contents
 
PART   IV
 
Item 15. Exhibits and Financial Statement Sched  ules
 
Financial Statements and Schedules — See Index on Page 36.

Exhibits	 	 	
 	 	 	
3.1A	 	Restated Certificate of Incorporation of Textron as filed with the Secretary of State of Delaware on April 29, 2010. Incorporated by reference to Exhibit 3.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2010. (SEC File No. 1-5480)	
 	 	 	
3.1B	 	Certificate of Amendment of Restated Certificate of Incorporation of Textron Inc., filed with the Secretary of State of Delaware on April 27, 2011. Incorporated by reference to Exhibit 3.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2011. (SEC File No. 1-5480)	
 	 	 	
3.2	 	Amended and Restated By-Laws of Textron Inc., effective April 28, 2010 and further amended April 27, 2011, July 23, 2013, February 25, 2015 and December 6, 2016. Incorporated by reference to Exhibit 3.2 to Textron’s Current Report on Form 8-K filed on December 8, 2016.	
 	 	 	
4.1A	 	Support Agreement dated as of May 25, 1994, between Textron Inc. and Textron Financial Corporation. Incorporated by reference to Exhibit 4.1 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. (SEC File No. 1-5480)	
 	 	 	
4.1B	 	Amendment to Support Agreement, dated as of December 23, 2015, by and between Textron Inc. and Textron Financial Corporation. Incorporated by reference to Exhibit 4.1B to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016.	
 	 	 	
NOTE:	 	Instruments defining the rights of holders of certain issues of long-term debt of Textron have not been filed as exhibits because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of Textron and its subsidiaries on a consolidated basis. Textron agrees to furnish a copy of each such instrument to the Commission upon request.	
 	 	 	
NOTE:	 	Exhibits 10.1 through 10.16 below are management contracts or compensatory plans, contracts or agreements.	
 	 	 	
10.1A	 	Textron Inc. 2007 Long-Term Incentive Plan (Amended and Restated as of April 28, 2010). Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2012. (SEC File No. 1-5480)	
 	 	 	
10.1B	 	Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007. (SEC File No. 1-5480)	
 	 	 	
10.1C	 	Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007. (SEC File No. 1-5480)	
 	 	 	
10.1D	 	Form of Restricted Stock Unit Grant Agreement. Incorporated by reference to Exhibit 10.4 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007. (SEC File No. 1-5480)	
 	 	 	
10.1E	 	Form of Restricted Stock Unit Grant Agreement with Dividend Equivalents.  Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2008. (SEC File No. 1-5480)	
 	 	 	
10.1F	 	Form of Performance Share Unit Grant Agreement. Incorporated by reference to Exhibit 10.1H to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. (SEC File No. 1-5480)	
 
74 

Table of Contents

10.1G	 	Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014.	
 	 	 	
10.1H	 	Form of Stock-Settled Restricted Stock Unit Grant Agreement with Dividend Equivalents. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014.	
 	 	 	
10.1I	 	Form of Performance Share Unit Grant Agreement. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014.	
 	 	 	
10.2	 	Textron Inc. Short-Term Incentive Plan. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2017.	
 	 	 	
10.3A	 	Textron Inc. 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 2015.	
 	 	 	
10.3B	 	Form of Non-Qualified Stock Option Agreement under 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2016.	
 	 	 	
10.3C	 	Form of Stock-Settled Restricted Stock Unit (with Dividend Equivalents) Grant Agreement under 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2016.	
 	 	 	
10.3D	 	Form of Performance Share Unit Grant Agreement under 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2016.	
 	 	 	
10.4	 	Textron Spillover Savings Plan, effective October 5, 2015. Incorporated by reference to Exhibit 10.4 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016.	
 	 	 	
10.5A	 	Textron Spillover Pension Plan, As Amended and Restated Effective January 3, 2010, including Appendix A (as amended and restated effective January 3, 2010), Defined Benefit Provisions of the Supplemental Benefits Plan for Textron Key Executives (As in effect before January 1, 2007). Incorporated by reference to Exhibit 10.4 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2010. (SEC File No. 1-5480)	
 	 	 	
10.5B	 	Amendments to the Textron Spillover Pension Plan, dated October 12, 2011. Incorporated by reference to Exhibit 10.5B to Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. (SEC File No. 1-5480)	
 	 	 	
10.5C	 	Second Amendment to the Textron Spillover Pension Plan, dated October 7, 2013. Incorporated by reference to Exhibit 10.5C to Textron’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013.	
 	 	 	
10.6	 	Deferred Income Plan for Textron Executives, Effective October 5, 2015. Incorporated by reference to Exhibit 10.6 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016.	
 	 	 	
10.7A	 	Deferred Income Plan for Non-Employee Directors, As Amended and Restated Effective January 1, 2009, including Appendix A, Prior Plan Provisions (As in effect before January 1, 2008). Incorporated by reference to Exhibit 10.9 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. (SEC File No. 1-5480)	
 	 	 	
10.7B	 	Amendment No. 1 to Deferred Income Plan for Non-Employee Directors, as Amended and Restated Effective January 1, 2009, dated as of November 6, 2012. Incorporated by reference to Exhibit 10.8B to Textron’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012. (SEC File No. 1-5480)	
 	 	 	
10.7C	 	Amendment No. 2 to Deferred Income Plan for Non-Employee Directors, as Amended and Restated Effective January 1, 2009. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2017.	
 
