TEXTRON INC, 10-K filed on 2/19/2021
Annual Report
v3.20.4
Cover - USD ($)
$ in Billions
12 Months Ended
Jan. 02, 2021
Feb. 06, 2021
Jul. 04, 2020
Cover [Abstract]      
Document Type 10-K    
Document Annual Report true    
Current Fiscal Year End Date --01-02    
Document Period End Date Jan. 02, 2021    
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 — par value $0.125    
Trading Symbol TXT    
Security Exchange Name NYSE    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
ICFR Auditor Attestation Flag true    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 7.4
Entity Common Stock, Shares Outstanding   226,284,488  
Documents Incorporated by Reference Part III of this Report incorporates information from certain portions of the registrant’s Definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April 28, 2021.    
Entity Central Index Key 0000217346    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Amendment Flag false    
v3.20.4
Consolidated Statements of Operations - USD ($)
$ in Millions
12 Months Ended
Jan. 02, 2021
Jan. 04, 2020
Dec. 29, 2018
Revenues      
Total revenues $ 11,651 $ 13,630 $ 13,972
Costs, expenses and other      
Cost of sales 10,094 11,406 11,594
Selling and administrative expense 1,045 1,152 1,275
Interest expense 166 171 166
Special charges 147 72 73
Non-service components of pension and postretirement income, net (83) (113) (76)
Gain on business disposition 0 0 (444)
Total costs, expenses and other 11,369 12,688 12,588
Income before income taxes 282 942 1,384
Income tax expense (benefit) (27) 127 162
Net income $ 309 $ 815 $ 1,222
Earnings Per Share [Abstract]      
Basic (in dollars per share) $ 1.35 $ 3.52 $ 4.88
Diluted (in dollars per share) $ 1.35 $ 3.50 $ 4.83
Manufacturing revenues      
Revenues      
Total revenues $ 11,596 $ 13,564 $ 13,906
Finance revenues      
Revenues      
Total revenues $ 55 $ 66 $ 66
v3.20.4
Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
12 Months Ended
Jan. 02, 2021
Jan. 04, 2020
Dec. 29, 2018
Statement of Comprehensive Income [Abstract]      
Net income $ 309 $ 815 $ 1,222
Other comprehensive income (loss), net of tax      
Pension and postretirement benefits adjustments, net of reclassifications 31 (84) (74)
Foreign currency translation adjustments, net of reclassifications 78 (4) (43)
Deferred gains (losses) on hedge contracts, net of reclassifications (1) 3 (13)
Total other comprehensive income (loss), net of tax 108 (85) (130)
Comprehensive income $ 417 $ 730 $ 1,092
v3.20.4
Consolidated Balance Sheets - USD ($)
$ in Millions
Jan. 02, 2021
Jan. 04, 2020
Assets    
Inventories $ 3,513 $ 4,069
Property, plant and equipment, net 2,516 2,527
Total finance receivables, net 744 682
Assets 15,443 15,018
Liabilities    
Total liabilities 9,598 9,500
Shareholders' equity    
Common stock (231.0 million and 228.4 million shares issued, respectively, and 226.4 million and 228.0 million shares outstanding, respectively) 29 29
Capital surplus 1,785 1,674
Treasury stock (203) (20)
Retained earnings 5,973 5,682
Accumulated other comprehensive loss (1,739) (1,847)
Total shareholders’ equity 5,845 5,518
Total liabilities and shareholders’ equity 15,443 15,018
Manufacturing group    
Assets    
Cash and equivalents 2,146 1,181
Accounts receivable, net 787 921
Inventories 3,513 4,069
Other current assets 950 894
Total current assets 7,396 7,065
Property, plant and equipment, net 2,516 2,527
Goodwill 2,157 2,150
Other assets 2,436 2,312
Assets 14,505 14,054
Liabilities    
Current portion of long-term debt 509 561
Accounts payable 776 1,378
Other current liabilities 1,985 1,907
Total current liabilities 3,270 3,846
Other liabilities 2,357 2,288
Long-term debt 3,707 3,124
Long-term debt 3,198 2,563
Total liabilities 8,825 8,697
Finance group    
Assets    
Cash and equivalents 108 176
Total finance receivables, net 744 682
Other assets 86 106
Assets 938 964
Liabilities    
Other liabilities 111 117
Long-term debt 662 686
Total liabilities $ 773 $ 803
v3.20.4
Consolidated Balance Sheets (Parenthetical) - shares
shares in Thousands
Jan. 02, 2021
Jan. 04, 2020
Statement of Financial Position [Abstract]    
Common stock, issued (in shares) 231,000 228,400
Common stock, outstanding (in shares) 226,444 227,956
v3.20.4
Consolidated Statements of Shareholders' Equity - USD ($)
$ in Millions
Total
Cumulative Effect, Period of Adoption, Adjustment
Common Stock
Capital Surplus
Treasury Stock
Retained Earnings
Retained Earnings
Cumulative Effect, Period of Adoption, Adjustment
Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Loss
Cumulative Effect, Period of Adoption, Adjustment
Beginning Balance at Dec. 30, 2017 $ 5,647   $ 33 $ 1,669 $ (48) $ 5,368   $ (1,375)  
Beginning Balance (ASC 606) at Dec. 30, 2017   $ 90         $ 90    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Net income 1,222         1,222      
Other comprehensive income (loss) (130)             (130)  
Reclassification of stranded tax effects 0                
Reclassification of stranded tax effects | Reclassification of stranded tax effects             $ 257   $ (257)
Dividends declared (20)         (20)      
Share-based compensation activity 166     166          
Purchases of common stock (1,783)       (1,783)        
Retirement of treasury stock 0   (3) (189) 1,702 (1,510)      
Ending Balance at Dec. 29, 2018 5,192   30 1,646 (129) 5,407   (1,762)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Net income 815         815      
Other comprehensive income (loss) (85)             (85)  
Dividends declared (18)         (18)      
Share-based compensation activity 117     117          
Purchases of common stock (503)       (503)        
Retirement of treasury stock 0   (1) (89) 612 (522)      
Ending Balance at Jan. 04, 2020 5,518   29 1,674 (20) 5,682   (1,847)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Net income 309         309      
Other comprehensive income (loss) 108             108  
Dividends declared (18)         (18)      
Share-based compensation activity 111     111          
Purchases of common stock (183)       (183)        
Ending Balance at Jan. 02, 2021 $ 5,845   $ 29 $ 1,785 $ (203) $ 5,973   $ (1,739)  
v3.20.4
Consolidated Statements of Shareholders' Equity (Parenthetical) - $ / shares
12 Months Ended
Jan. 02, 2021
Jan. 04, 2020
Dec. 29, 2018
Statement of Stockholders' Equity [Abstract]      
Dividends (in dollars per share) $ 0.08 $ 0.08 $ 0.08
v3.20.4
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Jan. 02, 2021
Jan. 04, 2020
Dec. 29, 2018
Cash flows from operating activities      
Net income $ 309 $ 815 $ 1,222
