TEXTRON INC, 10-Q filed on 10/23/2019
Quarterly Report
v3.19.3
Document and Entity Information - shares
9 Months Ended
Sep. 28, 2019
Oct. 11, 2019
Document and Entity Information    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 28, 2019  
Document Transition Report false  
Entity File Number 1-5480  
Entity Registrant Name Textron Inc  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 05-0315468  
Entity Address, Address Line One 40 Westminster Street  
Entity Address, City or Town Providence  
Entity Address, State or Province RI  
Entity Address, Postal Zip Code 02903  
City Area Code 401  
Local Phone Number 421-2800  
Title of 12(b) Security Common stock, $0.125 par value  
Trading Symbol TXT  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   228,262,751
Entity Central Index Key 0000217346  
Current Fiscal Year End Date --01-04  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Amendment Flag false  
v3.19.3
Consolidated Statements of Operations - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 28, 2019
Sep. 29, 2018
Sep. 28, 2019
Sep. 29, 2018
Revenues        
Total revenues $ 3,259 $ 3,200 $ 9,595 $ 10,222
Costs, expenses and other        
Cost of sales 2,747 2,687 7,965 8,489
Selling and administrative expense 255 307 854 1,004
Interest expense 44 41 129 124
Non-service components of pension and post-retirement income, net (28) (19) (85) (57)
Gain on business disposition   (444)   (444)
Total costs, expenses and other 3,018 2,572 8,863 9,116
Income before income taxes 241 628 732 1,106
Income tax expense 21 65 116 130
Net income $ 220 $ 563 $ 616 $ 976
Earnings per share        
Basic (in dollars per share) $ 0.96 $ 2.29 $ 2.65 $ 3.85
Diluted (in dollars per share) $ 0.95 $ 2.26 $ 2.64 $ 3.80
Manufacturing        
Revenues        
Total revenues $ 3,245 $ 3,185 $ 9,548 $ 10,174
Finance        
Revenues        
Finance Revenue $ 14 $ 15 $ 47 $ 48
v3.19.3
Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 28, 2019
Sep. 29, 2018
Sep. 28, 2019
Sep. 29, 2018
Consolidated Statements of Comprehensive Income        
Net income $ 220 $ 563 $ 616 $ 976
Other comprehensive income (loss), net of taxes:        
Pension and postretirement benefits adjustments, net of reclassifications 20 38 61 100
Foreign currency translation adjustments, net of reclassifications (34) 7 (30) (20)
Deferred gains (losses) on hedge contracts, net of reclassifications   1 2 (2)
Other comprehensive income (loss) (14) 46 33 78
Comprehensive income $ 206 $ 609 $ 649 $ 1,054
v3.19.3
Consolidated Balance Sheets - USD ($)
shares in Thousands, $ in Millions
Sep. 28, 2019
Dec. 29, 2018
Assets    
Inventories $ 4,436 $ 3,818
Finance receivables, net 730 760
Total assets 15,062 14,264
Liabilities    
Total liabilities 9,610 9,072
Shareholders' equity    
Common stock 30 30
Capital surplus 1,741 1,646
Treasury stock (599) (129)
Retained earnings 6,009 5,407
Accumulated other comprehensive loss (1,729) (1,762)
Total shareholders' equity 5,452 5,192
Total liabilities and shareholders' equity $ 15,062 $ 14,264
Common shares outstanding 228,235 235,621
Manufacturing group    
Assets    
Cash and equivalents $ 931 $ 987
Accounts receivable, net 1,018 1,024
Inventories 4,436 3,818
Other current assets 856 785
Total current assets 7,241 6,614
Property, plant and equipment, less accumulated depreciation and amortization of $4,371 and $4,203, respectively 2,497 2,615
Goodwill 2,142 2,218
Other assets 2,225 1,800
Total assets 14,105 13,247
Liabilities    
Short-term debt and current portion of long-term debt 568 258
Accounts payable 1,226 1,099
Other current liabilities 1,972 2,149
Total current liabilities 3,766 3,506
Other liabilities 2,130 1,932
Long-term debt 2,909 2,808
Total liabilities 8,805 8,246
Finance group    
Assets    
Cash and equivalents 122 120
Finance receivables, net 730 760
Other assets 105 137
Total assets 957 1,017
Liabilities    
Other liabilities 110 108
Debt 695 718
Total liabilities $ 805 $ 826
v3.19.3
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Sep. 28, 2019
Dec. 29, 2018
Consolidated Balance Sheets    
Accumulated depreciation and amortization $ 4,371 $ 4,203
v3.19.3
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 28, 2019
