TEXTRON INC, 10-Q filed on 7/24/2019
Quarterly Report
v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 29, 2019
Jul. 12, 2019
Document and Entity Information    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 29, 2019  
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, $0.125 par value  
Trading Symbol TXT  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   230,123,580
Entity Central Index Key 0000217346  
Current Fiscal Year End Date --01-04  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Amendment Flag false  
v3.19.2
Consolidated Statements of Operations - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 29, 2019
Jun. 30, 2018
Jun. 29, 2019
Jun. 30, 2018
Revenues        
Total revenues $ 3,227 $ 3,726 $ 6,336 $ 7,022
Costs, expenses and other        
Cost of sales 2,641 3,073 5,218 5,802
Selling and administrative expense 292 370 599 697
Interest expense 43 42 85 83
Non-service components of pension and post-retirement income, net (28) (19) (57) (38)
Total costs, expenses and other 2,948 3,466 5,845 6,544
Income before income taxes 279 260 491 478
Income tax expense 62 36 95 65
Net income $ 217 $ 224 $ 396 $ 413
Earnings per share        
Basic (in dollars per share) $ 0.94 $ 0.88 $ 1.70 $ 1.61
Diluted (in dollars per share) $ 0.93 $ 0.87 $ 1.69 $ 1.59
Manufacturing        
Revenues        
Total revenues $ 3,211 $ 3,709 $ 6,303 $ 6,989
Finance        
Revenues        
Finance Revenue $ 16 $ 17 $ 33 $ 33
v3.19.2
Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 29, 2019
Jun. 30, 2018
Jun. 29, 2019
Jun. 30, 2018
Net income $ 217 $ 224 $ 396 $ 413
Other comprehensive income (loss), net of taxes:        
Pension and postretirement benefits adjustments, net of reclassifications 20 31 41 62
Foreign currency translation adjustments 1 (69) 4 (27)
Deferred gains (losses) on hedge contracts, net of reclassifications   (4) 2 (3)
Other comprehensive income (loss) 21 (42) 47 32
Comprehensive income $ 238 $ 182 $ 443 $ 445
v3.19.2
Consolidated Balance Sheets - USD ($)
shares in Thousands, $ in Millions
Jun. 29, 2019
Dec. 29, 2018
Assets    
Inventories $ 4,311 $ 3,818
Finance receivables, net 776 760
Total assets 14,796 14,264
Liabilities    
Total liabilities 9,460 9,072
Shareholders' equity    
Common stock 30 30
Capital surplus 1,717 1,646
Treasury stock (490) (129)
Retained earnings 5,794 5,407
Accumulated other comprehensive loss (1,715) (1,762)
Total shareholders' equity 5,336 5,192
Total liabilities and shareholders' equity $ 14,796 $ 14,264
Common shares outstanding 230,058 235,621
Manufacturing group    
Assets    
Cash and equivalents $ 775 $ 987
Accounts receivable, net 989 1,024
Inventories 4,311 3,818
Other current assets 839 785
Total current assets 6,914 6,614
Property, plant and equipment, less accumulated depreciation and amortization of $4,317 and $4,203, respectively 2,517 2,615
Goodwill 2,147 2,218
Other assets 2,255 1,800
Total assets 13,833 13,247
Liabilities    
Short-term debt and current portion of long-term debt 457 258
Accounts payable 1,231 1,099
Other current liabilities 1,891 2,149
Total current liabilities 3,579 3,506
Other liabilities 2,157 1,932
Long-term debt 2,910 2,808
Total liabilities 8,646 8,246
Finance group    
Assets    
Cash and equivalents 82 120
Finance receivables, net 776 760
Other assets 105 137
Total assets 963 1,017
Liabilities    
Other liabilities 111 108
Debt 703 718
Total liabilities $ 814 $ 826
v3.19.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Jun. 29, 2019
Dec. 29, 2018
Accumulated depreciation and amortization $ 4,317 $ 4,203
v3.19.2
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
6 Months Ended
Jun. 29, 2019
Jun. 30, 2018
Cash flows from operating activities    
Net income $ 396 $ 413
Non-cash items:    
Depreciation and amortization 202 216
Deferred income taxes 32 12