Non-cash items:      
Depreciation and amortization 391 416 437
Deferred income taxes (7) 89 49
Asset impairments and TRU inventory charge 116 15 48
Gain on business disposition 0 0 (444)
Other, net 79 79 102
Changes in assets and liabilities:      
Accounts receivable, net 149 99 50
Inventories 434 (292) 41
Other assets 66 (37) (88)
Accounts payable (613) 280 (63)
Other liabilities (5) (348) (223)
Income taxes, net (62) (83) (33)
Pension, net (15) (62) (14)
Captive finance receivables, net (89) 45 22
Other operating activities, net 16 0 3
Net cash provided by operating activities of continuing operations 769 1,016 1,109
Net cash used in operating activities of discontinued operations (1) (2) (2)
Net cash provided by operating activities 768 1,014 1,107
Cash flows from investing activities      
Capital expenditures (317) (339) (369)
Proceeds from an insurance recovery and sale of property, plant and equipment 33 9 14
Net proceeds from corporate-owned life insurance policies 22 2 110
Net proceeds from business disposition 0 0 807
Net cash used in acquisitions (15) (2) (23)
Finance receivables repaid 22 48 27
Other investing activities, net 7 16 54
Net cash provided by (used in) investing activities (248) (266) 620
Cash flows from financing activities      
Net proceeds from long-term debt 1,137 301 0
Proceeds from borrowings against corporate-owned life insurance policies 377 0 0
Payments on borrowings against corporate-owned life insurance policies (377) 0 0
Principal payments on long-term debt and nonrecourse debt (593) (303) (131)
Purchases of Textron common stock (183) (503) (1,783)
Proceeds from exercise of stock options 22 24 74
Dividends paid (18) (18) (20)
Other financing activities, net (5) (3) (4)
Net cash provided by (used in) financing activities 360 (502) (1,864)
Effect of exchange rate changes on cash and equivalents 17 4 (18)
Net increase (decrease) in cash and equivalents 897 250 (155)
Cash and equivalents at beginning of year 1,357 1,107 1,262
Cash and equivalents at end of year 2,254 1,357 1,107
Manufacturing group      
Cash flows from operating activities      
Net income 301 793 1,198
Non-cash items:      
Depreciation and amortization 386 410 429
Deferred income taxes (2) 91 54
Asset impairments and TRU inventory charge 116 15 48
Gain on business disposition 0 0 (444)
Other, net 69 79 97
Changes in assets and liabilities:      
Accounts receivable, net 149 99 50
Inventories 434 (319) 45
Other assets 68 (34) (87)
Accounts payable (613) 280 (63)
Other liabilities (15) (352) (219)
Income taxes, net (61) (90) (20)
Pension, net (15) (62) (14)
Dividends received from Finance group 0 50 50
Other operating activities, net 16 0 3
Net cash provided by operating activities of continuing operations 833 960 1,127
Net cash used in operating activities of discontinued operations (1) (2) (2)
Net cash provided by operating activities 832 958 1,125
Cash flows from investing activities      
Capital expenditures (317) (339) (369)
Net proceeds from corporate-owned life insurance policies 22 2 110
Net proceeds from business disposition 0 0 807
Net cash used in acquisitions (15) (2) (23)
Finance receivables repaid 0 0 0
Finance receivables originated 0 0 0
Other investing activities, net 0 1 0
Net cash provided by (used in) investing activities (277) (329) 539
Cash flows from financing activities      
Net proceeds from long-term debt 1,137 301 0
Proceeds from borrowings against corporate-owned life insurance policies 377 0 0
Payments on borrowings against corporate-owned life insurance policies (377) 0 0
Principal payments on long-term debt and nonrecourse debt (548) (252) (5)
Purchases of Textron common stock (183) (503) (1,783)
Proceeds from exercise of stock options 22 24 74
Dividends paid (18) (18) (20)
Other financing activities, net (17) 9 (4)
Net cash provided by (used in) financing activities 393 (439) (1,738)
Effect of exchange rate changes on cash and equivalents 17 4 (18)
Net increase (decrease) in cash and equivalents 965 194 (92)
Cash and equivalents at beginning of year 1,181 987 1,079
Cash and equivalents at end of year 2,146 1,181 987
Finance group      
Cash flows from operating activities      
Net income 8 22 24
Non-cash items:      
Depreciation and amortization 5 6 8
Deferred income taxes (5) (2) (5)
Asset impairments and TRU inventory charge 0 0 0
Gain on business disposition 0 0 0
Other, net 10 0 5
Changes in assets and liabilities:      
Accounts receivable, net 0 0 0
Inventories 0 0 0
Other assets (2) (3) (1)
Accounts payable 0 0 0
Other liabilities (2) 4 (4)
Income taxes, net (1) 7 (13)
Pension, net 0 0 0
Dividends received from Finance group 0 0 0
Other operating activities, net 0 0 0
Net cash provided by operating activities of continuing operations 13 34 14
Net cash used in operating activities of discontinued operations 0 0 0
Net cash provided by operating activities 13 34 14
Cash flows from investing activities      
Capital expenditures 0 0 0
Proceeds from an insurance recovery and sale of property, plant and equipment 0 0 0
Net proceeds from corporate-owned life insurance policies 0 0 0
Net proceeds from business disposition 0 0 0
Net cash used in acquisitions 0 0 0
Finance receivables repaid 128 277 226
Finance receivables originated (195) (184) (177)
Other investing activities, net 19 42 50
Net cash provided by (used in) investing activities (48) 135 99
Cash flows from financing activities      
Net proceeds from long-term debt 0 0 0
Proceeds from borrowings against corporate-owned life insurance policies 0 0 0
Payments on borrowings against corporate-owned life insurance policies 0 0 0
Principal payments on long-term debt and nonrecourse debt (45) (51) (126)
Purchases of Textron common stock 0 0 0
Proceeds from exercise of stock options 0 0 0
Dividends paid 0 (50) (50)
Other financing activities, net 12 (12) 0
Net cash provided by (used in) financing activities (33) (113) (176)
Effect of exchange rate changes on cash and equivalents 0 0 0
Net increase (decrease) in cash and equivalents (68) 56 (63)
Cash and equivalents at beginning of year 176 120 183
Cash and equivalents at end of year $ 108 $ 176 $ 120
v3.20.4
Summary of Significant Accounting Policies
12 Months Ended
Jan. 02, 2021
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies Summary of Significant Accounting Policies
Principles of Consolidation and Financial Statement Presentation
Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems and Industrial segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation (TFC) and its consolidated subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements.
Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of Cash Flows, cash received from customers is reflected as operating activities when received from third parties. However, in the cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or eliminated in consolidation.
At the beginning of 2020, we adopted Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses. 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. There was no significant impact on our Consolidated Financial Statements upon adoption of the standard.
Collaborative Arrangements
Our Bell segment has a strategic alliance agreement with The Boeing Company (Boeing) to provide engineering, development and test services related to the V-22 aircraft, as well as to produce the V-22 aircraft, under a number of separate contracts with the U.S. Government (V-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity interest. We account for this alliance as a collaborative arrangement with Bell and Boeing reporting costs incurred and revenues generated from transactions with the U.S. Government in each company’s respective income statement. Neither Bell nor Boeing is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are allocated between Bell and Boeing on a 50%-50% basis. Negotiated profits on fixed-price contracts are also allocated 50%-50%; however, Bell and Boeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. Based on the contractual arrangement established under the alliance, Bell accounts for its rights and obligations under the specific requirements of the V-22 Contracts allocated to Bell under the work breakdown structure. We account for all of our rights and obligations, including warranty, product and any contingent liabilities, under the specific requirements of the V-22 Contracts allocated to us under the agreement. Revenues and cost of sales reflect our performance under the V-22 Contracts with revenues recognized using the cost-to-cost method. We include all assets used in performance of the V-22 Contracts that we own and all liabilities arising from our obligations under the V-22 Contracts in our Consolidated Balance Sheets.
Use of Estimates
We prepare our financial statements in conformity with generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated Statements of Operations in the period that they are determined.
Revenue Recognition
Revenue is recognized when control of the goods or services promised under the contract is transferred to the customer either at a point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). We account for a contract when it has approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract has commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or
multiple performance obligations. A performance obligation is a promise to transfer a distinct good or service to a customer and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative standalone selling price of each performance obligation. Revenue is then recognized for the transaction price allocated to the performance obligation when control of the promised goods or services underlying the performance obligation is transferred. Contract consideration is not adjusted for the effects of a significant financing component when, at contract inception, the period between when control transfers and when the customer will pay for that good or service is one year or less.
Commercial Contracts
The majority of our contracts with commercial customers have a single performance obligation as there is only one good or service promised or the promise to transfer the goods or services is not distinct or separately identifiable from other promises in the contract. Revenue is primarily recognized at a point in time, which is generally when the customer obtains control of the asset upon delivery and customer acceptance.  Contract modifications that provide for additional distinct goods or services at the standalone selling price are treated as separate contracts.
For commercial aircraft, we contract with our customers to sell fully outfitted fixed-wing aircraft, which may include configuration options. The aircraft typically represents a single performance obligation and revenue is recognized upon customer acceptance and delivery. For commercial helicopters, our customers generally contract with us for fully functional basic configuration aircraft and control is transferred upon customer acceptance and delivery. At times, customers may separately contract with us for the installation of accessories and customization to the basic aircraft. If these contracts are entered into at or near the same time of the basic aircraft contract, we assess whether the contracts meet the criteria to be combined. For contracts that are combined, the basic aircraft and the accessories and customization, are typically considered to be distinct, and therefore, are separate performance obligations. For these contracts, revenue is recognized on the basic aircraft upon customer acceptance and transfer of title and risk of loss, and on the accessories and customization, upon delivery and customer acceptance. We utilize observable prices to determine the standalone selling prices when allocating the transaction price to these performance obligations.
The transaction price for our commercial contracts reflects our estimate of returns, rebates and discounts, which are based on historical, current and forecasted information. Amounts billed to customers for shipping and handling are included in the transaction price and generally are not treated as separate performance obligations as these costs fulfill a promise to transfer the product to the customer. Taxes collected from customers and remitted to government authorities are recorded on a net basis.
We primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from one year to five years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation.
U.S. Government Contracts
Our contracts with the U.S. Government generally include the design, development, manufacture or modification of aerospace and defense products as well as related parts and services. These contracts, which also include those under the U.S. Government-sponsored foreign military sales program, accounted for approximately 30% of total revenues in 2020.  The customer typically contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability, which often results in the delivery of multiple units. Accordingly, the entire contract is accounted for as one performance obligation. In certain circumstances, a contract may include both production and support services, such as logistics and parts plans, which are considered to be distinct in the context of the contract and represent separate performance obligations. When a contract is separated into more than one performance obligation, we generally utilize the expected cost plus a margin approach to determine the standalone selling prices when allocating the transaction price.
Our contracts are frequently modified for changes in contract specifications and requirements. Most of our contract modifications with the U.S. Government are for goods and services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as part of that existing contract. The effect of these contract modifications on our estimates is recognized using the cumulative catch-up method of accounting.
Contracts with the U.S. Government generally contain clauses that provide lien rights to work-in-process along with clauses that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work-in-process. Due to the continuous transfer of control to the U.S. Government, we recognize revenue over the time that we perform under the contract. Selecting the method to measure progress towards completion requires judgment and is based on the nature of the products or service to be provided. We generally use the cost-to-cost method to measure progress for our contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts.  Under this measure, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion of the performance obligation, and revenue is recorded proportionally as costs are incurred.  
The transaction price for our contracts represents our best estimate of the consideration we will receive and includes assumptions regarding variable consideration as applicable. Certain of our long-term contracts contain incentive fees or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance, historical performance, and all other information that is reasonably available to us.
Total contract cost is estimated utilizing current contract specifications and expected engineering requirements. Contract costs typically are incurred over a period of several years, and the estimation of these costs requires substantial judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our projections of costs quarterly or more frequently when circumstances significantly change.  
Approximately 75% of our 2020 revenues with the U.S. Government were under fixed-price and fixed-price incentive contracts. Under the typical payment terms of these contracts, the customer pays us either performance-based or progress payments. Performance-based payments represent interim payments of up to 90% of the contract price based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments of up to 80% of costs incurred as the work progresses. Because the customer retains a small portion of the contract price until completion of the contract, these contracts generally result in revenue recognized in excess of billings, which we present as contract assets in the Consolidated Balance Sheets. Amounts billed and due from our customers are classified in Accounts receivable, net. The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer. For cost-type contracts, we are generally paid for our actual costs incurred within a short period of time.
Finance Revenues
Finance revenues primarily include interest on finance receivables, finance lease earnings and portfolio gains/losses. Portfolio gains/losses include impairment charges related to repossessed assets and properties and gains/losses on the sale or early termination of finance assets. We recognize interest using the interest method, which provides a constant rate of return over the terms of the receivables. Accrual of interest income is suspended if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically suspend the accrual of interest income for accounts that are contractually delinquent by more than three months unless collection is not doubtful. Cash payments on nonaccrual accounts, including finance charges, generally are applied to reduce the net investment balance. Once we conclude that the collection of all principal and interest is no longer doubtful, we resume the accrual of interest and recognize previously suspended interest income at the time either a) the loan becomes contractually current through payment according to the original terms of the loan, or b) if the loan has been modified, following a period of performance under the terms of the modification.
