TEXTRON INC, 10-Q filed on 10/28/2021
Quarterly Report
v3.21.2
Cover - shares
9 Months Ended
Oct. 02, 2021
Oct. 15, 2021
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Oct. 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, $0.125 par value  
Trading Symbol TXT  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   220,425,217
Entity Central Index Key 0000217346  
Current Fiscal Year End Date --01-01  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q3  
Amendment Flag false  
v3.21.2
Consolidated Statements of Operations (Unaudited) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Oct. 02, 2021
Oct. 03, 2020
Oct. 02, 2021
Oct. 03, 2020
Revenues        
Total revenues $ 2,990 $ 2,735 $ 9,060 $ 7,984
Costs, expenses and other        
Cost of sales 2,486 2,332 7,546 6,970
Selling and administrative expense 283 258 895 760
Interest expense 33 43 109 125
Special charges 10 7 20 124
Non-service components of pension and post-retirement income, net (40) (21) (119) (62)
Gain on business disposition 0 0 (17) 0
Total costs, expenses and other 2,772 2,619 8,434 7,917
Income from continuing operations before income taxes 218 116 626 67
Income tax expense (benefit) 33 1 86 (6)
Income from continuing operations 185 115 540 73
Loss from discontinued operations 0 0 (1) 0
Net income $ 185 $ 115 $ 539 $ 73
Basic Earnings per share        
Continuing operations (in dollars per share) $ 0.83 $ 0.50 $ 2.39 $ 0.32
Diluted Earnings per share        
Continuing operations (in dollars per share) $ 0.82 $ 0.50 $ 2.37 $ 0.32
Manufacturing revenues        
Revenues        
Total revenues $ 2,979 $ 2,722 $ 9,022 $ 7,942
Finance revenues        
Revenues        
Total revenues $ 11 $ 13 $ 38 $ 42
v3.21.2
Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Oct. 02, 2021
Oct. 03, 2020
Oct. 02, 2021
Oct. 03, 2020
Statement of Comprehensive Income [Abstract]        
Net income $ 185 $ 115 $ 539 $ 73
Other comprehensive income, net of tax        
Pension and postretirement benefits adjustments, net of reclassifications 30 37 90 110
Foreign currency translation adjustments, net of reclassifications (19) 35 (22) 25
Deferred gains (losses) on hedge contracts, net of reclassifications (5) 2 1 (5)
Other comprehensive income 6 74 69 130
Comprehensive income $ 191 $ 189 $ 608 $ 203
v3.21.2
Consolidated Balance Sheets (Unaudited) - USD ($)
shares in Thousands, $ in Millions
Oct. 02, 2021
Jan. 02, 2021
Assets    
Inventories $ 3,670 $ 3,513
Finance receivables, net 596 744
Total assets 15,269 15,443
Liabilities    
Total liabilities 9,232 9,598
Shareholders’ equity    
Common stock 29 29
Capital surplus 1,969 1,785
Treasury stock (789) (203)
Retained earnings 6,498 5,973
Accumulated other comprehensive loss (1,670) (1,739)
Total shareholders’ equity 6,037 5,845
Total liabilities and shareholders’ equity $ 15,269 $ 15,443
Common shares outstanding (in shares) 221,031 226,444
Manufacturing group    
Assets    
Cash and equivalents $ 1,969 $ 2,146
Accounts receivable, net 773 787
Inventories 3,670 3,513
Other current assets 890 950
Total current assets 7,302 7,396
Property, plant and equipment, less accumulated depreciation and amortization of $4,855 and $4,696, respectively 2,469 2,516
Goodwill 2,152 2,157
Other assets 2,468 2,436
Total assets 14,391 14,505
Liabilities    
Current portion of long-term debt 7 509
Accounts payable 775 776
Other current liabilities 2,270 1,985
Total current liabilities 3,052 3,270
Other liabilities 2,292 2,357
Long-term debt 3,180 3,198
Total liabilities 8,524 8,825
Finance group    
Assets    
Cash and equivalents 213 108
Finance receivables, net 596 744
Other assets 69 86
Total assets 878 938
Liabilities    
Other liabilities 123 111
Debt 585 662
Total liabilities $ 708 $ 773
v3.21.2
Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
$ in Millions
Oct. 02, 2021
Jan. 02, 2021
Statement of Financial Position [Abstract]    
Accumulated depreciation and amortization $ 4,855 $ 4,696
v3.21.2
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Millions
9 Months Ended
Oct. 02, 2021
Oct. 03, 2020
Cash flows from operating activities    
Income from continuing operations $ 540 $ 73
Non-cash items:    
Depreciation and amortization 285 283
Gain on business disposition (17) 0
Deferred income taxes 7 (31)
Asset impairments and TRU inventory charge 11 111
Other, net 74 81
Changes in assets and liabilities:    
Accounts receivable, net 8 59
Inventories (164) (258)
Other assets (11) 114
Accounts payable 1 (267)
Other liabilities 323 60
Income taxes, net 26 (4)
Pension, net (62) (11)
Captive finance receivables, net 152 (25)
Other operating activities, net 1 15
Net cash provided by operating activities of continuing operations 1,174 200
Net cash used in operating activities of discontinued operations (1) (1)
Net cash provided by operating activities 1,173 199
Cash flows from investing activities    
Capital expenditures (204) (151)
Net proceeds from business disposition 38 0
Proceeds from an insurance recovery and sale of property, plant and equipment 3 25
Net proceeds from corporate-owned life insurance policies 0 21
Net cash used in acquisitions 0 (11)
Finance receivables repaid 19 21
Other investing activities, net 17 3
Net cash provided by (used in) investing activities (127) (92)
Cash flows from financing activities    
Decrease in short-term debt 0 (2)
Net proceeds from long-term debt 0 1,137
