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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

	
Form 10-K

	

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the fiscal year ended January 2, 2021
or
						
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the transition period from   to  .
Commission File Number 1-5480
Textron Inc.
(Exact name of registrant as specified in its charter)

Delaware		05-0315468	
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)	
40 Westminster Street, Providence, RI		02903	
(Address of principal executive offices)		(Zip code)	
Registrant’s Telephone Number, Including Area Code: (401) 421-2800
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered	
Common Stock — par value $0.125	TXT	New York Stock Exchange	
Securities registered pursuant to Section 12(g) of the Act: None
______________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. xYes ¨ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act . ¨ Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes   ¨No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer	x			Accelerated filer	☐	
Non-accelerated filer	☐	Smaller reporting company	☐	Emerging growth company	☐	
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Yes   ¨No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the registrant’s Common Stock held by non-affiliates at July 4, 2020 was approximately $7.4 billion based on the New York Stock Exchange closing price for such shares on that date. The registrant has no non-voting common equity.
At February 6, 2021, 226,284,488 shares of Common Stock were outstanding.

Documents Incorporated by Reference	
Part III of this Report incorporates information from certain portions of the registrant’s Definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April 28, 2021.

Table of Contents
Textron Inc.
Index to Annual Report on Form 10-K
For the Fiscal Year Ended January 2, 2021

		Page	
PART I			
Item 1.	Business	3	
			
Item 1A.	Risk Factors	9	
			
Item 1B.	Unresolved Staff Comments	16	
			
Item 2.	Properties	17	
			
Item 3.	Legal Proceedings	17	
			
Item 4.	Mine Safety Disclosures	17	
			
PART II			
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18	
			
Item 6.	Selected Financial Data	19	
			
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20	
			
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	32	
			
Item 8.	Financial Statements and Supplementary Data	34	
			
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	73	
			
Item 9A.	Controls and Procedures	73	
			
PART III			
Item 10.	Directors, Executive Officers and Corporate Governance	75	
			
Item 11.	Executive Compensation	75	
			
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	75	
			
Item 13.	Certain Relationships and Related Transactions and Director Independence	75	
			
Item 14.	Principal Accountant Fees and Services	75	
			
PART IV			
Item 15.	Exhibits and Financial Statement Schedules	76	
			
Item 16.	Form 10-K Summary	79	
			
Signatures		80	
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PART I

Item 1. Business
Textron Inc. is a multi-industry company that leverages its global network of aircraft, defense, industrial and finance businesses to provide customers with innovative products and services around the world. References to “Textron Inc.,” the “Company,” “we,” “our” and “us” in this Annual Report on Form 10-K, unless otherwise indicated, refer to Textron Inc. and its consolidated subsidiaries.
We conduct our business through five operating segments: Textron Aviation, Bell, Textron Systems and Industrial, which represent our manufacturing businesses, and Finance, which represents our captive finance business. Our segments include operations that are unincorporated divisions of Textron Inc. and others that are separately incorporated subsidiaries. Total revenues by segment and customer type for 2020 are presented below.
 
The following description of our business and operating segments should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Textron Aviation Segment
Textron Aviation is a leader in general aviation. Textron Aviation manufactures, sells and services Beechcraft and Cessna aircraft, and services the Hawker brand of business jets. The segment has two principal product lines: aircraft and aftermarket parts and services. Aircraft includes sales of business jets, turboprop aircraft, military trainer and defense aircraft and piston engine aircraft. Aftermarket parts and services includes commercial parts sales, and maintenance, inspection and repair services. Textron Aviation markets its products worldwide through its own sales force, as well as through a network of authorized independent sales representatives.
The family of jets currently offered by Textron Aviation includes the Citation M2, Citation CJ3+, Citation CJ4, Citation XLS+, Citation Latitude and the Citation Longitude. Textron Aviation’s turboprop aircraft include the Beechcraft King Air 260, King Air 360ER and King Air 360, and the Cessna Caravan and Grand Caravan EX. In addition, Textron Aviation’s military trainer and defense aircraft include the T-6 trainer, which has been used to train pilots from more than 20 countries, and the AT-6 light attack military aircraft. Textron Aviation also offers piston engine aircraft including the Beechcraft Baron and Bonanza, and the Cessna Skyhawk, Skylane, and the Turbo Stationair HD.
In support of its family of aircraft, Textron Aviation operates a global network of 20 service centers, two of which are co-located with Bell, along with more than 300 authorized independent service centers located throughout the world. Textron Aviation-owned service centers provide customers with 24-hour service and maintenance. Textron Aviation also provides its customers with around-the-clock parts support and offers a mobile support program with approximately 70 mobile service units. In addition, Able Aerospace Services, Inc., a subsidiary of Textron Aviation, provides component and maintenance, repair and overhaul services in support of commercial and military fixed- and rotor-wing aircraft.
Product Development Programs
Textron Aviation is developing the Cessna Skycourier, a twin-engine, high-wing, large-utility turboprop aircraft, which achieved its first flight in May 2020. The Denali, a high-performance single engine turboprop aircraft under development, is expected to achieve its first flight in 2021.

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Bell Segment
Bell is one of the leading suppliers of military and commercial helicopters, tiltrotor aircraft, and related spare parts and services in the world.
Bell supplies advanced military helicopters and provides parts and support services to the U.S. Government and to military customers outside the United States. Bell’s primary U.S. Government programs are for the production and support of the V-22 tiltrotor aircraft and the H-1 helicopters. Bell is one of the leading suppliers of helicopters to the U.S. Government and, in association with The Boeing Company (Boeing), the only supplier of military tiltrotor aircraft. Tiltrotor aircraft are designed to provide the benefits of both helicopters and fixed-wing aircraft. Through its strategic alliance with Boeing, Bell produces and supports the V-22 tiltrotor aircraft primarily for the U.S. Department of Defense, and also offers this aircraft to other countries under the U.S. Government-sponsored foreign military sales program. The H-1 helicopter program includes a utility model, the UH-1Y, and an advanced attack model, the AH-1Z, which have 84% parts commonality between them. While the U.S. Marine Corps is the primary customer for H-1 helicopters, we also sell these helicopters under the U.S. Government-sponsored foreign military sales program.
Through its commercial business, Bell is a leading supplier of commercially certified helicopters and support to corporate, private, law enforcement, utility and emergency medical helicopter operators, and the U.S. and foreign governments. Bell produces a variety of commercial aircraft types, including light single- and twin-engine helicopters and medium twin-engine helicopters, along with other related products. The commercial helicopters currently offered by Bell include the 429, 407GXi, 412EPX, 412EPI, 412EP, 505 Jet Ranger X and Huey II.
For both its military programs and its commercial products, Bell provides post-sale support and service for an installed base of approximately 13,000 helicopters through a network of six Company-operated service centers, four global parts distribution centers and nearly 100 independent service centers located in over 35 countries. Collectively, these service sites offer a complete range of logistics support, including parts, support equipment, technical data, training devices, pilot and maintenance training, component repair and overhaul, engine repair and overhaul, aircraft modifications, aircraft customizing, accessory manufacturing, contractor maintenance, field service and product support engineering.
Product Development Programs
In October 2019, Bell announced a new rotorcraft, the Bell 360 Invictus, which it is developing as its entrant for the U.S. Army's Future Attack Reconnaissance Aircraft (FARA) Competitive Prototype Program, part of the U.S. government's Future Vertical Lift (FVL) family of programs. The FARA program was initiated by the U.S. Army to develop a successor to the retired Bell OH-58D Kiowa Warrior helicopter. In March 2020, the U.S. Army selected the 360 Invictus to move to the second phase of the Competitive Prototype Program.
Bell continues its development and refinement of the V-280 Valor, a next generation vertical lift aircraft as part of the Joint Multi Role Technology Demonstrator (JMR-TD) initiative. The JMR-TD program is the science and technology precursor to the FVL program. The V-280 achieved its first flight in December 2017 and its first cruise mode flight in May 2018. In March 2020, the U.S. Army awarded Bell a Competitive Demonstration and Risk Reduction contract for the next stage of its Future Long Range Assault Aircraft program.
Bell’s first super medium commercial helicopter, the 525 Relentless, is currently in the certification process with the Federal Aviation Administration (FAA).
Textron Systems Segment
Textron Systems is a supplier to the defense, aerospace and general aviation markets. This segment sells products to U.S. Government customers and to customers outside the U.S. through foreign military sales sponsored by the U.S. Government and directly through commercial sales channels. Textron Systems’ operating units are reported under the following product lines: Unmanned Systems, Marine and Land Systems and Simulation, Training and Other.
Our Unmanned Systems product line includes unmanned aircraft systems, unmanned surface systems, mission command hardware and solutions, and worldwide customer support and logistics. Unmanned aircraft systems includes the Shadow, the U.S. Army’s premier tactical unmanned aircraft system, which has surpassed one million flight hours since its introduction, and the Aerosonde Small Unmanned Aircraft System, a multi-mission capable unmanned aircraft system that has amassed more than 500,000 flight hours in commercial and military operations around the world. Unmanned Systems also provides complete systems solutions to its government and commercial customers through comprehensive program management, operational and maintenance training, technical assistance and logistics support, and end-to-end turnkey mission support.

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Our Marine and Land Systems product line includes advanced marine craft, armored vehicles and specialty vehicles supporting fire and rescue applications. These products are in service with U.S. and international militaries, special operations forces, police forces and civilian entities. Marine and Land Systems’ primary U.S. Government program is for the development and production of the U.S. Navy’s next generation Landing Craft Air Cushion as part of the Ship-to-Shore Connector program.
The Simulation, Training and Other product line includes the following operating units and businesses: Electronic Systems, Weapons and Sensors Systems, Lycoming, Airborne Tactical Advantage Company (ATAC) and TRU Simulation + Training (TRU). Electronic Systems provides high technology test equipment, electronic warfare test and training solutions and intelligence software solutions for U.S. and international defense, intelligence and law enforcement communities. Weapons and Sensors Systems offers advanced precision guided weapons systems, airborne and ground-based sensors and surveillance systems, and protection systems for the defense and aerospace industries. Lycoming specializes in the engineering, manufacture, service and support of piston aircraft engines for the general aviation and remotely piloted aircraft markets. ATAC focuses on live military air-to-air and air-to-ship training and support services for U.S. Navy, Marine and Air Force personnel. TRU designs, develops, manufactures, installs, and provides maintenance of advanced flight training devices, including full flight simulators, for commercial airlines, aircraft original equipment manufacturers (OEMs), flight training centers and training organizations. On January 25, 2021, we sold TRU Simulation + Training Canada Inc., which manufactured and maintained flight simulators for commercial airlines.
Industrial Segment
Our Industrial segment designs and manufactures a variety of products within the Fuel Systems and Functional Components and Specialized Vehicles product lines.
Our Fuel Systems and Functional Components product line is produced by our Kautex business unit which is headquartered in Bonn, Germany. Kautex is a leader in designing and manufacturing plastic fuel systems for automobiles and light trucks, including blow-molded solutions for conventional plastic fuel tanks and pressurized plastic fuel tanks for hybrid vehicle applications.  Kautex also develops and manufactures clear-vision systems for automotive safety and advanced driver assistance systems (ADAS).  Our cleaning systems are comprised of nozzles, reservoirs, inlets and pumps to support onboard cleaning for windscreens, headlamps and ADAS cameras and sensors. In addition, Kautex produces plastic tanks for selective catalytic reduction systems used to reduce emissions from diesel engines and other fuel system components.  
Kautex’s business model is focused on developing and maintaining long-term customer relationships with leading global OEMs. Kautex operates over 30 plants in 14 countries in close proximity to our customers, along with 10 engineering/research and development locations around the world.
Our Specialized Vehicles product line includes products sold by the Textron Specialized Vehicles businesses under our E-Z-GO, Arctic Cat, TUG Technologies, Douglas Equipment, Premier, Safeaero, Ransomes, Jacobsen and Cushman brands. These businesses design, manufacture and sell golf cars, off-road utility vehicles, recreational side-by-side and all-terrain vehicles, snowmobiles, light transportation vehicles, aviation ground support equipment and professional turf-maintenance equipment, as well as specialized turf-care vehicles. Their diversified customer base includes golf courses and resorts, government agencies and municipalities, consumers, outdoor enthusiasts, and commercial and industrial users such as factories, warehouses, airlines, planned communities, hunting preserves, educational and corporate campuses, sporting venues, municipalities and landscaping professionals. Sales are made through a combination of a network of independent distributors and dealers worldwide, the Bass Pro Shops and Cabela’s retail outlets, which sell our products under the Tracker Off-Road brand, and factory direct resources.
Finance Segment
Our Finance segment, or the Finance group, is a commercial finance business that consists of Textron Financial Corporation (TFC) and its consolidated subsidiaries. The Finance segment provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. A substantial number of the originations in our finance receivable portfolio are cross-border transactions for aircraft sold outside of the U.S.  In 2020 and 2019, our Finance group paid our Manufacturing group $195 million and $184 million, respectively, related to the sale of Textron-manufactured products to third parties that were financed by the Finance group.  
Our Finance segment’s largest business risk is the collectability of its finance receivable portfolio.  See Finance Segment section in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for information about the Finance segment’s credit performance.

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Backlog
Backlog represents amounts allocated to contracts that we expect to recognize as revenue in future periods when we perform under the contracts. Backlog excludes unexercised contract options and potential orders under ordering-type contracts, such as Indefinite Delivery, Indefinite Quantity contracts.
Our backlog at the end of 2020 and 2019 is summarized below:

(In millions)	January 2,
2021	January 4,
2020	
Bell	$	5,342 		$	6,902 		
Textron Aviation	1,603 		1,714 		
Textron Systems	2,556 		1,211 		
Total backlog	$	9,501 		$	9,827 		
U.S. Government Contracts and Other Governmental Regulation
Our operations, products and services are subject to various government regulations, including regulations related to U.S. government business, international regulation of aviation products and services, and environmental regulations.
Contracts with the U.S. Government, including contracts under the U.S. Government-sponsored foreign military sales program, generated approximately 30% of our consolidated revenues in 2020, primarily in our Bell and Textron Systems segments. We must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S. Government contracts. These laws and regulations, among other things, require certification and disclosure of all cost and pricing data in connection with contract negotiation; define allowable and unallowable costs and otherwise govern our right to reimbursement under certain cost-based U.S. Government contracts; and safeguard and restrict the use and dissemination of classified and covered defense information and the exportation of certain products and technical data. New laws, regulations or procurement requirements, or changes to current ones, can significantly increase our costs, reducing our profitability.
Our contracts with the U.S. Government generally may be terminated by the U.S. Government for convenience or if we default in whole or in part by failing to perform under the terms of the applicable contract. If the U.S. Government terminates a contract for convenience, we normally will be entitled to payment for the cost of contract work performed before the effective date of termination, including, if applicable, reasonable profit on such work, as well as reasonable termination costs. If, however, the U.S. Government terminates a contract for default, generally: (a) we will be paid the contract price for completed supplies delivered and accepted and services rendered, an agreed-upon amount for manufacturing materials delivered and accepted and for the protection and preservation of property, and an amount for partially completed products accepted by the U.S. Government; (b) the U.S. Government may not be liable for our costs with respect to unaccepted items and may be entitled to repayment of advance payments and progress payments related to the terminated portions of the contract; (c) the U.S. Government may not be liable for assets we own and utilize to provide services under the “fee-for-service” contracts; and (d) we may be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source. See Aerospace and Defense Industry section in Item 1A. Risk Factors for additional information related to regulation of U.S. Government business herein.
Commercial aircraft products manufactured by our Textron Aviation and Bell segments are required to comply with FAA regulations in the U.S. and the regulations of other similar aviation regulatory governing authorities internationally, including, the European Aviation Safety Agency. Maintenance facilities and aftermarket services must also comply with FAA and international regulations. These regulations address production and quality systems, airworthiness and installation approvals, repair procedures and continuing operational safety. For an aircraft to be manufactured and sold, the model must receive a type certificate from the appropriate aviation authority, and each aircraft must receive a certificate of airworthiness. Aircraft outfitting and completions also require approval by the appropriate aviation authority. See Strategic Risks section in Item 1A. Risk Factors for additional information with respect to risks related to obtaining certification of new aircraft products.
Our operations are subject to numerous laws and regulations designed to protect the environment. For additional information regarding environmental matters, see Note 19 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, and Business and Operational Risks and Risks Related to Regulatory and Legal Matters sections in Item 1A. Risk Factors.
Based on current information and the applicable laws and regulations currently in effect, compliance with government regulations, including environmental regulations, has not had, and we do not expect it to have, a material effect on our capital expenditures, earnings or competitive position. However, laws and regulations may be changed or adopted that impose additional compliance requirements which could necessitate capital expenditures or otherwise increase our costs of doing business, reducing our profitability and negatively impacting our operating results.
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Human Capital Resources
At January 2, 2021, we employed approximately 33,000 employees worldwide, with approximately 75% located in the U.S. and the remainder located outside of the U.S. Approximately 6,800, or 28%, of our U.S. employees, most of whom work for our Bell and Textron Aviation segments, are represented by unions under collective bargaining agreements, and certain of our non-U.S. employees are represented by organized works councils. From time to time our collective bargaining agreements expire and come up for renegotiation.
Our success is highly dependent upon our ability to maintain a workforce with the skills necessary for our businesses to succeed. We need highly skilled personnel in multiple areas including, among others, engineering, manufacturing, information technology, cybersecurity, flight operations, business development and strategy and management. In order to attract and retain highly skilled employees, we are committed to ensuring a safe and healthy work environment, offering comprehensive compensation and benefit programs, creating great career opportunities and building an engaging, inclusive environment where all employees are treated with dignity and respect.
Health and Safety
To maintain and enhance the safety of our employees, we promote a culture of continuous improvement and individual accountability to provide safe workplaces. We use an annual goal setting process to drive injury rate improvements, and the injury rate reduction goal is a performance metric that is reported to Textron’s Audit Committee and is tracked and reported to senior leadership.
The safety of our employees has been a priority throughout our response to the COVID-19 pandemic. Our enterprise-wide pandemic response teams, formed early in the pandemic, guided our operations in the processes and procedures to comply with applicable government-imposed health and safety-related operating restrictions, to enhance the safety of our facilities to protect the health of our employees and to monitor trends in infection rates at locations where we have facilities. These teams continue to operate, updating enterprise guidance as the pandemic has continued and the medical science and government guidance and orders have evolved. Our businesses continue to enforce COVID-19 health and safety protocols and have implemented protocols to address actual and suspected cases of COVID-19 and resulting contact tracing and quarantine requirements. Throughout the pandemic, we have been communicating regularly with our employees and monitoring their views on issues related to COVID-19 and the workplace as well as general levels of engagement through regular pulse surveys. In addition, management has regularly updated our Board of Directors on our COVID-19 status and response, including with respect to employee safety.
Talent and Career Development
Our talent development programs are designed to prepare our employees at all levels to take on new career and growth opportunities at Textron. Leadership, professional and functional training courses are tailored for employees at each stage of their careers and include a mix of enterprise-wide and business unit-specific programs. Textron University, an internal corporate function, provides (i) facilitated face-to-face professional and leadership development, (ii) web-based general and specialized functional and technical courses and (iii) an online portal to access advanced skills technical training, manage recertification of existing qualifications and other career planning tools and resources.
The current and future talent needs of each of our businesses are assessed annually through a formal talent review process which enables us to develop leadership succession plans and provide our employees with potential new career opportunities. In addition, leaders from functional areas within each business belong to enterprise-wide councils which conduct annual talent reviews. These processes enable us to fill talent needs by matching employees who are ready to assume significant leadership roles with opportunities that best fit their career path, which may be in other businesses within the enterprise.
Diversity and Inclusion
Textron is committed to having a diverse workforce and inclusive workplaces throughout our global operations. We believe by employing highly talented, diverse employees, who feel valued, respected and are able to contribute fully, we will improve performance, innovation and collaboration and drive talent retention, all of which contribute to stronger business results and reinforce our reputation as leaders in our industries and communities.
For over a decade, Textron has allocated five percent of annual incentive compensation for management-level employees toward achievement of diversity goals. Beginning in 2020, we focused these goals specifically on hiring diversity. To improve our outreach to diverse candidates, we have increased our recruiting efforts at historically black colleges and universities, enhanced our partnerships with diverse professional organizations and participated in diverse STEM conferences. In addition, we provide inclusion and unconscious bias training to our employees and recruiters to improve diversity in recruiting.
For discussion of certain risks relating to human capital management, see Risks Related to Human Capital section in Item 1A. Risk Factors.
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Patents and Trademarks
We own, or are licensed under, numerous patents throughout the world relating to products, services and methods of manufacturing. Patents developed while under contract with the U.S. Government may be subject to use by the U.S. Government. We also own or license active trademark registrations and pending trademark applications in the U.S. and in various foreign countries or regions, as well as trade names and service marks. While our intellectual property rights in the aggregate are important to the operation of our business, we do not believe that any existing patent, license, trademark or other intellectual property right is of such importance that its loss or termination would have a material adverse effect on our business taken as a whole.
Information about our Executive Officers
The following table sets forth certain information concerning our executive officers as of February 19, 2021.