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 2020, 2019 and 2018, our cumulative catch-up adjustments increased segment profit by $72 million, $91 million and $196 million, respectively, and net income by $55 million, $69 million and $149 million, respectively ($0.24, $0.30 and $0.59 per diluted share, respectively). In 2020, 2019 and 2018, we recognized revenue from performance obligations satisfied in prior periods of $77 million, $97 million and $190 million, which related to changes in profit booking rates that impacted revenue.
For 2020, 2019 and 2018, gross favorable adjustments totaled $148 million, $173 million and $249 million, respectively. The 2018 favorable adjustments included $145 million, largely related to overhead rate improvements and risk retirements associated with contracts in the Bell segment. In 2020, 2019 and 2018, gross unfavorable adjustments totaled $76 million, $82 million and $53 million, respectively.
Contract Assets and Liabilities
Contract assets arise from contracts when revenue is recognized over time and the amount of revenue recognized exceeds the amount billed to the customer. These amounts are included in contract assets until the right to payment is no longer conditional on events other than the passage of time and are included in Other current assets in the Consolidated Balance Sheet. Contract liabilities, which are primarily included in Other current liabilities, include deposits, largely from our commercial aviation customers, and billings in excess of revenue recognized.  
The incremental costs of obtaining a contract with a customer that is expected to be recovered is expensed as incurred when the period to be benefitted is one year or less.
Accounts Receivable, Net
Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. We maintain an allowance for 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.
Cash and Equivalents
Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or estimated net realizable value.  We value our inventories generally using the first-in, first-out (FIFO) method or the last-in, first-out (LIFO) method for certain qualifying inventories where LIFO provides a better matching of costs and revenues. We determine costs for our commercial helicopters on an average cost basis by model considering the expended and estimated costs for the current production release.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method.  We capitalize expenditures for improvements that increase asset values and extend useful lives.  Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying value of the asset exceeds the sum of the undiscounted expected future cash flows, the asset is written down to fair value.
Goodwill and Intangible Assets
Goodwill represents the excess of the consideration paid for the acquisition of a business over the fair values assigned to intangible and other net assets of the acquired business. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to an annual impairment test. We evaluate the recoverability of these assets in the fourth quarter of each year or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate a potential impairment.
For our goodwill impairment test, we calculate the fair value of each reporting unit using discounted cash flows.  A reporting unit represents the operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment, in which case such component is the reporting unit.  In certain instances, we have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics. The discounted cash flows incorporate assumptions for revenue growth rates, operating margins and discount rates that represent our best estimates of current and forecasted market conditions, cost structure, anticipated net cost reductions, and the implied rate of return that we believe a market participant would require for an investment in a business having similar risks and characteristics to the reporting unit being assessed. The fair value of our indefinite-lived intangible assets is primarily determined using the relief of royalty method based on forecasted revenues and royalty rates. If the estimated fair value of the reporting unit or indefinite-lived intangible asset exceeds the carrying value, there is no impairment. Otherwise, an impairment loss is recognized for the amount by which the carrying value exceeds the estimated fair value.
Acquired intangible assets with finite lives are subject to amortization. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  Amortization of these intangible assets is recognized over their estimated useful lives using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. Approximately 86% of our gross intangible assets are amortized based on the cash flow streams used to value the assets, with the remaining assets amortized using the straight-line method.
Finance Receivables
Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for losses.
We 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, and existence and financial strength of guarantors.
Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems the receivable collectible.  Repossessed assets are recorded at their fair value, less estimated cost to sell.
Pension and Postretirement Benefit Obligations
We maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit obligations, which are calculated based on actuarial valuations. Key assumptions used in determining these obligations and related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections.  We evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases.
For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to our fiscal year-end. We recognize the overfunded or underfunded status of our pension and postretirement plans in the Consolidated Balance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10% of the higher of the market-related value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of the inactive participants. This determination is made on a plan-by-plan basis.
Derivatives and Hedging Activities
We are exposed to market risk primarily from changes in currency exchange rates and interest rates.  We do not hold or issue derivative financial instruments for trading or speculative purposes.  To manage the volatility relating to our exposures, we net these exposures on a consolidated basis to take advantage of natural offsets.  For the residual portion, we enter into various derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices.  Credit risk related to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through periodic settlements of positions.
All derivative instruments are reported at fair value in the Consolidated Balance Sheets.  Designation to support hedge accounting is performed on a specific exposure basis.  For financial instruments qualifying as cash flow hedges, we record changes in the fair value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings.
Foreign currency denominated assets and liabilities are translated into U.S. dollars.  Adjustments from currency rate changes are recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or substantially liquidated.  
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.  
Product Liabilities
We accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable.  Our estimates are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience.
Environmental Liabilities and Asset Retirement Obligations
Liabilities for environmental matters are recorded on a site-by-site basis when it is probable that an obligation has been incurred and the cost can be reasonably estimated.  We estimate our accrued environmental liabilities using currently available facts, existing technology, and presently enacted laws and regulations, all of which are subject to a number of factors and uncertainties. Our environmental liabilities are not discounted and do not take into consideration possible future insurance proceeds or significant amounts from claims against other third parties.
We have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and asbestos materials used in insulation, adhesive fillers and floor tiles. Currently, there is no legal requirement to remove these items and there is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset retirement obligations are not probable, there is no related liability recorded in the Consolidated Balance Sheets.
Warranty Liabilities
For our assurance-type warranty programs, we estimate the costs that may be incurred and record a liability in the amount of such costs at the time product revenues are recognized.  Factors that affect this liability include the number of products sold, historical costs per claim, length of warranty period, contractual recoveries from vendors and historical and anticipated rates of warranty claims, including production and warranty patterns for new models.  We assess the adequacy of our recorded warranty liability periodically and adjust the amounts as necessary.  Additionally, we may establish a warranty liability related to the issuance of aircraft service bulletins for aircraft no longer covered under the limited warranty programs.
Research and Development Costs
Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. Government contracts.  In accordance with government regulations, we recover a portion of company-funded research and development costs through overhead rate charges on our U.S. Government contracts.  Research and development costs that are not reimbursable under a contract with the U.S. Government or another customer are charged to expense as incurred.  Company-funded research and development costs were $549 million, $647 million and $643 million in 2020, 2019 and 2018, respectively, and are included in cost of sales.
Income Taxes
The provision for income tax expense is calculated on reported income before income taxes based on current tax law and includes, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Tax laws may require items to be included in the determination of taxable income at different times from when the items are reflected in the financial statements. Deferred tax balances reflect the effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and their tax bases, as well as from net operating losses and tax credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered.
