UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported):  October 18, 2018
 
TEXTRON INC.
(Exact name of Registrant as specified in its charter)

Delaware	 	1-5480	 	05-0315468	
(State of	 	(Commission File Number)	 	(IRS Employer	
Incorporation)	 	 	 	Identification Number)	
 
40 Westminster Street, Providence, Rhode Island  02903
(Address of principal executive offices)
 
Registrant’s telephone number, including area code:  (401) 421-2800
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):
 
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o Pre-commencement communications pursuant to Rule 13e-4(c)) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company  o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o

 

 
Item 2.02               Results of Operations and Financial Condition
 
On October 18, 2018, Textron Inc. (“Textron”) issued a press release announcing its financial results for the fiscal quarter ended September 29, 2018.  This press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
 
A discussion of the reasons why management believes that the presentation of non-GAAP financial measures provides useful information to investors regarding Textron’s financial condition and results of operations is attached to the press release attached hereto as Exhibit 99.1.
 
Item 9.01               Financial Statements and Exhibits
 
(d) Exhibits
 
The following exhibit is filed herewith:

Exhibit	 	 	
Number	 	Description	
 	 	 	
99.1	 	Press release dated October 18, 2018.	
 
2 

 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 	 	TEXTRON INC.	
 	 	(Registrant)	

 	 	By:	/s/ Mark S. Bamford	
 	 	 	Mark S. Bamford	
 	 	 	Vice President and Corporate Controller	

Date:  October 18, 2018
 
3 

Exhibit 99.1 

Corporate Communications Department
              NEWS Release
 
Textron Reports Third Quarter 2018 Results; Narrows Full-Year EPS and Cash Guidance
 
·                   $468 million returned to shareholders through share repurchases
·                   Completed sale of Tools & Test product line
·                   Full-year adjusted EPS guidance narrowed to $3.20 - $3.30 per share
·                   Full-year cash flow guidance reaffirmed at $750 - $850 million
 
Providence, Rhode Island — October 18, 2018 — Textron Inc. (NYSE: TXT) today reported third quarter 2018 income from continuing operations of $2.26 per share, reflecting the gain on the sale of the Tools & Test product line of $1.65 per share, or $0.61 per share of adjusted income from continuing operations, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release. This compares to $0.65 per share of adjusted income from continuing operations in the third quarter of 2017.
 
“Revenues were lower in the quarter, largely reflecting declines at Industrial and Textron Systems,” said Textron Chairman and CEO Scott C. Donnelly. “Operationally, we achieved margin improvements at Aviation and Bell, reflecting strong execution within those segments.”
 
Cash Flow
 
Net cash provided by operating activities of continuing operations of the manufacturing group for the third quarter totaled $319 million, compared to $79 million in last year’s third quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, totaled $259 million compared to $281 million during last year’s third quarter.
 
In the quarter, Textron returned $468 million to shareholders through share repurchases, compared to $122 million in the third quarter of 2017.
 
Outlook
 
Textron now expects full-year 2018 GAAP earnings per share from continuing operations will be in the range of $4.81 to $4.91, or $3.20 to $3.30 on an adjusted basis (non-GAAP), which is reconciled to GAAP in an attachment to this release.
 
The company reaffirms full-year manufacturing cash flow before pension contributions (a non-GAAP measure) to be in a range of $750 to $850 million.

 
Third Quarter Segment Results
 
Textron Aviation
 
Revenues at Textron Aviation of $1.1 billion were down 2%, due to lower volume and mix reflecting lower turboprop volume, partially offset by favorable pricing.
 
Textron Aviation delivered 41 jets, flat with last year, and 43 commercial turboprops, down from 57 last year.
 
Segment profit was $99 million in the third quarter, up from $93 million a year ago, due to favorable price and performance, partially offset by the impact of lower volume and mix.
 
Textron Aviation backlog at the end of the third quarter was $1.8 billion.
 
Bell
 
Bell revenues were $770 million, down 5% primarily on commercial mix, partially offset by higher military revenues.
 
Bell delivered 43 commercial helicopters in the quarter, up from 39 last year.
 
Segment profit of $113 million was up $7 million, largely the result of favorable performance on military programs, partially offset by commercial mix.
 
