TEXTRON INC, 10-Q filed on 7/31/2020
Quarterly Report
v3.20.2
Document and Entity Information - shares
6 Months Ended
Jul. 04, 2020
Jul. 17, 2020
Document and Entity Information    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jul. 04, 2020  
Document Transition Report false  
Entity File Number 1-5480  
Entity Registrant Name Textron Inc  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 05-0315468  
Entity Address, Address Line One 40 Westminster Street  
Entity Address, City or Town Providence  
Entity Address, State or Province RI  
Entity Address, Postal Zip Code 02903  
City Area Code 401  
Local Phone Number 421-2800  
Title of 12(b) Security Common stock, $0.125 par value  
Trading Symbol TXT  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   228,035,460
Entity Central Index Key 0000217346  
Current Fiscal Year End Date --01-02  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Amendment Flag false  
v3.20.2
Consolidated Statements of Operations - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jul. 04, 2020
Jun. 29, 2019
Jul. 04, 2020
Jun. 29, 2019
Revenues        
Total revenues $ 2,472 $ 3,227 $ 5,249 $ 6,336
Costs, expenses and other        
Cost of sales 2,251 2,641 4,638 5,218
Selling and administrative expense 239 292 502 599
Interest expense 42 43 82 85
Special charges 78   117  
Non-service components of pension and post-retirement income, net (20) (28) (41) (57)
Total costs, expenses and other 2,590 2,948 5,298 5,845
Income (loss) before income taxes (118) 279 (49) 491
Income tax expense (benefit) (26) 62 (7) 95
Net income (loss) $ (92) $ 217 $ (42) $ 396
Earnings per share        
Basic (in dollars per share) $ (0.40) $ 0.94 $ (0.18) $ 1.70
Diluted (in dollars per share) $ (0.40) $ 0.93 $ (0.18) $ 1.69
Manufacturing        
Revenues        
Total revenues $ 2,457 $ 3,211 $ 5,220 $ 6,303
Finance        
Revenues        
Finance revenues $ 15 $ 16 $ 29 $ 33
v3.20.2
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jul. 04, 2020
Jun. 29, 2019
Jul. 04, 2020
Jun. 29, 2019
Consolidated Statements of Comprehensive Income (Loss)        
Net income (loss) $ (92) $ 217 $ (42) $ 396
Other comprehensive income, net of tax:        
Pension and postretirement benefits adjustments, net of reclassifications 36 20 73 41
Foreign currency translation adjustments 30 1 (10) 4
Deferred gains (losses) on hedge contracts, net of reclassifications 2   (7) 2
Other comprehensive income 68 21 56 47
Comprehensive income (loss) $ (24) $ 238 $ 14 $ 443
v3.20.2
Consolidated Balance Sheets - USD ($)
shares in Thousands, $ in Millions
Jul. 04, 2020
Jan. 04, 2020
Assets    
Inventories $ 4,262 $ 4,069
Finance receivables, net 691 682
Total assets 15,471 15,018
Liabilities    
Total liabilities 9,944 9,500
Shareholders' equity    
Common stock 29 29
Capital surplus 1,732 1,674
Treasury stock (74) (20)
Retained earnings 5,631 5,682
Accumulated other comprehensive loss (1,791) (1,847)
Total shareholders' equity 5,527 5,518
Total liabilities and shareholders' equity $ 15,471 $ 15,018
Common shares outstanding 227,953 227,956
Manufacturing group    
Assets    
Cash and equivalents $ 2,176 $ 1,181
Accounts receivable, net 764 921
Inventories 4,262 4,069
Other current assets 863 894
Total current assets 8,065 7,065
Property, plant and equipment, less accumulated depreciation and amortization of $4,538 and $4,405, respectively 2,446 2,527
Goodwill 2,153 2,150
Other assets 1,857 2,312
Total assets 14,521 14,054
Liabilities    
Short-term debt and current portion of long-term debt 1,107 561
Accounts payable 982 1,378
Other current liabilities 1,983 1,907
Total current liabilities 4,072 3,846
Other liabilities 2,128 2,288
Long-term debt 2,955 2,563
Total liabilities 9,155 8,697
Finance group    
Assets    
Cash and equivalents 170 176
Finance receivables, net 691 682
Other assets 89 106
Total assets 950 964
Liabilities    
Other liabilities 119 117
Debt 670 686
Total liabilities $ 789 $ 803
v3.20.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Jul. 04, 2020
Jan. 04, 2020
Consolidated Balance Sheets    
Accumulated depreciation and amortization $ 4,538 $ 4,405
v3.20.2
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
6 Months Ended
Jul. 04, 2020
Jun. 29, 2019
Cash flows from operating activities    
Net income (loss) $ (42) $ 396
Non-cash items:    
Depreciation and amortization 188 202
Deferred income taxes (41) 32
Asset impairments and TRU inventory charge 110  