Proceeds from borrowings against corporate-owned life insurance policies 0 377
Payment on borrowings against corporate-owned life insurance policies 0 (15)
Principal payments on long-term debt and nonrecourse debt (615) (235)
Purchases of Textron common stock (586) (54)
Dividends paid (14) (14)
Proceeds from options exercised 105 16
Other financing activities, net (2) (2)
Net cash provided by (used in) financing activities (1,112) 1,208
Effect of exchange rate changes on cash and equivalents (6) (2)
Net increase (decrease) in cash and equivalents (72) 1,313
Cash and equivalents at beginning of period 2,254 1,357
Cash and equivalents at end of period 2,182 2,670
Manufacturing group    
Cash flows from operating activities    
Income from continuing operations 537 67
Non-cash items:    
Depreciation and amortization 277 279
Gain on business disposition (17) 0
Deferred income taxes 9 (30)
Asset impairments and TRU inventory charge 11 111
Other, net 82 74
Changes in assets and liabilities:    
Accounts receivable, net 8 59
Inventories (164) (258)
Other assets (10) 114
Accounts payable 1 (267)
Other liabilities 323 66
Income taxes, net 16 1
Pension, net (62) (11)
Other operating activities, net 1 15
Net cash provided by operating activities of continuing operations 1,012 220
Net cash used in operating activities of discontinued operations (1) (1)
Net cash provided by operating activities 1,011 219
Cash flows from investing activities    
Capital expenditures (204) (151)
Net proceeds from business disposition 38 0
Proceeds from an insurance recovery and sale of property, plant and equipment 3 25
Net proceeds from corporate-owned life insurance policies 0 21
Net cash used in acquisitions 0 (11)
Finance receivables repaid 0 0
Finance receivables originated 0 0
Other investing activities, net 0 0
Net cash provided by (used in) investing activities (163) (116)
Cash flows from financing activities    
Decrease in short-term debt 0 (2)
Net proceeds from long-term debt 0 1,137
Proceeds from borrowings against corporate-owned life insurance policies 0 377
Payment on borrowings against corporate-owned life insurance policies 0 (15)
Principal payments on long-term debt and nonrecourse debt (522) (195)
Purchases of Textron common stock (586) (54)
Dividends paid (14) (14)
Proceeds from options exercised 105 16
Other financing activities, net (2) (14)
Net cash provided by (used in) financing activities (1,019) 1,236
Effect of exchange rate changes on cash and equivalents (6) (2)
Net increase (decrease) in cash and equivalents (177) 1,337
Cash and equivalents at beginning of period 2,146 1,181
Cash and equivalents at end of period 1,969 2,518
Finance group    
Cash flows from operating activities    
Income from continuing operations 3 6
Non-cash items:    
Depreciation and amortization 8 4
Gain on business disposition 0 0
Deferred income taxes (2) (1)
Asset impairments and TRU inventory charge 0 0
Other, net (8) 7
Changes in assets and liabilities:    
Accounts receivable, net 0 0
Inventories 0 0
Other assets (1) 0
Accounts payable 0 0
Other liabilities 0 (6)
Income taxes, net 10 (5)
Pension, net 0 0
Other operating activities, net 0 0
Net cash provided by operating activities of continuing operations 10 5
Net cash used in operating activities of discontinued operations 0 0
Net cash provided by operating activities 10 5
Cash flows from investing activities    
Capital expenditures 0 0
Net proceeds from business disposition 0 0
Proceeds from an insurance recovery and sale of property, plant and equipment 0 0
Net proceeds from corporate-owned life insurance policies 0 0
Net cash used in acquisitions 0 0
Finance receivables repaid 205 90
Finance receivables originated (34) (94)
Other investing activities, net 17 3
Net cash provided by (used in) investing activities 188 (1)
Cash flows from financing activities    
Decrease in short-term debt 0 0
Net proceeds from long-term debt 0 0
Proceeds from borrowings against corporate-owned life insurance policies 0 0
Payment on borrowings against corporate-owned life insurance policies 0 0
Principal payments on long-term debt and nonrecourse debt (93) (40)
Purchases of Textron common stock 0 0
Dividends paid 0 0
Proceeds from options exercised 0 0
Other financing activities, net 0 12
Net cash provided by (used in) financing activities (93) (28)
Effect of exchange rate changes on cash and equivalents 0 0
Net increase (decrease) in cash and equivalents 105 (24)
Cash and equivalents at beginning of period 108 176
Cash and equivalents at end of period $ 213 $ 152
v3.21.2
Basis of Presentation
9 Months Ended
Oct. 02, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation Basis of Presentation
Our Consolidated Financial Statements include the accounts of Textron Inc. (Textron) and its majority-owned subsidiaries.  We have prepared these unaudited consolidated financial statements in accordance with accounting principles generally accepted in the U.S. for interim financial information.  Accordingly, these interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.  The consolidated interim financial statements included in this quarterly report should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 2, 2021.  In the opinion of management, the interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair presentation of our consolidated financial position, results of operations and cash flows for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.