Other, net 40 61
Changes in assets and liabilities:    
Accounts receivable, net 36 (42)
Inventories (505) (78)
Other assets (19) (38)
Accounts payable 132 (22)
Other liabilities (338) (165)
Income taxes, net 14 17
Pension, net (29) (5)
Captive finance receivables, net (19) 26
Other operating activities, net (2) 3
Net cash provided by (used in) operating activities of continuing operations (60) 398
Net cash used in operating activities of discontinued operations (1) (1)
Net cash provided by (used in) operating activities (61) 397
Cash flows from investing activities    
Capital expenditures (135) (159)
Net proceeds from corporate-owned life insurance policies 4 98
Finance receivables repaid 20 25
Other investing activities, net 7 30
Net cash provided by (used in) investing activities (104) (6)
Cash flows from financing activities    
Proceeds from long-term debt 297  
Principal payments on long-term debt and nonrecourse debt (35) (34)
Purchases of Textron common stock (361) (915)
Dividends paid (9) (10)
Other financing activities, net 19 43
Net cash used in financing activities (89) (916)
Effect of exchange rate changes on cash and equivalents 4 (6)
Net decrease in cash and equivalents (250) (531)
Cash and equivalents at beginning of period 1,107 1,262
Cash and equivalents at end of period 857 731
Manufacturing group    
Cash flows from operating activities    
Net income 387 398
Non-cash items:    
Depreciation and amortization 199 212
Deferred income taxes 33 14
Other, net 39 60
Changes in assets and liabilities:    
Accounts receivable, net 36 (42)
Inventories (532) (80)
Other assets (17) (39)
Accounts payable 132 (22)
Other liabilities (339) (162)
Income taxes, net 10 28
Pension, net (29) (5)
Dividends received from Finance group 50 50
Other operating activities, net (2) 3
Net cash provided by (used in) operating activities of continuing operations (33) 415
Net cash used in operating activities of discontinued operations (1) (1)
Net cash provided by (used in) operating activities (34) 414
Cash flows from investing activities    
Capital expenditures (135) (159)
Net proceeds from corporate-owned life insurance policies 4 98
Other investing activities, net 4 10
Net cash provided by (used in) investing activities (127) (51)
Cash flows from financing activities    
Proceeds from long-term debt 297  
Principal payments on long-term debt and nonrecourse debt (1)  
Purchases of Textron common stock (361) (915)
Dividends paid (9) (10)
Other financing activities, net 19 43
Net cash used in financing activities (55) (882)
Effect of exchange rate changes on cash and equivalents 4 (6)
Net decrease in cash and equivalents (212) (525)
Cash and equivalents at beginning of period 987 1,079
Cash and equivalents at end of period 775 554
Finance group    
Cash flows from operating activities    
Net income 9 15
Non-cash items:    
Depreciation and amortization 3 4
Deferred income taxes (1) (2)
Other, net 1 1
Changes in assets and liabilities:    
Other assets (2) 1
Other liabilities 1 (3)
Income taxes, net 4 (11)
Net cash provided by (used in) operating activities of continuing operations 15 5
Net cash provided by (used in) operating activities 15 5
Cash flows from investing activities    
Finance receivables repaid 91 112
Finance receivables originated (90) (61)
Other investing activities, net 30 22
Net cash provided by (used in) investing activities 31 73
Cash flows from financing activities    
Principal payments on long-term debt and nonrecourse debt (34) (34)
Dividends paid (50) (50)
Net cash used in financing activities (84) (84)
Net decrease in cash and equivalents (38) (6)
Cash and equivalents at beginning of period 120 183
Cash and equivalents at end of period $ 82 $ 177
v3.19.2
Basis of Presentation
6 Months Ended
Jun. 29, 2019
Basis of Presentation