Other, net 58 40
Changes in assets and liabilities:    
Accounts receivable, net 157 36
Inventories (244) (505)
Other assets 51 (19)
Accounts payable (400) 132
Other liabilities 17 (338)
Income taxes, net 3 14
Pension, net (8) (29)
Captive finance receivables, net (14) (19)
Other operating activities, net 13 (2)
Net cash provided by (used in) operating activities of continuing operations (152) (60)
Net cash used in operating activities of discontinued operations   (1)
Net cash provided by (used in) operating activities (152) (61)
Cash flows from investing activities    
Capital expenditures (96) (135)
Net proceeds from corporate-owned life insurance policies 17 4
Net cash used in acquisitions (11)  
Finance receivables repaid 20 20
Other investing activities, net 6 7
Net cash provided by (used in) investing activities (64) (104)
Cash flows from financing activities    
Increase in short-term debt 499  
Proceeds from long-term debt 642 297
Proceeds from borrowings against corporate-owned life insurance policies 377  
Payment on borrowings against corporate-owned life insurance policies (15)  
Principal payments on long-term debt and nonrecourse debt (229) (35)
Purchases of Textron common stock (54) (361)
Dividends paid (9) (9)
Other financing activities, net 4 19
Net cash provided by (used in) financing activities 1,215 (89)
Effect of exchange rate changes on cash and equivalents (10) 4
Net increase (decrease) in cash and equivalents 989 (250)
Cash and equivalents at beginning of period 1,357 1,107
Cash and equivalents at end of period 2,346 857
Manufacturing group    
Cash flows from operating activities    
Net income (loss) (47) 387
Non-cash items:    
Depreciation and amortization 186 199
Deferred income taxes (39) 33
Asset impairments and TRU inventory charge 110  
Other, net 54 39
Changes in assets and liabilities:    
Accounts receivable, net 157 36
Inventories (244) (532)
Other assets 50 (17)
Accounts payable (400) 132
Other liabilities 21 (339)
Income taxes, net (1) 10
Pension, net (8) (29)
Dividends received from Finance group   50
Other operating activities, net 13 (2)
Net cash provided by (used in) operating activities of continuing operations (148) (33)
Net cash used in operating activities of discontinued operations   (1)
Net cash provided by (used in) operating activities (148) (34)
Cash flows from investing activities    
Capital expenditures (96) (135)
Net proceeds from corporate-owned life insurance policies 17 4
Net cash used in acquisitions (11)  
Other investing activities, net 5 4
Net cash provided by (used in) investing activities (85) (127)
Cash flows from financing activities    
Increase in short-term debt 499  
Proceeds from long-term debt 642 297
Proceeds from borrowings against corporate-owned life insurance policies 377  
Payment on borrowings against corporate-owned life insurance policies (15)  
Principal payments on long-term debt and nonrecourse debt (194) (1)
Purchases of Textron common stock (54) (361)
Dividends paid (9) (9)
Other financing activities, net (8) 19
Net cash provided by (used in) financing activities 1,238 (55)
Effect of exchange rate changes on cash and equivalents (10) 4
Net increase (decrease) in cash and equivalents 995 (212)
Cash and equivalents at beginning of period 1,181 987
Cash and equivalents at end of period 2,176 775
Finance group    
Cash flows from operating activities    
Net income (loss) 5 9
Non-cash items:    
Depreciation and amortization 2 3
Deferred income taxes (2) (1)
Other, net 4 1
Changes in assets and liabilities:    
Other assets 1 (2)
Other liabilities (4) 1
Income taxes, net 4 4
Net cash provided by (used in) operating activities of continuing operations 10 15
Net cash provided by (used in) operating activities 10 15
Cash flows from investing activities    
Finance receivables repaid 65 91
Finance receivables originated (59) (90)
Other investing activities, net 1 30
Net cash provided by (used in) investing activities 7 31
Cash flows from financing activities    
Principal payments on long-term debt and nonrecourse debt (35) (34)
Dividends paid   (50)
Other financing activities, net 12  
Net cash provided by (used in) financing activities (23) (84)
Net increase (decrease) in cash and equivalents (6) (38)
Cash and equivalents at beginning of period 176 120
Cash and equivalents at end of period $ 170 $ 82
v3.20.2
Basis of Presentation
6 Months Ended
Jul. 04, 2020
Basis of Presentation  
Basis of Presentation