Sep. 29, 2018
Cash flows from operating activities    
Net income $ 616 $ 976
Non-cash items:    
Depreciation and amortization 302 322
Deferred income taxes 85 25
Gain on business disposition   (444)
Other, net 61 88
Changes in assets and liabilities:    
Accounts receivable, net (7) 56
Inventories (652) (190)
Other assets 27 (28)
Accounts payable 134 (68)
Other liabilities (251) (80)
Income taxes, net (70) 44
Pension, net (44) (7)
Captive finance receivables, net 22 4
Other operating activities, net 2 (1)
Net cash provided by operating activities of continuing operations 225 697
Net cash used in operating activities of discontinued operations (2) (1)
Net cash provided by operating activities 223 696
Cash flows from investing activities    
Capital expenditures (216) (233)
Net proceeds from corporate-owned life insurance policies 4 98
Net proceeds from business disposition   807
Finance receivables repaid 20 25
Other investing activities, net 9 37
Net cash provided by (used in) investing activities (183) 734
Cash flows from financing activities    
Increase in short-term debt 118  
Proceeds from long-term debt 297  
Principal payments on long-term debt and nonrecourse debt (42) (60)
Purchases of Textron common stock (470) (1,383)
Dividends paid (9) (15)
Other financing activities, net 18 68
Net cash used in financing activities (88) (1,390)
Effect of exchange rate changes on cash and equivalents (6) (9)
Net increase (decrease) in cash and equivalents (54) 31
Cash and equivalents at beginning of period 1,107 1,262
Cash and equivalents at end of period 1,053 1,293
Manufacturing group    
Cash flows from operating activities    
Net income 603 959
Non-cash items:    
Depreciation and amortization 297 316
Deferred income taxes 86 29
Gain on business disposition   (444)
Other, net 60 83
Changes in assets and liabilities:    
Accounts receivable, net (7) 56
Inventories (679) (186)
Other assets 28 (27)
Accounts payable 134 (68)
Other liabilities (250) (77)
Income taxes, net (75) 51
Pension, net (44) (7)
Dividends received from Finance group 50 50
Other operating activities, net 2 (1)
Net cash provided by operating activities of continuing operations 205 734
Net cash used in operating activities of discontinued operations (2) (1)
Net cash provided by operating activities 203 733
Cash flows from investing activities    
Capital expenditures (216) (233)
Net proceeds from corporate-owned life insurance policies 4 98
Net proceeds from business disposition   807
Other investing activities, net 6 9
Net cash provided by (used in) investing activities (206) 681
Cash flows from financing activities    
Increase in short-term debt 118  
Proceeds from long-term debt 297  
Principal payments on long-term debt and nonrecourse debt (1) (4)
Purchases of Textron common stock (470) (1,383)
Dividends paid (9) (15)
Other financing activities, net 18 68
Net cash used in financing activities (47) (1,334)
Effect of exchange rate changes on cash and equivalents (6) (9)
Net increase (decrease) in cash and equivalents (56) 71
Cash and equivalents at beginning of period 987 1,079
Cash and equivalents at end of period 931 1,150
Finance group    
Cash flows from operating activities    
Net income 13 17
Non-cash items:    
Depreciation and amortization 5 6
Deferred income taxes (1) (4)
Other, net 1 5
Changes in assets and liabilities:    
Other assets (1) (1)
Other liabilities (1) (3)
Income taxes, net 5 (7)
Net cash provided by operating activities of continuing operations 21 13
Net cash provided by operating activities 21 13
Cash flows from investing activities    
Finance receivables repaid 149 160
Finance receivables originated (107) (131)
Other investing activities, net 30 24
Net cash provided by (used in) investing activities 72 53
Cash flows from financing activities    
Principal payments on long-term debt and nonrecourse debt (41) (56)
Dividends paid (50) (50)
Net cash used in financing activities (91) (106)
Net increase (decrease) in cash and equivalents 2 (40)
Cash and equivalents at beginning of period 120 183
Cash and equivalents at end of period $ 122 $ 143
v3.19.3
Basis of Presentation
9 Months Ended
Sep. 28, 2019
Basis of Presentation  
Basis of Presentation