Name	Age	Current Position with Textron Inc.	
Scott C. Donnelly	59	Chairman, President and Chief Executive Officer	
Frank T. Connor	61	Executive Vice President and Chief Financial Officer	
Julie G. Duffy	55	Executive Vice President, Human Resources	
E. Robert Lupone	61	Executive Vice President, General Counsel, Secretary and Chief Compliance Officer	
Mr. Donnelly joined Textron in June 2008 as Executive Vice President and Chief Operating Officer and was promoted to President and Chief Operating Officer in January 2009. He was appointed to the Board of Directors in October 2009 and became Chief Executive Officer of Textron in December 2009. In July 2010, Mr. Donnelly was appointed Chairman of the Board of Directors effective September 1, 2010. Previously, Mr. Donnelly was the President and CEO of General Electric Company’s Aviation business unit, a position he had held since July 2005. GE’s Aviation business unit is a leading maker of commercial and military jet engines and components, as well as integrated digital, electric power and mechanical systems for aircraft. Prior to July 2005, Mr. Donnelly served as Senior Vice President of GE Global Research, one of the world’s largest and most diversified industrial research organizations with facilities in the U.S., India, China and Germany and held various other management positions since joining General Electric in 1989.
Mr. Connor joined Textron in August 2009 as Executive Vice President and Chief Financial Officer. Previously, Mr. Connor was head of Telecom Investment Banking at Goldman, Sachs & Co. from 2003 to 2008. Prior to that position, he served as Chief Operating Officer of Telecom, Technology and Media Investment Banking at Goldman, Sachs & Co. from 1998 to 2003. Mr. Connor joined the Corporate Finance Department of Goldman, Sachs & Co. in 1986 and became a Vice President in 1990 and a Managing Director in 1996.
Ms. Duffy was named Executive Vice President, Human Resources in July 2017. Ms. Duffy joined Textron in 1997 as a member of the corporate legal team and has since held positions of increasing responsibility within the Company’s legal function, previously serving as Vice President and Deputy General Counsel-Litigation, a position she had held since 2011. In that role she was responsible for managing the corporate litigation staff with primary oversight of litigation throughout Textron. She has also played an active role in developing, implementing and standardizing human resources policies across the Company and served as the senior legal advisor on employment and benefits issues.
Mr. Lupone joined Textron in February 2012 as Executive Vice President, General Counsel, Secretary and Chief Compliance Officer. Previously, he was senior vice president and general counsel of Siemens Corporation (U.S.) since 1999 and general counsel of Siemens AG for the Americas since 2008. Prior to joining Siemens in 1992, Mr. Lupone was vice president and general counsel of Price Communications Corporation.
Available Information
We make available free of charge on our Internet Web site (www.textron.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

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Forward-Looking Information
Certain statements in this Annual Report on Form 10-K and other oral and written statements made by us from time to time are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which may describe strategies, goals, outlook or other non-historical matters, or project revenues, income, returns or other financial measures, often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “guidance,” “project,” “target,” “potential,” “will,” “should,” “could,” “likely” or “may” and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update or revise any forward-looking statements. In addition to those factors described herein under “Risk Factors,” among the factors that could cause actual results to differ materially from past and projected future results are the following:
•Interruptions in the U.S. Government’s ability to fund its activities and/or pay its obligations;
•Changing priorities or reductions in the U.S. Government defense budget, including those related to military operations in foreign countries;
•Our ability to perform as anticipated and to control costs under contracts with the U.S. Government;
•The U.S. Government’s ability to unilaterally modify or terminate its contracts with us for the U.S. Government’s convenience or for our failure to perform, to change applicable procurement and accounting policies, or, under certain circumstances, to withhold payment or suspend or debar us as a contractor eligible to receive future contract awards;
•Changes in foreign military funding priorities or budget constraints and determinations, or changes in government regulations or policies on the export and import of military and commercial products;
•Volatility in the global economy or changes in worldwide political conditions that adversely impact demand for our products;
•Volatility in interest rates or foreign exchange rates;
•Risks related to our international business, including establishing and maintaining facilities in locations around the world and relying on joint venture partners, subcontractors, suppliers, representatives, consultants and other business partners in connection with international business, including in emerging market countries;
•Our Finance segment’s ability to maintain portfolio credit quality or to realize full value of receivables;
•Performance issues with key suppliers or subcontractors;
•Legislative or regulatory actions, both domestic and foreign, impacting our operations or demand for our products;
•Our ability to control costs and successfully implement various cost-reduction activities;
•The efficacy of research and development investments to develop new products or unanticipated expenses in connection with the launching of significant new products or programs;
•The timing of our new product launches or certifications of our new aircraft products;
•Our ability to keep pace with our competitors in the introduction of new products and upgrades with features and technologies desired by our customers;
•Pension plan assumptions and future contributions;
•Demand softness or volatility in the markets in which we do business;
•Cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption;
•Difficulty or unanticipated expenses in connection with integrating acquired businesses;
•The risk that acquisitions do not perform as planned, including, for example, the risk that acquired businesses will not achieve revenues and profit projections;
•The impact of changes in tax legislation; and
•Risks and uncertainties related to the impact of the COVID-19 pandemic on our business and operations.

Item 1A. Risk Factors
Our business, financial condition and results of operations are subject to various risks, including those discussed below, which may affect the value of our securities. The risks discussed below are those that we believe currently are the most significant to our business.
Risks Related to the COVID-19 Pandemic
Our business is being adversely impacted, and is expected to continue to be adversely impacted, by the coronavirus (COVID-19) pandemic.
Our businesses have experienced and continue to experience various degrees of disruption and reduced demand for certain of our products due to the unprecedented conditions surrounding the COVID-19 pandemic. The effects of COVID-19 have included and could continue to include disruption of the operation or temporary closure of certain of our facilities or the facilities of our
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customers, suppliers or business partners as well as other disruptions in our supply chains. Challenges resulting from the pandemic have impacted, and may continue to impact, the ability of many of our employees to work effectively, due to illness, quarantines, facility closures, changes in manufacturing processes to accommodate social distancing guidelines, remote working arrangements, or other government-imposed operating restrictions. We have experienced and may continue to experience increased costs as a result of these business and production disruptions. Likewise, we have incurred and may continue to incur additional expenses related to implementing processes and procedures to comply with required operating restrictions and to enhance the safety of our facilities to protect the health of our employees.
Our commercial businesses have been and may continue to be adversely impacted due to a general slowdown in demand for our general aviation products and services, recreational and other specialized vehicles and automotive products. We have experienced a decline in orders for our aviation products and services, as well as lower deliveries of commercial helicopters and fixed-wing aircraft because of reduced demand and travel restrictions imposed in response to the pandemic. Economic and other impacts from the pandemic may also result in future weak demand for our aviation and commercial helicopter products and services, the delay or cancellation of existing orders by our customers and lower flight hours, and consequently, lower demand for parts and maintenance. In addition, new regulations by U.S. or foreign governments and government agencies addressed to the aviation or travel industry could impose additional regulatory, aircraft security, travel restrictions or other requirements or restrictions related to the pandemic that could adversely impact demand for aircraft and rotorcraft or significantly reduce hours flown. As a result, our costs may further increase as a result of the COVID-19 outbreak. These cost increases may not be fully recoverable, negatively impacting our profitability, and may continue even after the business environment has improved.
It is possible that the continued spread of COVID-19 and actions taken by various governmental authorities and other third parties in response to the outbreak could also further cause disruption in our supply chain or in the operations of our business partners, impacting their ability to perform their obligations, which could impact our ability to perform our contractual obligations; cause delay by, or limit the ability of, the U.S. Government and other customers to perform, including in making timely payments to us; and cause other unpredictable events. Limitations on government operations could impact regulatory approvals such as export licenses that are needed for international sales and deliveries. In addition, there may be changes in our U.S. and foreign government customers’ priorities as they confront competing budget priorities and more limited resources. These changes may impact current and future programs, government payments and other practices, procurements and funding decisions.
The outbreak of COVID-19 has resulted in a widespread health crisis that is adversely affecting the economies and financial markets of many countries. The resulting economic downturn, the severity and length of which cannot be predicted, may cause continued reduced demand for our products, delays or cancellations of customer orders, the inability of customers to obtain financing to purchase our products, bankruptcies of our suppliers, customers or other business partners, adverse impact to investment performance of our pension plans and continued volatility in the global capital markets adversely impacting our access to capital. The extent to which the pandemic could impact our business, results of operations, financial condition and liquidity is highly uncertain and also will depend on future developments, most of which are outside our control. Such developments may include the geographic spread and duration of the virus, the severity of the disease, the development of treatments or vaccines, and the effects of actions that have been or may be taken by various governmental authorities and other third parties in response to the outbreak.
See also risks related to our Finance Segment under Financial Risks section below.
Aerospace and Defense Industry Risks
Demand for our aircraft products is cyclical and lower demand adversely affects our financial results.
Demand for business jets, turbo props and commercial helicopters has been cyclical and difficult to forecast. Unexpected events, such as the COVID-19 pandemic, have adversely impacted demand for our aircraft products and may continue to do so. Therefore, future demand for these products could be significantly and unexpectedly less than anticipated and/or less than previous period deliveries. Similarly, there is uncertainty as to when or whether our existing commercial backlog for aircraft products will convert to revenues as the conversion depends on production capacity, customer needs and credit availability. Changes in economic conditions has in the past caused, and in the future may cause, customers to request that firm orders be rescheduled, deferred or cancelled. Reduced demand for our aircraft products or delays or cancellations of orders previously has had and, in the future, could have a material adverse effect on our cash flows, results of operations and financial condition.
We have customer concentration with the U.S. Government; reduction in U.S. Government defense spending can adversely affect our results of operations and financial condition.
During 2020, we derived approximately 30% of our revenues from sales to a variety of U.S. Government entities.  Our revenues from the U.S. Government largely result from contracts awarded to us under various U.S. Government defense-related programs. The funding of these programs is subject to congressional appropriation decisions and the U.S. Government budget process which includes enacting relevant legislation, such as appropriations bills and accords on the debt ceiling. Although multiple-year contracts may be planned in connection with major procurements, Congress generally appropriates funds on a fiscal year basis
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even though a program may continue for several years. Consequently, programs often are only partially funded initially, and additional funds are committed only as Congress makes further appropriations. Further uncertainty with respect to ongoing programs could also result in the event that the U.S. Government finances its operations through temporary funding measures such as “continuing resolutions” rather than full-year appropriations. If we incur costs in advance or in excess of funds committed on a contract, we are at risk for non-reimbursement of those costs until additional funds are appropriated.  The reduction, termination or delay in the timing of funding for U.S. Government programs for which we currently provide or propose to provide products or services from time to time has resulted and, in the future, may result in a loss of anticipated revenues. A loss of such revenues could materially and adversely impact our results of operations and financial condition. Significant changes in national and international policies or priorities for defense spending, as well as the potential impact of sequestration, could affect the funding, or the timing of funding, of our programs, which could negatively impact our results of operations and financial condition.  In addition, because our U.S. Government contracts generally require us to continue to perform even if the U.S. Government is unable to make timely payments, we may need to finance our continued performance for the impacted contracts from our other resources on an interim basis.  An extended delay in the timely payment by the U.S. Government could have a material adverse effect on our liquidity.
U.S. Government contracts can be terminated at any time and may contain other unfavorable provisions.
The U.S. Government typically can terminate or modify any of its contracts with us either for its convenience or if we default by failing to perform under the terms of the applicable contract. In the event of termination for the U.S. Government’s convenience, contractors are generally protected by provisions covering reimbursement for costs incurred on the contracts and profit on those costs but not the anticipated profit that would have been earned had the contract been completed. A termination arising out of our default for failure to perform could expose us to liability, including but not limited to, all costs incurred under the contract plus potential liability for re-procurement costs in excess of the total original contract amount, less the value of work performed and accepted by the customer under the contract. Such an event could also have an adverse effect on our ability to compete for future contracts and orders. If any of our contracts are terminated by the U.S. Government whether for convenience or default, our backlog would be reduced by the expected value of the remaining work under such contracts. We also enter into “fee for service” contracts with the U.S. Government where we retain ownership of, and consequently the risk of loss on, aircraft and equipment supplied to perform under these contracts. Termination of these contracts could materially and adversely impact our results of operations. On contracts for which we are teamed with others and are not the prime contractor, the U.S. Government could terminate a prime contract under which we are a subcontractor, irrespective of the quality of our products and services as a subcontractor. In addition, in the event that the U.S. Government is unable to make timely payments, failure to continue contract performance places the contractor at risk of termination for default. Any such event could have a material adverse effect on our cash flows, results of operations and financial condition.
As a U.S. Government contractor, we are subject to procurement rules and regulations; our failure to comply with these rules and regulations could adversely affect our business.
We must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S. Government contracts. These laws and regulations, among other things, require certification and disclosure of all cost and pricing data in connection with contract negotiation, define allowable and unallowable costs and otherwise govern our right to reimbursement under certain cost-based U.S. Government contracts, and safeguard and restrict the use and dissemination of classified information, covered defense information, and the exportation of certain products and technical data. New laws, regulations or procurement requirements or changes to current ones (including, for example, regulations related to cybersecurity) can significantly increase our costs, reducing our profitability. Our failure to comply with procurement regulations and requirements could allow the U.S. Government to suspend or debar us from receiving new contracts for a period of time, reduce the value of existing contracts, issue modifications to a contract, withhold cash on contract payments, and control and potentially prohibit the export of our products, services and associated materials, any of which could negatively impact our results of operations, financial condition or liquidity. A number of our U.S. Government contracts contain provisions that require us to make disclosure to the Inspector General of the agency that is our customer if we have credible evidence that we have violated U.S. criminal laws involving fraud, conflict of interest, or bribery; the U.S. civil False Claims Act; or received a significant overpayment under a U.S. Government contract. Failure to properly and timely make disclosures under these provisions may result in a termination for default or cause, suspension and/or debarment, and potential fines.
As a U.S. Government contractor, our businesses and systems are subject to audit and review by the Defense Contract Audit Agency (DCAA) and the Defense Contract Management Agency (DCMA).
We operate in a highly regulated environment and are routinely audited and reviewed by the U.S. Government and its agencies such as the DCAA and DCMA. These agencies review our performance under contracts, our cost structure and our compliance with laws and regulations applicable to U.S. Government contractors. The systems that are subject to review include, but are not limited to, our accounting, estimating, material management and accounting, earned value management, purchasing and government property systems. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions that may include the termination of our contracts, forfeiture or reduction of profits, suspension or
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reduction of payments, fines, and, under certain circumstances, suspension or debarment from future contracts for a period of time. Whether or not illegal activities are alleged, the U.S. Government also has the ability to decrease or withhold certain payments when it deems systems subject to its review to be inadequate.  These laws and regulations affect how we conduct business with our government customers and, in some instances, impose added costs on our business.
The use of multi-award contracts by the U.S. Government increases competition, pricing pressure and cost.
The U.S. Government increasingly relies upon competitive contract award types, including indefinite-delivery, indefinite-quantity and multi-award contracts, which have the potential to create greater competition and increased pricing pressure, as well as to increase our cost by requiring that we submit multiple bids. In addition, multi-award contracts increase our cost as they require that we make sustained efforts to obtain task orders and delivery orders under the contract. Further, the competitive bidding process is costly and demands managerial time to prepare bids and proposals for contracts that may not be awarded to us or may be split among competitors.
Our profitability and cash flow varies depending on the mix of our government contracts and our ability to control costs.
Under fixed-price contracts, generally we receive a fixed price irrespective of the actual costs we incur, and, consequently, any costs in excess of the fixed price are absorbed by us. Changes in underlying assumptions, circumstances or estimates used in developing the pricing for such contracts can adversely affect our results of operations. Additionally, fixed-price contracts generally require progress payments rather than performance-based payments which can delay our ability to recover a significant amount of costs incurred on a contract and thus affect the timing of our cash flows. Under fixed-price incentive contracts, we share with the U.S. Government cost underrun savings, which are derived from total cost being less than target costs; we also share in cost overruns, which occur when total costs exceed target costs up to a negotiated cost ceiling, but are solely responsible for costs above the ceiling. Under time and materials contracts, we are paid for labor at negotiated hourly billing rates and for certain expenses. Under cost-reimbursement contracts that are subject to a contract-ceiling amount, we are reimbursed for allowable costs and paid a fee, which may be fixed or performance based, however, if our costs exceed the contract ceiling or are not allowable under the provisions of the contract or applicable regulations, we may not be able to obtain reimbursement for all such costs.  Due to the nature of our work under government contracts, we sometimes experience unforeseen technological difficulties and cost overruns. Under each type of contract, if we are unable to control costs or if our initial cost estimates are incorrect, our cash flows, results of operations and financial condition could be adversely affected. Cost overruns also may adversely affect our ability to sustain existing programs and obtain future contract awards.
Strategic Risks
Developing new products and technologies entails significant risks and uncertainties.
To continue to grow our revenues and segment profit, we must successfully develop new products and technologies or modify our existing products and technologies for our current and future markets. Our future performance depends, in part, on our ability to identify emerging technological trends and customer requirements and to develop and maintain competitive products and services. Delays or cost overruns in the development and acceptance of new products or certification of new aircraft and other products occur from time to time and could adversely affect our results of operations. These delays could be caused by unanticipated technological hurdles, production changes to meet customer demands, unanticipated difficulties in obtaining required regulatory certifications of new aircraft or other products, coordination with joint venture partners or failure on the part of our suppliers to deliver components as agreed. We also could be adversely affected if our research and development efforts are less successful than expected or if we do not adequately protect the intellectual property developed through these efforts. Likewise, new products and technologies could generate unanticipated safety or other concerns resulting in expanded product liability risks, potential product recalls and other regulatory issues that could have an adverse impact on us. Furthermore, because of the lengthy research and development cycle involved in bringing certain of our products to market, we cannot predict the economic conditions that will exist when any new product is complete. A reduction in capital spending in the aerospace or defense industries could have a significant effect on the demand for new products and technologies under development, which could have an adverse effect on our financial condition and results of operations. In addition, our investments in equipment or technology that we believe will enable us to obtain future service contracts for our U.S. Government or other customers may not result in contracts or revenues sufficient to offset such investment. The market for our product offerings does not always develop or continue to expand as we anticipate. Furthermore, we cannot be sure that our competitors will not develop competing technologies which gain superior market acceptance compared to our products.  A significant failure in our new product development efforts or the failure of our products or services to achieve market acceptance relative to our competitors’ products or services could have an adverse effect on our financial condition and results of operations.