Note 1.  Basis of Presentation

Our Consolidated Financial Statements include the accounts of Textron Inc. (Textron) and its majority-owned subsidiaries.  We have prepared these unaudited consolidated financial statements in accordance with accounting principles generally accepted in the U.S. for interim financial information.  Accordingly, these interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.  The consolidated interim financial statements included in this quarterly report should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 4, 2020.  In the opinion of management, the interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair presentation of our consolidated financial position, results of operations and cash flows for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

Our financings are conducted through two separate borrowing groups.  The Manufacturing group consists of Textron consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems and Industrial segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance.  To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements.  All significant intercompany transactions are eliminated from the Consolidated Financial Statements, including retail financing activities for inventory sold by our Manufacturing group and financed by our Finance group.

Use of Estimates

We prepare our financial statements in conformity with generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements.  Actual results could differ from those estimates.  Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated Statements of Operations in the period that they are determined.

Contract Estimates

For contracts where revenue is recognized over time, we recognize changes in estimated contract revenues, costs and profits using the cumulative catch-up method of accounting.  This method recognizes the cumulative effect of changes on current and prior periods with the impact of the change from inception-to-date recorded in the current period.  Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.  

In the second quarter of 2020 and 2019, our cumulative catch-up adjustments increased revenues and segment profit by $17 million and $27 million, respectively. These adjustments decreased the net loss in the second quarter of 2020 by $13 million ($0.06 per share) and increased net income in the second quarter of 2019 by $21 million ($0.09 per diluted share). In the second quarter of 2020 and 2019, gross favorable adjustments totaled $46 million and $46 million, respectively, and the gross unfavorable adjustments totaled $29 million and $19 million, respectively.

In the first half of 2020 and 2019, our cumulative catch-up adjustments increased revenue and segment profit by $19 million and $58 million, respectively. These adjustments decreased the net loss in the first half of 2020 by $14 million ($0.06 per share) and increased net income in the first half of 2019 by $44 million ($0.19 per diluted share). In the first half of 2020 and 2019, gross favorable adjustments totaled $73 million and $99 million, respectively, and the gross unfavorable adjustments totaled $54 million and $41 million, respectively.

v3.20.2
Summary of Significant Accounting Policies Update
6 Months Ended
Jul. 04, 2020
Summary of Significant Accounting Policies Update  
Summary of Significant Accounting Policies Update

Note 2.  Summary of Significant Accounting Policies Update

At the beginning of 2020, we adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (ASC 326). This standard changed the prior incurred loss model to a forward-looking current expected credit loss model for most financial assets, such as trade and finance receivables, contract assets and other instruments. This standard required a cumulative-effect adjustment to retained earnings upon adoption with no restatement of prior periods. There was no significant impact on our consolidated financial statements upon adoption of the standard.

Our significant accounting policies are included in Note 1 of our Annual Report on Form 10-K for the year ended January 4, 2020.  Significant changes to our policies resulting from the adoption of ASC 326 are provided below.

Accounts Receivable, Net

Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. We maintain an allowance for credit losses for our commercial accounts receivable to provide for the estimated amount that will not be collected, even when the risk of loss is remote. The allowance is measured on a collective pool basis when similar risk characteristics exists and is established as a percentage of accounts receivable.  We have identified pools with similar risk characteristics, based on customer and industry type and geographic location. The percentage is based on all available and relevant information including age of outstanding receivables and collateral value, if any, historical payment experience and loss history, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For amounts due from the U.S. Government, we have not established an allowance for credit losses as we have zero loss expectation based on a long history of no credit losses and the explicit guarantee of a sovereign entity.

Finance Receivables, Net

We establish an allowance for credit losses to cover probable but specifically unknown losses existing in the portfolio. This allowance is established as a percentage of finance receivables categorized by pools with similar risk characteristics, such as collateral or customer type and geographic location. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions.