Our financings are conducted through two separate borrowing groups.  The Manufacturing group consists of Textron consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems and Industrial segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance.  To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements.  All significant intercompany transactions are eliminated from the Consolidated Financial Statements, including retail financing activities for inventory sold by our Manufacturing group and financed by our Finance group.
Use of Estimates
We prepare our financial statements in conformity with generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements.  Actual results could differ from those estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated Statements of Operations in the period that they are determined.
Contract Estimates
For contracts where revenue is recognized over time, we recognize changes in estimated contract revenues, costs and profits using the cumulative catch-up method of accounting. This method recognizes the cumulative effect of changes on current and prior periods with the impact of the change from inception-to-date recorded in the current period.  Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.  
In the third quarter of 2021 and 2020, our cumulative catch-up adjustments increased segment profit by $25 million and $22 million, respectively, and increased net income by $19 million and $17 million, respectively ($0.08 and $0.07 per diluted share, respectively). Gross favorable profit adjustments totaled $43 million and $31 million in the third quarter of 2021 and 2020, respectively, and the gross unfavorable profit adjustments totaled $18 million and $9 million, respectively. We recognized revenues of $27 million and $22 million in the third quarter of 2021 and 2020, respectively, from performance obligations satisfied in prior periods that related to changes in profit booking rates.
In the first nine months of 2021 and 2020, our cumulative catch-up adjustments increased segment profit by $54 million and $41 million, respectively, and increased net income by $41 million and $31 million, respectively ($0.18 and $0.14 per diluted share, respectively). Gross favorable profit adjustments totaled $119 million and $104 million in the first nine months of 2021 and 2020, respectively, and the gross unfavorable profit adjustments totaled $65 million and $63 million, respectively. We recognized revenues of $65 million and $48 million in the first nine months of 2021 and 2020, respectively, from performance obligations satisfied in prior periods that related to changes in profit booking rates.
v3.21.2
Business Disposition
9 Months Ended
Oct. 02, 2021
Discontinued Operations and Disposal Groups [Abstract]  
Business Disposition Business DispositionOn January 25, 2021, we completed the sale of TRU Simulation + Training Canada Inc. within our Textron Systems segment for net cash proceeds of $38 million and recorded an after-tax gain of $17 million.
v3.21.2
Accounts Receivable and Finance Receivables
9 Months Ended
Oct. 02, 2021
Receivables [Abstract]  
Accounts Receivable and Finance Receivables Accounts Receivable and Finance Receivables
Accounts Receivable
Accounts receivable is composed of the following:
(In millions)October 2,
2021
January 2,
2021
Commercial$671 $668 
U.S. Government contracts131 155 
802 823 
Allowance for credit losses(29)(36)
Total accounts receivable, net$773 $787 
Finance Receivables
Finance receivables are presented in the following table:
(In millions)October 2,
2021
January 2,
2021
Finance receivables$621 $779 
Allowance for credit losses(25)(35)
Total finance receivables, net$596 $744 
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.
Since the first quarter of 2020, the Finance segment has worked with certain customers impacted by the pandemic to provide 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. The majority of these modified loans have returned to paying principal and interest. For loan modifications that cover payment-relief periods in excess of six months, even if the loan was previously current, the loan is deemed a troubled debt restructuring and considered impaired. These impaired loans are classified as either nonaccrual or watchlist based on a review of the credit quality indicators as discussed above.
During the first nine months of 2021, we modified finance receivable contracts for 21 customers with an outstanding balance at October 2, 2021 totaling $76 million, which were all categorized as troubled debt restructurings. Of these modifications, $71 million were previously modified in 2020. Due to the nature of these restructurings, the financial effects were not significant. We had no customer defaults during the last twelve months related to finance receivables previously modified as a troubled debt restructuring. We believe our allowance for credit losses adequately covers our exposure on these loans as our estimated collateral values largely exceed the outstanding loan amounts.