Note 1.  Basis of Presentation

Our Consolidated Financial Statements include the accounts of Textron Inc. (Textron) and its majority-owned subsidiaries.  We have prepared these unaudited consolidated financial statements in accordance with accounting principles generally accepted in the U.S. for interim financial information.  Accordingly, these interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.  The consolidated interim financial statements included in this quarterly report should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 29, 2018.  In the opinion of management, the interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair presentation of our consolidated financial position, results of operations and cash flows for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

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

Use of Estimates

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

Contract Estimates

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

In the third quarter of 2019 and 2018, our cumulative catch-up adjustments increased revenue and segment profit by $21 million and $63 million, respectively, and net income by $16 million and $48 million, respectively ($0.07 and $0.19 per diluted share, respectively). In the third quarter of 2019 and 2018, gross favorable adjustments totaled $41 million and $79 million, respectively, and the gross unfavorable adjustments totaled $20 million and $16 million, respectively.

In the first nine months of 2019 and 2018, our cumulative catch-up adjustments increased revenue and segment profit by $79 million and $167 million, respectively, and net income by $60 million and $127 million, respectively ($0.26 and $0.49 per diluted share, respectively).  In the first nine months of 2019 and 2018, gross favorable adjustments totaled $140 million and $205 million, respectively, and the gross unfavorable adjustments totaled $61 million and $38 million, respectively.

v3.19.3
Summary of Significant Accounting Policies Update
9 Months Ended
Sep. 28, 2019
Summary of Significant Accounting Policies Update  
Summary of Significant Accounting Policies Update

Note 2.  Summary of Significant Accounting Policies Update

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

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

Leases

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

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses.  The new standard is effective for our company at the beginning of 2020.  Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date.  We are continuing to evaluate the impact of the standard on our consolidated financial statements and expect to complete our assessment in the fourth quarter of 2019. We do not expect the standard to have a material impact on our consolidated financial statements.

v3.19.3
Business Disposition
9 Months Ended
Sep. 28, 2019
Business Disposition  
Business Disposition

Note 3.  Business Disposition

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 to Emerson Electric Co. for net cash proceeds of $807 million. In the third quarter of 2018, we recorded an after-tax gain of $410 million, subject to post-closing adjustments.

v3.19.3
Accounts Receivable and Finance Receivables
9 Months Ended
Sep. 28, 2019
Accounts Receivable and Finance Receivables  
Accounts Receivable and Finance Receivables

Note 4.  Accounts Receivable and Finance Receivables

Accounts Receivable

Accounts receivable is composed of the following:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

September 28,

December 29,

(In millions)

2019

2018

Commercial

  $

916

  $

885

U.S. Government contracts

129

 

166

1,045

 

1,051

Allowance for doubtful accounts

(27)

 

(27)

Total accounts receivable, net

  $

1,018

  $

1,024

Finance Receivables

Finance receivables are presented in the following table:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

September 28,

December 29,

(In millions)

2019

2018

Finance receivables

  $

755

  $

789

Allowance for losses

(25)

 

(29)

Total finance receivables, net

  $

730

  $

760

Finance Receivable Portfolio Quality

We internally assess the quality of our finance receivables based on a number of key credit quality indicators and statistics such as delinquency, loan balance to estimated collateral value and the financial strength of individual borrowers and guarantors.  Because many of these indicators are difficult to apply across an entire class of receivables, we evaluate individual loans on a quarterly basis and classify these loans into three categories based on the key credit quality indicators for the individual loan. These three categories are performing, watchlist and nonaccrual.