Bell backlog at the end of the third quarter was $5.7 billion.
 
Textron Systems
 
Revenues at Textron Systems were $352 million, down from $458 million last year, reflecting lower TAPV deliveries at Textron Marine & Land Systems and lower volume in the Simulation, Training & Other product line.
 
Segment profit was down $11 million, primarily reflecting the lower net volume.
 
Textron Systems’ backlog at the end of the third quarter was $1.1 billion.
 
Industrial
 
Industrial revenues decreased $112 million largely related to the disposition of our Tools & Test product line.
 
Segment profit was down $48 million from the third quarter of 2017, largely due to unfavorable pricing and performance, and the impact from the disposition of our Tools & Test product line.
 
Finance
 
Finance segment revenues were down $3 million, and profit was down $4 million from last year’s third quarter.

 
Conference Call Information
 
Textron will host its conference call today, October 18, 2018 at 8:00 a.m. (Eastern) to discuss its results and outlook.  The call will be available via webcast at www.textron.com or by direct dial at (800) 230-1951 in the U.S. or (612) 288-0340 outside of the U.S. (request the Textron Earnings Call).
 
In addition, the call will be recorded and available for playback beginning at 10:30 a.m. (Eastern) on Thursday, October 18, 2018 by dialing (320) 365-3844; Access Code: 431862.
 
A package containing key data that will be covered on today’s call can be found in the Investor Relations section of the company’s website at www.textron.com.
 
About Textron Inc.
 
Textron Inc. is a multi-industry company that leverages its global network of aircraft, defense, industrial and finance businesses to provide customers with innovative solutions and services. Textron is known around the world for its powerful brands such as Bell, Cessna, Beechcraft, Hawker, Jacobsen, Kautex, Lycoming, E-Z-GO, Textron Off Road, Arctic Cat, Textron Systems, and TRU Simulation + Training. For more information visit: www.textron.com.
 
###
 
Forward-looking Information
 
Certain statements in this release and other oral and written statements made by us from time to time are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which may describe strategies, goals, outlook or other non-historical matters, or project revenues, income, returns or other financial measures, often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “guidance,” “project,” “target,” “potential,” “will,” “should,” “could,” “likely” or “may” and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update or revise any forward-looking statements.  In addition to those factors described in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q under “Risk Factors”, among the factors that could cause actual results to differ materially from past and projected future results are the following: Interruptions in the U.S. Government’s ability to fund its activities and/or pay its obligations; changing priorities or reductions in the U.S. Government defense budget, including those related to military operations in foreign countries; our ability to perform as anticipated and to control costs under contracts with the U.S. Government; the U.S. Government’s ability to unilaterally modify or terminate its contracts with us for the U.S. Government’s convenience or for our failure to perform, to change applicable procurement and accounting policies, or, under certain circumstances, to withhold payment or suspend or debar us as a contractor eligible to receive future contract awards; changes in foreign military funding priorities or budget constraints and determinations, or changes in government regulations or policies on the export and import of military and commercial products; volatility in the global economy or changes in worldwide political conditions that adversely impact demand for our products; volatility in interest rates or foreign exchange rates; risks related to our international business, including establishing and maintaining facilities in locations around the world

 
and relying on joint venture partners, subcontractors, suppliers, representatives, consultants and other business partners in connection with international business, including in emerging market countries; our Finance segment’s ability to maintain portfolio credit quality or to realize full value of receivables; performance issues with key suppliers or subcontractors; legislative or regulatory actions, both domestic and foreign, impacting our operations or demand for our products; our ability to control costs and successfully implement various cost-reduction activities; the efficacy of research and development investments to develop new products or unanticipated expenses in connection with the launching of significant new products or programs; the timing of our new product launches or certifications of our new aircraft products; our ability to keep pace with our competitors in the introduction of new products and upgrades with features and technologies desired by our customers; pension plan assumptions and future contributions; demand softness or volatility in the markets in which we do business; cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or, operational disruption; difficulty or unanticipated expenses in connection with integrating acquired businesses; the risk that acquisitions do not perform as planned, including, for example, the risk that acquired businesses will not achieve revenue and profit projections; and t he impact of changes in tax legislation (including the recently enacted Tax Cuts and Jobs Act).
 