Finance receivables categorized based on the credit quality indicators and by the delinquency aging category are summarized as follows:
(Dollars in millions)October 2,
2021
January 2,
2021
Performing$511$612
Watchlist74
Nonaccrual11093
Nonaccrual as a percentage of finance receivables17.71%11.94%
Current and less than 31 days past due$604$738
31-60 days past due512
61-90 days past due311
Over 90 days past due918
60+ days contractual delinquency as a percentage of finance receivables1.93%3.72%
At October 2, 2021, 30% of our performing finance receivables were originated since the beginning of 2020 and 32% were originated from 2017 to 2019. For finance receivables categorized as nonaccrual, 63% were originated from 2017 to 2019.
On a quarterly basis, we evaluate individual larger balance accounts for impairment. A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators described above. Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified. If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification.
A summary of finance receivables and the allowance for credit losses, based on the results of our impairment evaluation, is provided below. The finance receivables included in this table specifically exclude leveraged leases in accordance with U.S. generally accepted accounting principles.
(In millions)October 2,
2021
January 2,
2021
Finance receivables evaluated collectively$416 $521 
Finance receivables evaluated individually110 163 
Allowance for credit losses based on collective evaluation21 28 
Allowance for credit losses based on individual evaluation
Impaired finance receivables with specific allowance for credit losses$34 $46 
Impaired finance receivables with no specific allowance for credit losses76 117 
Unpaid principal balance of impaired finance receivables124 175 
Allowance for credit losses on impaired finance receivables
Average recorded investment of impaired finance receivables123 126 
v3.21.2
Inventories
9 Months Ended
Oct. 02, 2021
Inventory Disclosure [Abstract]  
Inventories Inventories
Inventories are composed of the following:
(In millions)October 2,
2021
January 2,
2021
Finished goods$1,085 $1,228 
Work in process1,741 1,455 
Raw materials and components844 830 
Total inventories$3,670 $3,513 
v3.21.2
Warranty Liability
9 Months Ended
Oct. 02, 2021
Payables and Accruals [Abstract]  
Warranty Liability Warranty Liability
Changes in our warranty liability are as follows:
Nine Months Ended
(In millions)October 2,
2021
October 3,
2020
Beginning of period$119 $141 
Provision49 35 
Settlements(52)(46)
Adjustments*(13)
End of period$121 $117 
* Adjustments include changes to prior year estimates, new issues on prior year sales and currency translation adjustments.
v3.21.2
Leases
9 Months Ended
Oct. 02, 2021
Leases [Abstract]  
Leases Leases
We primarily lease certain manufacturing plants, offices, warehouses, training and service centers at various locations worldwide. Our operating 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 $17 million and $15 million in the third quarter of 2021 and 2020, respectively, and $49 million and $45 million in the first nine months of 2021 and 2020, respectively. Cash paid for operating leases totaled $49 million and $45 million in the first nine months of 2021 and 2020, respectively, and is classified in cash flows from operating activities. Noncash transactions totaled $81 million and $33 million in the first nine months of 2021 and 2020, respectively, reflecting the recognition of operating lease assets and liabilities for new or extended leases. Variable and short-term lease costs were not significant.
Balance sheet and other information related to our operating leases is as follows:
(Dollars in millions)October 2,
2021
January 2,
2021
Other assets$388$349
Other current liabilities5847
Other liabilities336306
Weighted-average remaining lease term (in years)10.511.6
Weighted-average discount rate3.34%4.17%
At October 2, 2021, maturities of our operating lease liabilities on an undiscounted basis totaled $20 million for the remainder of 2021, $69 million for 2022, $59 million for 2023, $51 million for 2024, $45 million for 2025 and $247 million thereafter.
v3.21.2
Derivative Instruments and Fair Value Measurements
9 Months Ended
Oct. 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 October 2, 2021 and January 2, 2021, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $341 million and $318 million, respectively. At October 2, 2021, the fair value amounts of our foreign currency exchange contracts were a $5 million asset and a $2 million liability. At January 2, 2021, the fair value amounts of our foreign currency exchange contracts were a $5 million asset and a $2 million liability.
Our Finance group enters into interest rate swap agreements to mitigate certain exposures 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 October 2, 2021, we had a swap agreement for a notional amount of $289 million with a maturity of August 2023 and a fair value of a $3 million liability. At January 2, 2021, we had a swap agreement for a notional amount of $294 million with a maturity of February 2022 and a fair value of a $4 million liability. The fair value of these swap agreements is determined using values published by third-party leading financial news and data providers. These values are observable data that represent the value that financial institutions use for contracts entered into at that date, but are not based on actual transactions, so they are classified as Level 2.