Deferred tax assets represent tax benefits for tax deductions or credits available in future years and require certain estimates and assumptions to determine whether it is more likely than not that all or a portion of the benefit will not be realized.  The recoverability of these future tax deductions and credits is determined by assessing the adequacy of future expected taxable income from all sources, including the future reversal of existing taxable temporary differences, taxable income in carryback
years, estimated future taxable income and available tax planning strategies. Should a change in facts or circumstances lead to a change in judgment about the ultimate recoverability of a deferred tax asset, we record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in income tax expense.  
We record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the reporting date.  To be recognized in the financial statements, the tax position must meet the more-likely-than-not threshold that the position will be sustained upon examination by the tax authority based on technical merits assuming the tax authority has full knowledge of all relevant information.  For positions meeting this recognition threshold, the benefit is measured as the largest amount of benefit that meets the more-likely-than-not threshold to be sustained. We periodically evaluate these tax positions based on the latest available information.  For tax positions that do not meet the threshold requirement, we recognize net tax-related interest and penalties for continuing operations in income tax expense.
v3.20.4
Business Dispositions
12 Months Ended
Jan. 02, 2021
Business Combinations [Abstract]  
Business Dispositions Business Dispositions
On November 25, 2020, we reached a definitive agreement to sell TRU Simulation + Training Canada Inc. within our Textron Systems segment. At January 2, 2021, the assets and liabilities of this business met the criteria to be classified as held for sale and are recorded at the lower of the carrying value or fair value, less cost to sell. The net carrying amounts classified as held for sale in the Consolidated Balance Sheet included $78 million of assets, primarily inventories, recorded in Other current assets and $77 million of liabilities, primarily contract liabilities, recorded in Other current liabilities. The transaction closed on January 25, 2021, and we expect to record an after-tax gain of approximately $10 million in the first quarter of 2021.
On July 2, 2018, we completed the sale of the businesses that manufacture and sell the products in our Tools and Test Equipment product line within our Industrial segment for net cash proceeds of $807 million. We recorded an after-tax gain of $419 million related to this disposition.
v3.20.4
Goodwill and Intangible Assets
12 Months Ended
Jan. 02, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill by segment are as follows:
(In millions)Textron
Aviation
BellTextron
Systems
IndustrialTotal
Balance at December 29, 2018$614 $31 $1,100 $473 $2,218 
Disposition (a)— — (71)— (71)
Acquisition— — — 
Foreign currency translation— — — (1)(1)
Balance at January 4, 2020614 31 1,033 472 2,150 
Acquisitions— — 
Reclassifications (b)12 — (24)— (12)
Foreign currency translation— — 10 11 
Balance at January 2, 2021$631 $35 $1,009 $482 $2,157 
(a)See Note 7 for additional information.
(b)Reclassifications include $12 million of goodwill classified as held for sale in connection with a business disposition described in Note 2 and amounts transferred between segments.
Intangible Assets
Our intangible assets are summarized below:
January 2, 2021January 4, 2020
(Dollars in millions)Weighted-Average
Amortization
Period (in years)
Gross
Carrying
Amount
Accumulated
Amortization
NetGross
Carrying
Amount
Accumulated
Amortization
Net
Patents and technology14$484 $(263)$221 $501 $(242)$259 
Trade names and trademarks14182 (8)174 223 (8)215 
Customer relationships and
contractual agreements
15412 (318)94 413 (298)115 
Other4(6)— (6)— 
Total$1,084 $(595)$489 $1,143 $(554)$589 
Trade names and trademarks in the table above include $169 million and $208 million of indefinite-lived intangible assets at January 2, 2021 and January 4, 2020, respectively. In 2020, we recognized $47 million of intangible asset impairment charges, primarily related to indefinite-lived assets as discussed in Note 17. Amortization expense totaled $54 million, $59 million and $66 million in 2020, 2019 and 2018, respectively. Amortization expense is estimated to be approximately $51 million, $51 million, $35 million, $32 million and $30 million in 2021, 2022, 2023, 2024 and 2025, respectively.
v3.20.4
Accounts Receivable and Finance Receivables
12 Months Ended
Jan. 02, 2021
Receivables [Abstract]  
Accounts Receivable and Financing Receivables Accounts Receivable and Finance Receivables
Accounts Receivable
Accounts receivable is composed of the following:
(In millions)January 2,
2021
January 4,
2020
Commercial$668 $835 
U.S. Government contracts155 115 
823 950 
Allowance for doubtful accounts(36)(29)
Total$787 $921 
Finance Receivables
Finance receivables are presented in the following table:
(In millions)January 2,
2021
January 4,
2020
Finance receivables$779 $707 
Allowance for losses(35)(25)
Total finance receivables, net$744 $682 
Finance receivables primarily includes loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. These loans typically have initial terms ranging from five to twelve years, amortization terms ranging from eight to fifteen years and an average balance of $1.6 million at January 2, 2021. Loans generally require the customer to pay a significant down payment, along with periodic scheduled principal payments that reduce the outstanding balance through the term of the loan.
Our finance receivables are diversified across geographic region and borrower industry. At both January 2, 2021 and January 4, 2020, 59% of our finance receivables were distributed internationally and 41% throughout the U.S. At January 2, 2021 and January 4, 2020, finance receivables of $125 million and $148 million, respectively, have been pledged as collateral for TFC’s debt of $68 million and $87 million, respectively.
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 2020, we modified finance receivable contracts for 94 customers with an outstanding balance totaling $278 million at January 2, 2021. Of the modifications occurring during 2020, contracts for 32 customers, or $129 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 two customer defaults 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 delinquency aging category are  summarized as follows:
(Dollars in millions)January 2,
2021
January 4,
2020
Performing$612 $664 
Watchlist74 
Nonaccrual93 39 
Nonaccrual as a percentage of finance receivables11.94%5.52%
Less than 31 days past due$738 $637 
31-60 days past due12 53 
61-90 days past due11 
Over 90 days past due18 10 
60+ days contractual delinquency as a percentage of finance receivables3.72%2.40%
At January 2, 2021, 48% of our performing finance receivables were originated since the beginning of 2019 and 26% were originated from 2016 to 2018. For finance receivables categorized as watchlist and nonaccrual, 9% and 25%, respectively, were originated since the beginning of 2019, and 47% and 36%, respectively, from 2016 to 2018. For accounts modified in 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 impaired finance receivables, excluding leveraged leases, and the average recorded investment is provided below:
(In millions)January 2,
2021
January 4,
2020
Recorded investment:
Impaired loans with specific allowance for losses$46 $17 
Impaired loans with no specific allowance for losses117 22 
Total$163 $39 
Unpaid principal balance$175 $50 
Allowance for losses on impaired loans
Average recorded investment126 40 
A summary of the allowance for losses on finance receivables based on how the underlying finance receivables are evaluated for impairment, is provided below.  The finance receivables reported in this table exclude $95 million and $104 million of leveraged leases at January 2, 2021 and January 4, 2020, respectively, in accordance with U.S. generally accepted accounting principles.