Investor Contacts:
Eric Salander – 401-457-2288
Jeffrey Trivella – 401-457-2288
 
Media Contact:
David Sylvestre – 401-457-2362

 
TEXTRON INC.
Revenues by Segment and Reconciliation of Segment Profit to Net Income
 (Dollars in millions, except per share amounts)
(Unaudited)

 	 	Three Months Ended	 	Nine Months Ended	 	
 	 	September 29, 2018	 	September 30, 2017	 	September 29, 2018	 	September 30, 2017	 	
REVENUES	 	 	 	 	 	 	 	 	 	
MANUFACTURING:	 	 	 	 	 	 	 	 	 	
Textron Aviation	 	$	1,133	 	$	1,154	 	$	3,419	 	$	3,295	 	
Bell	 	770	 	812	 	2,353	 	2,334	 	
Textron Systems	 	352	 	458	 	1,119	 	1,351	 	
Industrial	 	930	 	1,042	 	3,283	 	3,147	 	
 	 	3,185	 	3,466	 	10,174	 	10,127	 	
 	 	 	 	 	 	 	 	 	 	
FINANCE	 	15	 	18	 	48	 	54	 	
Total revenues	 	$	3,200	 	$	3,484	 	$	10,222	 	$	10,181	 	
 	 	 	 	 	 	 	 	 	 	
SEGMENT PROFIT	 	 	 	 	 	 	 	 	 	
MANUFACTURING:	 	 	 	 	 	 	 	 	 	
Textron Aviation	 	$	99	 	$	93	 	$	275	 	$	183	 	
Bell	 	113	 	106	 	317	 	301	 	
Textron Systems	 	29	 	40	 	119	 	102	 	
Industrial	 	1	 	49	 	145	 	207	 	
 	 	242	 	288	 	856	 	793	 	
 	 	 	 	 	 	 	 	 	 	
FINANCE	 	3	 	7	 	14	 	16	 	
Segment Profit	 	245	 	295	 	870	 	809	 	
 	 	 	 	 	 	 	 	 	 	
Corporate expenses and other, net	 	(29	)	(30	)	(107	)	(88	)	
Interest expense, net for Manufacturing group	 	(32	)	(37	)	(101	)	(107	)	
Gain on business disposition (a)	 	444	 	—	 	444	 	—	 	
Special charges (b)	 	—	 	(25	)	—	 	(75	)	
 	 	 	 	 	 	 	 	 	 	
Income from continuing operations before income taxes	 	628	 	203	 	1,106	 	539	 	
Income tax expense	 	(65	)	(44	)	(130	)	(127	)	
 	 	 	 	 	 	 	 	 	 	
Income from continuing operations	 	563	 	159	 	976	 	412	 	
Discontinued operations, net of income taxes	 	—	 	—	 	—	 	1	 	
Net income	 	$	563	 	$	159	 	$	976	 	$	413	 	
 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share:	 	 	 	 	 	 	 	 	 	
Income from continuing operations	 	$	2.26	 	$	0.60	 	$	3.80	 	$	1.53	 	
Discontinued operations, net of income taxes	 	—	 	—	 	—	 	—	 	
Net income	 	$	2.26	 	$	0.60	 	$	3.80	 	$	1.53	 	
 	 	 	 	 	 	 	 	 	 	
Diluted average shares outstanding	 	249,378,000	 	266,989,000	 	256,780,000	 	269,734,000	 	
 
At the beginning of 2018, we adopted the new revenue recognition accounting standard using a modified retrospective transition method applied to contracts that were not substantially complete at the end of 2017.  We recorded a $90 million adjustment to increase retained earnings to reflect the cumulative impact of adopting this standard at the beginning of 2018, primarily related to long-term contracts with the U.S. Government.  Revenues associated with these contracts in 2018 are primarily recognized as costs are incurred, while revenues for 2017 were primarily recognized as units were delivered.  The comparative information has not been restated and is reported under the accounting standards in effect for those periods.
 