Note 1.  Basis of Presentation

Our Consolidated Financial Statements include the accounts of Textron Inc. (Textron) and its majority-owned subsidiaries.  We have prepared these unaudited consolidated financial statements in accordance with accounting principles generally accepted in the U.S. for interim financial information.  Accordingly, these interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.  The consolidated interim financial statements included in this quarterly report should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 29, 2018.  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 2019 and 2018, our cumulative catch-up adjustments increased revenue and segment profit by $27 million and $64 million, respectively, and net income by $21 million and $49 million, respectively ($0.09 and $0.19 per diluted share, respectively). In the second quarter of 2019 and 2018, gross favorable adjustments totaled $46 million and $70 million, respectively, and the gross unfavorable adjustments totaled $19 million and $6 million, respectively.

In the first half of 2019 and 2018, our cumulative catch-up adjustments increased revenue and segment profit by $58 million and $104 million, respectively, and net income by $44 million and $79 million, respectively ($0.19 and $0.30 per diluted share, respectively).  In the first half of 2019 and 2018, gross favorable adjustments totaled $99 million and $126 million, respectively, and the gross unfavorable adjustments totaled $41 million and $22 million, respectively.

v3.19.2
Summary of Significant Accounting Policies Update
6 Months Ended
Jun. 29, 2019
Summary of Significant Accounting Policies Update

Note 2.  Summary of Significant Accounting Policies Update  

At the beginning of 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (ASC 842), which requires lessees to recognize all leases with a term greater than 12 months on the balance sheet as right-of-use assets and lease liabilities. Upon adoption, the most significant impact was the recognition of $307 million in right-of-use assets and lease liabilities for operating leases, while our accounting for finance leases remained unchanged.  We applied the provisions of this standard to our existing leases at the adoption date using a retrospective transition method and have not adjusted comparative periods. The cumulative transition adjustment to retained earnings was not significant and the adoption had no impact on our earnings or cash flows.  We elected the practical expedients permitted under the transition guidance, which allowed us to carryforward the historical lease classification and to apply hindsight when evaluating options within a contract, resulting in the extension of the lease term for certain of our existing leases.

Our significant accounting policies are included in Note 1 of our Annual Report on Form 10-K for the year ended December 29, 2018.  Significant changes to our policies resulting from the adoption of ASC 842 are provided below.

Leases

We identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated period of time in exchange for consideration. Specifically, we consider whether we can control the underlying asset and have the right to obtain substantially all of the economic benefits or outputs from the asset.  For our contracts that contain both lease components  (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common-area maintenance costs, other goods/services), we allocate the consideration in the contract to each component based on its standalone price.  Leases with terms greater than 12 months are classified as either operating or finance leases at the commencement date.  For these leases, we capitalize the lesser of a) the present value of the minimum lease payments over the lease term, or b) the fair value of the asset, as a right-of-use asset with an offsetting lease liability. The discount rate used to calculate the present value of the minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the lease is generally not known or determinable. The lease term includes any noncancelable period for which we have the right to use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.  Operating leases are recognized as a single lease cost on a straight-line basis over the lease term, while finance lease cost is recognized separately as amortization and interest expense.

Accounting Pronouncements Not Yet Adopted

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.  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.

v3.19.2
Accounts Receivable and Finance Receivables
6 Months Ended
Jun. 29, 2019
Accounts Receivable and Finance Receivables

Note 3.  Accounts Receivable and Finance Receivables

Accounts Receivable

Accounts receivable is composed of the following:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

June 29,

December 29,

(In millions)

2019

2018

Commercial

  $

874

  $

885

U.S. Government contracts

142

 

166

1,016

 

1,051

Allowance for doubtful accounts

(27)

 

(27)

Total accounts receivable, net

  $

989

  $

1,024

Finance Receivables

Finance receivables are presented in the following table:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

June 29,

December 29,

(In millions)

2019

2018

Finance receivables

  $

802

  $

789

Allowance for losses

(26)

 

(29)

Total finance receivables, net

  $

776

  $

760

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.

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

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

June 29,

December 29,

(Dollars in millions)

2019

2018

Performing

  $

732

  $

704

Watchlist

39

 

45

Nonaccrual

31

 

40

Nonaccrual as a percentage of finance receivables

3.87

%

5.07

%

Less than 31 days past due

  $

726

  $

719

31-60 days past due

64

56

61-90 days past due

3

5

Over 90 days past due

9

9

60+ days contractual delinquency as a percentage of finance receivables

1.50

%

1.77

%

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 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.  