For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's 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, existence and financial strength of guarantors.

v3.20.2
Accounts Receivable and Finance Receivables
6 Months Ended
Jul. 04, 2020
Accounts Receivable and Finance Receivables  
Accounts Receivable and Finance Receivables

Note 3.  Accounts Receivable and Finance Receivables

Accounts Receivable

Accounts receivable is composed of the following:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

July 4,

January 4,

(In millions)

2020

2020

Commercial

  $

650

  $

835

U.S. Government contracts

156

 

115

806

 

950

Allowance for credit losses

(42)

 

(29)

Total accounts receivable, net

  $

764

  $

921

Finance Receivables

Finance receivables are presented in the following table:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

July 4,

January 4,

(In millions)

2020

2020

Finance receivables

  $

719

  $

707

Allowance for credit losses

(28)

 

(25)

Total finance receivables, net

  $

691

  $

682

Finance Receivable Portfolio Quality

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.

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.

In March 2020, due to the economic impact of the COVID-19 pandemic and at the request of certain of our customers, we began working with them to provide temporary payment relief through loan modifications. The types of temporary payment relief we offered to these customers included delays in the timing of required principal payments, deferrals of interest payments and/or interest-only payments. For loan modifications that cover payment-relief periods in excess of six months, even if the loan was previously current, the loan is deemed a troubled debt restructuring and considered impaired. These impaired loans are classified as either nonaccrual or watchlist based on a review of the credit quality indicators as discussed above.

During the first half of 2020, we modified finance receivable contracts for 75 customers with an outstanding balance totaling $251 million at July 4, 2020. We are continuing to work with other customers on modifications to accounts with an outstanding balance totaling approximately $60 million. Of the modifications occurring during the first half of 2020, contracts for 22 customers or $103 million of finance receivables were categorized as troubled debt restructurings. Due to the nature of these restructurings, the financial effects were not significant. We had one customer default related to finance receivables previously modified as a troubled debt restructuring that had an insignificant outstanding balance. We believe our allowance for credit losses adequately covers our exposure on these loans as our estimated collateral values largely exceed the outstanding loan amounts.

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

July 4,

January 4,

(Dollars in millions)

2020

2020

Performing

  $

555

  $

664

Watchlist

111

 

4

Nonaccrual

53

 

39

Nonaccrual as a percentage of finance receivables

7.37

%

5.52

%

Current and less than 31 days past due

  $

618

  $

637

31-60 days past due

41

53

61-90 days past due

17

7

Over 90 days past due

43

10

60+ days contractual delinquency as a percentage of finance receivables

8.34

%

2.40

%

At July 4, 2020, 33% of our performing finance receivables were originated since the beginning of 2019 and 32% were originated from 2016 to 2018. For finance receivables categorized as watchlist, 17% were originated since the beginning of 2019 and 42% from 2016 to 2018. For accounts modified in the first half of 2020, the origination date prior to the modification was maintained based on the types of temporary payment relief provided.

On a quarterly basis, we evaluate individual larger balance accounts for impairment. A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators described above. Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified. If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification.

A summary of finance receivables and the allowance for credit  losses, based on the results of our impairment evaluation, is provided below. The finance receivables included in this table specifically exclude leveraged leases in accordance with U.S. generally accepted accounting principles.  

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

July 4,

January 4,

(In millions)

2020

2020

Finance receivables evaluated collectively

  $

458

  $

564

Finance receivables evaluated individually

 

156

 

39

Allowance for credit losses based on collective evaluation

24

22

Allowance for credit losses based on individual evaluation

 

4

 

3

Impaired finance receivables with no related allowance for credit losses

  $

135

  $

22

Impaired finance receivables with related allowance for credit losses

21

17

Unpaid principal balance of impaired finance receivables

167

50

Allowance for credit losses on impaired loans

4

3

Average recorded investment of impaired finance receivables

103

40

v3.20.2
Inventories
6 Months Ended
Jul. 04, 2020
Inventories  
Inventories

Note 4.  Inventories

Inventories are composed of the following:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

July 4,

January 4,

(In millions)

2020

2020

Finished goods

  $

1,593

  $

1,557

Work in process

1,659

 

1,616

Raw materials and components

1,010

 