Income from Continuing Operations and Diluted Earnings Per Share GAAP to Non-GAAP Reconciliation:

 	 	Three Months Ended	 	Nine Months Ended	 	
 	 	September 29, 2018	 	September 30, 2017	 	September 29, 2018	 	September 30, 2017	 	
Income from continuing operations - GAAP	 	$	563	 	$	159	 	$	976	 	$	412	 	
Gain on business disposition, net of taxes of $34 million	 	(410	)	—	 	(410	)	—	 	
Restructuring, net of taxes of $6 million and $15 million, respectively	 	—	 	9	 	—	 	27	 	
Arctic Cat restructuring, integration and transaction costs,   net of taxes of $4 million and $11 million, respectively	 	—	 	6	 	—	 	22	 	
Adjusted income from continuing operations - Non-GAAP (c)	 	$	153	 	$	174	 	$	566	 	$	461	 	
 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share:	 	 	 	 	 	 	 	 	 	
Income from continuing operations - GAAP	 	$	2.26	 	$	0.60	 	$	3.80	 	$	1.53	 	
Gain on business disposition, net of taxes	 	(1.65	)	—	 	(1.60	)	—	 	
Restructuring, net of taxes	 	—	 	0.03	 	—	 	0.10	 	
Arctic Cat restructuring, integration and transaction costs, net of taxes	 	—	 	0.02	 	—	 	0.08	 	
Adjusted income from continuing operations - Non-GAAP (c)	 	$	0.61	 	$	0.65	 	$	2.20	 	$	1.71	 	

(a)          On July 2, 2018, Textron completed the sale of the Tools & Test Equipment product line and recorded an after-tax gain of $410 million, subject to post-closing adjustments.
 
(b)          Special charges for the three and nine months ended September 30, 2017 include $15 million and $42 million, respectively, related to a 2016 restructuring plan and $10 million and $33 million, respectively, of restructuring, integration and transaction costs related to the Arctic Cat acquisition.
 
(c)           Adjusted income from continuing operations and adjusted diluted earnings per share are non-GAAP financial measures as defined in “Non-GAAP Financial Measures” attached to this release.

 
Textron Inc.
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)

 	 	September 29,
2018	 	December 30,
2017	 	
Assets (a)	 	 	 	 	 	
Cash and equivalents	 	$	1,150	 	$	1,079	 	
Accounts receivable, net	 	1,026	 	1,363	 	
Inventories	 	4,030	 	4,150	 	
Other current assets	 	706	 	435	 	
Net property, plant and equipment	 	2,593	 	2,721	 	
Goodwill	 	2,209	 	2,364	 	
Other assets	 	1,868	 	2,059	 	
Finance group assets	 	1,087	 	1,169	 	
Total Assets	 	$	14,669	 	$	15,340	 	
 	 	 	 	 	 	
Liabilities and Shareholders’ Equity (a)	 	 	 	 	 	
Short-term debt and current portion of long-term debt	 	$	9	 	$	14	 	
Current liabilities	 	3,414	 	3,646	 	
Other liabilities	 	1,733	 	2,006	 	
Long-term debt	 	3,069	 	3,074	 	
Finance group liabilities	 	901	 	953	 	
Total Liabilities	 	9,126	 	9,693	 	
 	 	 	 	 	 	
Total Shareholders’ Equity	 	5,543	 	5,647	 	
Total Liabilities and Shareholders’ Equity	 	$	14,669	 	$	15,340	 	

(a)         At the beginning of 2018, we adopted the new revenue recognition accounting standard using a modified retrospective transition method applied to contracts that were not substantially complete at the end of 2017.  We recorded a $90 million adjustment to increase retained earnings to reflect the cumulative impact of adopting this standard at the beginning of 2018, primarily related to long-term contracts with the U.S. Government. Revenues associated with these contracts in 2018 are primarily recognized as costs are incurred, while revenues for 2017 were primarily recognized as units were delivered.  The comparative information has not been restated and is reported under the accounting standards in effect for those periods.