(In millions)January 2,
2021
January 4,
2020
Allowance based on collective evaluation$28 $22 
Allowance based on individual evaluation
Finance receivables evaluated collectively521 564 
Finance receivables evaluated individually163 39 
v3.20.4
Inventories
12 Months Ended
Jan. 02, 2021
Inventory Disclosure [Abstract]  
Inventories Inventories
Inventories are composed of the following:
(In millions)January 2,
2021
January 4,
2020
Finished goods$1,228 $1,557 
Work in process1,455 1,616 
Raw materials and components830 896 
Total$3,513 $4,069 
Inventories valued by the LIFO method totaled $2.2 billion and $2.5 billion at January 2, 2021 and January 4, 2020, respectively, and the carrying values of these inventories would have been higher by approximately $507 million and $475 million, respectively, had our LIFO inventories been valued at current costs.
v3.20.4
Property, Plant and Equipment, Net
12 Months Ended
Jan. 02, 2021
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment, Net Property, Plant and Equipment, Net
Our Manufacturing group’s property, plant and equipment, net is composed of the following:
(Dollars in millions)Useful Lives
(in years)
January 2,
2021
January 4,
2020
Land, buildings and improvements2-40$2,031 $1,991 
Machinery and equipment2-205,181 4,941 
7,212 6,932 
Accumulated depreciation and amortization(4,696)(4,405)
Total$2,516 $2,527 
The Manufacturing group’s depreciation expense, which included amortization expense on finance leases, totaled $325 million, $346 million and $358 million in 2020, 2019 and 2018, respectively.
v3.20.4
Other Assets
12 Months Ended
Jan. 02, 2021
Other Assets, Noncurrent Disclosure [Abstract]  
Other Assets Other AssetsOther 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 caused by the COVID-19 pandemic. These borrowings were subsequently repaid and there were no outstanding borrowings against these policies at January 2, 2021. 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.In 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 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. Based on the fair value of our share of the business, we recorded a pre-tax net gain of $18 million in 2019 to cost of sales in our Consolidated Statements of Operations.
v3.20.4
Other Current Liabilities
12 Months Ended
Jan. 02, 2021
Other Liabilities Disclosure [Abstract]  
Other Current Liabilities Other Current Liabilities
The other current liabilities of our Manufacturing group are summarized below:
(In millions)January 2,
2021
January 4,
2020
Contract liabilities$758 $715 
Salaries, wages and employer taxes381 362 
Current portion of warranty and product maintenance liabilities133 147 
Other713 683 
Total$1,985 $1,907 
Changes in our warranty liability are as follows:
(In millions)202020192018
Balance at beginning of year$141 $149 $164 
Provision54 68 72 
Settlements(64)(70)(78)
Adjustments*(12)(6)(9)
Balance at end of year$119 $141 $149 
* Adjustments include changes to prior year estimates, new issues on prior year sales, reclassifications to held for sale, business acquisitions/dispositions and currency translation adjustments.
v3.20.4
Leases
12 Months Ended
Jan. 02, 2021
Leases [Abstract]  
Leases 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 28 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 $61 million and $64 million, in 2020 and 2019, respectively. Finance lease cost and variable and short-term lease costs were not significant. In 2020 and 2019, cash paid for operating lease liabilities totaled $60 million and $62 million, respectively, which is classified as cash flows from operating activities. Noncash transactions totaled $119 million in 2020 and $25 million in 2019, reflecting the recognition of operating lease assets and liabilities for new or extended leases. Balance sheet and other information related to our leases is as follows:
(Dollars in millions)January 2,
2021
January 4,
2020
Operating leases:
Other assets$349 $277 
Other current liabilities47 48 
Other liabilities306 233 
Finance leases:
Property, plant and equipment, net$35 $39 
Current portion of long-term debt
Long-term debt38 40 
Weighted-average remaining lease term (in years)
Operating leases11.610.2
Finance leases16.817.9
Weighted-average discount rate
Operating leases4.17%4.42%
Finance leases4.35%4.37%
Maturities of our lease liabilities at January 2, 2021 are as follows:
(In millions)Operating
Leases
Finance
Leases
2021$59 $
202253 
202344 
202435 
202533 
Thereafter232 42 
Total lease payments456 63 
Less: interest(103)(23)
Total lease liabilities$353 $40 
Leases 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 28 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 $61 million and $64 million, in 2020 and 2019, respectively. Finance lease cost and variable and short-term lease costs were not significant. In 2020 and 2019, cash paid for operating lease liabilities totaled $60 million and $62 million, respectively, which is classified as cash flows from operating activities. Noncash transactions totaled $119 million in 2020 and $25 million in 2019, reflecting the recognition of operating lease assets and liabilities for new or extended leases. Balance sheet and other information related to our leases is as follows:
(Dollars in millions)January 2,
2021
January 4,
2020
Operating leases:
Other assets$349 $277 
Other current liabilities47 48 
Other liabilities306 233 
Finance leases:
Property, plant and equipment, net$35 $39 
Current portion of long-term debt
Long-term debt38 40 
Weighted-average remaining lease term (in years)
Operating leases11.610.2
Finance leases16.817.9
Weighted-average discount rate
Operating leases4.17%4.42%
Finance leases4.35%4.37%
Maturities of our lease liabilities at January 2, 2021 are as follows:
(In millions)Operating
Leases
Finance
Leases
2021$59 $
202253 
202344 
202435 
202533 
Thereafter232 42 
Total lease payments456 63 
Less: interest(103)(23)
Total lease liabilities$353 $40 
v3.20.4
Debt and Credit Facilities
12 Months Ended
Jan. 02, 2021
Debt Disclosure [Abstract]  
Debt and Credit Facilities Debt and Credit Facilities
Our debt is summarized in the table below:
(In millions)January 2,
2021
January 4,
2020
Manufacturing group
6.625% due 2020
$— $199 
Variable-rate notes due 2020 (2.45%)
— 350 
3.65% due 2021
250 250 
5.95% due 2021
250 250 
4.30% due 2024
350 350 
3.875% due 2025
350 350 
4.00% due 2026
350 350 
3.65% due 2027
350 350 
3.375% due 2028
300 300 
3.90% due 2029
300 300 
3.00% due 2030
650 — 
2.45% due 2031
500 — 
Other (weighted-average rate of 2.60% and 3.01%, respectively)
57 75 
Total Manufacturing group debt$3,707 $3,124 
Less: Current portion of long-term debt(509)(561)
Total Long-term debt$3,198 $2,563 
Finance group
Variable-rate note due 2022 (1.70% and 2.87%, respectively)
$150 $150 
2.88% note due 2022
150 150 
Fixed-rate notes due 2020-2028 (weighted-average rate of 3.25% and 3.20%, respectively)*
51 65 
Variable-rate notes due 2020-2027 (weighted-average rate of 1.73% and  3.31%, respectively)*
17 22 
Fixed-to-Floating Rate Junior Subordinated Notes (1.96% and 3.64%, respectively)
294 299 
Total Finance group debt$662 $686 
* Notes amortize on a monthly basis and are secured by finance receivables as described in Note 4.