Assets and Liabilities Not Recorded at Fair Value
The carrying value and estimated fair value of our financial instruments that are not reflected in the financial statements at fair value are as follows:
October 2, 2021January 2, 2021
CarryingEstimatedCarryingEstimated
(In millions)ValueFair ValueValueFair Value
Manufacturing group
Debt, excluding leases$(3,183)$(3,413)$(3,690)$(3,986)
Finance group
Finance receivables, excluding leases404 438 549 599 
Debt(585)(552)(662)(587)
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.
v3.21.2
Shareholders' Equity
9 Months Ended
Oct. 02, 2021
Equity [Abstract]  
Shareholders' Equity Shareholders’ Equity
A reconciliation of Shareholders’ equity is presented below:
(In millions)Common
Stock
Capital
Surplus
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shareholders'
Equity
Three months ended October 2, 2021
Beginning of period$29 $1,920 $(490)$6,318 $(1,676)$6,101 
Net income— — — 185 — 185 
Other comprehensive income— — — — 
Share-based compensation activity— 49 — — — 49 
Dividends declared— — — (5)— (5)
Purchases of common stock— — (299)— — (299)
End of period$29 $1,969 $(789)$6,498 $(1,670)$6,037 
Three months ended October 3, 2020
Beginning of period$29 $1,732 $(74)$5,631 $(1,791)$5,527 
Net income— — — 115 — 115 
Other comprehensive income— — — — 74 74 
Share-based compensation activity— 30 — — — 30 
Dividends declared— — — (5)— (5)
End of period$29 $1,762 $(74)$5,741 $(1,717)$5,741 
Nine months ended October 2, 2021
Beginning of period$29 $1,785 $(203)$5,973 $(1,739)$5,845 
Net income— — — 539 — 539 
Other comprehensive income— — — — 69 69 
Share-based compensation activity— 184 — — — 184 
Dividends declared— — — (14)— (14)
Purchases of common stock— — (586)— — (586)
End of period$29 $1,969 $(789)$6,498 $(1,670)$6,037 
Nine months ended October 3, 2020
Beginning of period$29 $1,674 $(20)$5,682 $(1,847)$5,518 
Net income— — — 73 — 73 
Other comprehensive income— — — — 130 130 
Share-based compensation activity— 88 — — — 88 
Dividends declared— — — (14)— (14)
Purchases of common stock— — (54)— — (54)
End of period$29 $1,762 $(74)$5,741 $(1,717)$5,741 
Dividends per share of common stock were $0.02 for both the third quarter of 2021 and 2020 and $0.06 for both the first nine months of 2021 and 2020.
Earnings Per Share
We calculate basic and diluted earnings per share (EPS) based on net income, which approximates income available to common shareholders for each period.  Basic EPS is calculated using the two-class method, which includes the weighted-average number of common shares outstanding during the period and restricted stock units to be paid in stock that are deemed participating securities as they provide nonforfeitable rights to dividends. Diluted EPS considers the dilutive effect of all potential future common stock, including stock options.  
The weighted-average shares outstanding for basic and diluted EPS are as follows:
Three Months EndedNine Months Ended
(In thousands)October 2,
2021
October 3,
2020
October 2,
2021
October 3,
2020
Basic weighted-average shares outstanding223,663 228,918 225,545 228,492 
Dilutive effect of stock options2,827 361 2,250 345 
Diluted weighted-average shares outstanding226,490 229,279 227,795 228,837 
For the first nine months of 2021, stock options to purchase 1.4 million shares of common stock were excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive. Stock options to purchase 7.5 million and 7.9 million shares of common stock were excluded from the calculation of diluted weighted-average shares outstanding for the third quarter and first nine months of 2020, respectively, as their effect would have been anti-dilutive.
Accumulated Other Comprehensive Loss and Other Comprehensive Income
The components of Accumulated other comprehensive loss are presented below:
(In millions)Pension and
Postretirement
Benefits
Adjustments
Foreign
Currency
Translation
Adjustments
Deferred
Gains (Losses)
on Hedge
Contracts
Accumulated
Other
Comprehensive
Loss
Balance at January 2, 2021$(1,780)$42 $(1)$(1,739)
Other comprehensive loss before reclassifications— (36)(34)
Reclassified from Accumulated other comprehensive loss90 14 (1)103 
Balance at October 2, 2021$(1,690)$20 $— $(1,670)
Balance at January 4, 2020$(1,811)$(36)$— $(1,847)
Other comprehensive income before reclassifications— 25 (2)23 
Reclassified from Accumulated other comprehensive loss110 — (3)107 
Balance at October 3, 2020$(1,701)$(11)$(5)$(1,717)
The before and after-tax components of Other comprehensive income are presented below:
October 2, 2021October 3, 2020
(In millions)Pre-Tax
Amount
Tax
(Expense)
Benefit
After-tax
Amount
Pre-Tax
Amount
Tax
(Expense)
Benefit
After-tax
Amount
Three Months Ended
Pension and postretirement benefits adjustments:
Amortization of net actuarial loss*$38 $(9)$29 $46 $(11)$35 
Amortization of prior service cost*(1)— 
Pension and postretirement benefits adjustments, net40 (10)30 48 (11)37 
Foreign currency translation adjustments(19)— (19)35 — 35 
Deferred gains (losses) on hedge contracts:
Current deferrals(6)(4)— 
Reclassification adjustments(1)— (1)(2)(1)
Deferred gains (losses) on hedge contracts, net(7)(5)
Total$14 $(8)$$84 $(10)$74 
Nine Months Ended
Pension and postretirement benefits adjustments:
Amortization of net actuarial loss*$114 $(27)$87 $138 $(32)$106 
Amortization of prior service cost*(3)(1)
Pension and postretirement benefits adjustments, net120 (30)90 143 (33)110 
Foreign currency translation adjustments:
Foreign currency translation adjustments(36)— (36)28 (3)25 
Business disposition14 — 14 — — — 
Foreign currency translation adjustments, net(22)— (22)28 (3)25 
Deferred gains (losses) on hedge contracts:
Current deferrals(2)— (2)
Reclassification adjustments(1)— (1)(5)(3)
Deferred gains (losses) on hedge contracts, net— (7)(5)
Total$98 $(29)$69 $164 $(34)$130 
*These components of other comprehensive income are included in the computation of net periodic pension cost (credit). See Note 16 of our 2020 Annual Report on Form 10-K for additional information.