75 

Table of Contents

10.8A	 	Severance Plan for Textron Key Executives, As Amended and Restated Effective January 1, 2010. Incorporated by reference to Exhibit 10.10 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2010. (SEC File No. 1-5480)	
 	 	 	
10.8B	 	First Amendment to the Severance Plan for Textron Key Executives, dated October 26, 2010. Incorporated by reference to Exhibit 10.10B to Textron’s Annual Report on Form 10-K for the fiscal year ended January 1, 2011. (SEC File No. 1-5480)	
 	 	 	
10.8C	 	Second Amendment to the Severance Plan for Textron Key Executives, dated March 24, 2014. Incorporated by reference to Exhibit 10.5 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014.	
 	 	 	
10.9	 	Form of Indemnity Agreement between Textron and its executive officers.	
 	 	 	
10.10	 	Form of Indemnity Agreement between Textron and its non-employee directors (approved by the Nominating and Corporate Governance Committee of the Board of Directors on July 21, 2009 and entered into with all non-employee directors, effective as of August 1, 2009). Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2009. (SEC File No. 1-5480)	
 	 	 	
10.11A	 	Letter Agreement between Textron and Scott C. Donnelly, dated June 26, 2008. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2008. (SEC File No. 1-5480)	
 	 	 	
10.11B	 	Amendment to Letter Agreement between Textron and Scott C. Donnelly, dated December 16, 2008, together with Addendum No.1 thereto, dated December 23, 2008. Incorporated by reference to Exhibit 10.15B to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. (SEC File No. 1-5480)	
 	 	 	
10.11C	 	Agreement between Textron and Scott C. Donnelly, dated May 1, 2009, related to Mr. Donnelly’s personal use of a portion of hangar space at T.F. Green Airport which is leased by Textron. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 2009. (SEC File No. 1-5480)	
 	 	 	
10.11D	 	Hangar License and Services Agreement made and entered into on April 25, 2011 to be effective as of December 5, 2010, between Textron Inc. and Mr. Donnelly’s limited liability company. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2011. (SEC File No. 1-5480)	
 	 	 	
10.11E	 	Amended and Restated Hangar License and Services Agreement, made and entered into as of October 1, 2015, between Textron Inc. and Mr. Donnelly’s limited liability company. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2015.	
 	 	 	
10.12A	 	Letter Agreement between Textron and Frank Connor, dated July 27, 2009. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2009. (SEC File No. 1-5480)	
 	 	 	
10.12B	 	Hangar License and Services Agreement made and entered into on April 25, 2011 to be effective as of December 5, 2010, between Textron Inc. and Mr. Connor’s limited liability company. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2011. (SEC File No. 1-5480)	
 	 	 	
10.12C	 	Amended and Restated Hangar License and Services Agreement, made and entered into on July 24, 2015, between Textron Inc. and Mr. Connor’s limited liability company. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2015.	
 	 	 	
10.13	 	Letter Agreement between Textron and Julie G. Duffy, dated July 27, 2017. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2017.	
 
76 

Table of Contents

10.14A	 	Letter Agreement between Textron and E. Robert Lupone, dated December 22, 2011. Incorporated by reference to Exhibit 10.17 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. (SEC File No. 1-5480)	
 	 	 	
10.14B	 	Amendment to letter agreement between Textron and E. Robert Lupone, dated July 27, 2012. Incorporated by reference to Exhibit 10.5 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 29, 2012. (SEC File No. 1-5480)	
 	 	 	
10.15	 	Director Compensation.	
 	 	 	
10.16 	 	Form of Aircraft Time Sharing Agreement between Textron and its executive officers. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2008. (SEC File No. 1-5480)	
 	 	 	
10.17	 	Credit Agreement, dated as of September 30, 2016, among Textron, the Lenders listed therein, JPMorgan Chase Bank, N.A., as Administrative Agent, Citibank, N.A. and Bank of America, N.A., as Syndication Agents, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Documentation Agent. Incorporated by reference to Exhibit 10.1 to Textron’s Current Report on Form 8-K filed on October 3, 2016.	
 	 	 	
12.1	 	Computation of ratio of income to fixed charges of Textron Inc.’s Manufacturing group.	
 	 	 	
12.2	 	Computation of ratio of income to fixed charges of Textron Inc., including all majority-owned subsidiaries.	
 	 	 	
21	 	Certain subsidiaries of Textron. Other subsidiaries, which considered in the aggregate do not constitute a significant subsidiary, are omitted from such list.	
 	 	 	
23	 	Consent of Independent Registered Public Accounting Firm.	
 	 	 	
24	 	Power of attorney.	
 	 	 	
31.1	 	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
31.2	 	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
32.1	 	Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
32.2	 	Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
101	 	The following materials from Textron Inc.’s Annual Report on Form 10-K for the year ended December 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, (vi) the Notes to the Consolidated Financial Statements, and (vii) Schedule II – Valuation and Qualifying Accounts.	
 
*                  Confidential Treatment has been requested for portions of this document.
 
Item 16. Form 10-K Summary 
 
Not applicable.
 