The following table shows required payments during the next five years on debt outstanding at January 2, 2021:
(In millions)20212022202320242025
Manufacturing group$509 $$$361 $357 
Finance group13 316 16 15 
Total$522 $324 $24 $376 $362 
Textron has a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 billion, of which up to $100 million is available for the issuance of letters of credit. We may elect to increase the aggregate amount of commitments under the facility to up to $1.3 billion by designating an additional lender or by an existing lender agreeing to increase its commitment. The facility expires in October 2024, subject to up to two one-year extensions at our option with the consent of lenders representing a
majority of the commitments under the facility. At January 2, 2021 and January 4, 2020, there were no amounts borrowed against the facility and there were $9 million and $10 million, respectively, of outstanding letters of credit issued under the facility.
Fixed-to-Floating Rate Junior Subordinated Notes
The Finance group’s $294 million of Fixed-to-Floating Rate Junior Subordinated Notes are unsecured and rank junior to all of its existing and future senior debt. The notes mature on February 15, 2067; however, we have the right to redeem the notes at par at any time and we are obligated to redeem the notes beginning on February 15, 2042.  During 2020, TFC repurchased $5 million of these notes. Interest on the notes was fixed at 6% through February 15, 2017 and is now variable at the three-month London Interbank Offered Rate + 1.735%.
Support Agreement
Under a Support Agreement between Textron and TFC, Textron is required to maintain a controlling interest in TFC. The agreement, as amended in December 2015, also requires Textron to ensure that TFC maintains fixed charge coverage of no less than 125% and consolidated shareholders' equity of no less than $125 million. There were no cash contributions required to be paid to TFC in 2020, 2019 and 2018 to maintain compliance with the support agreement.
v3.20.4
Derivative Instruments and Fair Value Measurements
12 Months Ended
Jan. 02, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Fair Value Measurements 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 January 2, 2021 and January 4, 2020, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $318 million and $342 million, respectively. At January 2, 2021, the fair value amounts of our foreign currency exchange contracts were a $5 million asset and a $2 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.
Our Finance group enters into interest rate swap agreements to mitigate exposure to fluctuations in interest rates. By using these contracts, we are able to convert floating-rate cash flows to fixed-rate cash flows. These agreements are designated as cash flow hedges. At January 2, 2021, we had one swap agreement that matures in February 2022 for a notional amount of $294 million with a fair value of a $4 million liability.
Assets and Liabilities Not Recorded at Fair Value
The carrying value and estimated fair value of our financial instruments that are not reflected in the financial statements at fair value are as follows:
January 2, 2021January 4, 2020
(In millions)Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Manufacturing group
Debt, excluding leases$(3,690)$(3,986)$(3,097)$(3,249)
Finance group
Finance receivables, excluding leases549 599 493 527 
Debt(662)(587)(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.
v3.20.4
Shareholders' Equity
12 Months Ended
Jan. 02, 2021
Equity [Abstract]  
Shareholders' Equity Shareholders’ Equity
Capital Stock
We have authorization for 15 million shares of preferred stock with a par value of $0.01 and 500 million shares of common stock with a par value of $0.125.  Outstanding common stock activity is presented below:
(In thousands)202020192018
Balance at beginning of year227,956 235,621 261,471 
Share repurchases(4,145)(10,011)(29,094)
Share-based compensation activity2,633 2,346 3,244 
Balance at end of year226,444 227,956 235,621 
Earnings Per Share
We calculate basic and diluted earnings per share (EPS) based on net income, which approximates income available to common shareholders for each period.  Basic EPS is calculated using the two-class method, which includes the weighted-average number of common shares outstanding during the period and restricted stock units to be paid in stock that are deemed participating securities as they provide nonforfeitable rights to dividends.  Diluted EPS considers the dilutive effect of all potential future common stock, including stock options.
The weighted-average shares outstanding for basic and diluted EPS are as follows:
(In thousands)202020192018
Basic weighted-average shares outstanding228,536 231,315 250,196 
Dilutive effect of stock options443 1,394 3,041 
Diluted weighted-average shares outstanding228,979 232,709 253,237 
In 2020, 2019 and 2018, stock options to purchase 7.6 million, 4.3 million and 1.3 million shares, respectively, of common stock are excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive.
Accumulated Other Comprehensive Loss
The components of Accumulated other comprehensive loss are presented below:
(In millions)Pension and
Postretirement
Benefits
Adjustments
Foreign
Currency
Translation
Adjustments
Deferred
Gains (Losses)
on Hedge
Contracts
Accumulated
Other
Comprehensive
Loss
Balance at December 29, 2018$(1,727)$(32)$(3)$(1,762)
Other comprehensive loss before reclassifications(166)(4)(165)
Reclassified from Accumulated other comprehensive loss82 — (2)80 
Balance at January 4, 2020$(1,811)$(36)$— $(1,847)
Other comprehensive loss before reclassifications(115)78 (34)
Reclassified from Accumulated other comprehensive loss146 — (4)142 
Balance at January 2, 2021$(1,780)$42 $(1)$(1,739)
Other comprehensive income (loss)
The before and after-tax components of other comprehensive income (loss) are presented below:
202020192018
(In millions)Pre-Tax
Amount
Tax
(Expense)
Benefit
After-
Tax
Amount
Pre-Tax
Amount
Tax
(Expense)
Benefit
After-
Tax
Amount
Pre-Tax
Amount
Tax
(Expense)
Benefit
After-
Tax
Amount
Pension and postretirement benefits
adjustments:
Unrealized losses$(144)$35 $(109)$(218)$52 $(166)$(248)$58 $(190)
Amortization of net actuarial loss*184 (43)141 99 (23)76 152 (35)117 
Amortization of prior service cost*(1)(2)(2)
Recognition of prior service cost(8)(6)— — — (20)(15)
Business disposition— — — — — — — 
Pension and postretirement benefits
adjustments, net
38 (7)31 (111)27 (84)(100)26 (74)
Foreign currency translation adjustments:
Foreign currency translation adjustments81 (3)78 (6)(4)(46)(3)(49)
Business disposition— — — — — — — 
Foreign currency translation adjustments, net81 (3)78 (6)(4)(40)(3)(43)
Deferred gains (losses) on hedge contracts:
Current deferrals(1)(3)(8)— (8)
Reclassification adjustments(6)(4)(2)— (2)(7)(5)
Deferred gains (losses) on hedge
contracts, net
(2)(1)(3)(15)(13)
Total$117 $(9)$108 $(111)$26 $(85)$(155)$25 $(130)
* These components of other comprehensive income (loss) are included in the computation of net periodic pension cost. See Note 16 for additional information.
v3.20.4
Segment and Geographic Data
12 Months Ended
Jan. 02, 2021
Segment Reporting [Abstract]  
Segment and Geographic Data Segment and Geographic Data
We operate in, and report financial information for, the following five business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. The accounting policies of the segments are the same as those described in Note 1.