We classify finance receivables as nonaccrual if credit quality indicators suggest full collection of principal and interest is doubtful.  In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three months unless collection of principal and interest is not doubtful. Accounts are classified as watchlist when credit quality indicators have deteriorated as compared with typical underwriting criteria, and we believe collection of full principal and interest is probable but not certain.  All other finance receivables that do not meet the watchlist or nonaccrual categories are classified as performing.

We measure delinquency based on the contractual payment terms of our finance receivables.  In determining the delinquency aging category of an account, any/all principal and interest received is applied to the most past-due principal and/or interest amounts due.  If a significant portion of the contractually due payment is delinquent, the entire finance receivable balance is reported in accordance with the most past-due delinquency aging category.

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

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

September 28,

December 29,

(Dollars in millions)

2019

2018

Performing

  $

691

  $

704

Watchlist

23

 

45

Nonaccrual

41

 

40

Nonaccrual as a percentage of finance receivables

5.43

%

5.07

%

Less than 31 days past due

  $

659

  $

719

31-60 days past due

60

56

61-90 days past due

12

5

Over 90 days past due

24

9

60+ days contractual delinquency as a percentage of finance receivables

4.77

%

1.77

%

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

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

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

September 28,

December 29,

(In millions)

2019

2018

Finance receivables evaluated collectively

  $

611

  $

630

Finance receivables evaluated individually

 

41

 

58

Allowance for losses based on collective evaluation

22

24

Allowance for losses based on individual evaluation

 

3

 

5

Impaired finance receivables with no related allowance for losses

  $

21

  $

43

Impaired finance receivables with related allowance for losses

20

15

Unpaid principal balance of impaired finance receivables

51

67

Average recorded investment of impaired finance receivables

40

61

v3.19.3
Inventories
9 Months Ended
Sep. 28, 2019
Inventories  
Inventories

Note 5.  Inventories

Inventories are composed of the following:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

September 28,

December 29,

(In millions)

2019

2018

Finished goods

  $

1,738

  $

1,662

Work in process

1,880

 

1,356

Raw materials and components

818

 

800

Total inventories

  $

4,436

  $

3,818

v3.19.3
Other Assets
9 Months Ended
Sep. 28, 2019
Other Assets  
Other Assets

Note 6.  Other Assets

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

v3.19.3
Warranty Liability
9 Months Ended
Sep. 28, 2019
Warranty Liability  
Warranty Liability

Note 7.  Warranty Liability

Changes in our warranty liability are as follows:

Nine Months Ended

September 28,

September 29,

(In millions)

2019

2018

Beginning of period

  $

149

  $

164

Provision

 

45

 

50

Settlements

 

(56)

 

(60)

Adjustments*

 

(3)

 

1

End of period

  $

135

  $

155

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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

v3.19.3
Leases
9 Months Ended
Sep. 28, 2019
Leases  
Leases

Note 8. Leases

We primarily lease certain manufacturing plants, offices, warehouses, training and service centers at various locations worldwide that are classified as either operating or finance leases. Our leases have remaining lease terms up to 30 years, which include options to extend the lease term for periods up to 25 years when it is reasonably certain the option will be exercised. In the third quarter and first nine months of 2019, our operating lease cost totaled $16 million and $48 million, respectively. Our finance lease cost and our variable and short-term lease costs were not significant. In the first nine months of 2019, cash paid for operating lease liabilities totaled $48 million, which is classified in cash flows from operating activities.  Balance sheet and other information related to our leases is as follows:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

September 28,

(Dollars in millions)

2019

Operating leases:

  

Other assets

  $

282

Other current liabilities

 

50

Other liabilities

 

235

Finance leases:

 

  

Property, plant and equipment, less accumulated amortization of $53 million

  $

114

Short-term and current portion of long-term debt

 

6

Long-term debt

 

75

Weighted-average remaining lease term (in years)

 

  

Finance leases

 

14.0

Operating leases

 

10.3

Weighted-average discount rate

 

  

Finance leases

 

2.75

%

Operating leases

 

4.45

%

Maturities of our lease liabilities at September 28, 2019 are as follows:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Operating

Finance

(In millions)

Leases

Leases

2019

  $

18

  $

3

2020

 

56

 

9

2021

 

43

 

9

2022

 

36

 

9

2023

 

31

 

9

Thereafter

 

178

 