896

Total inventories

  $

4,262

  $

4,069

v3.20.2
Other Assets
6 Months Ended
Jul. 04, 2020
Other Assets  
Other Assets

Note 5. Other Assets

Other assets includes the cash surrender value of corporate-owned life insurance policies, net of any borrowings against these policies. During the first quarter of 2020, we borrowed $377 million against the policies as we strengthened our cash position in light of disruptions in the capital markets caused by the COVID-19 pandemic. At July 4, 2020, there was $362 million of outstanding borrowings against the policies. Proceeds from these borrowings and subsequent payments have been classified as financing activities in the consolidated statement of cash flows. Interest expense incurred on borrowings against corporate-owned life insurance policies is recorded as an offset with policy income.

v3.20.2
Warranty Liability
6 Months Ended
Jul. 04, 2020
Warranty Liability  
Warranty Liability

Note 6. Warranty Liability

Changes in our warranty liability are as follows:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Six Months Ended

July 4,

June 29,

(In millions)

2020

2019

Beginning of period

  $

141

  $

149

Provision

 

22

 

30

Settlements

 

(29)

 

(38)

Adjustments*

 

(12)

 

(5)

End of period

  $

122

  $

136

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

* Adjustments include changes to prior year estimates, new issues on prior year sales and currency translation adjustments.

v3.20.2
Leases
6 Months Ended
Jul. 04, 2020
Leases  
Leases

Note 7. Leases

We primarily lease certain manufacturing plants, offices, warehouses, training and service centers at various locations worldwide that are classified as either operating or finance leases. Our finance leases at July 4, 2020 were not significant. Our operating leases have remaining lease terms up to 29 years, which include options to extend the lease term for periods up to 25 years when it is reasonably certain the option will be exercised. Operating lease cost totaled $15 million and $16 million in the second quarter of 2020 and 2019, respectively, and $30 million and $32 million in the first half of 2020 and 2019, respectively. Cash paid for operating leases totaled $30 million and $32 million in the first half of 2020 and 2019, respectively, which is classified in cash flows from operating activities. Variable and short-term lease costs were not significant. Balance sheet and other information related to our operating leases is as follows:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

July 4,

January 4,

(Dollars in millions)

2020

2020

Other assets

  $

255

  $

277

Other current liabilities

 

47

48

Other liabilities

 

214

233

Weighted-average remaining lease term (in years)

 

10.0

10.2

Weighted-average discount rate

 

4.43

%

4.42

%

At July 4, 2020, maturities of our operating lease liabilities on an undiscounted basis totaled $32 million for 2020, $49 million for 2021, $41 million for 2022, $32 million for 2023, $25 million for 2024 and $150 million thereafter.

v3.20.2
Debt
6 Months Ended
Jul. 04, 2020
Debt  
Debt

Note 8.  Debt

On April 1, 2020, we entered into a 364-Day Term Loan Credit Agreement in an aggregate principal amount of $500 million and borrowed the full principal amount available under the agreement. At our current credit ratings, the borrowings accrue interest at a rate equal to the London interbank offered rate, subject to a floor of 0.75%, plus 2.0%, which is an annual interest rate of 2.75% at July 4, 2020. We can pre-pay any amount of the principal balance during the term of the loan; however, we cannot borrow additional principal amounts. The Term Loan Credit Agreement restricts us from incurring additional indebtedness, subject to various exceptions, one of which allows us to borrow under our $1.0 billion revolving credit facility. While this loan is outstanding, we have agreed not to repurchase any of our common stock. The principal amount outstanding, plus accrued and unpaid interest and fees, is due on March 31, 2021.

Under our shelf registration statement, on March 17, 2020, we issued $650 million of fixed-rate notes due June 1, 2030 with an annual interest rate of 3.00%. The net proceeds of the issuance totaled $642 million, after deducting underwriting discounts, commissions and offering expenses.

v3.20.2
Derivative Instruments and Fair Value Measurements
6 Months Ended
Jul. 04, 2020
Derivative Instruments and Fair Value Measurements  
Derivative Instruments and Fair Value Measurements

Note 9.  Derivative Instruments and Fair Value Measurements

We measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  We prioritize the assumptions that market participants would use in pricing the asset or liability into a three-tier fair value hierarchy.  This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exist, requiring companies to develop their own assumptions.  Observable inputs that do not meet the criteria of Level 1, which include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2.  Level 3 inputs are those that reflect our estimates about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.  Valuation techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data.  These unobservable inputs are utilized only to the extent that observable inputs are not available or cost effective to obtain.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

We manufacture and sell our products in a number of countries throughout the world, and, therefore, we are exposed to movements in foreign currency exchange rates.  We primarily utilize foreign currency exchange contracts with maturities of no more than three years to manage this volatility.  These contracts qualify as cash flow hedges and are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and overhead expenses. Net gains and losses recognized in earnings and Accumulated other comprehensive loss on cash flow hedges, including gains and losses related to hedge ineffectiveness, were not significant in the periods presented.