77 

Table of Contents
 
Signature  s
 
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 15th day of February 2018.

 	 	TEXTRON INC.	
 	 	Registrant	
 	 	 	
 	By:	/s/ Frank T. Connor	 	
 	 	Frank T. Connor	
 	 	Executive Vice President and Chief Financial Officer	
 
78 

Table of Contents
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below on this 15th day of February 2018 by the following persons on behalf of the registrant and in the capacities indicated:

Name	 	Title	

/s/ Scott C. Donnelly	 	 	
Scott C. Donnelly	 	Chairman, President and Chief Executive Officer	
 	 	(principal executive officer)	
*	 	 	
Kathleen M. Bader	 	Director	
 	 	 	
*	 	 	
R. Kerry Clark	 	Director	
 	 	 	
*	 	 	
James T. Conway	 	Director	
 	 	 	
*	 	 	
Ivor J. Evans	 	Director	
 	 	 	
*	 	 	
Lawrence K. Fish	 	Director	
 	 	 	
*	 	 	
Paul E. Gagné	 	Director	
 	 	 	
*	 	 	
Ralph D. Heath	 	Director	
 	 	 	
*	 	 	
Deborah Lee James	 	Director	
 	 	 	
*	 	 	
Lloyd G. Trotter	 	Director	
 	 	 	
*	 	 	
James L. Ziemer	 	Director	
 	 	 	
*	 	 	
Maria T. Zuber	 	Director	

/s/ Frank T. Connor	 	 	
Frank T. Connor	 	Executive Vice President and Chief Financial Officer	
 	 	(principal financial officer)	
 	 	 	
/s/ Mark S. Bamford	 	 	
Mark S. Bamford	 	Vice President and Corporate Controller	
 	 	(principal accounting officer)	
 	 	 	
*By:	/s/ Jayne M. Donegan	 	 	 	
 	Jayne M. Donegan, Attorney-in-fact	 	 	 	
 
79 

Exhibit 10.9 
 
INDEMNITY AGREEMENT

Agreement dated as of [date] , by and between Textron Inc., a Delaware corporation (the “Corporation”) and [name] (“Indemnitee”).
 
Indemnitee currently is serving as an Officer of the Corporation, and the Corporation desires that Indemnitee continue to serve in such capacity at the will of the Corporation or under separate contract, if such exists.  Indemnitee is willing to continue to serve in such capacity if Indemnitee is adequately protected against the risks associated with such service.
 
In addition to the indemnification to which Indemnitee is entitled pursuant to the By-Laws of the Corporation, and as additional consideration for Indemnitee’s continued service, the Corporation has furnished at its expense directors and officers liability insurance protecting Indemnitee in connection with such service.  Such insurance excludes or limits coverage for certain types of claims.
 
The Corporation and Indemnitee have concluded that the indemnities available under the Corporation’s By-Laws and the insurance currently in effect need to be supplemented to more fully protect Indemnitee against the risks associated with Indemnitee’s service to the Corporation.
 
In consideration of the premises and of the mutual agreements hereinafter set forth, the parties hereto agree as follows:
 
1.                                     The Corporation shall pay on behalf of the Indemnitee and Indemnitee’s executors, administrators or assigns, any amount that Indemnitee is or becomes legally obligated to pay as a result of any claim or claims made against Indemnitee by reason of the fact that Indemnitee served as an Officer of the Corporation or any Affiliate thereof or because of any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or other act done, or suffered or wrongfully attempted by Indemnitee in Indemnitee’s capacity as an Officer of the Corporation or any Affiliate thereof.  For purposes of this Agreement, the term “Affiliate” shall mean any corporation controlling, controlled by or under common control with the Corporation.  The payments that the Corporation will be obligated to make hereunder

 
shall include (without limitation) damages, judgments, settlements, costs and expenses of investigation, costs and expenses of defense of legal actions, claims and proceedings and appeals therefrom, and costs of attachments and similar bonds; provided , however , that the Corporation shall not be obligated to pay fines or other obligations or fees imposed by law or otherwise that it is prohibited by applicable law from paying as indemnity or for any other reason.
 
2.                                     Costs and expenses (including, without limitation, attorneys’ fees) incurred by the Indemnitee in defending or investigating any action, suit, proceeding or claim referred to in Section 1 hereof shall be paid by the Corporation in advance of the final disposition of such matter upon receipt of a written undertaking by or on behalf of Indemnitee to repay any such amounts if it is ultimately determined that Indemnitee is not entitled to indemnification under the terms of this Agreement.
 
3.                                     If a claim under this Agreement is not paid by or on behalf of the Corporation within ninety days after a written claim has been received by the Corporation, Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, Indemnitee shall also be entitled to be paid the expense of prosecuting such claim.
 