69

Total lease payments

 

362

 

108

Less: interest

 

(77)

 

(27)

Total lease liabilities

  $

285

  $

81

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

v3.19.3
Debt
9 Months Ended
Sep. 28, 2019
Debt  
Debt

Note 9.  Debt

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

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

v3.19.3
Derivative Instruments and Fair Value Measurements
9 Months Ended
Sep. 28, 2019
Derivative Instruments and Fair Value Measurements  
Derivative Instruments and Fair Value Measurements

Note 10.  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 September 28, 2019 and December 29, 2018, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $366 million and $379 million, respectively.  At September 28, 2019, the fair value amounts of our foreign currency exchange contracts were a $3 million asset and a $5 million liability.  At December 29, 2018, the fair value amounts of our foreign currency exchange contracts were a $2 million asset and a $10 million liability.

We hedge our net investment position in certain major currencies and generate foreign currency interest payments that offset other transactional exposures in these currencies. To accomplish this, we borrow directly in the foreign currency and designate a portion of the debt as a hedge of the net investment. We record changes in the fair value of these contracts in other comprehensive income to the extent they are effective as cash flow hedges.  Currency effects on the effective portion of these hedges, which are reflected in the foreign currency translation adjustments within Accumulated other comprehensive loss, were not significant in the periods presented.

Assets and Liabilities Not Recorded at Fair Value

The carrying value and estimated fair value of our financial instruments that are not reflected in the financial statements at fair value are as follows:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

September 28, 2019

December 29, 2018

Carrying

Estimated

Carrying

Estimated

(In millions)

Value

Fair Value

Value

Fair Value

Manufacturing group

Debt, excluding leases

  $

(3,411)

  $

(3,550)

  $

(2,996)

  $

(2,971)

Finance group

Finance receivables, excluding leases

 

544

 

571

 

582

 

584

Debt

 

(695)

 

(626)

 

(718)

 

(640)

Fair value for the Manufacturing group debt is determined using market observable data for similar transactions (Level 2).  The fair value for the Finance group debt was determined primarily based on discounted cash flow analyses using observable market inputs from debt with similar duration, subordination and credit default expectations (Level 2). Fair value estimates for finance receivables were determined based on internally developed discounted cash flow models primarily utilizing significant unobservable inputs (Level 3), which include estimates of the rate of return, financing cost, capital structure and/or discount rate expectations of current market participants combined with estimated loan cash flows based on credit losses, payment rates and expectations of borrowers’ ability to make payments on a timely basis.

v3.19.3
Shareholders' Equity
9 Months Ended
Sep. 28, 2019
Shareholders' Equity  
Shareholders' Equity

Note 11. Shareholders’ Equity

A reconciliation of Shareholder’s equity is presented below:

Accumulated

Other

Total

Common

Capital

Treasury

Retained

Comprehensive

Shareholders’

(In millions)

Stock

Surplus

Stock

Earnings

Loss

Equity

Three months ended September 28, 2019

Beginning of period

  $

30

  $

1,717

  $

(490)

  $

5,794

  $

(1,715)

  $

5,336

Net income

220

220

Other comprehensive income

(14)

(14)

Share-based compensation activity

24

24

Dividends declared

(5)

(5)

Purchases of common stock

(109)

(109)

End of period

  $

30

  $

1,741

  $

(599)

  $

6,009

  $

(1,729)

  $

5,452

Three months ended September 29, 2018

Beginning of period

  $

33

  $

1,774

  $

(963)

  $

5,861

  $

(1,343)

  $

5,362

Net income

 

 

 

 

563

 

 

563

Other comprehensive income

 

 

 

 

 

46

 

46

Share-based compensation activity

 

 

45

 

 

 

 

45

Dividends declared

 

 

 

 

(5)

 

 

(5)

Purchases of common stock

 

 

 

(468)

 

 

 

(468)

End of period

  $

33

  $

1,819

  $

(1,431)

  $

6,419

  $

(1,297)

  $

5,543

Nine months ended September 28, 2019

Beginning of period

  $

30

  $

1,646

  $

(129)

  $

5,407

  $

(1,762)