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We have made and may continue to make acquisitions that increase the risks of our business.
We enter into acquisitions in an effort to expand our business and enhance shareholder value. Acquisitions involve risks and uncertainties that, in some cases, have resulted, and, in the future, could result in our not achieving expected benefits.  Such risks include difficulties in integrating newly acquired businesses and operations in an efficient and cost-effective manner; challenges in achieving expected strategic objectives, cost savings and other benefits; the risk that the acquired businesses’ markets do not evolve as anticipated and that the acquired businesses’ products and technologies do not prove to be those needed to be successful in those markets; the risk that our due diligence reviews of the acquired business do not identify or adequately assess all of the material issues which impact valuation of the business or result in costs or liabilities in excess of what we anticipated; the risk that we pay a purchase price that exceeds what the future results of operations would have merited; the risk that the acquired business may have significant internal control deficiencies or exposure to regulatory sanctions; and the potential loss of key customers, suppliers and employees of the acquired businesses.
Business and Operational Risks
Our business could be negatively impacted by information technology disruptions and security threats.
Our information technology (IT) and related systems are critical to the efficient operation of our business and essential to our ability to perform day to day processes. From time to time, we update and/or replace IT systems used by our businesses.  The implementation of new systems can present temporary disruptions of business activities as existing processes are transitioned to the new systems, resulting in productivity issues, including delays in production, shipments or other business operations. We also outsource certain support functions, including certain global IT infrastructure services, to third-party service providers, and any disruption of such outsourced processes or functions could have a material adverse effect on our operations.  In addition, as a U.S. defense contractor, we face certain security threats, including threats to our IT infrastructure and unlawful attempts to gain access to our information via phishing / malware campaigns and other cyberattack methods, as well as threats to the physical security of our facilities and employees, as do our customers, suppliers, subcontractors and joint venture partners. Attempts to gain unauthorized access to our confidential, classified or otherwise proprietary information or that of our employees or customers, as well as other security breaches, are persistent, continue to evolve and require highly skilled IT resources.
We maintain Information Systems Incident Management Standards applicable to all our businesses intended to ensure information security events and weaknesses associated with information systems are communicated and acted on in a timely manner. Our enterprise risk management program includes cyber risk/network protection mitigation plans, and our disclosure controls and procedures address cybersecurity and include processes intended to ensure that security breaches are analyzed for potential disclosure. Additionally, we conduct periodic training for our employees regarding the protection of sensitive information which includes training intended to prevent the success of cyberattacks. Further, our insider trading compliance program addresses restrictions against trading while in possession of material, nonpublic information in connection with a cybersecurity incident.
While we have experienced cybersecurity attacks, we have not suffered any material losses relating to such attacks, and we believe our threat detection and mitigation processes and procedures are robust.  Due to the evolving nature of security threats, the possibility of future material incidents cannot be completely mitigated, and we may not always be successful in detecting, reporting or responding to cyber incidents. Future attacks or breaches of data security, whether of our systems or the systems of our service providers or other third parties who may have access to our data for business purposes, could disrupt our operations, cause the loss of business information or compromise confidential information, exposing us to liability or regulatory action. Such an incident also could require significant management attention and resources, increase costs that may not be covered by insurance, and result in reputational damage, potentially adversely affecting our competitiveness and our results of operations. Products and services that we provide to our customers may themselves be subject to cyberthreats which may not be detected or effectively mitigated, resulting in potential losses that could adversely affect us and our customers. In addition, our customers, including the U.S. Government, are increasingly requiring cybersecurity protections and mandating cybersecurity standards in our products, and we may incur additional costs to comply with such demands.
Failure to perform by our subcontractors or suppliers could adversely affect our performance.
We rely on other companies to provide raw materials, major components and subsystems for our products. Subcontractors also perform services that we provide to our customers in certain circumstances. We depend on these suppliers and subcontractors to meet our contractual obligations to our customers and conduct our operations. Our ability to meet our obligations to our customers could be adversely affected if suppliers or subcontractors do not provide the agreed-upon supplies or perform the agreed-upon services in compliance with customer requirements and in a timely and cost-effective manner. Likewise, the quality of our products could be adversely impacted if companies to whom we delegate manufacture of major components or subsystems for our products, or from whom we acquire such items, do not provide components or subsystems which meet required specifications and perform to our and our customers’ expectations. Our suppliers may be less likely than us to be able to quickly recover from natural disasters and other events beyond their control and may be subject to additional risks such as financial problems that limit their ability to conduct their operations. The risk of these adverse effects would likely be greater in circumstances where we rely on only one or two subcontractors or suppliers for a particular raw material, product or service. In particular, in the aircraft
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industry, most vendor parts are certified by the regulatory agencies as part of the overall Type Certificate for the aircraft being produced by the manufacturer. If a vendor does not or cannot supply its parts, then the manufacturer’s production line may be stopped until the manufacturer can design, manufacture and certify a similar part itself or identify and certify another similar vendor’s part, resulting in significant delays in the completion of aircraft. Such events may adversely affect our financial results, damage our reputation and relationships with our customers, and result in regulatory actions and/or litigation.
We are subject to the risks of doing business in foreign countries that could adversely impact our business.
During 2020, we derived approximately 32% of our revenues from international business, including U.S. exports. Conducting business internationally exposes us to additional risks than if we conducted our business solely within the U.S. We maintain manufacturing facilities, service centers, supply centers and other facilities worldwide, including in various emerging market countries.  Risks related to international operations include import, export, economic sanctions and other trade restrictions; changing U.S. and foreign procurement policies and practices; changes in international trade policies, including higher tariffs on imported goods and materials and renegotiation of free trade agreements; potential retaliatory tariffs imposed by foreign countries against U.S. goods; impacts related to the voluntary exit of the United Kingdom from the European Union (Brexit); restrictions on technology transfer; difficulties in protecting intellectual property; increasing complexity of employment and environmental, health and safety regulations; foreign investment laws; exchange controls; repatriation of earnings or cash settlement challenges; compliance with increasingly rigorous data privacy and protection laws; competition from foreign and multinational firms with home country advantages; economic and government instability, acts of terrorism and related safety concerns.  The impact of any one or more of these or other factors could adversely affect our business, financial condition or operating results.
Additionally, some international government customers require contractors to agree to specific in-country purchases, technology transfers, manufacturing agreements or financial support arrangements, known as offsets, as a condition for a contract award. These contracts generally extend over several years and may include penalties if we fail to perform in accordance with the offset requirements which are often subjective. We also are exposed to risks associated with using foreign representatives and consultants for international sales and operations and teaming with international subcontractors and suppliers in connection with international programs. In many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act. Although we maintain policies and procedures designed to facilitate compliance with these laws, a violation of such laws by any of our international representatives, consultants, joint ventures, business partners, subcontractors or suppliers, even if prohibited by our policies, could have an adverse effect on our business and reputation.
Natural disasters or other events outside of our control may disrupt our operations, adversely affect our results of operations and financial condition, and may not be fully covered by insurance.
Natural disasters, including hurricanes, fires, tornados, floods and other forms of severe weather, the intensity and frequency of which are being exacerbated by climate change, other impacts of climate change, such as rising sea waters, as well as other events outside of our control including public health crises or pandemics, power outages and industrial accidents, have in the past and could in the future disrupt our operations and adversely affect our business. Any of these events could result in physical damage to and/or complete or partial closure of one or more of our facilities, temporary or long-term disruption of our operations or the operations of our suppliers by causing business interruptions or by impacting the availability and cost of materials needed for manufacturing or otherwise impacting our ability to deliver products and services to our customers. Existing insurance arrangements may not provide full protection for the costs that may arise from such events. The occurrence of any of these events could materially increase our costs and expenses and have a material adverse effect on our business, financial condition and results of operations.
Financial Risks
If our Finance segment has difficulty collecting on its finance receivables, our financial performance could be adversely affected.
The financial performance of our Finance segment depends on the quality of loans, leases and other assets in its portfolio. Portfolio quality can be adversely affected by several factors, including finance receivable underwriting procedures, collateral value, geographic or industry concentrations, and the effect of general economic conditions such as the recent deterioration of the economy due to the impact from the COVID-19 pandemic. The pandemic has resulted in disruptions in the ability of many of our customers to conduct business effectively because of illness, quarantines, government shut-down orders, facility closures, reduced customer demand or other restrictions. As a result, our Finance segment has modified a significant number of the loans in its portfolio in order to provide temporary payment relief to its customers. In addition, the Finance segment has provided extended payment relief to certain customers. These modifications will delay our ultimate recovery on these assets. In addition, a substantial number of the originations in our finance receivable portfolio are cross-border transactions for aircraft sold outside of the U.S. Cross-border transactions present additional challenges and risks in the event of borrower default, which can result in difficulty or delay in collecting on the related finance receivables. Should current economic conditions persist or worsen, our
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Finance segment may have difficulty successfully collecting on its finance receivable portfolio, and as a result our cash flow, results of operations and financial condition could be adversely affected.
We periodically need to obtain financing and such financing may not be available to us on satisfactory terms, if at all.
We periodically need to obtain financing in order to meet our debt obligations as they come due, to support our operations and/or to make acquisitions. Our access to the debt capital markets and the cost of borrowings are affected by a number of factors including market conditions and the strength of our credit ratings. If we cannot obtain adequate sources of credit on favorable terms, or at all, our business, operating results, and financial condition could be adversely affected.
Unanticipated changes in our tax rates or exposure to additional income tax liabilities could affect our profitability.
We are subject to income taxes in the U.S. and various non-U.S. jurisdictions, and our domestic and international tax liabilities are subject to the location of income among these different jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings indefinitely reinvested offshore, changes to unrecognized tax benefits or changes in tax laws, which could affect our profitability. In particular, the carrying value of deferred tax assets is dependent on our ability to generate future taxable income, as well as changes to applicable statutory tax rates. In addition, the amount of income taxes we pay is subject to audits in various jurisdictions, and a material assessment by a tax authority could affect our profitability.
Risks Related to Regulatory and Legal Matters
We are subject to increasing compliance risks that could adversely affect our operating results.
As a global business, we are subject to laws and regulations in the U.S. and other countries in which we operate. International sales and global operations require importing and exporting goods, software and technology, some of which have military applications subjecting them to more stringent import-export controls across international borders on a regular basis. For example, we sometimes initially must obtain licenses and authorizations from various U.S. Government agencies before we are permitted to sell certain of our aerospace and defense products outside the U.S., and we are not always successful in obtaining these licenses or authorizations in a timely manner. Both U.S. and foreign laws and regulations applicable to us have been increasing in scope and complexity. For example, both U.S. and foreign governments and government agencies regulate the aviation industry, and they have previously and may in the future impose new regulations for additional aircraft security or other requirements or restrictions, including, for example, restrictions and/or fees related to carbon emissions levels. Changes in environmental and climate change laws and regulations, including laws relating to greenhouse gas emissions, could lead to the necessity for new or additional investment in product designs or manufacturing processes and could increase environmental compliance expenditures, including costs to defend regulatory reviews. New or changing laws and regulations or related interpretation and policies could increase our costs of doing business, affect how we conduct our operations, adversely impact demand for our products, and/or limit our ability to sell our products and services. Compliance with laws and regulations of increasing scope and complexity is even more challenging in our current business environment in which reducing our operating costs is often necessary to remain competitive. In addition, a violation of U.S. and/or foreign laws by one of our employees or business partners could subject us or our employees to civil or criminal penalties, including material monetary fines, or other adverse actions, such as denial of import or export privileges and/or debarment as a government contractor which could damage our reputation and have an adverse effect on our business.
Certain of our products are subject to laws regulating consumer products and could be subject to repurchase or recall as a result of safety issues.
As a distributor of consumer products in the U.S., certain of our products are subject to the Consumer Product Safety Act, which empowers the U.S. Consumer Product Safety Commission (CPSC) to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the CPSC could require us to repair, replace or refund the purchase price of one or more of our products, or potentially even discontinue entire product lines. We also may voluntarily take such action and, from time to time, have done so, but within strictures recommended by the CPSC. The CPSC also can impose fines or penalties on a manufacturer for non-compliance with its requirements. Furthermore, failure to timely notify the CPSC of a potential safety hazard can result in significant fines being assessed against us. Any repurchases or recalls of our products or an imposition of fines or penalties could be costly to us and could damage the reputation or the value of our brands. Additionally, laws regulating certain consumer products exist in some states, as well as in other countries in which we sell our products, and more restrictive laws and regulations could be adopted in the future.
Increased regulation related to global climate change could negatively affect our business.
Increased public awareness and concern regarding global climate change may result in more international, regional and/or federal requirements to reduce or mitigate global warming and these regulations could mandate stricter limits on greenhouse gas emissions. If environmental or climate change laws or regulations are either changed or adopted and impose significant operational restrictions and compliance requirements upon our business or our products, they could negatively impact our business, capital expenditures, results of operations, financial condition and competitive position.
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We are subject to legal proceedings and other claims.
We 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.  Due to the nature of our manufacturing business, we are regularly subject to liability claims arising from accidents involving our products, including claims for serious personal injuries or death caused by weather or by pilot, driver or user error. In the case of litigation matters for which reserves have not been established because the loss is not deemed probable, it is reasonably possible that such claims could be decided against us and could require us to pay damages or make other expenditures in amounts that are not presently estimable. In addition, we cannot be certain that our reserves are adequate and that our insurance coverage will be sufficient to cover one or more substantial claims. Furthermore, we may not be able to obtain insurance coverage at acceptable levels and costs in the future.  Litigation is inherently unpredictable, and we could incur judgments, receive adverse arbitration awards or enter into settlements for current or future claims that could adversely affect our results of operations in any particular period.
Intellectual property infringement claims of others and the inability to protect our intellectual property rights could harm our business and our customers.
Intellectual property infringement claims are, from time to time, asserted by third parties against us or our customers. Any related indemnification payments or legal costs we are obliged to pay on behalf of our businesses, our customers or other third parties can be costly. Infringement claims also have resulted in legal restrictions on our businesses engaging in sales of allegedly infringing products. If such a restriction were imposed upon a material product line, our business and results of operations could be adversely impacted. In addition, we own the rights to many patents, trademarks, brand names, trade names and trade secrets that are important to our business. The inability to enforce these intellectual property rights could have an adverse effect on our results of operations. Additionally, our intellectual property could be at risk due to cybersecurity threats.
Risks Related to Human Capital
Our success is highly dependent on our ability to maintain a qualified workforce.
Our success is highly dependent upon our ability to maintain a workforce with the skills necessary for our businesses to succeed. We need highly skilled personnel in multiple areas including, among others, engineering, manufacturing, information technology, cybersecurity, flight operations, business development and strategy and management.  From time to time we face challenges that may impact employee retention such as workforce reductions and facility consolidations and closures. In addition, some of our most experienced employees are retirement-eligible.  To the extent that we lose experienced personnel through retirement or otherwise, it is critical for us to develop other employees, hire new qualified employees and successfully manage the transfer of critical knowledge.  Competition for skilled employees is intense, and we may incur higher labor, recruiting and/or training costs in order to attract and retain employees with the requisite skills. We may not be successful in hiring or retaining such employees which could adversely impact our business and results of operations.
The increasing costs of certain employee and retiree benefits could adversely affect our results.
Our results of operations and cash flows may be adversely impacted by increasing costs and funding requirements related to our employee benefit plans. The obligation for our defined benefit pension plans is driven by, among other things, our assumptions of the expected long-term rate of return on plan assets and the discount rate used for future payment obligations. Additionally, as part of our annual evaluation of these plans, significant changes in our assumptions, due to changes in economic, legislative and/or demographic experience or circumstances, or changes in our actual investment returns could negatively impact the funded status of our plans requiring us to substantially increase our pension liability with a resulting decrease in shareholders’ equity. Also, changes in pension legislation and regulations could increase the cost associated with our defined benefit pension plans.
Our business could be adversely affected by strikes or work stoppages and other labor issues.
Approximately 6,800, or 28%, of our U.S. employees are unionized, and many of our non-U.S. employees are represented by organized councils. As a result, from time to time we experience work stoppages, which can negatively impact our ability to manufacture our products on a timely basis, resulting in strain on our relationships with our customers, loss or delay of revenues and/or increased cost. The presence of unions also may limit our flexibility in responding to competitive pressures in the marketplace. In addition, the workforces of many of our suppliers and customers are represented by labor unions. Work stoppages or strikes at the plants of our key suppliers could disrupt our manufacturing processes; similar actions at the plants of our customers could result in delayed or canceled orders for our products. Any of these events could adversely affect our results of operations.

Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
On January 2, 2021, we operated a total of 54 plants located throughout the U.S. and 49 plants outside the U.S. We own 59 plants and lease the remainder for a total manufacturing space of approximately 23.9 million square feet. We consider the productive capacity of the plants operated by each of our business segments to be adequate. We also own or lease offices, warehouses, training and service centers and other space at various locations. In general, our facilities are in good condition, are considered to be adequate for the uses to which they are being put and are substantially in regular use.

Item 3. Legal Proceedings
As previously reported in Textron’s Annual Report on Form 10-K for the fiscal year ended January 4, 2020, on August 22, 2019, a purported shareholder class action lawsuit was filed in the United States District Court in the Southern District of New York against Textron, its Chairman and Chief Executive Officer and its Chief Financial Officer. The suit, filed by Building Trades Pension Fund of Western Pennsylvania, alleges that the defendants violated the federal securities laws by making materially false and misleading statements and concealing material adverse facts related to the Arctic Cat acquisition and integration. The complaint seeks unspecified compensatory damages. On November 12, 2019, the Court appointed IWA Forest Industry Pension Fund (IWA) as the sole lead plaintiff in the case. On December 24, 2019, IWA filed an Amended Complaint in the now entitled In re Textron Inc. Securities Litigation. On February 14, 2020, IWA filed a Second Amended Complaint, and on March 6, 2020, Textron filed a motion to dismiss the Second Amended Complaint. On July 20, 2020, the Court granted Textron’s motion to dismiss and closed the case. On August 18, 2020, plaintiffs filed a notice of appeal contesting the dismissal, which Textron has opposed. That appeal remains pending.
As previously reported in Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, on February 7, 2012, a lawsuit was filed in the United States Bankruptcy Court, Northern District of Ohio, Eastern Division (Akron) by Brian A. Bash, Chapter 7 Trustee for Fair Finance Company against Textron Financial Corporation (TFC), Fortress Credit Corp. and Fair Facility I, LLC. TFC provided a revolving line of credit of up to $17.5 million to Fair Finance Company from 2002 through 2007. The complaint alleges numerous counts against TFC, as Fair Finance Company’s working capital lender, including receipt of fraudulent transfers and assisting in fraud perpetrated on Fair Finance investors. The Trustee seeks avoidance and recovery of alleged fraudulent transfers in the amount of $316 million as well as damages of $223 million on the other claims. On November 9, 2012, the Court dismissed all claims against TFC. The trustee appealed, and on August 23, 2016, the 6th Circuit Court of Appeals reversed the dismissal in part and remanded certain claims back to the trial court. On September 27, 2018, after reconsidering the remanded claims which were based upon civil conspiracy and intentional fraudulent transfer, the trial court granted partial summary judgment in favor of TFC, dismissing the Trustee’s civil conspiracy claim, as well as a portion of the Trustee’s claim for intentional fraudulent transfer, leaving only a portion of the intentional fraudulent transfer claim to be adjudicated. A trial for this matter was held in February 2020, and on March 10, 2020, the jury returned a verdict in favor of TFC and against the Trustee. On the same day, the Court entered judgment in TFC's favor. On March 23, 2020, the Trustee filed a notice of appeal, which Textron has opposed. That appeal remains pending.
We also are subject to actual and threatened 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, health and safety 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.

Item 4. Mine Safety Disclosures
Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The principal market on which our common stock is traded is the New York Stock Exchange under the symbol "TXT." At January 2, 2021, there were approximately 7,600 record holders of Textron common stock.
Issuer Repurchases of Equity Securities
The following provides information about our fourth quarter 2020 repurchases of equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:

Period (shares in thousands)	Total
Number of
Shares
Purchased *	Average Price
Paid per Share
(excluding
commissions)	Total Number of
Shares Purchased as
part of Publicly
Announced Plan *	Maximum
Number of Shares
that may yet be
Purchased under
the Plan	
October 4, 2020 – November 7, 2020	75 		$	38.60 		75 		24,050 		
November 8, 2020 – December 5, 2020	1,205 		43.56 		1,205 		22,845 		
December 6, 2020 – January 2, 2021	1,555 		47.49 		1,555 		21,290 		
Total	2,835 		$	45.58 		2,835 			
* These shares were purchased pursuant to a plan authorizing the repurchase of up to 25 million shares of Textron common stock that was announced on February 25,2020, which had no expiration date.
Stock Performance Graph
The following graph compares the total return on a cumulative basis at the end of each year of $100 invested in our common stock on December 31, 2015 with the Standard & Poor’s (S&P) 500 Stock Index, the S&P 500 Aerospace & Defense (A&D) Index and the S&P 500 Industrials Index, all of which include Textron. The values calculated assume dividend reinvestment.

																					
	2015	2016	2017	2018	2019	2020	
Textron Inc.	$	100.00 		$	115.82 		$	135.19 		$	109.20 		$	107.20 		$	116.07 		
S&P 500	100.00 		111.96 		136.40 		129.31 		171.74 		203.04 		
S&P 500 A&D	100.00 		118.90 		168.11 		152.51 		209.19 		169.05 		
S&P 500 Industrials	100.00 		110.12 		134.97 		129.69 		173.16 		212.71 		
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Item 6. Selected Financial Data

(Dollars in millions, except per share amounts)	2020	2019	2018	2017	2016	
Revenues (a)						
Textron Aviation	$	3,974 		$	5,187 		$	4,971 		$	4,686 		$	4,921 		
Bell	3,309 		3,254 		3,180 		3,317 		3,239 		
Textron Systems	1,313 		1,325 		1,464 		1,840 		1,756 		
Industrial	3,000 		3,798 		4,291 		4,286 		3,794 		
Finance	55 		66 		66 		69 		78 		
Total revenues	$	11,651 		$	13,630 		$	13,972 		$	14,198 		$	13,788 		
Segment profit						
Textron Aviation	$	16 		$	449 		$	445 		$	303 		$	389 		
Bell	462 		435 		425 		415 		386 		
Textron Systems	152 		141 		156 		139 		186 		
Industrial	111 		217 		218 		290 		329 		
Finance	10 		28 		23 		22 		19 		
Total segment profit	751 		1,270 		1,267 		1,169 		1,309 		
Corporate expenses and other, net	(122)		(110)		(119)		(132)		(172)		
Interest expense, net for Manufacturing group	(145)		(146)		(135)		(145)		(138)		
Special charges (b)	(147)		(72)		(73)		(130)		(123)		
Inventory charge (c)	(55)		— 		— 		— 		— 		
Gain on business disposition (d)	— 		— 		444 		— 		— 		
Income tax (expense) benefit (e)	27 		(127)		(162)		(456)		(33)		
Income from continuing operations	$	309 		$	815 		$	1,222 		$	306 		$	843 		
Earnings per share						
Basic earnings per share — continuing operations	$	1.35 		$	3.52 		$	4.88 		$	1.15 		$	3.11 		
Diluted earnings per share — continuing operations	$	1.35 		$	3.50 		$	4.83 		$	1.14 		$	3.09 		
Basic average shares outstanding (in thousands)	228,536 		231,315 		250,196 		266,380 		270,774 		
Diluted average shares outstanding (in thousands)	228,979 		232,709 		253,237 		268,750 		272,365 		
Common stock information						
Dividends declared per share	$	0.08 		$	0.08 		$	0.08 		$	0.08 		$	0.08 		
Book value at year-end	$	25.81 		$	24.21 		$	22.04 		$	21.60 		$	20.62 		
Price at year-end	$	48.33 		$	44.74 		$	45.65 		$	56.59 		$	48.56 		
Financial position						
Total assets	$	15,443 		$	15,018 		$	14,264 		$	15,340 		$	15,358 		
Manufacturing group debt	$	3,707 		$	3,124 		$	3,066 		$	3,088 		$	2,777 		
Finance group debt	$	662 		$	686 		$	718 		$	824 		$	903 		
Shareholders’ equity	$	5,845 		$	5,518 		$	5,192 		$	5,647 		$	5,574 		
Manufacturing group debt-to-capital (net of cash)	21%	26%	29%	26%	23%	
Manufacturing group debt-to-capital	39%	36%	37%	35%	33%	
Investment data						
Capital expenditures	$	317 		$	339 		$	369 		$	423 		$	446 		
Manufacturing group depreciation	$	325 		$	346 		$	358 		$	362 		$	368 		
(a)At the beginning of 2018, we adopted ASC 606 using a modified retrospective basis and as a result, the comparative information has not been restated and is reported under the accounting standards in effect for these years.
(b)In 2020, special charges included $108 million recorded under a restructuring plan, primarily impacting the TRU Simulation + Training (TRU) business within the Textron Systems segment, and the Textron Aviation and Industrial segments, and $39 million of charges related to the impairment of indefinite-lived trade name intangible assets, primarily in the Textron Aviation segment. In 2019, $72 million was recorded under a restructuring plan principally impacting the Industrial and Textron Aviation segments. In 2018, $73 million was recorded under a restructuring plan for the Specialized Vehicles businesses within our Industrial segment. In 2017 and 2016, special charges included $90 million and $123 million, respectively, related to our 2016 restructuring plan and $40 million in 2017, for a restructuring plan related to the Arctic Cat acquisition.
(c)In connection with the 2020 restructuring plan, we ceased manufacturing at TRU's facility in Montreal, Canada, resulting in the production suspension of its commercial air transport simulators. As a result of market conditions and the cessation of manufacturing at this facility, we incurred a $55 million charge to write-down the related inventory to its net realizable value.
(d)In 2018, we completed the sale of the Tools and Test Equipment product line which resulted in an after-tax gain of $419 million.
(e)In 2017, income tax expense included a $266 million charge to reflect our provisional estimate of the net impact of the Tax Cuts and Jobs Act. We completed our analysis of this legislation in the fourth quarter of 2018 and recorded a $14 million benefit. In 2016, we recognized a benefit of $319 million, inclusive of interest, of which $206 million is attributable to continuing operations and $113 million is attributable to discontinued operations. This benefit was a result of the final settlement with the Internal Revenue Service Office of Appeals for our 1998 to 2008 tax years.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
During 2020, the global pandemic caused by the novel coronavirus, known as “COVID-19”, led to worldwide facility closures, workforce disruptions, supply chain destabilizations, reduced demand for many products and services, volatility in the capital markets and uncertainty in the economic outlook. Our operations experienced and continue to experience various degrees of disruption due to the unprecedented conditions surrounding the pandemic. While some of our commercial manufacturing facilities had temporarily closed during the first quarter of 2020 through the latter part of the second quarter due to reduced demand for certain of our products, substantially all manufacturing activities had resumed in the third quarter. In the second half of the year, our commercial businesses have generally experienced an increase in customer demand compared with the first half of 2020. However, demand has not returned to pre-pandemic levels.
In the first quarter of 2020, following the onset of the pandemic, we strengthened our cash position by issuing $650 million in senior debt and by borrowing $500 million under a new 364-Day Term Loan Credit Agreement. We also temporarily suspended share repurchases and took other measures to reduce costs and conserve cash, including employee furloughs at many of our commercial businesses and at corporate headquarters, reducing capital expenditures and delaying certain research and development projects. In the second quarter, we continued most of the measures taken in the first quarter to reduce costs and conserve cash and initiated a restructuring plan at certain of our businesses to further reduce costs. During the remainder of the year, we continued our focus on managing our businesses through the impacts of the pandemic while investing in future products and technologies. Key financial highlights for 2020 include:
•Generated $833 million of net cash from operating activities from our manufacturing businesses.
•Maintained a strong cash position with $2.3 billion in cash and equivalents at the end of the year.
•Invested $317 million in capital expenditures and $549 million in research and development projects.
•Repurchased 4.1 million shares of our common stock.
While we expect our commercial businesses, which have been adversely impacted by the pandemic, to slowly recover with the broader economic recovery, we cannot reasonably estimate when customer demand for our products and services may return to pre-pandemic levels. There are many uncertainties regarding the pandemic, and we continue to closely monitor the impact of the pandemic on all aspects of our business, including how it is impacting our customers, employees, suppliers, vendors, business partners and distribution channels. See Item 1A. Risk Factors for additional risks and uncertainties related to the pandemic’s impact on our business. The ultimate extent of the effects of the pandemic on the company and our consolidated financial position is uncertain and will depend on future developments, including the length and severity of the pandemic, and such effects could exist for an extended period of time, even after the pandemic ends.