Our foreign currency exchange contracts are measured at fair value using the market method valuation technique.  The inputs to this technique utilize current foreign currency exchange forward market rates published by third-party leading financial news and data providers.  These are observable data that represent the rates that the financial institution uses for contracts entered into at that date; however, they are not based on actual transactions, so they are classified as Level 2.  At July 4, 2020 and January 4, 2020, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $364 million and $342 million, respectively.  At July 4, 2020, the fair value amounts of our foreign currency exchange contracts were a $6 million asset and a $8 million liability.  At January 4, 2020, the fair value amounts of our foreign currency exchange contracts were a $2 million asset and a $2 million liability.

We hedge our net investment position in certain major currencies and generate foreign currency interest payments that offset other transactional exposures in these currencies. To accomplish this, we borrow directly in the foreign currency and designate a portion of the debt as a hedge of the net investment. We record changes in the fair value of these contracts in other comprehensive income (loss) 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:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

July 4, 2020

January 4, 2020

Carrying

Estimated

Carrying

Estimated

(In millions)

Value

Fair Value

Value

Fair Value

Manufacturing group

Debt, excluding leases

  $

(4,044)

  $

(4,203)

  $

(3,097)

  $

(3,249)

Finance group

Finance receivables, excluding leases

 

499

 

503

 

493

 

527

Debt

 

(670)

 

(566)

 

(686)

 

(634)

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.

v3.20.2
Shareholders' Equity
6 Months Ended
Jul. 04, 2020
Shareholders' Equity  
Shareholders' Equity

Note 10. Shareholders’ Equity

A reconciliation of Shareholders’ equity is presented below:

Accumulated

Other

Total

Common

Capital

Treasury

Retained

Comprehensive

Shareholders’

(In millions)

Stock

Surplus

Stock

Earnings

Loss

Equity

Three months ended July 4, 2020

Beginning of period

  $

29

  $

1,711

  $

(74)

  $

5,727

  $

(1,859)

  $

5,534

Net loss

(92)

(92)

Other comprehensive income

68

68

Share-based compensation activity

21

21

Dividends declared

(4)

(4)

End of period

  $

29

  $

1,732

  $

(74)

  $

5,631

  $

(1,791)

  $

5,527

Three months ended June 29, 2019

Beginning of period

  $

30

  $

1,689

  $

(331)

  $

5,581

  $

(1,736)

  $

5,233

Net income

 

 

 

 

217

 

 

217

Other comprehensive income

 

 

 

 

 

21

 

21

Share-based compensation activity

 

 

28

 

 

 

 

28

Dividends declared

 

 

 

 

(4)

 

 

(4)

Purchases of common stock

 

 

 

(159)

 

 

 

(159)

End of period

  $

30

  $

1,717

  $

(490)

  $

5,794

  $

(1,715)

  $

5,336

Six months ended July 4, 2020

Beginning of period

  $

29

  $

1,674

  $

(20)

  $

5,682

  $

(1,847)

  $

5,518

Net loss

(42)

(42)

Other comprehensive income

56

56

Share-based compensation activity

58

58

Dividends declared

(9)

(9)

Purchases of common stock

(54)

(54)

End of period

  $

29

  $

1,732

  $

(74)

  $

5,631

  $

(1,791)

  $

5,527

Six months ended June 29, 2019

Beginning of period

  $

30

  $

1,646

  $

(129)

  $

5,407

  $

(1,762)

  $

5,192

Net income

 

 

 

 

396

 

 

396

Other comprehensive income

 

 

 

 

 

47

 

47

Share-based compensation activity

 

 

71

 

 

 

 

71

Dividends declared

 

 

 

 

(9)

 

 

(9)

Purchases of common stock

 

 

 

(361)

 

 

 

(361)

End of period

  $

30

  $

1,717

  $

(490)

  $

5,794

  $

(1,715)

  $

5,336

Dividends per share of common stock were $0.02 for both the second quarter of 2020 and 2019 and $0.04 for both the first half of 2020 and 2019.