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

June 29,

December 29,

(In millions)

2019

2018

Finance receivables evaluated collectively

  $

669

  $

630

Finance receivables evaluated individually

 

31

 

58

Allowance for losses based on collective evaluation

24

24

Allowance for losses based on individual evaluation

 

2

 

5

Impaired finance receivables with no related allowance for losses

  $

23

  $

43

Impaired finance receivables with related allowance for losses

8

15

Unpaid principal balance of impaired finance receivables

41

67

Average recorded investment of impaired finance receivables

40

61

v3.19.2
Inventories
6 Months Ended
Jun. 29, 2019
Inventories

Note 4. Inventories

Inventories are composed of the following:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

June 29,

December 29,

(In millions)

2019

2018

Finished goods

  $

1,743

  $

1,662

Work in process

1,771

 

1,356

Raw materials and components

797

 

800

Total inventories

  $

4,311

  $

3,818

v3.19.2
Other Assets
6 Months Ended
Jun. 29, 2019
Other Assets  
Other Assets

Note 5. Other Assets

On April 1, 2019, TRU Simulation + Training Inc., a business within our Textron Systems segment, contributed assets associated with its training business into FlightSafety Textron Aviation Training LLC, a company formed by FlightSafety International Inc. and TRU to provide training solutions for Textron Aviation’s commercial business and general aviation aircraft. We have a 30% interest in this newly formed company and our investment is accounted for under the equity method of accounting. We contributed assets with a carrying value of $69 million to the company, which primarily included property, plant and equipment. In addition, $71 million of the Textron Systems segment's goodwill was allocated to this transaction. In the second quarter of 2019, based on the fair value of our share of the business, we recorded a pre-tax net gain of $18 million, subject to post-closing adjustments, to cost of sales in our Consolidated Statements of Operations.

v3.19.2
Warranty Liability
6 Months Ended
Jun. 29, 2019
Warranty Liability  
Warranty Liability

Note 6. Warranty Liability

Changes in our warranty liability are as follows:

Six Months Ended

June 29,

June 30,

(In millions)

2019

2018

Beginning of period

  $

149

  $

164

Provision

 

30

 

34

Settlements

 

(38)

 

(39)

Adjustments*

 

(5)

 

7

End of period

  $

136

  $

166

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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

v3.19.2
Leases
6 Months Ended
Jun. 29, 2019
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 leases have remaining lease terms up to 30 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. In the second quarter and first half of 2019, our operating lease cost totaled $16 million and $32 million, respectively. Our finance lease cost and our variable and short-term lease costs were not significant. In the first half of 2019, cash paid for operating lease liabilities totaled $32 million, which is classified in cash flows from operating activities.  Balance sheet and other information related to our leases is as follows:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

June 29,

(Dollars in millions)

2019

Operating leases:

  

Other assets

  $

298

Other current liabilities

 

53

Other liabilities

 

247

Finance leases:

 

  

Property, plant and equipment, less accumulated amortization of $51 million

  $

116

Short-term and current portion of long-term debt

 

6

Long-term debt

 

77

Weighted-average remaining lease term (in years)

 

  

Finance leases

 

14.1

Operating leases

 

10.3

Weighted-average discount rate

 

  

Finance leases

 

2.73

%

Operating leases

 

4.46

%

Maturities of our lease liabilities at June 29, 2019 are as follows:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Operating

Finance

(In millions)

Leases

Leases

2019

  $

34

  $

5

2020

 

57

 

9

2021

 

43

 

9

2022

 

37

 

9

2023

 

31

 

9

Thereafter

 

179

 

69

Total lease payments

 

381

 

110

Less: interest

 

(81)

 

(27)

Total lease liabilities

  $

300

  $

83

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

v3.19.2
Debt
6 Months Ended
Jun. 29, 2019
Debt

Note 8. Debt

Under our shelf registration statement, on May 7, 2019, we issued $300 million of fixed-rate notes due September 17, 2029 with an annual interest rate of 3.90%. The net proceeds of the issuance totaled $297 million, after deducting underwriting discounts, commissions and offering expenses.