  $

5,192

Net income

616

616

Other comprehensive income

33

33

Share-based compensation activity

95

95

Dividends declared

(14)

(14)

Purchases of common stock

(470)

(470)

End of period

  $

30

  $

1,741

  $

(599)

  $

6,009

  $

(1,729)

  $

5,452

Nine months ended September 29, 2018

Beginning of period

  $

33

  $

1,669

  $

(48)

  $

5,368

  $

(1,375)

  $

5,647

Adoption of ASC 606

 

 

 

 

90

 

 

90

Net income

 

 

 

 

976

 

 

976

Other comprehensive income

 

 

 

 

 

78

 

78

Share-based compensation activity

 

 

150

 

 

 

 

150

Dividends declared

 

 

 

 

(15)

 

 

(15)

Purchases of common stock

 

 

 

(1,383)

 

 

 

(1,383)

End of period

  $

33

  $

1,819

  $

(1,431)

  $

6,419

  $

(1,297)

  $

5,543

Dividends per share of common stock were $0.02 for both the third quarter of 2019 and 2018 and $0.06 for both the first nine months of 2019 and 2018.

Earnings Per Share

We calculate basic and diluted earnings per share (EPS) based on net income, which approximates income available to common shareholders for each period.  Basic EPS is calculated using the two-class method, which includes the weighted-average number of common shares outstanding during the period and restricted stock units to be paid in stock that are deemed participating securities as they provide nonforfeitable rights to dividends. Diluted EPS considers the dilutive effect of all potential future common stock, including stock options.  

The weighted-average shares outstanding for basic and diluted EPS are as follows:

Three Months Ended

Nine Months Ended

September 28,

September 29,

September 28,

September 29,

(In thousands)

2019

2018

2019

2018

Basic weighted-average shares outstanding

229,755

246,136

232,202

253,512

Dilutive effect of stock options

1,342

3,242

1,487

3,268

Diluted weighted-average shares outstanding

231,097

249,378

233,689

256,780

Stock options to purchase 4.3 million and 3.1 million shares of common stock are excluded from the calculation of diluted weighted-average shares outstanding for the third quarter and first nine months of 2019, respectively, as their effect would have been anti-dilutive.  For the three and nine months ended September 29, 2018, there were no stock options excluded from the calculation of diluted weighted-average shares outstanding.

Accumulated Other Comprehensive Loss and Other Comprehensive Income (Loss)

The components of Accumulated other comprehensive loss are presented below:

Pension and

Foreign

Deferred

Accumulated

Postretirement

Currency

Gains (Losses)

Other

Benefits

Translation

on Hedge

Comprehensive

(In millions)

Adjustments

Adjustments

Contracts

Loss

Balance at December 29, 2018

  $

(1,727)

  $

(32)

  $

(3)

  $

(1,762)

Other comprehensive income before reclassifications

(30)

4

(26)

Reclassified from Accumulated other comprehensive loss

61

(2)

59

Balance at September 28, 2019

  $

(1,666)

  $

(62)

  $

(1)

  $

(1,729)

Balance at December 30, 2017

  $

(1,396)

  $

11

  $

10

  $

(1,375)

Other comprehensive income before reclassifications

 

 

(26)

 

 

(26)

Reclassified from Accumulated other comprehensive loss

 

100

 

6

 

(2)

 

104

Balance at September 29, 2018

  $

(1,296)

  $

(9)

  $

8

  $

(1,297)

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

September 28, 2019

September 29, 2018

Tax

Tax

Pre-Tax

(Expense)

After-Tax

Pre-Tax

(Expense)

After-Tax

(In millions)

Amount

Benefit

Amount

Amount

Benefit

Amount

Three Months Ended

Pension and postretirement benefits adjustments:

Amortization of net actuarial loss*

  $

25

  $

(6)

  $

19

  $

38

  $

(9)

  $

29

Amortization of prior service cost*

 

1

 

 

1

2

2

Business disposition

7

7

Pension and postretirement benefits adjustments, net

 

26

 

(6)

 

20

47

(9)

38

Deferred gains on hedge contracts:

Current deferrals

 

 

 

3

(1)

2

Reclassification adjustments

 

 

 

(2)

1

(1)