v3.21.2
Segment Information
9 Months Ended
Oct. 02, 2021
Segment Reporting [Abstract]  
Segment Information Segment Information
We operate in, and report financial information for, the following five business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses, gains/losses on major business dispositions and special charges. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.
Our revenues by segment, along with a reconciliation of segment profit to income from continuing operations before income taxes, are included in the table below:
Three Months EndedNine Months Ended
(In millions)October 2,
2021
October 3,
2020
October 2,
2021
October 3,
2020
Revenues
Textron Aviation$1,181 $795 $3,207 $2,414 
Bell769 793 2,506 2,438 
Textron Systems299 302 960 956 
Industrial730 832 2,349 2,134 
Finance11 13 38 42 
Total revenues$2,990 $2,735 $9,060 $7,984 
Segment Profit
Textron Aviation$98 $(29)$241 $(92)
Bell105 119 320 352 
Textron Systems45 40 144 103 
Industrial23 58 102 56 
Finance17 
Segment profit279 189 824 427 
Corporate expenses and other, net(23)(28)(100)(72)
Interest expense, net for Manufacturing group(28)(38)(95)(109)
Special charges*(10)(7)(20)(124)
Gain on business disposition— — 17 — 
Inventory charge*— — — (55)
Income from continuing operations before income taxes$218 $116 $626 $67 
* See Note 12 for additional information.
v3.21.2
Revenues
9 Months Ended
Oct. 02, 2021
Revenue from Contract with Customer [Abstract]  
Revenues Revenues
Disaggregation of Revenues
Our revenues disaggregated by major product type are presented below:
Three Months EndedNine Months Ended
(In millions)October 2,
2021
October 3,
2020
October 2,
2021
October 3,
2020
Aircraft$814 $486 $2,146 $1,479 
Aftermarket parts and services367 309 1,061 935 
Textron Aviation1,181 795 3,207 2,414 
Military aircraft and support programs488 515 1,637 1,737 
Commercial helicopters, parts and services281 278 869 701 
Bell769 793 2,506 2,438 
Air systems*99 138 339 423 
Land and sea systems*53 54 174 177 
Other*147 110 447 356 
Textron Systems299 302 960 956 
Fuel systems and functional components382 497 1,319 1,233 
Specialized vehicles348 335 1,030 901 
Industrial730 832 2,349 2,134 
Finance11 13 38 42 
Total revenues$2,990 $2,735 $9,060 $7,984 
* Due to a reorganization of certain products within Textron Systems, prior year amounts have been reclassified to conform to the current year presentation for Air Systems, formerly referred to as “Unmanned Systems”, and Land and Sea Systems, formerly referred to as “Marine and Land Systems”. Other includes the following operating units and businesses: Electronic Systems, Weapons Systems, Lycoming, Airborne Tactical Advantage Company and, prior to its disposition, TRU Simulation + Training Canada Inc.