Earnings Per Share

We calculate basic and diluted earnings per share (EPS) based on net income (loss), which approximates income (loss) 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:

Three Months Ended

Six Months Ended

July 4,

June 29,

July 4,

June 29,

(In thousands)

2020

2019

2020

2019

Basic weighted-average shares outstanding

228,247

232,013

228,279

233,426

Dilutive effect of stock options

1,532

1,567

Diluted weighted-average shares outstanding

228,247

233,545

228,279

234,993

As a result of incurring a net loss for the second quarter and first half of 2020, potential common shares of 0.1 million and 0.3 million, respectively, were excluded from diluted loss per share because the effect would have been anti-dilutive. In addition, stock options to purchase 8.9 million and 8.2 million shares of common stock were excluded from the calculation of diluted weighted-average shares outstanding for the second quarter and first half of 2020, respectively, as their effect would have been anti-dilutive. Stock options to purchase 3.1 million shares of common stock were excluded from the calculation of diluted weighted-average shares outstanding for both the second quarter and first half of 2019, as their effect would have been anti-dilutive.

Accumulated Other Comprehensive Loss and Other Comprehensive Income

The components of Accumulated other comprehensive loss are presented below:

Pension and

Foreign

Deferred

Accumulated

Postretirement

Currency

Gains (Losses)

Other

Benefits

Translation

on Hedge

Comprehensive

(In millions)

Adjustments

Adjustments

Contracts

Loss

Balance at January 4, 2020

  $

(1,811)

  $

(36)

  $

  $

(1,847)

Other comprehensive loss before reclassifications

(10)

(5)

(15)

Reclassified from Accumulated other comprehensive loss

73

(2)

71

Balance at July 4, 2020

  $

(1,738)

  $

(46)

  $

(7)

  $

(1,791)

Balance at December 29, 2018

  $

(1,727)

  $

(32)

  $

(3)

  $

(1,762)

Other comprehensive income before reclassifications

 

 

4

 

4

 

8

Reclassified from Accumulated other comprehensive loss

 

41

 

 

(2)

 

39

Balance at June 29, 2019

  $

(1,686)

  $

(28)

  $

(1)

  $

(1,715)

The before and after-tax components of Other comprehensive income are presented below:

July 4, 2020

June 29, 2019

Tax

Tax

Pre-Tax

(Expense)

After-Tax

Pre-Tax

(Expense)

After-Tax

(In millions)

Amount

Benefit

Amount

Amount

Benefit

Amount

Three Months Ended

Pension and postretirement benefits adjustments:

Amortization of net actuarial loss*

  $

46

  $

(11)

  $

35

  $

24

  $

(6)

  $

18

Amortization of prior service cost*

 

1

 

 

1

3

(1)

2

Pension and postretirement benefits adjustments, net

 

47

 

(11)

 

36

27

(7)

20

Deferred gains (losses) on hedge contracts:

Current deferrals

 

4

 

(1)

 

3

2

(1)

1

Reclassification adjustments

 

(2)

 

1

 

(1)

(1)

(1)

Deferred gains (losses) on hedge contracts, net

2

2

1

(1)

Foreign currency translation adjustments

30

30

3

(2)

1

Total

  $

79

  $

(11)

  $

68

  $

31

  $

(10)

  $

21

Six Months Ended

Pension and postretirement benefits adjustments:

Amortization of net actuarial loss*

  $

92

  $

(21)

  $

71

  $

49

  $

(11)

  $

38

Amortization of prior service cost*

 

3

 

(1)

 

2

4

(1)

3

Pension and postretirement benefits adjustments, net

 

95

 

(22)

 

73

53

(12)

41

Deferred gains (losses) on hedge contracts:

Current deferrals

 

(5)

 

 

(5)

6

(2)

4

Reclassification adjustments

 

(3)

 

1

 

(2)

(2)

(2)

Deferred gains (losses) on hedge contracts, net

 

(8)

 

1

 

(7)

4

(2)

2

Foreign currency translation adjustments

(7)

(3)

(10)

4

4

Total

  $

80

  $

(24)

  $

56

  $

61

  $

(14)

  $

47

*These components of other comprehensive income are included in the computation of net periodic pension cost (credit). See Note 16 of our 2019 Annual Report on Form 10-K for additional information.

v3.20.2
Segment Information
6 Months Ended
Jul. 04, 2020
Segment Information  
Segment Information

Note 11. Segment Information

We operate in, and report financial information for, the following five business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses, gains/losses on major business dispositions, special charges and an inventory charge related to the 2020 COVID-19 restructuring plan, as discussed in Note 14. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.