For an overview of our business segments, including a discussion of our major products and services, refer to Item 1. Business. A discussion of our financial condition and operating results for 2020 compared with 2019 is provided below, while a discussion of 2019 compared with 2018 can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended January 4, 2020. The following discussion should be read in conjunction with our Consolidated Financial Statements and related Notes included in Item 8. Financial Statements and Supplementary Data.

Consolidated Results of Operations

				% Change	
(Dollars in millions)	2020	2019	2018	2020	2019	
Revenues	$	11,651	$	13,630	$	13,972	(15)%	(2)%	
Cost of sales	10,094	11,406	11,594	(12)%	(2)%	
Gross margin as a percentage of Manufacturing revenues	13.0%	15.9%	16.6%			
Selling and administrative expense	1,045	1,152	1,275	(9)%	(10)%	
Interest expense	166	171	166	(3)%	3%	

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Revenues
Revenues decreased $2.0 billion, 15%, in 2020, compared with 2019. The revenue decrease included the following factors:
•Textron Aviation revenues were lower by $1.2 billion, largely due to lower Citation jet and commercial turboprop volume of $916 million, reflecting a decline in demand related to the pandemic, and lower aftermarket volume of $337 million, reflecting lower aircraft utilization resulting from the pandemic.
•Industrial revenues were lower by $798 million, largely due to lower volume in the Fuel Systems and Functional Components product line, primarily due to manufacturing facility closures in the first half of 2020, and lower volume and mix in the Specialized Vehicles product line, primarily reflecting a decline in demand related to the pandemic.
•Bell revenues were higher by $55 million, due to higher military revenues of $225 million, largely reflecting spares and logistics support, partially offset by lower commercial revenues.
Cost of Sales and Selling and Administrative Expense
Cost of sales decreased $1.3 billion, 12%, in 2020, compared with 2019, largely due to lower net volume and mix described above. The decrease in cost of sales was partially offset by idle facility costs of $142 million, primarily at the Textron Aviation segment, reflecting unfavorable absorption of manufacturing costs attributable to abnormally low production levels resulting from the pandemic and temporary manufacturing facility closures, and a $55 million inventory charge related to the TRU business discussed in Note 17 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. Gross margin as a percentage of Manufacturing revenues decreased 290 basis points in 2020, compared with 2019, primarily due to lower margin at the Textron Aviation segment reflecting unfavorable impacts from the pandemic, including the idle facility costs and inventory valuation charges.
Selling and administrative expense decreased $107 million, 9%, in 2020, compared with 2019, primarily due to cost reduction activities across our manufacturing segments, principally at the Textron Aviation and Industrial segments.
Special Charges
Special charges of $147 million and $72 million in 2020 and 2019, respectively, primarily include restructuring activities and intangible asset impairment charges as described in Note 17 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.

Income Taxes

	2020	2019	2018	
Effective tax rate	(9.6%)	13.5%	11.7%	
In 2020, the effective tax rate of (9.6)% was lower than the U.S. federal statutory tax rate of 21%, primarily due to an audit settlement with respect to certain state income tax returns that resulted in a $52 million benefit and the favorable impact of research credits. In 2019, the effective tax rate of 13.5% was lower than the U.S. federal statutory tax rate of 21%, primarily due to $61 million in benefits recognized for additional tax credits related to prior years as a result of the completion of a research and development tax credit analysis.  
For a full reconciliation of our effective tax rate to the U.S. federal statutory tax rate, see Note 18 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.

Segment Analysis
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, special charges and an inventory charge related to the 2020 COVID-19 restructuring plan, as discussed in Note 17 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.  Operating expenses for the Manufacturing segments include cost of sales, selling and administrative expense and other non-service components of net periodic benefit cost/(credit), and exclude certain corporate expenses and special charges.
In our discussion of comparative results for the Manufacturing group, changes in revenues and segment profit for our commercial businesses typically are expressed in terms of volume and mix, pricing, foreign exchange, acquisitions and dispositions, inflation and performance. For revenues, volume and mix represents changes in revenues from increases or decreases in the number of units delivered or services provided and the composition of products and/or services sold.  For segment profit, volume and mix represents a change due to the number of units delivered or services provided and the composition of products and/or services
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sold at different profit margins. Pricing represents changes in unit pricing. Foreign exchange is the change resulting from translating foreign-denominated amounts into U.S. dollars at exchange rates that are different from the prior period. Revenues generated by acquired businesses are reflected in Acquisitions for a twelve-month period, while reductions in revenues and segment profit from the sale of businesses are reflected as Dispositions. Inflation represents higher material, wages, benefits, pension service cost or other costs.  Performance reflects an increase or decrease in research and development, depreciation, selling and administrative costs, warranty, product liability, quality/scrap, labor efficiency, overhead, non-service pension cost/(credit), product line profitability, start-up, ramp up and cost-reduction initiatives or other manufacturing inputs.
Approximately 30% of our 2020 revenues were derived from contracts with the U.S. Government, including those under the U.S. Government-sponsored foreign military sales program.  For our segments that contract with the U.S. Government, changes in revenues related to these contracts are expressed in terms of volume.  Changes in segment profit for these contracts are typically expressed in terms of volume and mix and performance; these include cumulative catch-up adjustments associated with a) revisions to the transaction price that may reflect contract modifications or changes in assumptions related to award fees and other variable consideration or b) changes in the total estimated costs at completion due to improved or deteriorated operating performance.

Textron Aviation

				% Change	
(Dollars in millions)	2020	2019	2018	2020	2019	
Revenues:						
Aircraft	$	2,714	$	3,592	$	3,435	(24)%	5%	
Aftermarket parts and services	1,260	1,595	1,536	(21)%	4%	
Total revenues	3,974	5,187	4,971	(23)%	4%	
Operating expenses	3,958	4,738	4,526	(16)%	5%	
Segment profit	16	449	445	(96)%	1%	
Profit margin	0.4%	8.7%	9.0%			
Backlog	$	1,603	$	1,714	$	1,791	(6)%	(4)%	

Textron Aviation Revenues and Operating Expenses
Factors contributing to the 2020 year-over-year revenue change are provided below:

(In millions)	2020 versus
2019	
Volume and mix	$	(1,218)		
Pricing	5 		
Total change	$	(1,213)		

Textron Aviation’s revenues decreased $1.2 billion, 23%, in 2020, compared with 2019, largely due to lower Citation jet volume of $688 million and lower commercial turboprop volume of $228 million, reflecting a decline in demand related to the pandemic, and lower aftermarket volume of $337 million, reflecting lower aircraft utilization resulting from the pandemic. We delivered 132 Citation jets and 113 commercial turboprops in 2020, compared with 206 Citation jets and 176 commercial turboprops in 2019.

Textron Aviation’s operating expenses decreased $780 million, 16%, in 2020, compared with 2019, largely due to lower volume and mix described above. A favorable impact from cost reduction activities, including employee furloughs and other actions, was more than offset by $115 million of idle facility costs recognized in the period and higher inventory valuation charges of $60 million, largely resulting from the pandemic. Idle facility costs reflect unfavorable absorption of manufacturing costs attributable to abnormally low production levels resulting from the pandemic and temporary manufacturing facility closures.

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Textron Aviation Segment Profit
Factors contributing to 2020 year-over-year segment profit change are provided below:

(In millions)	2020 versus
2019	
Volume and mix	$	(347)		
Inflation and pricing	(45)		
Performance	(41)		
Total change	$	(433)		
Textron Aviation’s segment profit decreased $433 million, in 2020, compared with 2019, due to the impact from lower volume and mix described above. Performance includes $115 million of idle facility costs, described above, and higher inventory valuation charges of $60 million, largely resulting from the pandemic, partially offset by a favorable impact from cost reduction activities described above.

Bell

				% Change	
(Dollars in millions)	2020	2019	2018	2020	2019	
Revenues:						
Military aircraft and support programs	$	2,213	$	1,988	$	2,030	11%	(2)%	
Commercial helicopters, parts and services	1,096	1,266	1,150	(13)%	10%	
Total revenues	3,309	3,254	3,180	2%	2%	
Operating expenses	2,847	2,819	2,755	1%	2%	
Segment profit	462	435	425	6%	2%	
Profit margin	14.0%	13.4%	13.4%			
Backlog	$	5,342	$	6,902	$	5,837	(23)%	18%	
Bell’s major U.S. Government programs at this time are the V-22 tiltrotor aircraft and the H-1 helicopter platforms, which are both in the production and support stage and represent a significant portion of Bell’s revenues from the U.S. Government.
Bell Revenues and Operating Expenses
Factors contributing to the 2020 year-over-year revenue change are provided below:

(In millions)	2020 versus
2019	
Volume and mix	$	41 		
Other	14 		
Total change	$	55 		
Bell’s revenues increased $55 million, 2%, in 2020, compared with 2019, due to higher military revenues of $225 million, largely reflecting spares and logistics support, partially offset by lower commercial revenues. We delivered 140 commercial helicopters in 2020, compared with 201 commercial helicopters in 2019.
Bell’s operating expenses increased $28 million, 1%, in 2020, compared with 2019, primarily due to higher net volume and mix as described above.
Bell Segment Profit
Factors contributing to 2020 year-over-year segment profit change are provided below:

(In millions)	2020 versus
2019	
Volume and mix	$	16 		
Performance and other	11 		
Total change	$	27 		
Bell’s segment profit increased $27 million, 6%, in 2020, compared with 2019, primarily due to the impact from higher volume and mix described above, and a favorable impact from performance and other of $11 million. Performance and other includes
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lower research and development and selling and administrative costs, partially offset by $25 million in lower net favorable program adjustments.
Bell Backlog
Bell’s backlog decreased $1.6 billion, 23%, in 2020, primarily as a result of revenues recognized on our U.S. Government contracts in excess of new contracts received. 

Textron Systems

				% Change	
(Dollars in millions)	2020	2019	2018	2020	2019	
Revenues	$	1,313	$	1,325	$	1,464	(1)%	(9)%	
Operating expenses	1,161	1,184	1,308	(2)%	(9)%	
Segment profit	152	141	156	8%	(10)%	
Profit margin	11.6%	10.6%	10.7%			
Backlog	$	2,556	$	1,211	$	1,469	111%	(18)%	
Textron Systems Revenues and Operating Expenses
Factors contributing to the 2020 year-over-year revenue change are provided below:

(In millions)	2020 versus
2019	
Volume	$	(16)		
Other	4 		
Total change	$	(12)		
Revenues at Textron Systems decreased $12 million in 2020, compared with 2019, primarily due to lower volume of $36 million in the Simulation, Training and Other product line and $29 million in the Marine and Land Systems product line, partially offset by higher volume of $49 million in the Unmanned Systems product line. Within the Simulation, Training and Other product line, lower volume of $107 million in the TRU Simulation + Training business, largely due to a decline in demand and order cancellations related to the pandemic, was largely offset by higher volumes at other businesses included in this product line.
Textron Systems’ operating expenses decreased $23 million, 2%, in 2020, compared with 2019, primarily due to lower net volume described above.
Textron Systems Segment Profit
Factors contributing to 2020 year-over-year segment profit change are provided below:

(In millions)	2020 versus
2019	
Volume and mix	$	13 		
Performance and other	(2)		
Total change	$	11 		
Textron Systems’ segment profit increased $11 million, 8%, in 2020, compared with 2019, primarily due to favorable product mix. Performance and other includes the impact of an $18 million gain recognized in the second quarter of 2019 related to our contribution of assets to a training business formed with FlightSafety International, Inc.
Textron Systems Backlog
Backlog at Textron Systems’ increased $1.3 billion in 2020, primarily due to new contracts received in excess of revenues recognized across all product lines.
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Industrial

				% Change	
(Dollars in millions)	2020	2019	2018	2020	2019	
Revenues:						
Fuel Systems and Functional Components	$	1,751	$	2,237	$	2,352	(22)%	(5)%	
Specialized Vehicles	1,249	1,561	1,691	(20)%	(8)%	
Tools and Test Equipment	—	—	248	—%	(100)%	
Total revenues	3,000	3,798	4,291	(21)%	(11)%	
Operating expenses	2,889	3,581	4,073	(19)%	(12)%	
Segment profit	111	217	218	(49)%	—%	
Profit margin	3.7%	5.7%	5.1%			
Industrial Revenues and Operating Expenses
Factors contributing to the 2020 year-over-year revenue change are provided below:

(In millions)	2020 versus
2019	
Volume and mix	$	(817)		
Foreign exchange	7 		
Other	12 		
Total change	$	(798)		
Industrial segment revenues decreased $798 million, 21%, in 2020, compared with 2019, largely due to lower volume and mix, in both product lines. Lower volume in the Fuel Systems and Functional Components product line was primarily related to manufacturing facility closures in the first half of 2020 as a result of the pandemic. As our OEM customers reopened and resumed production, all of our manufacturing facilities had reopened by the end of the second quarter. In the Specialized Vehicles product line, lower volume and mix was primarily related to reduced demand in the ground support equipment business, which has been impacted by the reduction in global air travel, as well as reduced demand in certain consumer and commercial markets that have been impacted by the pandemic.
Operating expenses for the Industrial segment decreased $692 million, 19%, in 2020 compared with 2019, primarily due to lower volume and mix described above.
Industrial Segment Profit
Factors contributing to 2020 year-over-year segment profit change are provided below:

(In millions)	2020 versus
2019	
Volume and mix	$	(195)		
Performance	61 		
Pricing and inflation	26 		
Foreign exchange	2 		
Total change	$	(106)		
Segment profit for the Industrial segment decreased $106 million in 2020, compared with 2019, largely resulting from lower volume and mix described above, partially offset by favorable performance of $61 million. Performance includes the impact from cost reduction activities, partially offset by idle facility costs of $27 million recognized in 2020, reflecting unfavorable absorption of manufacturing costs attributable to abnormally low production levels resulting from the pandemic and temporary manufacturing facility closures.

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Finance

(In millions)	2020	2019	2018	
Revenues	$	55 		$	66 		$	66 		
Segment profit	10 		28 		23 		
Finance segment revenues decreased $11 million in 2020, compared with 2019, and segment profit decreased $18 million in 2020, compared with 2019, primarily due to higher provision for loan losses. The following table reflects information about the Finance segment’s credit performance related to finance receivables.

(Dollars in millions)	January 2,
2021	January 4,
2020	
Finance receivables	$	779	$	707	
Allowance for credit losses	35	25	
Ratio of allowance for credit losses to finance receivables	4.49%	3.54%	
Nonaccrual finance receivables	93	39	
Ratio of nonaccrual finance receivables to finance receivables	11.94%	5.52%	
60+ days contractual delinquency	29	17	
60+ days contractual delinquency as a percentage of finance receivables	3.72%	2.40%	
The Finance segment has provided temporary payment relief through loan modifications at the request of certain customers and continues to work with certain customers to provide extended payment relief as needed. If the current economic conditions continue to persist or worsen, we may experience increased customer delinquencies, however, 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. Loan modifications and key portfolio quality indicators are discussed in Note 4 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.

Liquidity and Capital Resources
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.
Key information that is utilized in assessing our liquidity is summarized below:

(Dollars in millions)	January 2,
2021	January 4,
2020	
Manufacturing group			
Cash and equivalents	$	2,146	$	1,181	
Debt	3,707	3,124	
Shareholders’ equity	5,845	5,518	
Capital (debt plus shareholders’ equity)	9,552	8,642	
Net debt (net of cash and equivalents) to capital	21%	26%	
Debt to capital	39%	36%	
Finance group			
Cash and equivalents	$	108	$	176	
Debt	662	686	
The unprecedented conditions surrounding the COVID-19 pandemic led to volatility in the capital markets and uncertainty in the economic outlook, in addition to causing various degrees of disruption in our operations. In light of these conditions, we have strengthened our cash position since the onset of the pandemic by taking various measures to reduce costs and conserve cash, and by increasing our borrowings as discussed below. Given our strengthened liquidity position and stabilization of the capital markets in the second half of 2020, we reactivated our share repurchase plan in the fourth quarter. We believe that we will have
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sufficient cash to meet our needs based on our existing cash balances, the cash we expect to generate from our manufacturing operations and the availability of our existing credit facility.
Credit Facilities and Other Sources of Capital
Textron has a senior unsecured revolving credit facility for an aggregate principal amount of Textron has a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 billion, of which up to $100 million is available for the issuance of letters of credit. We may elect to increase the aggregate amount of commitments under the facility to up to $1.3 billion by designating an additional lender or by an existing lender agreeing to increase its commitment. The facility expires in October 2024, subject to up to two one-year extensions at our option with the consent of lenders representing a majority of the commitments under the facility. At January 2, 2021 and January 4, 2020, there were no amounts borrowed against the facility and there were $9 million and $10 million, respectively, of outstanding letters of credit issued under the facility.
We also maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to issue an unlimited amount of public debt and other securities. In March 2020, we issued $650 million in SEC-registered fixed-rate notes due June 2030, with an annual interest rate of 3.00%. In August 2020, we issued $500 million of SEC-registered fixed-rate notes due March 2031 with an annual interest rate of 2.45%, the proceeds of which were used to repay $500 million of outstanding borrowings under a new 364-Day Term Loan Credit Agreement entered into in April 2020.
In September 2020, the Finance Group’s $150 million variable-rate loan due December 2020 was amended to extend its maturity date to September 2021, with an option to extend for an additional year. The annual interest rate was modified from the London interbank offered rate (LIBOR) plus 1.125% to LIBOR plus 1.55%, which is an annual interest rate of 1.70% at January 2, 2021.
Manufacturing Group Cash Flows
Cash flows from continuing operations for the Manufacturing group as presented in our Consolidated Statements of Cash Flows are summarized below:

(In millions)	2020	2019	2018	
Operating activities	$	833 		$	960 		$	1,127 		
Investing activities	(277)		(329)		539 		
Financing activities	393 		(439)		(1,738)		
Cash flows from operating activities were $833 million in 2020 compared with $960 million in 2019, a decrease of $127 million. The change in cash flows primarily reflected an $893 million year over year increase in cash used to settle accounts payable, principally at the Textron Aviation segment, and lower earnings, partially offset by a $753 million reduction in cash used for inventories, primarily at the Textron Aviation segment, a $299 million increase in cash flows from contract assets/liabilities, primarily at the Bell segment, and other favorable improvements in working capital accounts.
Net tax payments were $34 million and $120 million in 2020 and 2019, respectively. Pension contributions were $47 million and $51 million in 2020 and 2019, respectively. 
In 2020 and 2019, investing cash flows included capital expenditures of $317 million and $339 million, respectively. Cash flows provided by financing activities in 2020 primarily included $1.1 billion of net proceeds from the issuance of long-term debt and $377 million of proceeds from borrowings against corporate-owned life insurance policies. These cash inflows were partially offset by $548 million of payments on long-term debt, $377 million of payments on borrowings against corporate-owned life insurance policies, and $183 million of cash paid to repurchase an aggregate of 4.1 million shares of our common stock under both a prior 2018 share repurchase plan and a 2020 share repurchase plan described below.  In 2019, cash flows used in financing activities primarily included $503 million of cash paid to repurchase an aggregate of 10.0 million shares of our outstanding common stock under a 2018 share repurchase authorization and $252 million of payments on long-term debt, partially offset by net proceeds of $301 million from the issuance of long-term debt.  
On February 25, 2020, our Board of Directors authorized the repurchase of up to 25 million shares of our common stock. This plan allows us to opportunistically repurchase shares and to continue our practice of repurchasing shares to offset the impact of dilution from shares issued under compensation and benefit plans. The 2020 plan has no expiration date and replaced the prior 2018 share repurchase authorization.
Dividend payments to shareholders totaled $18 million in both 2020 and 2019. In 2019, dividends of $50 million received from the Finance group are included within cash flows from operating activities for the Manufacturing group as they represent a return on investment.

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Finance Group Cash Flows
The cash flows from continuing operations for the Finance group as presented in our Consolidated Statements of Cash Flows are summarized below:

(In millions)	2020	2019	2018	
Operating activities	$	13 		$	34 		$	14 		
Investing activities	(48)		135 		99 		
Financing activities	(33)		(113)		(176)		
The Finance group’s cash flows from operating activities were $13 million in 2020, compared with $34 million in 2019, a decrease of $21 million, primarily reflecting higher net tax payments and lower earnings. Cash flows from investing activities primarily included collections on finance receivables totaling $128 million and $277 million in 2020 and 2019, respectively, partially offset by finance receivable originations of $195 million and $184 million, respectively.  
Cash flows used in financing activities included payments on long-term and nonrecourse debt of $45 million and $51 million in 2020 and 2019, respectively.  Dividend payments to the Manufacturing group totaled $50 million in 2019.
Consolidated Cash Flows
The consolidated cash flows from continuing operations, after elimination of activity between the borrowing groups, are summarized below:

(In millions)	2020	2019	2018	
Operating activities	$	769 		$	1,016 		$	1,109 		
Investing activities	(248)		(266)		620 		
Financing activities	360 		(502)		(1,864)		
Consolidated cash flows from operating activities were $769 million in 2020, compared with $1.0 billion in 2019, a decrease of $247 million. The change in cash flows primarily reflected an $893 million year over year increase in cash used to settle accounts payable, principally at the Textron Aviation segment, lower earnings, and a $134 million net cash outflow from captive finance receivables, partially offset by a $726 million reduction in cash used for inventories, primarily at the Textron Aviation segment, a $299 million increase in cash flows from contract assets/liabilities, primarily at the Bell segment, and other favorable improvements in working capital accounts.
Net tax payments were $42 million and $121 million in 2020 and 2019, respectively.  Pension contributions were $47 million and $51 million in 2020 and 2019, respectively.
In 2020 and 2019, investing cash flows included capital expenditures of $317 million and $339 million, respectively. Cash flows provided by financing activities in 2020 primarily included $1.1 billion of net proceeds from the issuance of long-term debt and $377 million from borrowings against corporate-owned life insurance policies. These cash inflows were partially offset by $593 million of payments on outstanding debt, $377 million of payments on borrowings against corporate-owned life insurance policies, and $183 million of share repurchases. In 2019, cash flows used in financing activities primarily included $503 million of share repurchases and $303 million of payments on outstanding debt, partially offset by $301 million of proceeds from the issuance of long-term debt.
Captive Financing and Other Intercompany Transactions
The Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of Cash Flows, cash received from customers is reflected as operating activities when received from third parties. However, in the cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or eliminated from the Consolidated Statements of Cash Flows.