Deferred gains on hedge contracts, net

1

1

Foreign currency translation adjustments:

Foreign currency translation adjustments

(33)

(1)

(34)

1

1

Business disposition

6

6

Foreign currency translation adjustments, net

(33)

(1)

(34)

7

7

Total

  $

(7)

  $

(7)

  $

(14)

  $

55

  $

(9)

  $

46

Nine Months Ended

Pension and postretirement benefits adjustments:

Amortization of net actuarial loss*

  $

74

  $

(17)

  $

57

  $

115

  $

(27)

  $

88

Amortization of prior service cost*

 

5

 

(1)

 

4

6

(1)

5

Business disposition

7

7

Pension and postretirement benefits adjustments, net

 

79

 

(18)

 

61

128

(28)

100

Deferred gains (losses) on hedge contracts:

Current deferrals

 

6

 

(2)

 

4

1

(1)

Reclassification adjustments

 

(2)

 

 

(2)

(3)

1

(2)

Deferred gains (losses) on hedge contracts, net

 

4

 

(2)

 

2

(2)

(2)

Foreign currency translation adjustments:

Foreign currency translation adjustments

(29)

(1)

(30)

(25)

(1)

(26)

Business disposition

6

6

Foreign currency translation adjustments, net

 

(29)

 

(1)

 

(30)

(19)

(1)

(20)

Total

  $

54

  $

(21)

  $

33

  $

107

  $

(29)

  $

78

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

v3.19.3
Segment Information
9 Months Ended
Sep. 28, 2019
Segment Information  
Segment Information

Note 12. Segment Information

We operate in, and report financial information for, the following five business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. On July 2, 2018, we sold our Tools and Test Equipment businesses that were previously included in the Industrial segment as discussed in Note 3. Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses, gains/losses on major business dispositions and special charges. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.

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

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Three Months Ended

Nine Months Ended

September 28,

September 29,

September 28,

September 29,

(In millions)

2019

2018

2019

2018

Revenues

Textron Aviation

  $

1,201

  $

1,133

  $

3,458

  $

3,419

Bell

783

 

770

2,293

2,353

Textron Systems

311

 

352

926

1,119

Industrial

950

 

930

2,871

3,283

Finance

14

 

15

47

48

Total revenues

  $

3,259

  $

3,200

  $

9,595

  $

10,222

Segment Profit

Textron Aviation

  $

104

  $

99

  $

315

  $

275

Bell

110

 

113

317

317

Textron Systems

31

 

29

108

119

Industrial

47

 

1

173

145

Finance

5

 

3

17

14

Segment profit

297

 

245

930

870

Corporate expenses and other, net

(17)

 

(29)

 

(88)

(107)

Interest expense, net for Manufacturing group

 

(39)

 

(32)

 

(110)

(101)

Gain on business disposition

444

444

Income before income taxes

  $

241

  $

628

  $

732

  $

1,106

v3.19.3
Revenues
9 Months Ended
Sep. 28, 2019
Revenues  
Revenues

Note 13. Revenues

Disaggregation of Revenues

Our revenues disaggregated by major product type are presented below:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Three Months Ended

Nine Months Ended

September 28,

September 29,

September 28,

September 29,

(In millions)

2019

2018

2019

2018

Aircraft

  $

797

  $

756

  $

2,296

  $

2,267

Aftermarket parts and services

404

 

377

1,162

 

1,152

Textron Aviation

1,201

 

1,133

3,458

 

3,419

Military aircraft and support programs

473

 

505

1,463

 

1,525

Commercial helicopters, parts and services

310

 

265

830

 

828

Bell

783

 

770

2,293

 

2,353

Unmanned systems

147

 

154

416

 

485

Marine and land systems

47

 

87

155

 

248

Simulation, training and other

117

 

111

355

 

386

Textron Systems

311

 

352

926

 

1,119

Fuel systems and functional components

521

 

522

1,707

 

1,804

Specialized vehicles

429

 

408

1,164

 

1,231

Tools and test equipment

 

 

248

Industrial

950

 

930

2,871

 

3,283

Finance

14

 

15

47

 

48

Total revenues

  $

3,259

  $

3,200

  $