4.                                     In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights.
 
5.                                     The Corporation shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee:
(a)                                For which payment is actually made to Indemnitee under an insurance policy maintained by the Corporation, except in respect of any excess beyond the amount of payment under such insurance;
(b)                               For which Indemnitee is indemnified by the Corporation otherwise than pursuant to this Agreement;
(c)                                Based upon or attributable to Indemnitee gaining in fact any personal profit or advantage to which Indemnitee was not legally entitled;
 
- 2 - 

 
(d)                               For an accounting of profits made from the purchase or sale by Indemnitee or securities of the Corporation within the meaning of Section l6(b) of the Securities Exchange Act of l934 and amendments thereto or similar provisions of any state statutory law or common law; or
 
(e)                                Brought about or contributed to by the dishonesty of Indemnitee; provided , however , that notwithstanding the foregoing, Indemnitee shall be protected under this Agreement as to any claims upon which suit may be brought alleging dishonesty on the part of Indemnitee, unless a judgment or other final adjudication thereof adverse to Indemnitee shall establish that Indemnitee committed acts of active and deliberate dishonesty with actual dishonest purpose and intent, which acts were material to the cause of action so adjudicated.
 
6.                                     Indemnitee, as a condition precedent to his or her right to be indemnified under this Agreement, shall give to the Corporation notice in writing as soon as practicable of any claim made against Indemnity for which indemnity will or could be sought under this Agreement. Notice to the Corporation shall be directed to Textron Inc., 40 Westminster Street, Providence, Rhode Island, 02903, attention:  Secretary (or such other address as the Corporation shall designate in writing to Indemnitee).  Notice shall be deemed received if sent by prepaid mail properly addressed, the date of such notice being the date postmarked.  In addition, Indemnitee shall give the Corporation such information and cooperation as it may reasonably request.
 
7.                                     Nothing herein shall be deemed to diminish or otherwise restrict Indemnitee’s right to indemnification under any provision of the Certificate of Incorporation or By-Laws of the Corporation or under Delaware law.
 
8.                                     Indemnitee agrees to continue to serve at the will of the Corporation or under separate contract, if such exists, as an Officer of the Corporation to the best of Indemnitee’s ability until the expiration or earlier termination of Indemnitee’s term of office or until Indemnitee tenders his or her resignation in writing.
 
9.                                     This Agreement shall be governed by and construed in accordance with Delaware law.
 
10.                             This Agreement shall be binding upon all successors and assigns of the Corporation (including any transferee of all or substantially all of its assets and any
 
- 3 - 

 
successor by merger or operation of law) and shall inure to the benefit of the heirs, personal representatives and estate of Indemnitee.
 
11.                             If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not by themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not by themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent of the parties that the Corporation provide protection to Indemnitee to the fullest enforceable extent.
 
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

 	TEXTRON INC.	

Attest:	 	 	By:	 	 	
 	Ann T. Willaman	 	E. Robert Lupone	
 	Assistant Secretary	 	Executive Vice President, General	
 	 	Counsel and Secretary	

 	 	 	 	
 	 	[name]	

- 4 - 

Exhibit 10.15 
 
COMPENSATION AND BENEFITS SUMMARY
FOR NON-EMPLOYEE DIRECTORS

COMPENSATION	 	 	
 	 	 	
Retainers	 	An annual retainer of $260,000 is paid in quarterly installments at the end of each full quarter. Payments are prorated for partial calendar quarters served. At least $135,000 of the annual Board retainer must be deferred into the Directors’ Deferred Income Plan stock unit account. Committee chairpersons are paid an additional annual retainer, as follows: Audit, $15,000; Nominating and Corporate Governance, $15,000; and Organization and Compensation, $20,000. The Lead Director is paid an additional $30,000 annual retainer. Audit Committee members (including the Audit Committee chairperson) are paid an additional $15,000 annual retainer. The additional retainers are paid in quarterly installments at the end of each full quarter, and payments are prorated for partial calendar quarters served.	
 	 	 	
 	 	(See full text of the Deferred Income Plan for Non-Employee Directors.)	
 	 	 	
Meeting Fees	 	There are no fees payable for attendance at any Board or committee meetings.	
 	 	 	
One-Time Restricted Stock Grant	 	A grant of 2,000 restricted shares of Common Stock under the Textron Inc. 2015 Long-Term Incentive Plan is made to non-employee Directors upon joining the Board.	
 	 	 	
DEFERRED INCOME PLAN	
 	 	 	
 	 	In addition to the required deferral into the stock unit account of $135,000 of the annual Board retainer, any percentage of the balance of the Board retainer or any percentage of the additional retainers may be deferred into either the stock unit account or an interest bearing account.	
 	 	 	
OTHER	 	 	
 	 	 	
Expenses	 	Reasonable travel, lodging and incidental expenses in connection with meetings are reimbursed.	
 	 	 	
Matching
Gift Program	 	The Textron Charitable Trust will match Director contributions from a minimum gift of $25 to an aggregate maximum of $7,500 annually to any mix of cultural, educational, environmental or hospital institutions on a $1 for $1 basis.	
 	 	 	