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Reclassification adjustments included in the Consolidated Statements of Cash Flows are summarized below:

(In millions)	2020	2019	2018	
Reclassification adjustments from investing activities:				
Finance receivable originations for Manufacturing group inventory sales	$	(195)		$	(184)		$	(177)		
Cash received from customers	106 		229 		199 		
Other	12 		27 		(4)		
Total reclassification adjustments from investing activities	(77)		72 		18 		
Reclassification adjustments from financing activities:				
Dividends received by Manufacturing group from Finance group	— 		(50)		(50)		
Total reclassification adjustments to cash flow from operating activities	$	(77)		$	22 		$	(32)		
Under a Support Agreement between Textron and TFC, Textron is required to maintain a controlling interest in TFC. The agreement, as amended in December 2015, also requires Textron to ensure that TFC maintains fixed charge coverage of no less than 125% and consolidated shareholders' equity of no less than $125 million. There were no cash contributions required to be paid to TFC in 2020 and 2019 to maintain compliance with the support agreement.

Contractual Obligations
Manufacturing Group
The following table summarizes the known contractual obligations, as defined by reporting regulations, of our Manufacturing group as of January 2, 2021:

		Payments Due by Period	
(In millions)	Total	Year 1	Years 2-3	Years 4-5	More Than 5
Years	
Debt	$	3,731 		$	509 		$	16 		$	718 		$	2,488 		
Purchase obligations not reflected in balance sheet	3,103 		2,284 		774 		45 		— 		
Interest on borrowings	819 		134 		225 		194 		266 		
Operating leases	456 		59 		97 		68 		232 		
Pension benefits for unfunded plans	440 		28 		54 		50 		308 		
Postretirement benefits other than pensions	230 		23 		42 		36 		129 		
Other long-term liabilities	293 		63 		104 		30 		96 		
Total Manufacturing group	$	9,072 		$	3,100 		$	1,312 		$	1,141 		$	3,519 		
Pension and Postretirement Benefits
We maintain defined benefit pension plans and postretirement benefit plans other than pensions as described in Note 16 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data. Included in the above table are discounted estimated benefit payments we expect to make related to unfunded pension and other postretirement benefit plans. Actual benefit payments are dependent on a number of factors, including mortality assumptions, expected retirement age, rate of compensation increases and medical trend rates, which are subject to change in future years. Our policy for funding pension plans is to make contributions annually, consistent with applicable laws and regulations; however, future contributions to our pension plans are not included in the above table.  In 2021, we expect to make approximately $22 million of contributions to our funded pension plans. Based on our current assumptions, which may vary with changes in market conditions, our current contribution for each of the years from 2022 through 2025 is estimated to be approximately $51 million under the plan provisions in place at this time.
Other Long-Term Liabilities
Other long-term liabilities consist of undiscounted amounts in the Consolidated Balance Sheets that primarily include obligations under deferred compensation arrangements and estimated environmental remediation costs. Payments under deferred compensation arrangements have been estimated based on management’s assumptions of expected retirement age, mortality, stock price and rates of return on participant deferrals. The timing of cash flows associated with environmental remediation costs is largely based on historical experience. Certain other long-term liabilities, such as deferred taxes, unrecognized tax benefits, and reserves for product liability, warranty, product maintenance and litigation, have been excluded from the table due to the uncertainty of the timing of payments combined with the absence of historical trends to be used as a predictor for such payments.
Purchase Obligations
Purchase obligations include undiscounted amounts committed under legally enforceable contracts or purchase orders for goods and services with defined terms as to price, quantity and delivery dates. Approximately 42% of the purchase obligations we
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disclose represent purchase orders issued for goods and services to be delivered under firm contracts with the U.S. Government for which we have full recourse under customary contract termination clauses.
Finance Group
The following table summarizes the known contractual obligations, as defined by reporting regulations, of our Finance group as of January 2, 2021:

		Payments Due by Period	
(In millions)	Total	Year 1	Years 2-3	Years 4-5	More Than 5
Years	
Term debt	$	368 		$	13 		$	332 		$	20 		$	3 		
Subordinated debt	294 		— 		— 		— 		294 		
Interest on borrowings	140 		15 		19 		12 		94 		
Total Finance group	$	802 		$	28 		$	351 		$	32 		$	391 		

Critical Accounting Estimates
To prepare our Consolidated Financial Statements to be in conformity with generally accepted accounting principles, we must make complex and subjective judgments in the selection and application of accounting policies. The accounting policies that we believe are most critical to the portrayal of our financial condition and results of operations are listed below. We believe these policies require our most difficult, subjective and complex judgments in estimating the effect of inherent uncertainties. This section should be read in conjunction with Note 1 to the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, which includes other significant accounting policies.
Revenue Recognition
A substantial portion of our revenues is related to long-term contracts with the U.S. Government, including those under the U.S. Government-sponsored foreign military sales program, for the design, development, manufacture or modification of aerospace and defense products as well as related parts and services. We generally use the cost-to-cost method to measure progress for these contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts. Under this measure, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion of the performance obligation, and revenue is recorded proportionally as costs are incurred.
Approximately 75% of our 2020 revenues with the U.S. Government were under fixed-price and fixed-price incentive contracts. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit and could potentially incur a loss.
The transaction price for our contracts represents our best estimate of the consideration we will receive and includes assumptions regarding variable consideration as applicable. Certain of our long-term contracts contain incentive fees or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance, historical performance, and all other information that is reasonably available to us.
Due to the number of years it may take to complete many of our contracts and the scope and nature of the work required to be performed on those contracts, the estimation of total transaction price and costs at completion is complicated and subject to many variables and, accordingly, is subject to change. In estimating total costs at completion, we are required to make numerous assumptions related to the complexity of design and related development work to be performed; engineering requirements; product performance; subcontractor performance; availability and cost of materials; labor productivity, availability and cost; overhead and capital costs; manufacturing efficiencies; the length of time to complete the contract (to estimate increases in wages and prices for materials); and costs of satisfying offset obligations, among other variables. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our cost projections quarterly or more frequently when circumstances significantly change. When estimates of total costs to be incurred on a contract exceed estimates of total sales to be earned, a provision for the entire loss on the contract is recorded in the period in which the loss is determined.
At the outset of each contract, we estimate an initial profit booking rate considering the risks surrounding our ability to achieve the technical requirements (e.g., a newly-developed product versus a mature product), schedule (e.g., the number and type of milestone events), and costs by contract requirements in the initial estimated costs at completion. Profit booking rates may
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increase during the performance of the contract if we successfully retire risks surrounding the technical, schedule, and cost aspects of the contract. Conversely, the profit booking rate may decrease if we are not successful in retiring the risks; and, as a result, our estimated costs at completion increase. All estimates are subject to change during the performance of the contract and, therefore, may affect the profit booking rate.
Changes in our estimate of the total expected cost or in the transaction price for a contract typically impact our profit booking rate. We utilize the cumulative catch-up method of accounting to recognize the impact of these changes on our profit booking rate for a contract. Under this method, the inception-to-date impact of a profit adjustment on a contract is recognized in the period the adjustment is identified. The impact of our cumulative catch-up adjustments on segment profit recognized in prior periods is presented below:

(In millions)	2020	2019	2018	
Gross favorable	$	148 		$	173 		$	249 		
Gross unfavorable	(76)		(82)		(53)		
Net adjustments	$	72 		$	91 		$	196 		
Due to the significance of judgment in the estimation process described above, it is likely that materially different revenues and/or cost of sales amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Our earnings could be reduced by a material amount resulting in a charge to earnings if (a) total estimated contract costs are significantly higher than expected due to changes in customer specifications prior to contract amendment, (b) total estimated contract costs are significantly higher than previously estimated due to cost overruns or inflation, (c) there is a change in engineering efforts required during the development stage of the contract or (d) we are unable to meet contract milestones.
Goodwill
We evaluate the recoverability of goodwill annually in the fourth quarter or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate a potential impairment of a reporting unit. A reporting unit represents the operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment, in which case such component is the reporting unit. In certain instances, we have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics.
We calculate the fair value of each reporting unit using discounted cash flows. These cash flows incorporate assumptions for revenue growth rates, operating margins and discount rates that represent our best estimates of current and forecasted market conditions, cost structure, anticipated net cost reductions, and the implied rate of return that we believe a market participant would require for an investment in a business having similar risks and characteristics to the reporting unit being assessed. The revenue growth rates and operating margins are based on our strategic plans and long-range planning forecasts. The long-term revenue growth rate we use to determine the terminal value of the business is based on our assessment of its minimum expected terminal growth rate, as well as its past historical growth and broader economic considerations such as gross domestic product, inflation and the maturity of the markets we serve. The discount rates utilized in this analysis are based on each reporting unit’s weighted average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of the respective reporting unit. We believe this approach yields a discount rate that is consistent with an implied rate of return that an independent investor or market participant would require for an investment in a company having similar risks and business characteristics to the reporting unit being assessed.
If the reporting unit’s estimated fair value exceeds its carrying value, there is no impairment, and no further analysis is performed. Otherwise, an impairment loss is recognized in an amount equal to that excess carrying value over the estimated fair value amount. Based on our annual impairment review, the fair value of all of our reporting units exceeded their carrying values, and we do not believe that there is a reasonable possibility that any units might fail the impairment test in the foreseeable future.
Retirement Benefits
We sponsor funded and unfunded domestic and international pension and postretirement plans for certain of our employees. Beginning on January 1, 2010, we initiated actions to commence the closure of the pension plans to new entrants. We provide employees hired subsequent to these closures with defined contribution benefits. Our pension and postretirement benefit obligations are calculated based on actuarial valuations. Key assumptions used in determining these obligations and related expenses or benefits include the expected long-term rates of return on plan assets, discount rates and healthcare cost projections. We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases. We evaluate and update these assumptions annually.
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To determine the weighted-average expected long-term rate of return on plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class.  A lower expected rate of return on plan assets will increase pension expense.  For 2020 and 2019, the assumed expected long-term rate of return on plan assets used in calculating pension expense was 7.55%. For 2020, the assumed rate of return for our domestic plans, which represent approximately 90% of our total pension assets, was 7.75%.  For 2021, to reflect the impact of current expectations of long-term market conditions on certain investment returns, we have assumed a long-term rate of return for our domestic plans of 7.25%. The change in this assumption will increase pension cost for our domestic plans by approximately $35 million.
The discount rate enables us to state expected future benefit payments as a present value on the measurement date, reflecting the current rate at which the pension liabilities could be effectively settled. This rate should be in line with rates for high-quality fixed income investments available for the period to maturity of the pension benefits, which fluctuate as long-term interest rates change. A lower discount rate increases the present value of the benefit obligations and increases pension expense.  In 2020, the weighted-average discount rate used in calculating pension expense was 3.36%, compared with 4.24% in 2019.  For our domestic plans, the assumed discount rate was 3.45% in 2020, compared with 4.35% in 2019. A decrease of 50 basis-points in this weighted-average discount rate in 2020 would have increased pension cost for our domestic plans by approximately $64 million.
Actuarial gains and losses, representing differences between the assumptions utilized to develop estimated obligations and actual results or experience, that exceed 10% of the higher of the market related value of assets or the benefit obligation in a year, are initially recognized as a component of accumulated other comprehensive income (loss) and amortized over future years as a component of our annual benefit cost. We amortize actuarial differences over the average remaining service period of eligible employees. If all or almost all of a plan’s participants are inactive or are not accruing additional benefits, we amortize these differences over the average remaining life expectancy of the plan participants. As of the end of 2020, almost all of the participants in one of our domestic plans, the Textron Master Retirement Plan (TMRP), are no longer active. Beginning in 2021, actuarial gains and losses for this plan will be amortized over the remaining life expectancy of the participants. A change in the TMRP amortization period in 2021 from 7 years to 20 years will reduce pension cost by approximately $85 million. The deferral of these differences reduces the volatility of our annual benefit cost that can result either from year-to-year changes in the assumptions or from actual results that are not necessarily representative of the long-term financial position of these plans.
The trend in healthcare costs is difficult to estimate and has an important effect on postretirement liabilities. The 2020 medical and prescription drug cost trend rates represent the weighted-average annual projected rate of increase in the per capita cost of covered benefits. In 2020, we assumed a trend rate of 7% for both medical and prescription drug cost and assumed this rate would gradually decline to 5% by 2024 and then remain at that level.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Risk
Our financial results are affected by changes in foreign currency exchange rates in the various countries in which our products are manufactured and/or sold.  For our manufacturing operations, we manage our foreign currency transaction exposures by entering into foreign currency exchange contracts. These contracts generally are used to fix the local currency cost of purchased goods or services or selling prices denominated in currencies other than the functional currency. The notional amount of outstanding foreign currency exchange contracts was $318 million and $342 million at January 2, 2021 and January 4, 2020, respectively. We also may hedge exposures to certain of our foreign currency assets and earnings by funding those asset positions with debt in the same foreign currency so the exposures are naturally offset.
Interest Rate Risk
Our financial results are affected by changes in interest rates. As part of managing this risk, we seek to achieve a prudent balance between floating- and fixed-rate exposures. We continually monitor our mix of these exposures and adjust the mix, as necessary. For our Finance group, we generally limit our risk to changes in interest rates with a strategy of matching floating-rate assets with floating-rate liabilities. This strategy includes the use of interest rate swap agreements. At the end of 2020, we had an interest rate swap agreement for a notional amount of $294 million, which effectively converted certain floating-rate debt to a fixed-rate equivalent.
Quantitative Risk Measures
In the normal course of business, we enter into financial instruments for purposes other than trading. The financial instruments that are subject to market risk include finance receivables (excluding leases), debt (excluding finance lease obligations) and foreign currency exchange contracts. To quantify the market risk inherent in these financial instruments, we utilize a sensitivity analysis that includes a hypothetical change in fair value assuming a 10% decrease in interest rates and a 10% strengthening in foreign exchange rates against the U.S. dollar. The fair value of these financial instruments is estimated using discounted cash flow analysis and indicative market pricing as reported by leading financial news and data providers.
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At the end of each year, the table below provides the carrying and fair values of these financial instruments along with the sensitivity of fair value to the hypothetical changes discussed above. This sensitivity analysis is most likely not indicative of actual results in the future.

	January 2, 2021	January 4, 2020	
(In millions)	Carrying
Value*	Fair
Value*	Sensitivity of
Fair Value
to a 10%
Change	Carrying
Value*	Fair
Value*	Sensitivity of
Fair Value
to a 10%
Change	
Manufacturing group							
Foreign currency exchange risk							
Debt	$	(10)		$	(10)		$	(1)		$	(210)		$	(212)		$	(21)		
Foreign currency exchange contracts	3 		3 		22 		(1)		(1)		20 		
	$	(7)		$	(7)		$	21 		$	(211)		$	(213)		$	(1)		
Interest rate risk							
Debt	$	(3,690)		$	(3,986)		$	(16)		$	(3,097)		$	(3,249)		$	(21)		
Finance group							
Interest rate risk							
Finance receivables	$	549 		$	599 		$	9 		$	493 		$	527 		$	9 		
Debt	(662)		(587)		— 		(686)		(634)		1 		
* The value represents an asset or (liability).
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Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements and the related report of our independent registered public accounting firm thereon are included in this Annual Report on Form 10-K on the pages indicated below:

	Page	
				
Consolidated Statements of Operations for each of the years in the three-year period ended January 2, 2021	35	
				
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended January 2, 2021	36	
				
Consolidated Balance Sheets as of January 2, 2021 and January 4, 2020	37	
				
Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended January 2, 2021	38	
				
Consolidated Statements of Cash Flows for each of the years in the three-year period ended January 2, 2021	39	
				
Notes to the Consolidated Financial Statements		
				
	Note 1.	Summary of Significant Accounting Policies	41	
	Note 2.	Business Dispositions	47	
	Note 3.	Goodwill and Intangible Assets	47	
	Note 4.	Accounts Receivable and Finance Receivables	48	
	Note 5.	Inventories	50	
	Note 6.	Property, Plant and Equipment, Net	50	
	Note 7.	Other Assets	50	
	Note 8.	Other Current Liabilities	51	
	Note 9.	Leases	51	
	Note 10.	Debt and Credit Facilities	52	
	Note.11.	Derivative Instruments and Fair Value Measurements	53	
	Note 12.	Shareholders’ Equity	54	
	Note 13.	Segment and Geographic Data	55	
	Note 14.	Revenues	57	
	Note 15.	Share-Based Compensation	59	
	Note 16.	Retirement Plans	61	
	Note 17.	Special Charges	65	
	Note 18.	Income Taxes	66	
	Note 19.	Commitments and Contingencies	69	
	Note 20.	Supplemental Cash Flow Information	69	
				
Report of Independent Registered Public Accounting Firm	70	
				
Supplementary Information:		
				
Quarterly Data for 2020 and 2019 (Unaudited)	72	
Schedule II – Valuation and Qualifying Accounts	73	
All other schedules are omitted either because they are not applicable or not required or because the required information is included in the financial statements or notes thereto.
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Consolidated Statements of Operations
For each of the years in the three-year period ended January 2, 2021

(In millions, except per share data)	2020	2019	2018	
Revenues				
Manufacturing revenues	$	11,596 		$	13,564 		$	13,906 		
Finance revenues	55 		66 		66 		
Total revenues	11,651 		13,630 		13,972 		
Costs, expenses and other				
Cost of sales	10,094 		11,406 		11,594 		
Selling and administrative expense	1,045 		1,152 		1,275 		
Interest expense	166 		171 		166 		
Special charges	147 		72 		73 		
Non-service components of pension and postretirement income, net	(83)		(113)		(76)		
Gain on business disposition	— 		— 		(444)		
Total costs, expenses and other	11,369 		12,688 		12,588 		
Income before income taxes	282 		942 		1,384 		
Income tax expense (benefit)	(27)		127 		162 		
Net income	$	309 		$	815 		$	1,222 		
Earnings per share				
Basic	$	1.35 		$	3.52 		$	4.88 		
Diluted	$	1.35 		$	3.50 		$	4.83 		
See Notes to the Consolidated Financial Statements.
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Consolidated Statements of Comprehensive Income
For each of the years in the three-year period ended January 2, 2021

(In millions)	2020	2019	2018	
Net income	$	309 		$	815 		$	1,222 		
Other comprehensive income (loss), net of tax				
Pension and postretirement benefits adjustments, net of reclassifications	31 		(84)		(74)		
Foreign currency translation adjustments, net of reclassifications	78 		(4)		(43)		
Deferred gains (losses) on hedge contracts, net of reclassifications	(1)		3 		(13)		
Total other comprehensive income (loss), net of tax	108 		(85)		(130)		
Comprehensive income	$	417 		$	730 		$	1,092 		
See Notes to the Consolidated Financial Statements.
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Consolidated Balance Sheets

(In millions, except share data)	January 2,
2021	January 4,
2020	
Assets			
Manufacturing group			
Cash and equivalents	$	2,146 		$	1,181 		
Accounts receivable, net	787 		921 		
Inventories	3,513 		4,069 		
Other current assets	950 		894 		
Total current assets	7,396 		7,065 		
Property, plant and equipment, net	2,516 		2,527 		
Goodwill	2,157 		2,150 		
Other assets	2,436 		2,312 		
Total Manufacturing group assets	14,505 		14,054 		
Finance group			
Cash and equivalents	108 		176 		
Finance receivables, net	744 		682 		
Other assets	86 		106 		
Total Finance group assets	938 		964 		
Total assets	$	15,443 		$	15,018 		
Liabilities and shareholders’ equity			
Liabilities			
Manufacturing group			
Current portion of long-term debt	$	509 		$	561 		
Accounts payable	776 		1,378 		
Other current liabilities	1,985 		1,907 		
Total current liabilities	3,270 		3,846 		
Other liabilities	2,357 		2,288 		
Long-term debt	3,198 		2,563 		
Total Manufacturing group liabilities	8,825 		8,697 		
Finance group			
Other liabilities	111 		117 		
Debt	662 		686 		
Total Finance group liabilities	773 		803 		
Total liabilities	9,598 		9,500 		
Shareholders’ equity			
Common stock (231.0 million and 228.4 million shares issued, respectively,
    and 226.4 million and 228.0 million shares outstanding, respectively)	29 		29 		
Capital surplus	1,785 		1,674 		
Treasury stock	(203)		(20)		
Retained earnings	5,973 		5,682 		
Accumulated other comprehensive loss	(1,739)		(1,847)		
Total shareholders’ equity	5,845 		5,518 		
Total liabilities and shareholders’ equity	$	15,443 		$	15,018 		
See Notes to the Consolidated Financial Statements.
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Consolidated Statements of Shareholders’ Equity

(In millions, except per share data)	Common
Stock	Capital
Surplus	Treasury
Stock	Retained
Earnings	Accumulated
Other
Comprehensive
Loss	Total
Shareholders’
Equity	
Balance at December 30, 2017	$	33 		$	1,669 		$	(48)		$	5,368 		$	(1,375)		$	5,647 		
Adoption of ASC 606	— 		— 		— 		90 		— 		90 		
Net income	— 		— 		— 		1,222 		— 		1,222 		
Other comprehensive loss	— 		— 		— 		— 		(130)		(130)		
Reclassification of stranded tax effects	— 		— 		— 		257 		(257)		— 		
Dividends declared ($0.08 per share)	— 		— 		— 		(20)		— 		(20)		
Share-based compensation activity	— 		166 		— 		— 		— 		166 		
Purchases of common stock	— 		— 		(1,783)		— 		— 		(1,783)		
Retirement of treasury stock	(3)		(189)		1,702 		(1,510)		— 		— 		
Balance at December 29, 2018	30 		1,646 		(129)		5,407 		(1,762)		5,192 		
Net income	— 		— 		— 		815 		— 		815 		
Other comprehensive loss	— 		— 		— 		— 		(85)		(85)		
Dividends declared ($0.08 per share)	— 		— 		— 		(18)		— 		(18)		
Share-based compensation activity	— 		117 		— 		— 		— 		117 		
Purchases of common stock	— 		— 		(503)		— 		— 		(503)		
Retirement of treasury stock	(1)		(89)		612 		(522)		— 		— 		
Balance at January 4, 2020	29 		1,674 		(20)		5,682 		(1,847)		5,518 		
Net income	— 		— 		— 		309 		— 		309 		
Other comprehensive income	— 		— 		— 		— 		108 		108 		
Dividends declared ($0.08 per share)	— 		— 		— 		(18)		— 		(18)		
Share-based compensation activity	— 		111 		— 		— 		— 		111 		
Purchases of common stock	— 		— 		(183)		— 		— 		(183)		
Balance at January 2, 2021	$	29 		$	1,785 		$	(203)		$	5,973 		$	(1,739)		$	5,845 		
See Notes to the Consolidated Financial Statements.
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Consolidated Statements of Cash Flows
For each of the years in the three-year period ended January 2, 2021