 
TEXTRON INC.
MANUFACTURING GROUP
Condensed Schedule of Cash Flows
(In millions)
(Unaudited)

 	 	Three Months Ended	 	Nine Months Ended	 	
 	 	September 29,	 	September 30,	 	September 29,	 	September 30,	 	
 	 	2018	 	2017	 	2018	 	2017	 	
Cash flows from operating activities:	 	 	 	 	 	 	 	 	 	
Income from continuing operations	 	$	561	 	$	155	 	$	959	 	$	399	 	
Depreciation and amortization	 	104	 	111	 	316	 	322	 	
Gain on business disposition	 	(444	)	—	 	(444	)	—	 	
Changes in working capital (a)	 	74	 	(19	)	(204	)	(268	)	
Changes in other assets and liabilities and non-cash items (a)	 	24	 	(168	)	57	 	(126	)	
Dividends received from TFC	 	—	 	—	 	50	 	—	 	
Net cash from operating activities of continuing operations (a)	 	319	 	79	 	734	 	327	 	
Cash flows from investing activities:	 	 	 	 	 	 	 	 	 	
Net proceeds from business disposition	 	807	 	—	 	807	 	—	 	
Capital expenditures	 	(74	)	(115	)	(233	)	(276	)	
Net cash (used)/proceeds from corporate-owned life insurance policies (a)	 	—	 	(2	)	98	 	20	 	
Proceeds from the sale of property, plant and equipment	 	2	 	6	 	12	 	6	 	
Net cash used in acquisitions	 	(3	)	(1	)	(3	)	(330	)	
Other investing activities, net	 	—	 	—	 	—	 	1	 	
Net cash from investing activities (a)	 	732	 	(112	)	681	 	(579	)	
Cash flows from financing activities:	 	 	 	 	 	 	 	 	 	
Proceeds from long-term debt	 	—	 	298	 	—	 	645	 	
Purchases of Textron common stock	 	(468	)	(122	)	(1,383	)	(451	)	
Other financing activities, net	 	16	 	10	 	49	 	20	 	
Net cash from financing activities	 	(452	)	186	 	(1,334	)	214	 	
Total cash flows from continuing operations	 	599	 	153	 	81	 	(38	)	
Total cash flows from discontinued operations	 	—	 	(1	)	(1	)	(24	)	
Effect of exchange rate changes on cash and equivalents	 	(3	)	14	 	(9	)	29	 	
Net change in cash and equivalents	 	596	 	166	 	71	 	(33	)	
Cash and equivalents at beginning of period	 	554	 	938	 	1,079	 	1,137	 	
Cash and equivalents at end of period	 	$	1,150	 	$	1,104	 	$	1,150	 	$	1,104	 	
 	 	 	 	 	 	 	 	 	 	
Manufacturing Cash Flow GAAP to Non-GAAP Reconciliation:	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
Net cash from operating activities of continuing operations - GAAP (a)	 	$	319	 	$	79	 	$	734	 	$	327	 	
Less:	Capital expenditures	 	(74	)	(115	)	(233	)	(276	)	
 	Dividends received from TFC	 	—	 	—	 	(50	)	—	 	
Plus:	Total pension contributions	 	12	 	311	 	37	 	338	 	
 	Proceeds from the sale of property, plant and equipment	 	2	 	6	 	12	 	6	 	
Manufacturing cash flow before pension contributions - Non-GAAP (a) (b)	 	$	259	 	$	281	 	$	500	 	$	395	 	

(a)          For the three and nine months ended September 30, 2017, $(2) million and $20 million, respectively, of net cash (used)/proceeds received from the settlement of corporate-owned life insurance policies were reclassified from operating activities to investing activities as a result of the adoption of a new accounting standard at the beginning of 2018.
 
(b)          Manufacturing cash flow before pension contributions is a non-GAAP financial measure as defined in “Non-GAAP Financial Measures” attached to this release.