Directors’ Charitable Award Program	 	[Closed to New Participants as of January 1, 2004]	

EXHIBIT 12.1 
 
TEXTRON INC.
MANUFACTURING GROUP
 
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
(Unaudited)
(In millions except ratios)

 	 	2017	 	2016	 	2015	 	2014	 	2013	
Fixed charges:	 	 	 	 	 	 	 	 	 	 	
Interest expense*	 	 $	145	 	 $	138	 	 $	130	 	 $	148	 	 $	122	
Estimated interest portion of rents	 	41	 	42	 	37	 	40	 	31	
 	 	 	 	 	 	 	 	 	 	 	
Total fixed charges	 	 $	186	 	 $	180	 	 $	167	 	 $	188	 	 $	153	

Income:	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before income taxes	 	 $	762	 	 $	876	 	 $	971	 	 $	853	 	 $	674	
Fixed charges	 	186	 	180	 	167	 	188	 	153	
Dividends received from Finance group	 	—	 	29	 	63	 	—	 	175	
Eliminate pretax income of Finance group	 	(22)	 	(19)	 	(24)	 	(21)	 	(49)	
 	 	 	 	 	 	 	 	 	 	 	
Adjusted income	 	 $	926	 	 $	1,066	 	 $	1,177	 	 $	1,020	 	 $	953	
 	 	 	 	 	 	 	 	 	 	 	
Ratio of income to fixed charges	 	4.98	 	5.92	 	7.05	 	5.43	 	6.23	

 
*               Includes interest expense on all third-party indebtedness, except for interest related to unrecognized tax benefits which is included in income tax expense.

EXHIBIT 12.2 
 
TEXTRON INC. INCLUDING ALL MAJORITY-OWNED SUBSIDIARIES
 
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
(Unaudited)
(In millions except ratios)

 	 	2017	 	2016	 	2015	 	2014	 	2013	
Fixed charges:	 	 	 	 	 	 	 	 	 	 	
Interest expense*	 	 $	174	 	 $	174	 	 $	169	 	 $	191	 	 $	171	
Estimated interest portion of rents	 	41	 	42	 	38	 	40	 	32	
 	 	 	 	 	 	 	 	 	 	 	
Total fixed charges	 	 $	215	 	 $	216	 	 $	207	 	 $	231	 	 $	203	

Income:	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before income taxes	 	 $	762	 	 $	876	 	 $	971	 	 $	853	 	 $	674	
Fixed charges	 	215	 	216	 	207	 	231	 	203	
 	 	 	 	 	 	 	 	 	 	 	
Adjusted income	 	 $	977	 	 $	1,092	 	 $	1,178	 	 $	1,084	 	 $	877	
 	 	 	 	 	 	 	 	 	 	 	
Ratio of income to fixed charges	 	4.54	 	5.06	 	5.69	 	4.69	 	4.32	

 
*               Includes interest expense on all third-party indebtedness, except for interest related to unrecognized tax benefits which is included in income tax expense.

Exhibit 21 
 
Certain Subsidiaries of Textron Inc.*
(Unless indicated otherwise, all entities listed are wholly-owned.)
* Other subsidiaries, which considered in the aggregate do not constitute a significant subsidiary, are omitted from this list.

Name	Jurisdiction	
TEXTRON INC.	Delaware	
Avco Corporation	Delaware	
International Product Support Inc.	Delaware	
United Industrial Corporation	Delaware	
AAI Corporation	Maryland	
AAI Services Corporation	Maryland	
Overwatch Systems, Ltd.	Delaware	
Medical Numerics, Inc.	Virginia	
Textron Systems Corporation	Delaware	
Textron Systems Electronic Systems UK (Holdings) Limited	England	
Textron Systems Electronic Systems UK Limited	England	
Textron Systems Australia Holding Pty Ltd	Australia	
Textron Systems Australia Pty Ltd	Australia	
Bell Helicopter KK	Japan	
Bell Helicopter GK	Japan	
Bell Helicopter Textron Inc.	Delaware	
Aeronautical Accessories LLC	Tennessee	
Bell Helicopter Miami Inc.	Delaware	
Bell Helicopter Rhode Island Inc.	Delaware	
Bell Helicopter Services Inc.	Delaware	
Bell Helicopter Asia (Pte) Ltd.	Singapore	
Bell Helicopter India Inc.	Delaware	
Bell Helicopter Korea Inc.	Delaware	
Bell Technical Services Inc.	Delaware	
B/K Navigational Equipment sro	Czech Republic	
Bell Helicopter Prague, a.s. (67%; 33% - Bell Helicopter Services Inc.)	Czech Republic	
Aviation Service servis letal, doo, Ljubljana	Slovenia	
Klauke Polska Sp. z o.o.	Poland	
McTurbine Inc.	Texas	
Cadillac Gage Textron Inc.	Michigan	
Greenlee Textron Inc.	Delaware	
HD Electric Company	Illinois	
Sherman + Reilly, Inc.	Tennessee	
Jacobsen Professional Lawn Care Inc.	Delaware	
Kautex Inc.	Delaware	
McCord Corporation	Michigan	
Kautex of Georgia Inc.	Massachusetts	
King Atmosphere General & Industrial Services and Project Management, LLC	Iraq	
MillenWorks	California	
Textron Airborne Solutions Inc.	Delaware	
Airborne Tactical Advantage Company, LLC	Colorado	
Textron Atlantic LLC	Delaware	
E-Z-GO Canada Limited	Canada	
TekGPS Engineering Srl	Romania	
Kautex Poland Sp. z.o.o	Poland	
Klauke Handelsgesellschaft m.b.H.	Austria	
Ransomes Investment LLC	Delaware	
Ransomes America Corporation	Delaware	
Cushman Inc.	Delaware	
Ransomes Inc.	Wisconsin	
STE Holding Inc.	Wisconsin	
Textron Acquisition Limited	England	
Doncaster Citation Service Centre Limited	England	
Rotor Blades Limited	England	
Textron Ground Support Equipment UK Limited	England	
Textron Limited	England	
ETOPS (AS) UK Limited	England	
ETOPS Aviation Services Malaysia SDN BHD	Malaysia	
ETOPS SAS	France	
Greenlee Communications Limited	England	
Klauke UK Limited	England	
Kautex Textron (UK) Limited	England	
 