	Consolidated	
(In millions)	2020	2019	2018	
Cash flows from operating activities				
Net income	$	309 		$	815 		$	1,222 		
Adjustments to reconcile net income to net cash provided by
operating activities of continuing operations:				
Non-cash items:				
Depreciation and amortization	391 		416 		437 		
Deferred income taxes	(7)		89 		49 		
Asset impairments and TRU inventory charge	116 		15 		48 		
Gain on business disposition	— 		— 		(444)		
Other, net	79 		79 		102 		
Changes in assets and liabilities:				
Accounts receivable, net	149 		99 		50 		
Inventories	434 		(292)		41 		
Other assets	66 		(37)		(88)		
Accounts payable	(613)		280 		(63)		
Other liabilities	(5)		(348)		(223)		
Income taxes, net	(62)		(83)		(33)		
Pension, net	(15)		(62)		(14)		
Captive finance receivables, net	(89)		45 		22 		
Other operating activities, net	16 		—	3 		
Net cash provided by operating activities of continuing operations	769 		1,016 		1,109 		
Net cash used in operating activities of discontinued operations	(1)		(2)		(2)		
Net cash provided by operating activities	768 		1,014 		1,107 		
Cash flows from investing activities				
Capital expenditures	(317)		(339)		(369)		
Proceeds from an insurance recovery and sale of property, plant and equipment	33 		9 		14 		
Net proceeds from corporate-owned life insurance policies	22 		2 		110 		
Net proceeds from business disposition	— 		— 		807 		
Net cash used in acquisitions	(15)		(2)		(23)		
Finance receivables repaid	22 		48 		27 		
Other investing activities, net	7 		16 		54 		
Net cash provided by (used in) investing activities	(248)		(266)		620 		
Cash flows from financing activities				
Net proceeds from long-term debt	1,137 		301 		— 		
Proceeds from borrowings against corporate-owned life insurance policies	377 		— 		— 		
Payments on borrowings against corporate-owned life insurance policies	(377)		— 		— 		
Principal payments on long-term debt and nonrecourse debt	(593)		(303)		(131)		
Purchases of Textron common stock	(183)		(503)		(1,783)		
Proceeds from exercise of stock options	22 		24 		74 		
Dividends paid	(18)		(18)		(20)		
Other financing activities, net	(5)		(3)		(4)		
Net cash provided by (used in) financing activities	360 		(502)		(1,864)		
Effect of exchange rate changes on cash and equivalents	17 		4 		(18)		
Net increase (decrease) in cash and equivalents	897 		250 		(155)		
Cash and equivalents at beginning of year	1,357 		1,107 		1,262 		
Cash and equivalents at end of year	$	2,254 		$	1,357 		$	1,107 		
See Notes to the Consolidated Financial Statements.
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Consolidated Statements of Cash Flows continued
For each of the years in the three-year period ended January 2, 2021

	Manufacturing Group	Finance Group	
(In millions)	2020	2019	2018	2020	2019	2018	
Cash flows from operating activities							
Net income	$	301 		$	793 		$	1,198 		$	8 		$	22 		$	24 		
Adjustments to reconcile net income to net cash provided by
operating activities of continuing operations:							
Non-cash items:							
Depreciation and amortization	386 		410 		429 		5 		6 		8 		
Deferred income taxes	(2)		91 		54 		(5)		(2)		(5)		
Asset impairments and TRU inventory charge	116 		15 		48 		— 		— 		— 		
Gain on business disposition	— 		— 		(444)		— 		— 		— 		
Other, net	69 		79 		97 		10 		— 		5 		
Changes in assets and liabilities:							
Accounts receivable, net	149 		99 		50 		— 		— 		— 		
Inventories	434 		(319)		45 		— 		— 		— 		
Other assets	68 		(34)		(87)		(2)		(3)		(1)		
Accounts payable	(613)		280 		(63)		— 		— 		— 		
Other liabilities	(15)		(352)		(219)		(2)		4 		(4)		
Income taxes, net	(61)		(90)		(20)		(1)		7 		(13)		
Pension, net	(15)		(62)		(14)		— 		— 		— 		
Dividends received from Finance group	— 		50 		50 		— 		— 		— 		
Other operating activities, net	16 		— 		3 		— 		— 		— 		
Net cash provided by operating activities of continuing operations	833 		960 		1,127 		13 		34 		14 		
Net cash used in operating activities of discontinued operations	(1)		(2)		(2)		— 		— 		— 		
Net cash provided by operating activities	832 		958 		1,125 		13 		34 		14 		
Cash flows from investing activities							
Capital expenditures	(317)		(339)		(369)		— 		— 		— 		
Proceeds from an insurance recovery and sale of property, plant and equipment	33 		9 		14 		— 		— 		— 		
Net proceeds from corporate-owned life insurance policies	22 		2 		110 		— 		— 		— 		
Net proceeds from business disposition	— 		— 		807 		— 		— 		— 		
Net cash used in acquisitions	(15)		(2)		(23)		— 		— 		— 		
Finance receivables repaid	— 		— 		— 		128 		277 		226 		
Finance receivables originated	— 		— 		— 		(195)		(184)		(177)		
Other investing activities, net	— 		1 		— 		19 		42 		50 		
Net cash provided by (used in) investing activities	(277)		(329)		539 		(48)		135 		99 		
Cash flows from financing activities							
Net proceeds from long-term debt	1,137 		301 		— 		— 		— 		— 		
Proceeds from borrowings against corporate-owned life insurance policies	377 		— 		— 		— 		— 		— 		
Payments on borrowings against corporate-owned life insurance policies	(377)		— 		— 		— 		— 		— 		
Principal payments on long-term debt and nonrecourse debt	(548)		(252)		(5)		(45)		(51)		(126)		
Purchases of Textron common stock	(183)		(503)		(1,783)		— 		— 		— 		
Proceeds from exercise of stock options	22 		24 		74 		— 		— 		— 		
Dividends paid	(18)		(18)		(20)		— 		(50)		(50)		
Other financing activities, net	(17)		9 		(4)		12 		(12)		— 		
Net cash provided by (used in) financing activities	393 		(439)		(1,738)		(33)		(113)		(176)		
Effect of exchange rate changes on cash and equivalents	17 		4 		(18)		— 		— 		— 		
Net increase (decrease) in cash and equivalents	965 		194 		(92)		(68)		56 		(63)		
Cash and equivalents at beginning of year	1,181 		987 		1,079 		176 		120 		183 		
Cash and equivalents at end of year	$	2,146 		$	1,181 		$	987 		$	108 		$	176 		$	120 		
See Notes to the Consolidated Financial Statements.
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Notes to the Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies
Principles of Consolidation and Financial Statement Presentation
Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems and Industrial segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation (TFC) and its consolidated subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements.
Our Finance group provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters manufactured by our Manufacturing group, otherwise known as captive financing. In the Consolidated Statements of Cash Flows, cash received from customers is reflected as operating activities when received from third parties. However, in the cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or eliminated in consolidation.
At the beginning of 2020, we adopted Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses. This standard changed the prior incurred loss model to a forward-looking current expected credit loss model for most financial assets, such as trade and finance receivables, contract assets and other instruments. There was no significant impact on our Consolidated Financial Statements upon adoption of the standard.
Collaborative Arrangements
Our Bell segment has a strategic alliance agreement with The Boeing Company (Boeing) to provide engineering, development and test services related to the V-22 aircraft, as well as to produce the V-22 aircraft, under a number of separate contracts with the U.S. Government (V-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity interest. We account for this alliance as a collaborative arrangement with Bell and Boeing reporting costs incurred and revenues generated from transactions with the U.S. Government in each company’s respective income statement. Neither Bell nor Boeing is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are allocated between Bell and Boeing on a 50%-50% basis. Negotiated profits on fixed-price contracts are also allocated 50%-50%; however, Bell and Boeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. Based on the contractual arrangement established under the alliance, Bell accounts for its rights and obligations under the specific requirements of the V-22 Contracts allocated to Bell under the work breakdown structure. We account for all of our rights and obligations, including warranty, product and any contingent liabilities, under the specific requirements of the V-22 Contracts allocated to us under the agreement. Revenues and cost of sales reflect our performance under the V-22 Contracts with revenues recognized using the cost-to-cost method. We include all assets used in performance of the V-22 Contracts that we own and all liabilities arising from our obligations under the V-22 Contracts in our Consolidated Balance Sheets.
Use of Estimates
We prepare our financial statements in conformity with generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated Statements of Operations in the period that they are determined.
Revenue Recognition
Revenue is recognized when control of the goods or services promised under the contract is transferred to the customer either at a point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). We account for a contract when it has approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract has commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or
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multiple performance obligations. A performance obligation is a promise to transfer a distinct good or service to a customer and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative standalone selling price of each performance obligation. Revenue is then recognized for the transaction price allocated to the performance obligation when control of the promised goods or services underlying the performance obligation is transferred. Contract consideration is not adjusted for the effects of a significant financing component when, at contract inception, the period between when control transfers and when the customer will pay for that good or service is one year or less.
Commercial Contracts
The majority of our contracts with commercial customers have a single performance obligation as there is only one good or service promised or the promise to transfer the goods or services is not distinct or separately identifiable from other promises in the contract. Revenue is primarily recognized at a point in time, which is generally when the customer obtains control of the asset upon delivery and customer acceptance.  Contract modifications that provide for additional distinct goods or services at the standalone selling price are treated as separate contracts.
For commercial aircraft, we contract with our customers to sell fully outfitted fixed-wing aircraft, which may include configuration options. The aircraft typically represents a single performance obligation and revenue is recognized upon customer acceptance and delivery. For commercial helicopters, our customers generally contract with us for fully functional basic configuration aircraft and control is transferred upon customer acceptance and delivery. At times, customers may separately contract with us for the installation of accessories and customization to the basic aircraft. If these contracts are entered into at or near the same time of the basic aircraft contract, we assess whether the contracts meet the criteria to be combined. For contracts that are combined, the basic aircraft and the accessories and customization, are typically considered to be distinct, and therefore, are separate performance obligations. For these contracts, revenue is recognized on the basic aircraft upon customer acceptance and transfer of title and risk of loss, and on the accessories and customization, upon delivery and customer acceptance. We utilize observable prices to determine the standalone selling prices when allocating the transaction price to these performance obligations.
The transaction price for our commercial contracts reflects our estimate of returns, rebates and discounts, which are based on historical, current and forecasted information. Amounts billed to customers for shipping and handling are included in the transaction price and generally are not treated as separate performance obligations as these costs fulfill a promise to transfer the product to the customer. Taxes collected from customers and remitted to government authorities are recorded on a net basis.
We primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from one year to five years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation.
U.S. Government Contracts
Our contracts with the U.S. Government generally include the design, development, manufacture or modification of aerospace and defense products as well as related parts and services. These contracts, which also include those under the U.S. Government-sponsored foreign military sales program, accounted for approximately 30% of total revenues in 2020.  The customer typically contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability, which often results in the delivery of multiple units. Accordingly, the entire contract is accounted for as one performance obligation. In certain circumstances, a contract may include both production and support services, such as logistics and parts plans, which are considered to be distinct in the context of the contract and represent separate performance obligations. When a contract is separated into more than one performance obligation, we generally utilize the expected cost plus a margin approach to determine the standalone selling prices when allocating the transaction price.
Our contracts are frequently modified for changes in contract specifications and requirements. Most of our contract modifications with the U.S. Government are for goods and services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as part of that existing contract. The effect of these contract modifications on our estimates is recognized using the cumulative catch-up method of accounting.
Contracts with the U.S. Government generally contain clauses that provide lien rights to work-in-process along with clauses that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work-in-process. Due to the continuous transfer of control to the U.S. Government, we recognize revenue over the time that we perform under the contract. Selecting the method to measure progress towards completion requires judgment and is based on the nature of the products or service to be provided. We generally use the cost-to-cost method to measure progress for our contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts.  Under this measure, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion of the performance obligation, and revenue is recorded proportionally as costs are incurred.  
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The transaction price for our contracts represents our best estimate of the consideration we will receive and includes assumptions regarding variable consideration as applicable. Certain of our long-term contracts contain incentive fees or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance, historical performance, and all other information that is reasonably available to us.
Total contract cost is estimated utilizing current contract specifications and expected engineering requirements. Contract costs typically are incurred over a period of several years, and the estimation of these costs requires substantial judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our projections of costs quarterly or more frequently when circumstances significantly change.  
Approximately 75% of our 2020 revenues with the U.S. Government were under fixed-price and fixed-price incentive contracts. Under the typical payment terms of these contracts, the customer pays us either performance-based or progress payments. Performance-based payments represent interim payments of up to 90% of the contract price based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments of up to 80% of costs incurred as the work progresses. Because the customer retains a small portion of the contract price until completion of the contract, these contracts generally result in revenue recognized in excess of billings, which we present as contract assets in the Consolidated Balance Sheets. Amounts billed and due from our customers are classified in Accounts receivable, net. The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer. For cost-type contracts, we are generally paid for our actual costs incurred within a short period of time.
Finance Revenues
Finance revenues primarily include interest on finance receivables, finance lease earnings and portfolio gains/losses. Portfolio gains/losses include impairment charges related to repossessed assets and properties and gains/losses on the sale or early termination of finance assets. We recognize interest using the interest method, which provides a constant rate of return over the terms of the receivables. Accrual of interest income is suspended if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically suspend the accrual of interest income for accounts that are contractually delinquent by more than three months unless collection is not doubtful. Cash payments on nonaccrual accounts, including finance charges, generally are applied to reduce the net investment balance. Once we conclude that the collection of all principal and interest is no longer doubtful, we resume the accrual of interest and recognize previously suspended interest income at the time either a) the loan becomes contractually current through payment according to the original terms of the loan, or b) if the loan has been modified, following a period of performance under the terms of the modification.
Contract Estimates
For contracts where revenue is recognized over time, we recognize changes in estimated contract revenues, costs and profits using the cumulative catch-up method of accounting. This method recognizes the cumulative effect of changes on current and prior periods with the impact of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.
In 2020, 2019 and 2018, our cumulative catch-up adjustments increased segment profit by $72 million, $91 million and $196 million, respectively, and net income by $55 million, $69 million and $149 million, respectively ($0.24, $0.30 and $0.59 per diluted share, respectively). In 2020, 2019 and 2018, we recognized revenue from performance obligations satisfied in prior periods of $77 million, $97 million and $190 million, which related to changes in profit booking rates that impacted revenue.
For 2020, 2019 and 2018, gross favorable adjustments totaled $148 million, $173 million and $249 million, respectively. The 2018 favorable adjustments included $145 million, largely related to overhead rate improvements and risk retirements associated with contracts in the Bell segment. In 2020, 2019 and 2018, gross unfavorable adjustments totaled $76 million, $82 million and $53 million, respectively.
Contract Assets and Liabilities
Contract assets arise from contracts when revenue is recognized over time and the amount of revenue recognized exceeds the amount billed to the customer. These amounts are included in contract assets until the right to payment is no longer conditional on events other than the passage of time and are included in Other current assets in the Consolidated Balance Sheet. Contract liabilities, which are primarily included in Other current liabilities, include deposits, largely from our commercial aviation customers, and billings in excess of revenue recognized.  
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The incremental costs of obtaining a contract with a customer that is expected to be recovered is expensed as incurred when the period to be benefitted is one year or less.
Accounts Receivable, Net
Accounts receivable, net includes amounts billed to customers where the right to payment is unconditional. We maintain an allowance for credit losses for our commercial accounts receivable to provide for the estimated amount that will not be collected, even when the risk of loss is remote. The allowance is measured on a collective pool basis when similar risk characteristics exists and is established as a percentage of accounts receivable. We have identified pools with similar risk characteristics, based on customer and industry type and geographic location. The percentage is based on all available and relevant information including age of outstanding receivables and collateral value, if any, historical payment experience and loss history, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions. For amounts due from the U.S. Government, we have not established an allowance for credit losses as we have zero loss expectation based on a long history of no credit losses and the explicit guarantee of a sovereign entity.
Cash and Equivalents
Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or estimated net realizable value.  We value our inventories generally using the first-in, first-out (FIFO) method or the last-in, first-out (LIFO) method for certain qualifying inventories where LIFO provides a better matching of costs and revenues. We determine costs for our commercial helicopters on an average cost basis by model considering the expended and estimated costs for the current production release.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method.  We capitalize expenditures for improvements that increase asset values and extend useful lives.  Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying value of the asset exceeds the sum of the undiscounted expected future cash flows, the asset is written down to fair value.
Goodwill and Intangible Assets
Goodwill represents the excess of the consideration paid for the acquisition of a business over the fair values assigned to intangible and other net assets of the acquired business. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to an annual impairment test. We evaluate the recoverability of these assets in the fourth quarter of each year or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate a potential impairment.
For our goodwill impairment test, we calculate the fair value of each reporting unit using discounted cash flows.  A reporting unit represents the operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment, in which case such component is the reporting unit.  In certain instances, we have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics. The discounted cash flows incorporate assumptions for revenue growth rates, operating margins and discount rates that represent our best estimates of current and forecasted market conditions, cost structure, anticipated net cost reductions, and the implied rate of return that we believe a market participant would require for an investment in a business having similar risks and characteristics to the reporting unit being assessed. The fair value of our indefinite-lived intangible assets is primarily determined using the relief of royalty method based on forecasted revenues and royalty rates. If the estimated fair value of the reporting unit or indefinite-lived intangible asset exceeds the carrying value, there is no impairment. Otherwise, an impairment loss is recognized for the amount by which the carrying value exceeds the estimated fair value.
Acquired intangible assets with finite lives are subject to amortization. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  Amortization of these intangible assets is recognized over their estimated useful lives using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. Approximately 86% of our gross intangible assets are amortized based on the cash flow streams used to value the assets, with the remaining assets amortized using the straight-line method.

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Finance Receivables
Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for losses.
We establish an allowance for credit losses to cover probable but specifically unknown losses existing in the portfolio. This allowance is established as a percentage of finance receivables categorized by pools with similar risk characteristics, such as collateral or customer type and geographic location. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values, current economic conditions, and, when reasonable and supportable factors exist, management’s expectation of future economic conditions.
For those finance receivables that do not have similar risk characteristics, including larger balance accounts specifically identified as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable's effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying amount. The expected future cash flows consider collateral value; financial performance and liquidity of our borrower; existence and financial strength of guarantors; estimated recovery costs, including legal expenses; and costs associated with the repossession and eventual disposal of collateral. When there is a range of potential outcomes, we perform multiple discounted cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results. While our analysis is specific to each individual account, critical factors included in this analysis include industry valuation guides, age and physical condition of the collateral, payment history, and existence and financial strength of guarantors.
Finance receivables are charged off at the earlier of the date the collateral is repossessed or when management no longer deems the receivable collectible.  Repossessed assets are recorded at their fair value, less estimated cost to sell.
Pension and Postretirement Benefit Obligations
We maintain various pension and postretirement plans for our employees globally. Our pension plans include significant benefit obligations, which are calculated based on actuarial valuations. Key assumptions used in determining these obligations and related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections.  We evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases.
For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to our fiscal year-end. We recognize the overfunded or underfunded status of our pension and postretirement plans in the Consolidated Balance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income (loss) in the year in which they occur. To the extent actuarial gains and losses exceed 10% of the higher of the market-related value of assets or the benefit obligation in a year, the excess is recognized as a component of accumulated other comprehensive income (loss) and is amortized into net periodic pension cost over the remaining service period of the active participants. For plans in which all or almost all of the plan’s participants are inactive, the amortization period is the remaining life expectancy of the inactive participants. This determination is made on a plan-by-plan basis.
Derivatives and Hedging Activities
We are exposed to market risk primarily from changes in currency exchange rates and interest rates.  We do not hold or issue derivative financial instruments for trading or speculative purposes.  To manage the volatility relating to our exposures, we net these exposures on a consolidated basis to take advantage of natural offsets.  For the residual portion, we enter into various derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices.  Credit risk related to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through periodic settlements of positions.
All derivative instruments are reported at fair value in the Consolidated Balance Sheets.  Designation to support hedge accounting is performed on a specific exposure basis.  For financial instruments qualifying as cash flow hedges, we record changes in the fair value of derivatives (to the extent they are effective as hedges) in other comprehensive income (loss), net of deferred taxes. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings.
Foreign currency denominated assets and liabilities are translated into U.S. dollars.  Adjustments from currency rate changes are recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or substantially liquidated.  