Our revenues by segment, along with a reconciliation of segment profit to income (loss) before income taxes, are included in the table below:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Three Months Ended

Six Months Ended

July 4,

June 29,

July 4,

June 29,

(In millions)

2020

2019

2020

2019

Revenues

Textron Aviation

  $

747

  $

1,123

  $

1,619

  $

2,257

Bell

822

 

771

1,645

1,510

Textron Systems

326

 

308

654

615

Industrial

562

 

1,009

1,302

1,921

Finance

15

 

16

29

33

Total revenues

  $

2,472

  $

3,227

  $

5,249

  $

6,336

Segment Profit

Textron Aviation

  $

(66)

  $

105

  $

(63)

  $

211

Bell

118

 

103

233

207

Textron Systems

37

 

49

63

77

Industrial

(11)

 

76

(2)

126

Finance

4

 

6

7

12

Segment profit

82

 

339

238

633

Corporate expenses and other, net

(30)

 

(24)

 

(44)

(71)

Interest expense, net for Manufacturing group

 

(37)

 

(36)

 

(71)

(71)

Special charges

(78)

(117)

Inventory charge*

(55)

(55)

Income (loss) before income taxes

  $

(118)

  $

279

  $

(49)

  $

491

* In connection with the restructuring plan initiated in the second quarter of 2020, we ceased manufacturing at the Montreal facility of the TRU Simulation + Training business, resulting in the production suspension of our commercial air transport simulators. As a result of this action and current market conditions, we recorded a $55 million charge to write-down the related inventory to its net realizable value.

v3.20.2
Revenues
6 Months Ended
Jul. 04, 2020
Revenues  
Revenues

Note 12. Revenues

Disaggregation of Revenues

Our revenues disaggregated by major product type are presented below:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Three Months Ended

Six Months Ended

July 4,

June 29,

July 4,

June 29,

(In millions)

2020

2019

2020

2019

Aircraft

  $

478

  $

733

  $

993

  $

1,499

Aftermarket parts and services

269

 

390

626

 

758

Textron Aviation

747

 

1,123

1,619

 

2,257

Military aircraft and support programs

602

 

482

1,222

 

990

Commercial helicopters, parts and services

220

 

289

423

 

520

Bell

822

 

771

1,645

 

1,510

Unmanned systems

169

 

135

317

 

269

Marine and land systems

43

 

60

91

 

108

Simulation, training and other

114

 

113

246

 

238

Textron Systems

326

 

308

654

 

615

Fuel systems and functional components

271

 

592

736

 

1,186

Specialized vehicles

291

 

417

566

 

735

Industrial

562

 

1,009

1,302

 

1,921

Finance

15

 

16

29

 

33

Total revenues

  $

2,472

  $

3,227

  $

5,249

  $

6,336

Our revenues for our segments by customer type and geographic location are presented below:

(In millions)

Textron
Aviation

Bell

Textron
Systems

Industrial

Finance

Total

Three months ended July 4, 2020

Customer type:

Commercial

  $

716

  $

216

  $

57

  $

559

  $

15

  $

1,563

U.S. Government

31

606

269

3

909

Total revenues

  $

747

  $

822

  $

326

  $

562

  $

15

  $

2,472

Geographic location:

United States

  $

518

  $

681

  $

276

  $

287

  $

8

  $

1,770

Europe

70

21

11

127

229

Asia and Australia

50

66

15

76

207

Other international

109

54

24

72

7

266

Total revenues

  $

747

  $

822

  $

326

  $

562

  $

15

  $

2,472

Three months ended June 29, 2019

Customer type:

Commercial

  $

1,077

  $

279

  $

83

  $

1,004

  $

16

  $

2,459

U.S. Government

 

46

 

492

 

225

 

5

 

 

768

Total revenues

  $

1,123

  $

771

  $

308

  $

1,009

  $

16

  $

3,227