On June 24, 2019, the Finance Group's $150 million fixed-rate loan due August 16, 2019 was amended. The maturity date of this loan was extended to June 23, 2022 and the annual interest rate was modified from 2.26% to 2.88%.

v3.19.2
Derivative Instruments and Fair Value Measurements
6 Months Ended
Jun. 29, 2019
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 June 29, 2019 and December 29, 2018, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $395 million and $379 million, respectively.  At June 29, 2019, the fair value amounts of our foreign currency exchange contracts were a $2 million asset and a $3 million liability.  At December 29, 2018, the fair value amounts of our foreign currency exchange contracts were a $2 million asset and a $10 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 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:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

June 29, 2019

December 29, 2018

Carrying

Estimated

Carrying

Estimated

(In millions)

Value

Fair Value

Value

Fair Value

Manufacturing group

Debt, excluding leases

  $

(3,301)

  $

(3,414)

  $

(2,996)

  $

(2,971)

Finance group

Finance receivables, excluding leases

 

589

 

615

 

582

 

584

Debt

 

(703)

 

(640)

 

(718)

 

(640)

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.

v3.19.2
Shareholders' Equity
6 Months Ended
Jun. 29, 2019
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 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

Three months ended June 30, 2018

Beginning of period

  $

33

  $

1,710

  $

(392)

  $

5,642

  $

(1,301)

  $

5,692

Net income

 

 

 

 

224

 

 

224

Other comprehensive (loss)

 

 

 

 

 

(42)

 

(42)

Share-based compensation activity

 

 

64

 

 

 

 

64

Dividends declared

 

 

 

 

(5)

 

 

(5)

Purchases of common stock

 

 

 

(571)

 

 

 

(571)

End of period

  $

33

  $

1,774

  $

(963)

  $

5,861

  $

(1,343)

  $

5,362

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

Six months ended June 30, 2018

Beginning of period

  $

33

  $

1,669

  $

(48)

  $

5,368

  $

(1,375)

  $

5,647

Adoption of ASC 606

 

 

 

 

90

 

 

90

Net income

 

 

 

 

413

 

 

413

Other comprehensive income

 

 

 

 

 

32

 

32

Share-based compensation activity

 

 

105

 

 

 

 

105

Dividends declared

 

 

 

 

(10)

 

 

(10)

Purchases of common stock

 

 

 

(915)

 

 

 

(915)

End of period

  $

33

  $

1,774

  $

(963)

  $

5,861

  $

(1,343)

  $

5,362

Dividends per share of common stock were $0.02 for both the second quarter of 2019 and 2018 and $0.04 for both the first half of 2019 and 2018.

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:

Three Months Ended

Six Months Ended

June 29,

June 30,

June 29,

June 30,

(In thousands)

2019

2018

2019

2018

Basic weighted-average shares outstanding

232,013

253,904

233,426

257,200

Dilutive effect of stock options

1,532

3,273

1,567

3,262

Diluted weighted-average shares outstanding

233,545

257,177

234,993

260,462

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. Stock options to purchase 1.3 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 2018, 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 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)

Balance at December 30, 2017

  $

(1,396)

  $

11

  $

10

  $

(1,375)

Other comprehensive income before reclassifications

 

 

(27)

 

(2)

 

(29)

Reclassified from Accumulated other comprehensive loss

 

62

 

 

(1)

 

61

Balance at June 30, 2018

  $

(1,334)

  $

(16)

  $

7

  $

(1,343)

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

June 29, 2019

June 30, 2018

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*

  $

24

  $

(6)

  $

18

  $

39

  $

(9)

  $

30

Amortization of prior service cost*

 

3

 

(1)

 

2

2

(1)

1

Pension and postretirement benefits adjustments, net

 

27

 

(7)

 

20

41

(10)

31

Deferred gains (losses) on hedge contracts:

Current deferrals

 

2

 

(1)

 

1

(4)

1

(3)

Reclassification adjustments

 

(1)

 

 

(1)

(1)

(1)

Deferred gains (losses) on hedge contracts, net

1

(1)

(5)

1

(4)

Foreign currency translation adjustments

3

(2)

1

(66)

(3)

(69)

Total

  $

31

  $

(10)

  $

21

  $

(30)