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Leases
We identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated period of time in exchange for consideration. Specifically, we consider whether we can control the underlying asset and have the right to obtain substantially all of the economic benefits or outputs from the asset.  For our contracts that contain both lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common-area maintenance costs, other goods/services), we allocate the consideration in the contract to each component based on its standalone price.  Leases with terms greater than 12 months are classified as either operating or finance leases at the commencement date.  For these leases, we capitalize the lesser of a) the present value of the minimum lease payments over the lease term, or b) the fair value of the asset, as a right-of-use asset with an offsetting lease liability. The discount rate used to calculate the present value of the minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the lease is generally not known or determinable. The lease term includes any noncancelable period for which we have the right to use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.  Operating leases are recognized as a single lease cost on a straight-line basis over the lease term, while finance lease cost is recognized separately as amortization and interest expense.  
Product Liabilities
We accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable.  Our estimates are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience.
Environmental Liabilities and Asset Retirement Obligations
Liabilities for environmental matters are recorded on a site-by-site basis when it is probable that an obligation has been incurred and the cost can be reasonably estimated.  We estimate our accrued environmental liabilities using currently available facts, existing technology, and presently enacted laws and regulations, all of which are subject to a number of factors and uncertainties. Our environmental liabilities are not discounted and do not take into consideration possible future insurance proceeds or significant amounts from claims against other third parties.
We have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and asbestos materials used in insulation, adhesive fillers and floor tiles. Currently, there is no legal requirement to remove these items and there is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset retirement obligations are not probable, there is no related liability recorded in the Consolidated Balance Sheets.
Warranty Liabilities
For our assurance-type warranty programs, we estimate the costs that may be incurred and record a liability in the amount of such costs at the time product revenues are recognized.  Factors that affect this liability include the number of products sold, historical costs per claim, length of warranty period, contractual recoveries from vendors and historical and anticipated rates of warranty claims, including production and warranty patterns for new models.  We assess the adequacy of our recorded warranty liability periodically and adjust the amounts as necessary.  Additionally, we may establish a warranty liability related to the issuance of aircraft service bulletins for aircraft no longer covered under the limited warranty programs.
Research and Development Costs
Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. Government contracts.  In accordance with government regulations, we recover a portion of company-funded research and development costs through overhead rate charges on our U.S. Government contracts.  Research and development costs that are not reimbursable under a contract with the U.S. Government or another customer are charged to expense as incurred.  Company-funded research and development costs were $549 million, $647 million and $643 million in 2020, 2019 and 2018, respectively, and are included in cost of sales.
Income Taxes
The provision for income tax expense is calculated on reported income before income taxes based on current tax law and includes, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Tax laws may require items to be included in the determination of taxable income at different times from when the items are reflected in the financial statements. Deferred tax balances reflect the effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and their tax bases, as well as from net operating losses and tax credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered.
Deferred tax assets represent tax benefits for tax deductions or credits available in future years and require certain estimates and assumptions to determine whether it is more likely than not that all or a portion of the benefit will not be realized.  The recoverability of these future tax deductions and credits is determined by assessing the adequacy of future expected taxable income from all sources, including the future reversal of existing taxable temporary differences, taxable income in carryback
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years, estimated future taxable income and available tax planning strategies. Should a change in facts or circumstances lead to a change in judgment about the ultimate recoverability of a deferred tax asset, we record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in income tax expense.  
We record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the reporting date.  To be recognized in the financial statements, the tax position must meet the more-likely-than-not threshold that the position will be sustained upon examination by the tax authority based on technical merits assuming the tax authority has full knowledge of all relevant information.  For positions meeting this recognition threshold, the benefit is measured as the largest amount of benefit that meets the more-likely-than-not threshold to be sustained. We periodically evaluate these tax positions based on the latest available information.  For tax positions that do not meet the threshold requirement, we recognize net tax-related interest and penalties for continuing operations in income tax expense.

Note 2. Business Dispositions
On November 25, 2020, we reached a definitive agreement to sell TRU Simulation + Training Canada Inc. within our Textron Systems segment. At January 2, 2021, the assets and liabilities of this business met the criteria to be classified as held for sale and are recorded at the lower of the carrying value or fair value, less cost to sell. The net carrying amounts classified as held for sale in the Consolidated Balance Sheet included $78 million of assets, primarily inventories, recorded in Other current assets and $77 million of liabilities, primarily contract liabilities, recorded in Other current liabilities. The transaction closed on January 25, 2021, and we expect to record an after-tax gain of approximately $10 million in the first quarter of 2021.
On July 2, 2018, we completed the sale of the businesses that manufacture and sell the products in our Tools and Test Equipment product line within our Industrial segment for net cash proceeds of $807 million. We recorded an after-tax gain of $419 million related to this disposition.

Note 3. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill by segment are as follows:

(In millions)	Textron
Aviation	Bell	Textron
Systems	Industrial	Total	
Balance at December 29, 2018	$	614 		$	31 		$	1,100 		$	473 		$	2,218 		
Disposition (a)	— 		— 		(71)		— 		(71)		
Acquisition	— 		— 		4 		— 		4 		
Foreign currency translation	— 		— 		— 		(1)		(1)		
Balance at January 4, 2020	614 		31 		1,033 		472 		2,150 		
Acquisitions	4 		4 		— 		— 		8 		
Reclassifications (b)	12 		— 		(24)		— 		(12)		
Foreign currency translation	1 		— 		— 		10 		11 		
Balance at January 2, 2021	$	631 		$	35 		$	1,009 		$	482 		$	2,157 		
(a)See Note 7 for additional information.
(b)Reclassifications include $12 million of goodwill classified as held for sale in connection with a business disposition described in Note 2 and amounts transferred between segments.
Intangible Assets
Our intangible assets are summarized below:

		January 2, 2021	January 4, 2020	
(Dollars in millions)	Weighted-Average
Amortization
Period (in years)	Gross
Carrying
Amount	Accumulated
Amortization	Net	Gross
Carrying
Amount	Accumulated
Amortization	Net	
Patents and technology	14	$	484 		$	(263)		$	221 		$	501 		$	(242)		$	259 		
Trade names and trademarks	14	182 		(8)		174 		223 		(8)		215 		
Customer relationships and
contractual agreements	15	412 		(318)		94 		413 		(298)		115 		
Other	4	6 		(6)		— 		6 		(6)		— 		
Total		$	1,084 		$	(595)		$	489 		$	1,143 		$	(554)		$	589 		
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Trade names and trademarks in the table above include $169 million and $208 million of indefinite-lived intangible assets at January 2, 2021 and January 4, 2020, respectively. In 2020, we recognized $47 million of intangible asset impairment charges, primarily related to indefinite-lived assets as discussed in Note 17. Amortization expense totaled $54 million, $59 million and $66 million in 2020, 2019 and 2018, respectively. Amortization expense is estimated to be approximately $51 million, $51 million, $35 million, $32 million and $30 million in 2021, 2022, 2023, 2024 and 2025, respectively.

Note 4. Accounts Receivable and Finance Receivables
Accounts Receivable
Accounts receivable is composed of the following:

(In millions)	January 2,
2021	January 4,
2020	
Commercial	$	668 		$	835 		
U.S. Government contracts	155 		115 		
	823 		950 		
Allowance for doubtful accounts	(36)		(29)		
Total	$	787 		$	921 		
Finance Receivables
Finance receivables are presented in the following table:

(In millions)	January 2,
2021	January 4,
2020	
Finance receivables	$	779 		$	707 		
Allowance for losses	(35)		(25)		
Total finance receivables, net	$	744 		$	682 		
Finance receivables primarily includes loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. These loans typically have initial terms ranging from five to twelve years, amortization terms ranging from eight to fifteen years and an average balance of $1.6 million at January 2, 2021. Loans generally require the customer to pay a significant down payment, along with periodic scheduled principal payments that reduce the outstanding balance through the term of the loan.
Our finance receivables are diversified across geographic region and borrower industry. At both January 2, 2021 and January 4, 2020, 59% of our finance receivables were distributed internationally and 41% throughout the U.S. At January 2, 2021 and January 4, 2020, finance receivables of $125 million and $148 million, respectively, have been pledged as collateral for TFC’s debt of $68 million and $87 million, respectively.
Finance Receivable Portfolio Quality
We internally assess the quality of our finance receivables based on a number of key credit quality indicators and statistics such as delinquency, loan balance to estimated collateral value and the financial strength of individual borrowers and guarantors.  Because many of these indicators are difficult to apply across an entire class of receivables, we evaluate individual loans on a quarterly basis and classify these loans into three categories based on the key credit quality indicators for the individual loan. These three categories are performing, watchlist and nonaccrual.
We classify finance receivables as nonaccrual if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three months unless collection of principal and interest is not doubtful. Accounts are classified as watchlist when credit quality indicators have deteriorated as compared with typical underwriting criteria, and we believe collection of full principal and interest is probable but not certain. All other finance receivables that do not meet the watchlist or nonaccrual categories are classified as performing.
We measure delinquency based on the contractual payment terms of our finance receivables.  In determining the delinquency aging category of an account, any/all principal and interest received is applied to the most past-due principal and/or interest amounts due. If a significant portion of the contractually due payment is delinquent, the entire finance receivable balance is reported in accordance with the most past-due delinquency aging category.

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In March 2020, due to the economic impact of the COVID-19 pandemic and at the request of certain of our customers, we began working with them to provide temporary payment relief through loan modifications. The types of temporary payment relief we offered to these customers included delays in the timing of required principal payments, deferrals of interest payments and/or interest-only payments. For loan modifications that cover payment-relief periods in excess of six months, even if the loan was previously current, the loan is deemed a troubled debt restructuring and considered impaired. These impaired loans are classified as either nonaccrual or watchlist based on a review of the credit quality indicators as discussed above.
During 2020, we modified finance receivable contracts for 94 customers with an outstanding balance totaling $278 million at January 2, 2021. Of the modifications occurring during 2020, contracts for 32 customers, or $129 million of finance receivables, were categorized as troubled debt restructurings. Due to the nature of these restructurings, the financial effects were not significant. We had two customer defaults related to finance receivables previously modified as a troubled debt restructuring that had an insignificant outstanding balance. We believe our allowance for credit losses adequately covers our exposure on these loans as our estimated collateral values largely exceed the outstanding loan amounts.
Finance receivables categorized based on the credit quality indicators and by delinquency aging category are  summarized as follows:

(Dollars in millions)	January 2,
2021	January 4,
2020	
Performing	$	612 		$	664 		
Watchlist	74 		4 		
Nonaccrual	93 		39 		
Nonaccrual as a percentage of finance receivables	11.94%	5.52%	
Less than 31 days past due	$	738 		$	637 		
31-60 days past due	12 		53 		
61-90 days past due	11 		7 		
Over 90 days past due	18 		10 		
60+ days contractual delinquency as a percentage of finance receivables	3.72%	2.40%	
At January 2, 2021, 48% of our performing finance receivables were originated since the beginning of 2019 and 26% were originated from 2016 to 2018. For finance receivables categorized as watchlist and nonaccrual, 9% and 25%, respectively, were originated since the beginning of 2019, and 47% and 36%, respectively, from 2016 to 2018. For accounts modified in 2020, the origination date prior to the modification was maintained based on the types of temporary payment relief provided.
On a quarterly basis, we evaluate individual larger balance accounts for impairment.  A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators described above.  Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified.  If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification.
A summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment is provided below:

(In millions)	January 2,
2021	January 4,
2020	
Recorded investment:			
Impaired loans with specific allowance for losses	$	46 		$	17 		
Impaired loans with no specific allowance for losses	117 		22 		
Total	$	163 		$	39 		
Unpaid principal balance	$	175 		$	50 		
Allowance for losses on impaired loans	7 		3 		
Average recorded investment	126 		40 		

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A summary of the allowance for losses on finance receivables based on how the underlying finance receivables are evaluated for impairment, is provided below.  The finance receivables reported in this table exclude $95 million and $104 million of leveraged leases at January 2, 2021 and January 4, 2020, respectively, in accordance with U.S. generally accepted accounting principles.

(In millions)	January 2,
2021	January 4,
2020	
Allowance based on collective evaluation	$	28 		$	22 		
Allowance based on individual evaluation	7 		3 		
Finance receivables evaluated collectively	521 		564 		
Finance receivables evaluated individually	163 		39 		

Note 5. Inventories
Inventories are composed of the following:

(In millions)	January 2,
2021	January 4,
2020	
Finished goods	$	1,228 		$	1,557 		
Work in process	1,455 		1,616 		
Raw materials and components	830 		896 		
Total	$	3,513 		$	4,069 		
Inventories valued by the LIFO method totaled $2.2 billion and $2.5 billion at January 2, 2021 and January 4, 2020, respectively, and the carrying values of these inventories would have been higher by approximately $507 million and $475 million, respectively, had our LIFO inventories been valued at current costs.

Note 6. Property, Plant and Equipment, Net
Our Manufacturing group’s property, plant and equipment, net is composed of the following:

(Dollars in millions)	Useful Lives
(in years)	January 2,
2021	January 4,
2020	
Land, buildings and improvements	2	-	40	$	2,031 		$	1,991 		
Machinery and equipment	2	-	20	5,181 		4,941 		
				7,212 		6,932 		
Accumulated depreciation and amortization				(4,696)		(4,405)		
Total				$	2,516 		$	2,527 		
The Manufacturing group’s depreciation expense, which included amortization expense on finance leases, totaled $325 million, $346 million and $358 million in 2020, 2019 and 2018, respectively.

Note 7. Other Assets
Other assets includes the cash surrender value of corporate-owned life insurance policies, net of any borrowings against these policies. During the first quarter of 2020, we borrowed $377 million against the policies as we strengthened our cash position in light of disruptions caused by the COVID-19 pandemic. These borrowings were subsequently repaid and there were no outstanding borrowings against these policies at January 2, 2021. Proceeds from these borrowings and subsequent payments have been classified as financing activities in the consolidated statement of cash flows. Interest expense incurred on borrowings against corporate-owned life insurance policies is recorded as an offset with policy income.
In 2019, TRU Simulation + Training Inc., a business within our Textron Systems segment, contributed assets associated with its training business into FlightSafety Textron Aviation Training LLC, a company formed by FlightSafety International Inc. and TRU to provide training solutions for Textron Aviation’s commercial business and general aviation aircraft. We have a 30% interest in this company and our investment is accounted for under the equity method of accounting. We contributed assets with a carrying value of $69 million to the company, which primarily included property, plant and equipment. In addition, $71 million of the Textron Systems segment’s goodwill was allocated to this transaction. Based on the fair value of our share of the business, we recorded a pre-tax net gain of $18 million in 2019 to cost of sales in our Consolidated Statements of Operations.

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Note 8. Other Current Liabilities
The other current liabilities of our Manufacturing group are summarized below:

(In millions)	January 2,
2021	January 4,
2020	
Contract liabilities	$	758 		$	715 		
Salaries, wages and employer taxes	381 		362 		
Current portion of warranty and product maintenance liabilities	133 		147 		
Other	713 		683 		
Total	$	1,985 		$	1,907 		
Changes in our warranty liability are as follows:

(In millions)	2020	2019	2018	
Balance at beginning of year	$	141 		$	149 		$	164 		
Provision	54 		68 		72 		
Settlements	(64)		(70)		(78)		
Adjustments*	(12)		(6)		(9)		
Balance at end of year	$	119 		$	141 		$	149 		
* Adjustments include changes to prior year estimates, new issues on prior year sales, reclassifications to held for sale, business acquisitions/dispositions and currency translation adjustments.

Note 9. Leases
We primarily lease certain manufacturing plants, offices, warehouses, training and service centers at various locations worldwide that are classified as either operating or finance leases. Our leases have remaining lease terms up to 28 years, which include options to extend the lease term for periods up to 25 years when it is reasonably certain the option will be exercised.
Operating lease cost totaled $61 million and $64 million, in 2020 and 2019, respectively. Finance lease cost and variable and short-term lease costs were not significant. In 2020 and 2019, cash paid for operating lease liabilities totaled $60 million and $62 million, respectively, which is classified as cash flows from operating activities. Noncash transactions totaled $119 million in 2020 and $25 million in 2019, reflecting the recognition of operating lease assets and liabilities for new or extended leases. Balance sheet and other information related to our leases is as follows:

(Dollars in millions)	January 2,
2021	January 4,
2020	
Operating leases:			
Other assets	$	349 		$	277 		
Other current liabilities	47 		48 		
Other liabilities	306 		233 		
Finance leases:			
Property, plant and equipment, net	$	35 		$	39 		
Current portion of long-term debt	2 		2 		
Long-term debt	38 		40 		
Weighted-average remaining lease term (in years)			
Operating leases	11.6	10.2	
Finance leases	16.8	17.9	
Weighted-average discount rate			
Operating leases	4.17%	4.42%	
Finance leases	4.35%	4.37%	

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Maturities of our lease liabilities at January 2, 2021 are as follows:

(In millions)	Operating
Leases	Finance
Leases	
2021	$	59 		$	4 		
2022	53 		4 		
2023	44 		4 		
2024	35 		4 		
2025	33 		5 		
Thereafter	232 		42 		
Total lease payments	456 		63 		
Less: interest	(103)		(23)		
Total lease liabilities	$	353 		$	40 		

Note 10. Debt and Credit Facilities
Our debt is summarized in the table below:

(In millions)	January 2,
2021	January 4,
2020	
Manufacturing group			
6.625% due 2020	$	— 		$	199 		
Variable-rate notes due 2020 (2.45%)	— 		350 		
3.65% due 2021	250 		250 		
5.95% due 2021	250 		250 		
4.30% due 2024	350 		350 		
3.875% due 2025	350 		350 		
4.00% due 2026	350 		350 		
3.65% due 2027	350 		350 		
3.375% due 2028	300 		300 		
3.90% due 2029	300 		300 		
3.00% due 2030	650 		— 		
2.45% due 2031	500 		— 		
Other (weighted-average rate of 2.60% and 3.01%, respectively)	57 		75 		
Total Manufacturing group debt	$	3,707 		$	3,124 		
Less: Current portion of long-term debt	(509)		(561)		
Total Long-term debt	$	3,198 		$	2,563 		
Finance group			
Variable-rate note due 2022 (1.70% and 2.87%, respectively)	$	150 		$	150 		
2.88% note due 2022	150 		150 		
Fixed-rate notes due 2020-2028 (weighted-average rate of 3.25% and 3.20%, respectively)*	51 		65 		
Variable-rate notes due 2020-2027 (weighted-average rate of 1.73% and  3.31%, respectively)*	17 		22 		
Fixed-to-Floating Rate Junior Subordinated Notes (1.96% and 3.64%, respectively)	294 		299 		
Total Finance group debt	$	662 		$	686 		
* Notes amortize on a monthly basis and are secured by finance receivables as described in Note 4.
The following table shows required payments during the next five years on debt outstanding at January 2, 2021:

(In millions)	2021	2022	2023	2024	2025	
Manufacturing group	$	509 		$	8 		$	8 		$	361 		$	357 		
Finance group	13 		316 		16 		15 		5 		
Total	$	522 		$	324 		$	24 		$	376 		$	362 		
Textron has a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 billion, of which up to $100 million is available for the issuance of letters of credit. We may elect to increase the aggregate amount of commitments under the facility to up to $1.3 billion by designating an additional lender or by an existing lender agreeing to increase its commitment. The facility expires in October 2024, subject to up to two one-year extensions at our option with the consent of lenders representing a
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majority of the commitments under the facility. At January 2, 2021 and January 4, 2020, there were no amounts borrowed against the facility and there were $9 million and $10 million, respectively, of outstanding letters of credit issued under the facility.
Fixed-to-Floating Rate Junior Subordinated Notes
The Finance group’s $294 million of Fixed-to-Floating Rate Junior Subordinated Notes are unsecured and rank junior to all of its existing and future senior debt. The notes mature on February 15, 2067; however, we have the right to redeem the notes at par at any time and we are obligated to redeem the notes beginning on February 15, 2042.  During 2020, TFC repurchased $5 million of these notes. Interest on the notes was fixed at 6% through February 15, 2017 and is now variable at the three-month London Interbank Offered Rate + 1.735%.
Support Agreement
Under a Support Agreement between Textron and TFC, Textron is required to maintain a controlling interest in TFC. The agreement, as amended in December 2015, also requires Textron to ensure that TFC maintains fixed charge coverage of no less than 125% and consolidated shareholders' equity of no less than $125 million. There were no cash contributions required to be paid to TFC in 2020, 2019 and 2018 to maintain compliance with the support agreement.

Note 11. Derivative Instruments and Fair Value Measurements
We measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  We prioritize the assumptions that market participants would use in pricing the asset or liability into a three-tier fair value hierarchy.  This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exist, requiring companies to develop their own assumptions.  Observable inputs that do not meet the criteria of Level 1, which include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2.  Level 3 inputs are those that reflect our estimates about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.  Valuation techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data.  These unobservable inputs are utilized only to the extent that observable inputs are not available or cost effective to obtain.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
We manufacture and sell our products in a number of countries throughout the world, and, therefore, we are exposed to movements in foreign currency exchange rates.  We primarily utilize foreign currency exchange contracts with maturities of no more than three years to manage this volatility.  These contracts qualify as cash flow hedges and are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and overhead expenses. Net gains and losses recognized in earnings and Accumulated other comprehensive loss on cash flow hedges, including gains and losses related to hedge ineffectiveness, were not significant in the periods presented.  
Our foreign currency exchange contracts are measured at fair value using the market method valuation technique.  The inputs to this technique utilize current foreign currency exchange forward market rates published by third-party leading financial news and data providers.  These are observable data that represent the rates that the financial institution uses for contracts entered into at that date; however, they are not based on actual transactions so they are classified as Level 2. At January 2, 2021 and January 4, 2020, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $318 million and $342 million, respectively. At January 2, 2021, the fair value amounts of our foreign currency exchange contracts were a $5 million asset and a $2 million liability.  At January 4, 2020, the fair value amounts of our foreign currency exchange contracts were a $2 million asset and a $2 million liability.
Our Finance group enters into interest rate swap agreements to mitigate exposure to fluctuations in interest rates. By using these contracts, we are able to convert floating-rate cash flows to fixed-rate cash flows. These agreements are designated as cash flow hedges. At January 2, 2021, we had one swap agreement that matures in February 2022 for a notional amount of $294 million with a fair value of a $4 million liability.

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Assets and Liabilities Not Recorded at Fair Value
The carrying value and estimated fair value of our financial instruments that are not reflected in the financial statements at fair value are as follows:

	January 2, 2021	January 4, 2020	
(In millions)	Carrying
Value	Estimated
Fair Value	Carrying
Value	Estimated
Fair Value	
Manufacturing group					
Debt, excluding leases	$	(3,690)		$	(3,986)		$	(3,097)		$	(3,249)		
Finance group					
Finance receivables, excluding leases	549 		599 		493 		527 		
Debt	(662)		(587)		(686)		(634)		
Fair value for the Manufacturing group debt is determined using market observable data for similar transactions (Level 2).  The fair value for the Finance group debt was determined primarily based on discounted cash flow analyses using observable market inputs from debt with similar duration, subordination and credit default expectations (Level 2).  Fair value estimates for finance receivables were determined based on internally developed discounted cash flow models primarily utilizing significant unobservable inputs (Level 3), which include estimates of the rate of return, financing cost, capital structure and/or discount rate expectations of current market participants combined with estimated loan cash flows based on credit losses, payment rates and expectations of borrowers’ ability to make payments on a timely basis.