Textron Aviation products include Citation jets, King Air and Caravan turboprop aircraft, military trainer and defense aircraft, piston engine aircraft, and aftermarket part sales and services sold to a diverse base of corporate and individual buyers, and U.S. and non-U.S. governments.
Bell products include military and commercial helicopters, tiltrotor aircraft and related spare parts and services.  Bell supplies military helicopters and, in association with The Boeing Company, military tiltrotor aircraft, and aftermarket services to the U.S. and non-U.S. governments. Bell also supplies commercial helicopters and aftermarket services to corporate, private, law enforcement, utility and emergency medical helicopter operators, and foreign governments.
Textron Systems products include unmanned aircraft and surface systems, marine craft, armored vehicles and specialty vehicles, and other defense and aviation mission support products and services primarily for U.S. and non-U.S. governments.
Industrial products and markets include the following:
Fuel Systems and Functional Components products consist of blow-molded plastic fuel systems, including conventional plastic fuel tanks and pressurized fuel tanks for hybrid applications, clear-vision systems and plastic tanks for selective catalytic reduction systems that are marketed primarily to automobile OEMs; and
Specialized Vehicles products include golf cars, off-road utility vehicles, recreational side-by-side and all-terrain vehicles, snowmobiles, light transportation vehicles, aviation ground support equipment, professional turf-maintenance equipment and turf-care vehicles that are marketed primarily to golf courses and resorts, government agencies and municipalities, consumers, outdoor enthusiasts, and commercial and industrial users.
The Finance segment provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters.
Segment profit is an important measure used for evaluating performance and for decision-making purposes.  Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses, gains/losses on major business dispositions, special charges and an inventory charge related to the 2020 COVID-19 restructuring plan, as discussed in Note 17. 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 as follows:
RevenuesSegment Profit
(In millions)202020192018202020192018
Textron Aviation$3,974 $5,187 $4,971 $16 $449 $445 
Bell3,309 3,254 3,180 462 435 425 
Textron Systems1,313 1,325 1,464 152 141 156 
Industrial3,000 3,798 4,291 111 217 218 
Finance55 66 66 10 28 23 
Total$11,651 $13,630 $13,972 $751 $1,270 $1,267 
Corporate expenses and other, net(122)(110)(119)
Interest expense, net for Manufacturing group(145)(146)(135)
Special charges*(147)(72)(73)
Inventory charge*(55)— — 
Gain on business disposition— — 444 
Income before income taxes$282 $942 $1,384 
* See Note 17 for additional information.
Other information by segment is provided below:
AssetsCapital ExpendituresDepreciation and Amortization
(In millions)January 2,
2021
January 4,
2020
202020192018202020192018
Textron Aviation$4,380 $4,692 $94 $122 $132 $138 $137 $145 
Bell2,984 2,783 117 81 65 91 107 108 
Textron Systems2,054 2,352 42 38 39 43 48 54 
Industrial2,500 2,781 62 97 132 102 108 112 
Finance938 964 — — — 
Corporate2,587 1,446 12 10 10 
Total$15,443 $15,018 $317 $339 $369 $391 $416 $437 
Geographic Data
Presented below is selected financial information by geographic area:
Revenues*Property, Plant
and Equipment, net**
(In millions)202020192018January 2,
2021
January 4,
2020
United States$7,943 $8,963 $8,667 $2,068 $2,054 
Europe1,336 1,986 2,187 237 244 
Asia and Australia1,106 1,070 1,253 95 97 
Other international1,266 1,611 1,865 116 132 
Total$11,651 $13,630 $13,972 $2,516 $2,527 
* Revenues are attributed to countries based on the location of the customer.
** Property, plant and equipment, net is based on the location of the asset.
v3.20.4
Revenues
12 Months Ended
Jan. 02, 2021
Revenue from Contract with Customer [Abstract]  
Revenues Revenues
Disaggregation of Revenues
Our revenues disaggregated by major product type are presented below:
(In millions)202020192018
Aircraft$2,714 $3,592 $3,435 
Aftermarket parts and services1,260 1,595 1,536 
Textron Aviation3,974 5,187 4,971 
Military aircraft and support programs2,213 1,988 2,030 
Commercial helicopters, parts and services1,096 1,266 1,150 
Bell3,309 3,254 3,180 
Unmanned systems621 572 612 
Marine and land systems179 208 311 
Simulation, training and other513 545 541 
Textron Systems1,313 1,325 1,464 
Fuel systems and functional components1,751 2,237 2,352 
Specialized vehicles1,249 1,561 1,691 
Tools and test equipment— — 248 
Industrial3,000 3,798 4,291 
Finance55 66 66 
Total revenues$11,651 $13,630 $13,972 
Our revenues for our segments by customer type and geographic location are presented below:
(In millions)Textron
Aviation
BellTextron
Systems
IndustrialFinanceTotal
2020
Customer type:
Commercial$3,826 $1,079 $249 $2,993 $55 $8,202 
U.S. Government148 2,230 1,064 — 3,449 
Total revenues$3,974 $3,309 $1,313 $3,000 $55 $11,651 
Geographic location:
United States$2,825 $2,564 $1,129 $1,398 $27 $7,943 
Europe356 148 44 786 1,336 
Asia and Australia379 330 67 328 1,106 
Other international414 267 73 488 24 1,266 
Total revenues$3,974 $3,309 $1,313 $3,000 $55 $11,651 
2019
Customer type:
Commercial$4,956 $1,238 $359 $3,775 $66 $10,394 
U.S. Government231 2,016 966 23 — 3,236 
Total revenues$5,187 $3,254 $1,325 $3,798 $66 $13,630 
Geographic location:
United States$3,708 $2,440 $1,083 $1,698 $34 $8,963 
Europe678 142 73 1,091 1,986 
Asia and Australia244 348 103 374 1,070 
Other international557 324 66 635 29 1,611 
Total revenues$5,187 $3,254 $1,325 $3,798 $66 $13,630 
2018
Customer type:
Commercial$4,734 $1,114 $431 $4,277 $66 $10,622 
U.S. Government237 2,066 1,033 14 — 3,350 
Total revenues$4,971