Page 1 

 

Name	Jurisdiction	
TEXTRON INC.	Delaware	
Textron Atlantic LLC	Delaware	
Textron Acquisition Limited	England	
Textron Limited  (continued from prior page)	England	
Ransomes Limited	England	
Ransomes Jacobsen Limited	England	
Ransomes Pensions Trustee Company Limited	England	
Textron UK Pension Trustee Limited	England	
Textron International Holding, S.L.	Spain	
Bell Helicopter Supply Center B.V.	Netherlands	
Bell Helicopter Textron Canada Limited/Limitée	Canada	
Bell Helicopter Canada International Inc.	Canada	
Cessna Zurich Citation Service Center GmbH	Switzerland	
Kautex Textron CVS Limited	England	
Kautex Textron Ibérica, S.L.	Spain	
Cessna Spanish Citation Service Center SL (99.96875%; 0.03125% - Textron International Holding, S.L.)	Spain	
Kautex Craiova srl (99.9835%; 0.0165% - Textron International Holding, S.L.)	Romania	
Kautex Textron do Brasil Ltda. (99.9%; 1 share - Textron International Holding, S.L.)	Brazil	
Kautex Textron Portugal – Produtos Plasticos, Ldas.	Portugal	
TRU Simulation & Training Spain, SL	Spain	
Textron Capital BV	Netherlands	
Kautex Textron GmbH & Co. KG (94.82%; 5.18% - Textron International Holding, S.L.)	Germany	
Cessna Düsseldorf Citation Service Center GmbH	Germany	
Gustav Klauke GmbH (94.9%; 5.1% - Textron International Holding, S.L.)	Germany	
Textron Iberia, SL	Spain	
Textron Ulaşım Alet ve Parçaları Ticaret Limited Şirketi	Turkey	
Kautex (Changchun) Plastics Technology Co., Ltd.	PRC	
Textron Germany Holding GmbH	Germany	
Kautex Corporation	Nova Scotia	
Kautex Textron Benelux B.V.B.A. (99.9%; 1 share – Kautex Textron Ibérica, S.L.)	Belgium	
Kautex Textron Bohemia spol. s.r.o.	Czech Republic	
Kautex Japan KK	Japan	
Kautex Shanghai GmbH	Germany	
Kautex (Chongqing) Plastic Technology Co., Ltd.	PRC	
Kautex (Guangzhou) Plastic Technology Co., Ltd.	PRC	
Kautex (Wuhan) Plastic Technology Co., Ltd.	PRC	
Wuxi Textron Specialized Vehicles Co., Ltd.	PRC	
Kautex (Shanghai) Plastic Technology Co., Ltd.	PRC	
Kautex Textron de Mexico, S. de R.L. de C.V. (99.98%; 0.02% - Textron International Holding, S.L.)	Mexico	
Kautex Textron Management Services Company de Puebla, S. de R.L. de C.V. (98%; 2% - Textron International Holding, S.L.)	Mexico	
Klauke Slovakia sro (99.98%; 0.02% - Textron International Holding, S.L.)	Slovakia	
Textron China Holdings S.R.L. (99.9576%; 0.04244% - Textron International Holding, S.L.)	Barbados	
Cessna Consulting (Shenyang) Co., Ltd.	PRC	
Textron Trading (Shanghai) Co., Ltd.	PRC	
LLC Textron RUS (99.99%; 0.01% - Textron International Holding, S.L.)	Russian Federation	
Textron Motors GmbH	Germany	
Textron France Holding S.A.R.L. (99.9%; 1 share – Textron France E.U.R.L.)	France	
Cessna Citation European Service Center S.A.S. (99.9%; 1 share – Textron France E.U.R.L.)	France	
Klauke France SARL	France	
Textron France E.U.R.L.	France	
Ransomes Jacobsen France S.A.S.	France	
Textron Shared Service Centre (Canada) Inc.	Canada	
Textron Verwaltungs-GmbH	Germany	
Textron Aviation Inc.	Kansas	
Able Aerospace Services, Inc.	Arizona	
Replacement Part Solutions, LLC	Illinois	
Arkansas Aerospace, Inc.	Arkansas	
Beech Aircraft Corporation	Kansas	
Beechcraft Domestic Service Company	Kansas	
Beechcraft International Service Company	Kansas	
Beechcraft Australia Pty Limited	Australia	
Beechcraft Germany GmbH	Germany	
Beechcraft India Private Limited (99%; 1% - Beechcraft International Holding LLC)	India	
Beechcraft International Holding LLC	Delaware	
 
Page 2 

 