Our revenues for our segments by customer type and geographic location are presented below:
(In millions)Textron
Aviation
BellTextron
Systems
IndustrialFinanceTotal
Three months ended October 2, 2021
Customer type:
Commercial$1,149 $278 $62 $730 $11 $2,230 
U.S. Government32 491 237 — — 760 
Total revenues$1,181 $769 $299 $730 $11 $2,990 
Geographic location:
United States$915 $569 $266 $377 $$2,134 
Europe97 48 10 160 — 315 
Asia and Australia58 90 16 88 253 
Other international111 62 105 288 
Total revenues$1,181 $769 $299 $730 $11 $2,990 
Three months ended October 3, 2020
Customer type:
Commercial$758 $273 $54 $830 $13 $1,928 
U.S. Government37 520 248 — 807 
Total revenues$795 $793 $302 $832 $13 $2,735 
Geographic location:
United States$562 $608 $263 $401 $$1,841 
Europe65 43 10 203 — 321 
Asia and Australia68 67 15 92 — 242 
Other international100 75 14 136 331 
Total revenues$795 $793 $302 $832 $13 $2,735 
Nine months ended October 2, 2021
Customer type:
Commercial$3,122 $894 $187 $2,337 $38 $6,578 
U.S. Government85 1,612 773 12 — 2,482 
Total revenues$3,207 $2,506 $960 $2,349 $38 $9,060 
Geographic location:
United States$2,409 $1,862 $852 $1,161 $21 $6,305 
Europe303 131 29 588 1,052 
Asia and Australia209 276 52 267 808 
Other international286 237 27 333 12 895 
Total revenues$3,207 $2,506 $960 $2,349 $38 $9,060 
Nine months ended October 3, 2020
Customer type:
Commercial$2,322 $687 $182 $2,128 $42 $5,361 
U.S. Government92 1,751 774 — 2,623 
Total revenues$2,414 $2,438 $956 $2,134 $42 $7,984 
Geographic location:
United States$1,677 $1,979 $825 $1,017 $21 $5,519 
Europe219 88 33 558 899 
Asia and Australia241 183 50 221 696 
Other international277 188 48 338 19 870 
Total revenues$2,414 $2,438 $956 $2,134 $42 $7,984 
Remaining Performance Obligations
Our remaining performance obligations, which is the equivalent of our backlog, represent the expected transaction price allocated to our contracts that we expect to recognize as revenues in future periods when we perform under the contracts.  These remaining obligations exclude unexercised contract options and potential orders under ordering-type contracts such as Indefinite Delivery, Indefinite Quantity contracts. At October 2, 2021, we had $9.8 billion in remaining performance obligations of which we expect to recognize revenues of approximately 70% through 2022, an additional 25% through 2024, and the balance thereafter.  
Contract Assets and Liabilities
Assets and liabilities related to our contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At October 2, 2021 and January 2, 2021, contract assets totaled $624 million and $561 million, respectively, and contract liabilities totaled $1.1 billion and $842 million, respectively, reflecting timing differences between revenues recognized, billings and payments from customers. We recognized revenues of $51 million and $499 million in the third quarter and first nine months of 2021, respectively, and $44 million and $396 million in the third quarter and first nine months of 2020, respectively, that were included in the contract liability balance at the beginning of each year.
v3.21.2
Retirement Plans
9 Months Ended
Oct. 02, 2021
Retirement Benefits [Abstract]  
Retirement Plans Retirement Plans
We provide defined benefit pension plans and other postretirement benefits to eligible employees.  The components of net periodic benefit cost (credit) for these plans are as follows:
Three Months EndedNine Months Ended
(In millions)October 2,
2021
October 3,
2020
October 2,
2021
October 3,
2020
Pension Benefits
Service cost$29 $27 $87 $79 
Interest cost62 73 188 220 
Expected return on plan assets(143)(144)(431)(431)
Amortization of net actuarial loss39 47 116 139 
Amortization of prior service cost10 
Net periodic benefit cost (credit)*$(9)$$(30)$16 
Postretirement Benefits Other Than Pensions
Service cost$$— $$
Interest cost
Amortization of net actuarial gain(1)(1)(2)(1)
Amortization of prior service credit(2)(1)(4)(4)
Net periodic benefit cost (credit)$(1)$— $— $
* Excludes the cost associated with the defined contribution component, included in certain of our U.S.-based defined benefit pension plans, that totaled $2 million and $8 million for the third quarter and first nine months of 2021, respectively, and $2 million and $8 million for the third quarter and first nine months of 2020, respectively.
v3.21.2
Special Charges
9 Months Ended
Oct. 02, 2021
Special Charges [Abstract]  
Special Charges Special Charges
Special charges recorded in the third quarter and first nine months of 2021 and 2020 by segment and type of cost are presented in the table below.
(In millions)Severance
Costs
Contract
Termination
and Other
Asset
Impairments
Total 2020
COVID-19
Restructuring
Plan
Other Asset
Impairments
Total
Three months ended October 2, 2021
Industrial$$$$10 $— $10 
Total special charges$$$$10 $— $10 
Three months ended October 3, 2020
Industrial$$— $$$— $
Corporate— — — 
Total special charges$$— $$$— $
Nine months ended October 2, 2021
Industrial$$$11 $20 $— $20 
Total special charges$$$11 $20 $— $20 
Nine months ended October 3, 2020
Textron Aviation$27 $— $$28 $32 $60 
Textron Systems14 12 14 40 — 40 
Industrial11 — 13 20 
Corporate— — — 
Total special charges$56 $12 $17 $85 $39 $124 
2020 COVID-19 Restructuring Plan
In the second quarter of 2020, we initiated a restructuring plan to reduce operating expenses through headcount reductions, facility consolidations and other actions in response to the economic challenges and uncertainty resulting from the COVID-19 pandemic. This plan was expanded in the third quarter of 2020 to include additional headcount reductions and facility consolidations. Since inception of the plan, we have incurred total charges of $128 million, which included severance costs of $76 million for the termination of approximately 2,800 employees, asset impairment charges of $33 million and contract terminations and other costs of $19 million. Of these amounts, $54 million was incurred at Industrial, $37 million at Textron Systems, $33 million at Textron Aviation, and $4 million at Corporate. We expect to incur additional contract termination costs and other charges in the range of $5 million to $10 million, primarily in the Industrial segment, and expect the plan to be substantially completed in the fourth quarter of 2021.