 
TEXTRON INC.
Condensed Consolidated Schedule of Cash Flows
(In millions)
(Unaudited)

 	 	Three Months Ended	 	Nine Months Ended	 	
 	 	September 29,	 	September 30,	 	September 29,	 	September 30,	 	
 	 	2018	 	2017	 	2018	 	2017	 	
Cash flows from operating activities:	 	 	 	 	 	 	 	 	 	
Income from continuing operations	 	$	563	 	$	159	 	$	976	 	$	412	 	
Depreciation and amortization	 	106	 	114	 	322	 	332	 	
Gain on business disposition	 	(444	)	—	 	(444	)	—	 	
Changes in working capital (a)	 	50	 	(2	)	(214	)	(245	)	
Changes in other assets and liabilities and non-cash items (a)	 	24	 	(173	)	57	 	(134	)	
Net cash from operating activities of continuing operations (a)	 	299	 	98	 	697	 	365	 	
Cash flows from investing activities:	 	 	 	 	 	 	 	 	 	
Net proceeds from business disposition	 	807	 	—	 	807	 	—	 	
Capital expenditures	 	(74	)	(115	)	(233	)	(276	)	
Net cash (used)/proceeds from corporate-owned life insurance policies (a)	 	—	 	(2	)	98	 	20	 	
Finance receivables repaid	 	—	 	3	 	25	 	27	 	
Net cash used in acquisitions	 	(3	)	(1	)	(3	)	(330	)	
Other investing activities, net	 	10	 	14	 	40	 	48	 	
Net cash from investing activities (a)	 	740	 	(101	)	734	 	(511	)	
Cash flows from financing activities:	 	 	 	 	 	 	 	 	 	
Principal payments on long-term debt and nonrecourse debt	 	(23	)	(39	)	(60	)	(116	)	
Proceeds from long-term debt	 	—	 	307	 	—	 	682	 	
Purchases of Textron common stock	 	(468	)	(122	)	(1,383	)	(451	)	
Other financing activities, net	 	17	 	9	 	53	 	22	 	
Net cash from financing activities	 	(474	)	155	 	(1,390	)	137	 	
Total cash flows from continuing operations	 	565	 	152	 	41	 	(9	)	
Total cash flows from discontinued operations	 	—	 	(1	)	(1	)	(24	)	
Effect of exchange rate changes on cash and equivalents	 	(3	)	14	 	(9	)	29	 	
Net change in cash and equivalents	 	562	 	165	 	31	 	(4	)	
Cash and equivalents at beginning of period	 	731	 	1,129	 	1,262	 	1,298	 	
Cash and equivalents at end of period	 	$	1,293	 	$	1,294	 	$	1,293	 	$	1,294	 	

(a)          For the three and nine months ended September 30, 2017, $(2) million and $20 million, respectively, of net cash (used)/proceeds received from the settlement of corporate-owned life insurance policies were reclassified from operating activities to investing activities as a result of the adoption of a new accounting standard at the beginning of 2018.

 
TEXTRON INC.
Non-GAAP Financial Measures
(Dollars in millions, except per share amounts)
 
We supplement the reporting of our financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial measures. These non-GAAP financial measures exclude certain significant items that may not be indicative of, or are unrelated to, results from our ongoing business operations. We believe that these non-GAAP measures may be useful for period-over-period comparisons of underlying business trends and our ongoing business performance, however, they should be used in conjunction with GAAP measures.  Our non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define similarly named measures differently. We encourage investors to review our financial statements and publicly-filed reports in the entirety and not to rely on any single financial measure.  We utilize the following definitions for the non-GAAP financial measures included in this release:
 
Adjusted income from continuing operations and adjusted diluted earnings per share
Adjusted income from continuing operations and adjusted diluted earnings per share both exclude Gain on business disposition, net of taxes and Special charges, net of taxes. The Gain on business disposition is not considered indicative of ongoing operations as it is a significant one-time transaction.  We consider items recorded in Special charges such as enterprise-wide restructuring and acquisition-related restructuring, integration and transaction costs, to be of a non-recurring nature that is not indicative of ongoing operations.
 
Manufacturing cash flow before pension contributions
Manufacturing cash flow before pension contributions adjusts net cash from operating activities of continuing operations (GAAP) for the following:
 
·    Deducts capital expenditures and includes proceeds from the sale of property, plant and equipment to arrive at the net capital investment required to support ongoing manufacturing operations;
·    Excludes dividends received from Textron Financial Corporation (TFC) and capital contributions to TFC provided under the Support Agreement and debt agreements as these cash flows are not representative of manufacturing operations;
·    Adds back pension contributions as we consider our pension obligations to be debt-like liabilities. Additionally, these contributions can fluctuate significantly from period to period and we believe that they are not representative of cash used by our manufacturing operations during the period.
 