  $

(12)

  $

(42)

Six Months Ended

Pension and postretirement benefits adjustments:

Amortization of net actuarial loss*

  $

49

  $

(11)

  $

38

  $

77

  $

(18)

  $

59

Amortization of prior service cost*

 

4

 

(1)

 

3

4

(1)

3

Pension and postretirement benefits adjustments, net

 

53

 

(12)

 

41

81

(19)

62

Deferred gains (losses) on hedge contracts:

Current deferrals

 

6

 

(2)

 

4

(2)

(2)

Reclassification adjustments

 

(2)

 

 

(2)

(1)

(1)

Deferred gains (losses) on hedge contracts, net

 

4

 

(2)

 

2

(3)

(3)

Foreign currency translation adjustments

 

4

 

 

4

(26)

(1)

(27)

Total

  $

61

  $

(14)

  $

47

  $

52

  $

(20)

  $

32

*These components of other comprehensive income are included in the computation of net periodic pension cost.  See Note 14 of our 2018 Annual Report on Form 10-K for additional information.

v3.19.2
Segment Information
6 Months Ended
Jun. 29, 2019
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. On July 2, 2018, we sold our Tools and Test Equipment businesses that were previously included in the Industrial segment as discussed in Note 2 of our 2018 Annual Report on Form 10-K. 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 and special charges. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.

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

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Three Months Ended

Six Months Ended

June 29,

June 30,

June 29,

June 30,

(In millions)

2019

2018

2019

2018

Revenues

Textron Aviation

  $

1,123

  $

1,276

  $

2,257

  $

2,286

Bell

771

 

831

1,510

1,583

Textron Systems

308

 

380

615

767

Industrial

1,009

 

1,222

1,921

2,353

Finance

16

 

17

33

33

Total revenues

  $

3,227

  $

3,726

  $

6,336

  $

7,022

Segment Profit

Textron Aviation

  $

105

  $

104

  $

211

  $

176

Bell

103

 

117

207

204

Textron Systems

49

 

40

77

90

Industrial

76

 

80

126

144

Finance

6

 

5

12

11

Segment profit

339

 

346

633

625

Corporate expenses and other, net

(24)

 

(51)

 

(71)

(78)

Interest expense, net for Manufacturing group

 

(36)

 

(35)

 

(71)

(69)

Income before income taxes

  $

279

  $

260

  $

491

  $

478

v3.19.2
Revenues
6 Months Ended
Jun. 29, 2019
Revenues

Note 12. Revenues

Disaggregation of Revenues

Our revenues disaggregated by major product type are presented below:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Three Months Ended

Six Months Ended

June 29,

June 30,

June 29,

June 30,

(In millions)

2019

2018

2019

2018

Aircraft

  $

733

  $

877

  $

1,499

  $

1,511

Aftermarket parts and services

390

 

399

758

 

775

Textron Aviation

1,123

 

1,276

2,257

 

2,286

Military aircraft and support programs

482

 

533

990

 

1,020

Commercial helicopters, parts and services

289

 

298

520

 

563

Bell

771

 

831

1,510

 

1,583

Unmanned systems

135

 

161

269

 

331

Marine and land systems

60

 

69

108

 

161

Simulation, training and other

113

 

150

238

 

275

Textron Systems

308

 

380

615

 

767

Fuel systems and functional components

592

 

627

1,186

 

1,282

Specialized vehicles

417

 

475

735

 

823

Tools and test equipment

 

120

 

248

Industrial

1,009

 

1,222

1,921

 

2,353

Finance

16

 

17

33

 

33

Total revenues

  $

3,227

  $

3,726

  $

6,336

  $

7,022

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 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

Geographic location:

United States

  $

736

  $

571

  $

249

  $

466

  $

7

  $

2,029

Europe

164

47

17

291

519

Asia and Australia

65

79

13

84

2

243

Other international

158

74

29

168

7

436

Total revenues

  $

1,123

  $

771

  $

308

  $

1,009

  $

16

  $

3,227

Three months ended June 30, 2018

Customer type:

Commercial

  $

1,191

  $

291

  $

107

  $

1,215

  $

17

  $

2,821

U.S. Government

 

85