In the second quarter of 2020 and in connection with the restructuring plan, we ceased manufacturing at TRU Simulation + Training Canada Inc.’s facility in Montreal, Canada, resulting in a production suspension of our commercial air transport simulators. As a result of this action and market conditions, we incurred an inventory charge of $55 million, which was recorded in Cost of Sales, to write-down the related inventory to its net realizable value.
Other Asset Impairments
In the first quarter of 2020, we recognized $39 million of intangible asset impairment charges at the Textron Aviation and Industrial segments. Due to the impact of the COVID-19 pandemic, we experienced decreased demand for our products and services as our customers delayed or ceased orders due to the environment of economic uncertainty. In light of these conditions, Textron Aviation had temporarily shut down most aircraft production, including the King Air turboprop and Beechcraft piston product lines, and had instituted employee furloughs. Based on these events, we performed an interim impairment test of the indefinite-lived Beechcraft and King Air trade name intangible assets and recorded an impairment charge of $32 million.  
Restructuring Reserve
Our restructuring reserve activity is summarized below:
(In millions)Severance
Costs
Contract
Terminations
and Other
Total
Balance at January 2, 2021$43 $$52 
Provision for 2020 COVID-19 restructuring plan15 
Cash paid(21)(7)(28)
Reversals(5)(1)(6)
Foreign currency translation(1)— (1)
Balance at October 2, 2021$24 $$32 
The majority of the remaining cash outlays of $32 million is expected to be paid by the first quarter of 2022. Severance costs generally are paid on a lump-sum basis and include outplacement costs, which are paid in accordance with normal payment terms.
v3.21.2
Income Taxes
9 Months Ended
Oct. 02, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Our effective tax rate for the third quarter and first nine months of 2021 was 15.1% and 13.7%, respectively. In the third quarter and first nine months of 2021, the effective tax rate was lower than the U.S. federal statutory rate of 21%, largely due to the favorable impact of research and development credits. In the first nine months of 2021, the effective tax rate also included a $12 million benefit recognized for additional research and development credits related to prior years.
Our effective tax rate for the third quarter and first nine months of 2020 was 0.9% and (9.0)%, respectively, compared with the statutory rate of 21%, largely due to the favorable impact of research and development credits. In the first nine months of 2020, we incurred special charges and an inventory charge in a non-U.S. jurisdiction where tax benefits cannot be realized, which were partially offset by a $14 million benefit recognized upon the release of a valuation allowance in a non-U.S. jurisdiction. These items had a more significant impact on the effective tax rate due to the lower income from continuing operations before income taxes for the period.
v3.21.2
Commitments and Contingencies
9 Months Ended
Oct. 02, 2021
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and ContingenciesWe are subject to legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims relating to commercial and financial transactions; government contracts; alleged lack of compliance with applicable laws and regulations; production partners; product liability; patent and trademark infringement; employment disputes; and environmental, safety and health matters. Some of these legal proceedings and claims seek damages, fines or penalties in substantial amounts or remediation of environmental contamination. As a government contractor, we are subject to audits, reviews and investigations to determine whether our operations are being conducted in accordance with applicable regulatory requirements. Under federal government procurement regulations, certain claims brought by the U.S. Government could result in our suspension or debarment from U.S. Government contracting for a period of time. On the basis of information presently available, we do not believe that existing proceedings and claims will have a material effect on our financial position or results of operations.
v3.21.2
Basis of Presentation (Policies)
9 Months Ended
Oct. 02, 2021
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Use of Estimates
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.
v3.21.2
Accounts Receivable and Finance Receivables (Tables)
9 Months Ended
Oct. 02, 2021
Receivables [Abstract]  
Accounts Receivable
Accounts receivable is composed of the following:
(In millions)October 2,
2021
January 2,
2021
Commercial$671 $668 
U.S. Government contracts131 155 
802 823 
Allowance for credit losses(29)(36)
Total accounts receivable, net$773 $787 
Finance Receivables
Finance receivables are presented in the following table:
(In millions)October 2,
2021
January 2,
2021
Finance receivables$621 $779 
Allowance for credit losses(25)(35)
Total finance receivables, net$596 $744 
Finance Receivables Categorized Based On Credit Quality Indicators
Finance receivables categorized based on the credit quality indicators and by the delinquency aging category are summarized as follows:
(Dollars in millions)October 2,
2021
January 2,
2021
Performing$511$612
Watchlist74
Nonaccrual11093
Nonaccrual as a percentage of finance receivables17.71%11.94%
Current and less than 31 days past due$