Name	Jurisdiction	
TEXTRON INC.	Delaware	
Textron Aviation Inc.	Delaware	
Beechcraft International Service Company (continued from prior page)	Delaware	
Beechcraft Service Company UK Limited	England	
Beechcraft Singapore Pte. Ltd.	Singapore	
Hawker Beech International Services de Mexico S de RL de CV (>99%; <1% - HBC, LLC)	Mexico	
Hawker Beechcraft Argentina SA (95%; 5% - Arkansas Aerospace, Inc.)	Argentina	
Hawker Beechcraft do Brasil Assessoria e Intermediacao de Negocios Ltda. ( 99%; 1% - Beechcraft- I nternational Holding LLC )	Brazil	
Cessna Mexico S de RL de CV (99.97%; 0.03% - Citation Parts Distribution International, Inc.)	Mexico	
Citation Parts Distribution International, Inc.	Kansas	
HBC, LLC	Kansas	
Hawker Beech de Mexico, S de RL de CV (>99%; <1% - HBC, LLC)	Mexico	
Textron Airland, LLC	Delaware	
Textron Aviation Defense LLC	Delaware	
Beechcraft Defense Support Holding, LLC	Delaware	
Beechcraft New Zealand	New Zealand	
Textron Aviation Rhode Island Inc.	Delaware	
Textron Communications Inc.	Delaware	
Textron Far East Pte. Ltd.	Singapore	
Endura-Greenlee Tools (Shanghai) Co., Ltd.	PRC	
E-Z-GO (Jiangsu) Electronic and Technology Co., Ltd. (51%; 49% - Kautex (Guangzhou) Plastic Technology Co., Ltd.)	PRC	
Klauke Textron (Jiangsu) Electrical Connection Technology Co., Ltd.	PRC	
Textron India Private Limited (99.9%; 1 share – Textron Atlantic Inc.; 1 share – Textron Inc.)	India	
Kautex Plastic Technology Gujarat Private Limited (99.99%; 0.01% -Textron Far East Pte. Ltd.)	India	
Textron Fastening Systems Inc.	Delaware	
Textron Financial Corporation	Delaware	
Cessna Finance Corporation	Kansas	
Textron Finance Holding Company	Delaware	
Cessna Finance Export Corporation	Delaware	
Textron Aviation Finance Corporation	Delaware	
Textron Financial Corporation Receivables Trust 2002-CP-2	Delaware	
Textron Fluid and Power Inc.	Delaware	
Textron Global Services Inc.	Delaware	
Textron International Inc.	Delaware	
Textron International Mexico, S de RL de CV (99%; 1% - Textron Atlantic LLC)	Mexico	
Textron IPMP Inc.	Delaware	
Textron Innovations Inc.	Delaware	
Textron Management Services Inc.	Delaware	
Textron Realty Corporation	Delaware	
Textron Rhode Island Inc.	Delaware	
Textron Specialized Vehicles Inc.	Delaware	
Arctic Cat Inc.	Minnesota	
American Commercial Vehicles, Inc.	Minnesota	
Arctic Cat Production LLC	Minnesota	
Arctic Cat Production Support LLC	Minnesota	
Arctic Cat Sales Inc.	Minnesota	
Arctic Cat ACE Holding GmbH	Austria	
Arctic Cat GmbH	Austria	
Arctic Cat Deutschland GmbH	Germany	
Arctic Cat Espana SL	Spain	
Arctic Cat France SARL	France	
Arctic Cat Italia srl	Italy	
Arctic Cat UK Ltd.	England/Wales	
MotorFist LLC	Minnesota	
Arctic Cat Shared Services LLC	Minnesota	
MillenWorks Themed Technologies	California	
Textron Ground Support Equipment Inc.	Delaware	
Textron Motors North America Inc.	Delaware	
Tug Technologies Corporation	Delaware	
Textron Sweden AB	Sweden	
Textron Systems Canada Inc.	Ontario	
Opto-Electronics Inc.	Ontario	
TRAK International, Inc.	Delaware	
TRU Simulation + Training Inc.	Delaware	
OPINICUS Simulation and Training Services, LLC	Delaware	
TRU Simulation + Training LLC	California	
 
Page 3 

 

Name	Jurisdiction	
TEXTRON INC.	Delaware	
TRU Simulation + Training Inc. (continued from prior page)	Delaware	
TRU Simulation + Training Canada Inc.	Ontario	
Turbine Engine Components Textron (Newington Operations) Inc.	Connecticut	
Westminster Insurance Company	Vermont	
 
Page 4 

Exhibit 23 
 
Consent of Independent Registered Public Accounting Firm
 
We consent to the incorporation by reference in the following Registration Statements: Form S-8 No. 333-197690 pertaining to the Textron Savings Plan and the Textron Canada Savings Plan, Form S-8 No. 333-205932 pertaining to the 2015 Long-Term Incentive Plan, Form S-8 No. 333-144977 pertaining to the 2007 Long-Term Incentive Plan, and Form S-3 No. 333-219499 pertaining to the automatic shelf registration of common stock, preferred stock, senior debt securities and subordinated debt securities of Textron Inc. of our reports dated February 15, 2018, with respect to the Consolidated Financial Statements and schedule of Textron Inc. and the effectiveness of internal control over financial reporting of Textron Inc. included in this Annual Report (Form 10-K) of Textron Inc. for the year ended December 30, 2017.