While we believe this measure provides a focus on cash generated from manufacturing operations, before pension contributions, and may be used as an additional relevant measure of liquidity, it does not necessarily provide the amount available for discretionary expenditures since we have certain non-discretionary obligations that are not deducted from the measure.
 
Income from Continuing Operations and Diluted Earnings Per Share (EPS) GAAP to Non-GAAP Reconciliation and Outlook:

 	 	Three Months Ended	 	Nine Months Ended	 	
 	 	September 29, 2018	 	September 30, 2017	 	September 29, 2018	 	September 30, 2017	 	
Income from continuing operations - GAAP	 	$	563	 	$	159	 	$	976	 	$	412	 	
Gain on business disposition, net of taxes of $34 million	 	(410	)	—	 	(410	)	—	 	
Restructuring, net of taxes of $6 million and $15 million, respectively	 	—	 	9	 	—	 	27	 	
Arctic Cat restructuring, integration and transaction costs, net of taxes of $4 million and $11 million, respectively	 	—	 	6	 	—	 	22	 	
Adjusted income from continuing operations - Non-GAAP	 	$	153	 	$	174	 	$	566	 	$	461	 	
 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share:	 	 	 	 	 	 	 	 	 	
Income from continuing operations - GAAP	 	$	2.26	 	$	0.60	 	$	3.80	 	$	1.53	 	
Gain on business disposition, net of taxes	 	(1.65	)	—	 	(1.60	)	—	 	
Restructuring, net of taxes	 	—	 	0.03	 	—	 	0.10	 	
Arctic Cat restructuring, integration and transaction costs, net of taxes	 	—	 	0.02	 	—	 	0.08	 	
Adjusted income from continuing operations - Non-GAAP	 	$	0.61	 	$	0.65	 	$	2.20	 	$	1.71	 	

 	 	2018 Outlook	 	
 	 	 	 	 	 	 	 	Diluted EPS	 	
Income from continuing operations - GAAP	 	$	1,225	 	—	 	$	1,250	 	$	4.81	 	—	 	$	4.91	 	
Gain on business disposition, net of taxes	 	 	 	(410)	 	 	 	 	 	(1.61)	 	 	 	
Adjusted income from continuing operations - Non-GAAP	 	$	815	 	—	 	$	840	 	$	3.20	 	—	 	$	3.30	 	
 
Manufacturing Cash Flow Before Pension Contributions GAAP to Non-GAAP Reconciliation and Outlook:

 	 	Three Months Ended	 	Nine Months Ended	 	
 	 	September 29, 2018	 	September 30, 2017	 	September 29, 2018	 	September 30, 2017	 	
Net cash from operating activities of continuing operations - GAAP (a)	 	$	319	 	$	79	 	$	734	 	$	327	 	
Less:       Capital expenditures	 	(74	)	(115	)	(233	)	(276	)	
Dividends received from TFC	 	—	 	—	 	(50	)	—	 	
Plus:         Total pension contributions	 	12	 	311	 	37	 	338	 	
Proceeds from the sale of property, plant and equipment	 	2	 	6	 	12	 	6	 	
Manufacturing cash flow before pension contributions - Non-GAAP (a)	 	$	259	 	$	281	 	$	500	 	$	395	 	

 	 	2018 Outlook	 	
Net cash from operating activities of continuing operations - GAAP	 	$	1,183	 	—	 	$	1,283	 	
Less:       Capital expenditures	 	 	 	(450)	 	 	 	
Dividends received from TFC	 	 	 	(50)	 	 	 	
Plus:         Total pension contributions	 	 	 	55	 	 	 	
Proceeds from the sale of property, plant and equipment	 	 	 	12	 	 	 	
Manufacturing cash flow before pension contributions - Non-GAAP	 	$	750	 	—	 	$	850	 	

(a)          For the three and nine months ended September 30, 2017, $(2) million and $20 million, respectively, of net cash (used)/proceeds received from the settlement of corporate-owned life insurance policies were reclassified from operating activities to investing activities as a result of the adoption of a new accounting standard at the beginning of 2018.