/s/ Ernst & Young LLP
 
Boston, Massachusetts
February 15, 2018

Exhibit 24 
 
POWER OF ATTORNEY

 
The undersigned, Textron Inc. (“Textron”), a Delaware corporation, and the undersigned directors and officers of Textron, do hereby constitute and appoint E. Robert Lupone, Elizabeth C. Perkins, Jayne M. Donegan and Ann T. Willaman, and each of them, with full powers of substitution, their true and lawful attorneys and agents to do or cause to be done any and all acts and things and to execute and deliver any and all instruments and documents which said attorneys and agents, or any of them, may deem necessary or advisable in order to enable Textron to comply with the Securities and Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017, including specifically, but without limitation, power and authority to sign the names of the undersigned directors and officers in the capacities indicated below and to sign the names of such officers on behalf of Textron to such Annual Report filed with the Securities and Exchange Commission, to any and all amendments to such Annual Report, to any instruments or documents or other writings in which the original or copies thereof are to be filed as a part of or in connection with such Annual Report or amendments thereto, and to file or cause to be filed the same with the Securities and Exchange Commission; and each of the undersigned hereby ratifies and confirms all that such attorneys and agents, and each of them, shall do or cause to be done hereunder and such attorneys and agents, and each of them, shall have, and may exercise, all of the powers hereby conferred.
 
IN WITNESS WHEREOF, Textron has caused this Power of Attorney to be executed and delivered in its name and on its behalf by the undersigned duly authorized officer and its corporate seal affixed, and each of the undersigned has signed his or her name thereto, as of the 14th day of February, 2018.

 	TEXTRON INC.	

SEAL	By:	/s/ Scott C. Donnelly	 	
 	 	Scott C. Donnelly	 	
 	 	Chairman, President and
Chief Executive Officer	

ATTEST:	 	

/s/ E. Robert Lupone	 	 	
E. Robert Lupone	 	 	
Executive Vice President, General Counsel,	 	
Secretary and Chief Compliance Officer	 	

 

/s/ Scott C. Donnelly	 	/s/ Deborah Lee James	 	
Scott C. Donnelly	 	Deborah Lee James	 	
Chairman, President, Chief	 	Director	 	
Executive Officer and Director	 	 	 	
(principal executive officer)	 	 	 	
 	 	/s/ Lloyd G. Trotter	 	
 	 	Lloyd G. Trotter	 	
/s/ Kathleen M. Bader	 	Director	 	
Kathleen M. Bader	 	 	 	
Director	 	 	 	
 	 	/s/ James L. Ziemer	 	
 	 	James L. Ziemer	 	
/s/ R. Kerry Clark	 	Director	 	
R. Kerry Clark	 	 	 	
Director	 	 	 	
 	 	/s/ Maria T. Zuber	 	
 	 	Maria T. Zuber	 	
/s/ James T. Conway	 	Director	 	
James T. Conway	 	 	 	
Director	 	 	 	
 	 	/s/ Frank T. Connor	 	
 	 	Frank T. Connor	 	
/s/ Ivor J. Evans	 	Executive Vice President and Chief	 	
Ivor J. Evans	 	Financial Officer	 	
Director	 	(principal financial officer)	 	

/s/ Lawrence K. Fish	 	/s/ Mark S. Bamford	 	
Lawrence K. Fish	 	Mark S. Bamford	 	
Director	 	Vice President and Corporate Controller	
 	 	(principal accounting officer)	 	
 	 	 	 	
/s/ Paul E. Gagné	 	 	 	
Paul E. Gagné	 	 	 	
Director	 	 	

/s/ Ralph D. Heath	 	 	
Ralph D. Heath	 	 	
Director	 	 	

Exhibit 31.1 

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
I, Scott C. Donnelly, Chairman, President and Chief Executive Officer of Textron Inc. certify that:
 
1.    I have reviewed this annual report on Form 10-K of Textron Inc.;
 
2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)  evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)  disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:	February 15, 2018	 	/s/ Scott C. Donnelly	 	
 	 	Scott C. Donnelly 
 Chairman, President and Chief Executive Officer	

Exhibit 31.2 

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
I, Frank T. Connor, Executive Vice President and Chief Financial Officer of Textron Inc. certify that:
 
1.      I have reviewed this annual report on Form 10-K of Textron Inc.;
 
2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.      The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)    designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)    designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)    evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)    disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.      The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a)    all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:	February 15, 2018	 	/s/ Frank T. Connor	 	
 	 	Frank T. Connor 
 Executive Vice President and Chief Financial Officer	

Exhibit 32.1 

 
TEXTRON INC.
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 
In connection with the Annual Report of Textron Inc. (the “Company”) on Form 10-K for the period ended December 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott C. Donnelly, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
(1)          The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date:	February 15, 2018	 	/s/ Scott C. Donnelly	 	
 	 	Scott C. Donnelly 
 Chairman, President and Chief Executive Officer	

Exhibit 32.2 

 
TEXTRON INC.
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 
In connection with the Annual Report of Textron Inc. (the “Company”) on Form 10-K for the period ended December 30 , 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),  I, Frank T. Connor, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
(1)          The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date:	February 15, 2018	 	/s/ Frank T. Connor	 	
 	 	Frank T. Connor 
 Executive Vice President and Chief Financial Officer