Note 12. Shareholders’ Equity
Capital Stock
We have authorization for 15 million shares of preferred stock with a par value of $0.01 and 500 million shares of common stock with a par value of $0.125.  Outstanding common stock activity is presented below:

(In thousands)	2020	2019	2018	
Balance at beginning of year	227,956 		235,621 		261,471 		
Share repurchases	(4,145)		(10,011)		(29,094)		
Share-based compensation activity	2,633 		2,346 		3,244 		
Balance at end of year	226,444 		227,956 		235,621 		
Earnings Per Share
We calculate basic and diluted earnings per share (EPS) based on net income, which approximates income available to common shareholders for each period.  Basic EPS is calculated using the two-class method, which includes the weighted-average number of common shares outstanding during the period and restricted stock units to be paid in stock that are deemed participating securities as they provide nonforfeitable rights to dividends.  Diluted EPS considers the dilutive effect of all potential future common stock, including stock options.
The weighted-average shares outstanding for basic and diluted EPS are as follows:

(In thousands)	2020	2019	2018	
Basic weighted-average shares outstanding	228,536 		231,315 		250,196 		
Dilutive effect of stock options	443 		1,394 		3,041 		
Diluted weighted-average shares outstanding	228,979 		232,709 		253,237 		
In 2020, 2019 and 2018, stock options to purchase 7.6 million, 4.3 million and 1.3 million shares, respectively, of common stock are excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive.

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Accumulated Other Comprehensive Loss
The components of Accumulated other comprehensive loss are presented below:

(In millions)	Pension and
Postretirement
Benefits
Adjustments	Foreign
Currency
Translation
Adjustments	Deferred
Gains (Losses)
on Hedge
Contracts	Accumulated
Other
Comprehensive
Loss	
Balance at December 29, 2018	$	(1,727)		$	(32)		$	(3)		$	(1,762)		
Other comprehensive loss before reclassifications	(166)		(4)		5 		(165)		
Reclassified from Accumulated other comprehensive loss	82 		— 		(2)		80 		
Balance at January 4, 2020	$	(1,811)		$	(36)		$	— 		$	(1,847)		
Other comprehensive loss before reclassifications	(115)		78 		3 		(34)		
Reclassified from Accumulated other comprehensive loss	146 		— 		(4)		142 		
Balance at January 2, 2021	$	(1,780)		$	42 		$	(1)		$	(1,739)		
Other comprehensive income (loss)
The before and after-tax components of other comprehensive income (loss) are presented below:

	2020	2019	2018	
(In millions)	Pre-Tax
Amount	Tax
(Expense)
Benefit	After-
Tax
Amount	Pre-Tax
Amount	Tax
(Expense)
Benefit	After-
Tax
Amount	Pre-Tax
Amount	Tax
(Expense)
Benefit	After-
Tax
Amount	
Pension and postretirement benefits
adjustments:										
Unrealized losses	$	(144)		$	35 		$	(109)		$	(218)		$	52 		$	(166)		$	(248)		$	58 		$	(190)		
Amortization of net actuarial loss*	184 		(43)		141 		99 		(23)		76 		152 		(35)		117 		
Amortization of prior service cost*	6 		(1)		5 		8 		(2)		6 		9 		(2)		7 		
Recognition of prior service cost	(8)		2 		(6)		— 		— 		— 		(20)		5 		(15)		
Business disposition	— 		— 		— 		— 		— 		— 		7 		— 		7 		
Pension and postretirement benefits
adjustments, net	38 		(7)		31 		(111)		27 		(84)		(100)		26 		(74)		
Foreign currency translation adjustments:										
Foreign currency translation adjustments	81 		(3)		78 		(6)		2 		(4)		(46)		(3)		(49)		
Business disposition	— 		— 		— 		— 		— 		— 		6 		— 		6 		
Foreign currency translation adjustments, net	81 		(3)		78 		(6)		2 		(4)		(40)		(3)		(43)		
Deferred gains (losses) on hedge contracts:										
Current deferrals	4 		(1)		3 		8 		(3)		5 		(8)		— 		(8)		
Reclassification adjustments	(6)		2 		(4)		(2)		— 		(2)		(7)		2 		(5)		
Deferred gains (losses) on hedge
contracts, net	(2)		1 		(1)		6 		(3)		3 		(15)		2 		(13)		
Total	$	117 		$	(9)		$	108 		$	(111)		$	26 		$	(85)		$	(155)		$	25 		$	(130)		
* These components of other comprehensive income (loss) are included in the computation of net periodic pension cost. See Note 16 for additional information.

Note 13. Segment and Geographic Data
We operate in, and report financial information for, the following five business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. The accounting policies of the segments are the same as those described in Note 1.
Textron Aviation products include Citation jets, King Air and Caravan turboprop aircraft, military trainer and defense aircraft, piston engine aircraft, and aftermarket part sales and services sold to a diverse base of corporate and individual buyers, and U.S. and non-U.S. governments.
Bell products include military and commercial helicopters, tiltrotor aircraft and related spare parts and services.  Bell supplies military helicopters and, in association with The Boeing Company, military tiltrotor aircraft, and aftermarket services to the U.S. and non-U.S. governments. Bell also supplies commercial helicopters and aftermarket services to corporate, private, law enforcement, utility and emergency medical helicopter operators, and foreign governments.
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Textron Systems products include unmanned aircraft and surface systems, marine craft, armored vehicles and specialty vehicles, and other defense and aviation mission support products and services primarily for U.S. and non-U.S. governments.
Industrial products and markets include the following:
•Fuel Systems and Functional Components products consist of blow-molded plastic fuel systems, including conventional plastic fuel tanks and pressurized fuel tanks for hybrid applications, clear-vision systems and plastic tanks for selective catalytic reduction systems that are marketed primarily to automobile OEMs; and
•Specialized Vehicles products include golf cars, off-road utility vehicles, recreational side-by-side and all-terrain vehicles, snowmobiles, light transportation vehicles, aviation ground support equipment, professional turf-maintenance equipment and turf-care vehicles that are marketed primarily to golf courses and resorts, government agencies and municipalities, consumers, outdoor enthusiasts, and commercial and industrial users.
The Finance segment provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters.
Segment profit is an important measure used for evaluating performance and for decision-making purposes.  Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses, gains/losses on major business dispositions, special charges and an inventory charge related to the 2020 COVID-19 restructuring plan, as discussed in Note 17. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.
Our revenues by segment, along with a reconciliation of segment profit to income before income taxes, are as follows:

	Revenues	Segment Profit	
(In millions)	2020	2019	2018	2020	2019	2018	
Textron Aviation	$	3,974 		$	5,187 		$	4,971 		$	16 		$	449 		$	445 		
Bell	3,309 		3,254 		3,180 		462 		435 		425 		
Textron Systems	1,313 		1,325 		1,464 		152 		141 		156 		
Industrial	3,000 		3,798 		4,291 		111 		217 		218 		
Finance	55 		66 		66 		10 		28 		23 		
Total	$	11,651 		$	13,630 		$	13,972 		$	751 		$	1,270 		$	1,267 		
Corporate expenses and other, net				(122)		(110)		(119)		
Interest expense, net for Manufacturing group				(145)		(146)		(135)		
Special charges*				(147)		(72)		(73)		
Inventory charge*				(55)		— 		— 		
Gain on business disposition				— 		— 		444 		
Income before income taxes				$	282 		$	942 		$	1,384 		
* See Note 17 for additional information.
Other information by segment is provided below:

	Assets	Capital Expenditures	Depreciation and Amortization	
(In millions)	January 2,
2021	January 4,
2020	2020	2019	2018	2020	2019	2018	
Textron Aviation	$	4,380 		$	4,692 		$	94 		$	122 		$	132 		$	138 		$	137 		$	145 		
Bell	2,984 		2,783 		117 		81 		65 		91 		107 		108 		
Textron Systems	2,054 		2,352 		42 		38 		39 		43 		48 		54 		
Industrial	2,500 		2,781 		62 		97 		132 		102 		108 		112 		
Finance	938 		964 		— 		— 		— 		5 		6 		8 		
Corporate	2,587 		1,446 		2 		1 		1 		12 		10 		10 		
Total	$	15,443 		$	15,018 		$	317 		$	339 		$	369 		$	391 		$	416 		$	437 		

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Geographic Data
Presented below is selected financial information by geographic area:

	Revenues*	Property, Plant
and Equipment, net**	
(In millions)	2020	2019	2018	January 2,
2021	January 4,
2020	
United States	$	7,943 		$	8,963 		$	8,667 		$	2,068 		$	2,054 		
Europe	1,336 		1,986 		2,187 		237 		244 		
Asia and Australia	1,106 		1,070 		1,253 		95 		97 		
Other international	1,266 		1,611 		1,865 		116 		132 		
Total	$	11,651 		$	13,630 		$	13,972 		$	2,516 		$	2,527 		
* Revenues are attributed to countries based on the location of the customer.
** Property, plant and equipment, net is based on the location of the asset.

Note 14. Revenues
Disaggregation of Revenues
Our revenues disaggregated by major product type are presented below:

(In millions)	2020	2019	2018	
Aircraft	$	2,714 		$	3,592 		$	3,435 		
Aftermarket parts and services	1,260 		1,595 		1,536 		
Textron Aviation	3,974 		5,187 		4,971 		
Military aircraft and support programs	2,213 		1,988 		2,030 		
Commercial helicopters, parts and services	1,096 		1,266 		1,150 		
Bell	3,309 		3,254 		3,180 		
Unmanned systems	621 		572 		612 		
Marine and land systems	179 		208 		311 		
Simulation, training and other	513 		545 		541 		
Textron Systems	1,313 		1,325 		1,464 		
Fuel systems and functional components	1,751 		2,237 		2,352 		
Specialized vehicles	1,249 		1,561 		1,691 		
Tools and test equipment	— 		— 		248 		
Industrial	3,000 		3,798 		4,291 		
Finance	55 		66 		66 		
Total revenues	$	11,651 		$	13,630 		$	13,972 		

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Our revenues for our segments by customer type and geographic location are presented below:

(In millions)	Textron
Aviation	Bell	Textron
Systems	Industrial	Finance	Total	
2020							
Customer type:							
Commercial	$	3,826 		$	1,079 		$	249 		$	2,993 		$	55 		$	8,202 		
U.S. Government	148 		2,230 		1,064 		7 		— 		3,449 		
Total revenues	$	3,974 		$	3,309 		$	1,313 		$	3,000 		$	55 		$	11,651 		
Geographic location:							
United States	$	2,825 		$	2,564 		$	1,129 		$	1,398 		$	27 		$	7,943 		
Europe	356 		148 		44 		786 		2 		1,336 		
Asia and Australia	379 		330 		67 		328 		2 		1,106 		
Other international	414 		267 		73 		488 		24 		1,266 		
Total revenues	$	3,974 		$	3,309 		$	1,313 		$	3,000 		$	55 		$	11,651 		
2019							
Customer type:							
Commercial	$	4,956 		$	1,238 		$	359 		$	3,775 		$	66 		$	10,394 		
U.S. Government	231 		2,016 		966 		23 		— 		3,236 		
Total revenues	$	5,187 		$	3,254 		$	1,325 		$	3,798 		$	66 		$	13,630 		
Geographic location:							
United States	$	3,708 		$	2,440 		$	1,083 		$	1,698 		$	34 		$	8,963 		
Europe	678 		142 		73 		1,091 		2 		1,986 		
Asia and Australia	244 		348 		103 		374 		1 		1,070 		
Other international	557 		324 		66 		635 		29 		1,611 		
Total revenues	$	5,187 		$	3,254 		$	1,325 		$	3,798 		$	66 		$	13,630 		
2018							
Customer type:							
Commercial	$	4,734 		$	1,114 		$	431 		$	4,277 		$	66 		$	10,622 		
U.S. Government	237 		2,066 		1,033 		14 		— 		3,350 		
Total revenues	$	4,971 		$	3,180 		$	1,464 		$	4,291 		$	66 		$	13,972 		
Geographic location:							
United States	$	3,379 		$	2,186 		$	1,118 		$	1,957 		$	27 		$	8,667 		
Europe	612 		162 		74 		1,333 		6 		2,187 		
Asia and Australia	336 		427 		127 		357 		6 		1,253 		
Other international	644 		405 		145 		644 		27 		1,865 		
Total revenues	$	4,971 		$	3,180 		$	1,464 		$	4,291 		$	66 		$	13,972 		
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 revenue 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 January 2, 2021, we had $9.5 billion in remaining performance obligations of which we expect to recognize revenues of approximately 76% through 2022, an additional 20% 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 January 2, 2021 and January 4, 2020, contract assets totaled $561 million and $567 million, respectively, and contract liabilities totaled $842 million and $830 million, respectively, reflecting timing differences between revenues recognized, billings and payments from customers. During 2020, 2019 and 2018, we recognized revenues of $506 million, $590 million and $817 million, respectively, that were included in the contract liability balance at the beginning of each year.
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Note 15. Share-Based Compensation
Under our 2015 Long-Term Incentive Plan (Plan), which replaced our 2007 Long-Term Incentive Plan in April 2015, we have authorization to provide awards to selected employees and non-employee directors in the form of stock options, restricted stock, restricted stock units, stock appreciation rights, performance stock, performance share units and other awards.  A maximum of 17 million shares is authorized for issuance for all purposes under the Plan plus any shares that become available upon cancellation, forfeiture or expiration of awards granted under the 2007 Long-Term Incentive Plan. No more than 17 million shares may be awarded pursuant to incentive stock options, and no more than 4.25 million shares may be issued pursuant to awards of restricted stock, restricted stock units, performance stock or other awards that are payable in shares. For 2020, 2019 and 2018, the awards granted under this Plan primarily included stock options, restricted stock units and performance share units.
Through our Deferred Income Plan for Textron Executives, we provide certain executives the opportunity to voluntarily defer up to 80% of their base salary, along with incentive compensation.  Elective deferrals may be put into either a stock unit account or an interest-bearing account.  Participants cannot move amounts between the two accounts while actively employed by us and cannot receive distributions until termination of employment. The intrinsic value of amounts paid under this deferred income plan was not significant in 2020, 2019 and 2018.
Share-based compensation costs are reflected primarily in selling and administrative expense.  Compensation expense included in net income for our share-based compensation plans is as follows:

(In millions)	2020	2019	2018	
Compensation expense	$	57 		$	52 		$	35 		
Income tax benefit	(14)		(12)		(8)		
Total compensation expense included in net income	$	43 		$	40 		$	27 		
Compensation cost for awards subject only to service conditions that vest ratably is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. Our awards include continued vesting provisions for retirement eligible employees. Upon reaching retirement eligibility, the service requirement for these individuals is considered to have been satisfied and compensation expense for future awards is recognized on the date of the grant.
As of January 2, 2021, we had not recognized $30 million of total compensation costs associated with unvested awards subject only to service conditions. We expect to recognize compensation expense for these awards over a weighted-average period of approximately two years.
Stock Options
Stock option compensation expense was $20 million, $22 million and $23 million in 2020, 2019 and 2018, respectively. Options to purchase our shares have a maximum term of ten years and generally vest ratably over a three-year period. Stock option compensation cost is calculated under the fair value approach using the Black-Scholes option-pricing model to determine the fair value of options granted on the date of grant. The expected volatility used in this model is based on historical volatilities and implied volatilities from traded options on our common stock. The expected term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior.
We grant options annually on the first day of March. The assumptions used in our option-pricing model for these grants and the weighted-average fair value for these options are as follows:

	2020	2019	2018	
Fair value of options at grant date	$	10.66	$	14.62	$	15.83	
Dividend yield	0.2%	0.2%	0.1%	
Expected volatility	29.3%	26.6%	26.6%	
Risk-free interest rate	1.1%	2.5%	2.6%	
Expected term (in years)	4.7	4.7	4.7	
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The stock option activity during 2020 is provided below:

(Options in thousands)	Number of
Options	Weighted-
Average
Exercise Price	
Outstanding at beginning of year	8,744 		$	44.00 		
Granted	2,003 		39.48 		
Exercised	(723)		(29.71)		
Forfeited or expired	(214)		(48.75)		
Outstanding at end of year	9,810 		$	44.03 		
Exercisable at end of year	6,484 		$	43.02 		
At January 2, 2021, our outstanding options had an aggregate intrinsic value of $65 million and a weighted-average remaining contractual life of 5.8 years.  Our exercisable options had an aggregate intrinsic value of $48 million and a weighted-average remaining contractual life of 4.4 years at January 2, 2021.  The total intrinsic value of options exercised during 2020, 2019 and 2018 was $10 million, $22 million and $62 million, respectively.
Restricted Stock Units
We issue restricted stock units that include the right to receive dividend equivalents and are settled in both cash and stock. Beginning in 2020, new grants of restricted stock units will vest in full on the third anniversary of the grant date. Restricted stock units granted prior to 2020 vest one-third each in the third, fourth and fifth year following the year of the grant. The fair value of these units is based on the trading price of our common stock. For units payable in stock, we use the trading price on the grant date, while units payable in cash are remeasured using the price at each reporting period date.  
The 2020 activity for restricted stock units is provided below:

	Units Payable in Stock		Units Payable in Cash	
(Shares/Units in thousands)	Number of
Shares	Weighted-
Average Grant
Date Fair Value		Number of
Units	Weighted-
Average Grant
Date Fair Value	
Outstanding at beginning of year, nonvested	543 		$	49.44 			1,104 		$	49.61 		
Granted	179 		37.93 			360 		40.57 		
Vested	(139)		(42.34)			(276)		(42.34)		
Forfeited	— 		— 			(43)		(49.29)		
Outstanding at end of year, nonvested	583 		$	47.60 			1,145 		$	48.53 		
The fair value of the restricted stock unit awards that vested and/or amounts paid under these awards is as follows:

(In millions)	2020	2019	2018	
Fair value of awards vested	$	17 		$	23 		$	25 		
Cash paid	11 		16 		18 		
Performance Share Units
The fair value of share-based compensation awards accounted for as liabilities includes performance share units, which are paid in cash in the first quarter of the year following vesting.  Beginning with grants made in 2020, performance share units are subject to performance goals set at the beginning of the three-year performance period. Performance share units granted prior to 2020 are subject to performance goals set for each year of the three-year performance period. Performance share units vest at the end of the three-year performance period. The fair value of these units is based on the trading price of our common stock and is remeasured at each reporting period date.
The 2020 activity for our performance share units is as follows:

(Units in thousands)	Number of
Units	Weighted-
Average Grant
Date Fair Value				
Outstanding at beginning of year, nonvested	411 		$	56.03 					
Granted	276 		40.60 					
Vested	(173)		(58.24)					
Outstanding at end of year, nonvested	514 		$	47.02 					
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The fair value of the performance share units that vested and/or amounts paid under these awards is as follows:

(In millions)	2020	2019	2018	
Fair value of awards vested	$	8 		$	9 		$	12 		
Cash paid	7 		10 		11 		

Note 16. Retirement Plans
We provide defined-contribution benefits to eligible employees, as well as some remaining defined-benefit pension and other post-retirement benefits covering certain of our U.S. and Non-U.S. employees. Substantially all of our employees are covered by defined contribution plans. The largest of these plans, the Textron Savings Plan, is a qualified 401(k) plan subject to the Employee Retirement Income Security Act of 1974 (ERISA). Our defined contribution plans cost $128 million, $130 million and $125 million in 2020, 2019 and 2018, respectively. We also provide postretirement benefits other than pensions for certain retired employees in the U.S. that include healthcare, dental care, Medicare Part B reimbursement and life insurance.
A portion of our U.S. employees participate in the legacy defined benefit pension plans which were closed to new participants beginning on January 1, 2010. These plans; the Textron Master Retirement Plan, the Bell Helicopter Textron Master Retirement Plan, and the CWC Castings Division of Textron Inc. Hourly-Rated Employees' Pension Plan, are subject to the provisions of ERISA and provide a minimum guaranteed benefit to participants. The primary factors affecting the benefits earned by participants in our pension plans are employees’ years of service and compensation levels. Employees hired subsequent to the closure of these plans receive an additional annual cash contribution to their Textron Savings Plan account based on their eligible compensation of up to 4%.
Periodic Benefit Cost (Credit)
The components of net periodic benefit cost (credit) and other amounts recognized in other comprehensive income (loss) (OCI) are as follows:

	Pension Benefits	Postretirement Benefits
Other than Pensions	
(In millions)	2020	2019	2018	2020	2019	2018	
Net periodic benefit cost (credit)							
Service cost	$	106 		$	91 		$	104 		$	2 		$	3 		$	3 		
Interest cost	293 		326 		306 		8 		10 		10 		
Expected return on plan assets	(574)		(556)		(553)		— 		— 		— 		
Amortization of prior service cost (credit)	11 		14 		15 		(5)		(6)		(6)		
Amortization of net actuarial loss (gain)	185 		101 		153 		(1)		(2)		(1)		
Net periodic benefit cost (credit)*	$	21 		$	(24)		$	25 		$	4 		$	5 		$	6 		
Other changes in plan assets and benefit obligations recognized in OCI							
Current year actuarial loss (gain)	$	146 		$	207 		$	270 		$	(2)		$	11 		$	(22)		
Current year prior service cost	8 		— 		20 		— 		— 		— 		
Amortization of net actuarial gain (loss)	(185)		(101)		(153)		1 		2 		1 		
Amortization of prior service credit (cost)	(11)		(14)		(15)		5 		6 		6 		
Business disposition	— 		— 		(7)		— 		— 		— 		
Total recognized in OCI, before taxes	$	(42)		$	92 		$	115 		$	4 		$	19 		$	(15)		
Total recognized in net periodic benefit cost (credit) and OCI	$	(21)		$	68 		$	140 		$	8 		$	24 		$	(9)		
* Excludes the cost associated with the defined contribution component, included in certain of our U.S.-based defined benefit pension plans, that totaled $11 million in 2020 and $13 million for both 2019 and 2018.
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Obligations and Funded Status
All of our plans are measured as of our fiscal year-end.  The changes in the projected benefit obligation and in the fair value of plan assets, along with our funded status, are as follows:

	Pension Benefits	Postretirement Benefits
Other than Pensions	
(In millions)	January 2, 2021	January 4, 2020	January 2, 2021	January 4, 2020	
Change in projected benefit obligation					
Projected benefit obligation at beginning of year	$	8,938 		$	7,901 		$	246 		$	250 		
Service cost	106 		91 		2 		3 		
Interest cost	293 		326 		8 		10 		
Plan participants’ contributions	— 		— 		5 		5 		
Actuarial losses (gains)	888 		1,001 		(2)		11 		
Benefits paid	(429)		(421)		(29)		(33)		
Plan amendment	8 		— 		— 		— 		
Foreign exchange rate changes and other	29 		40 		— 		— 		
Projected benefit obligation at end of year	$	9,833 		$	8,938 		$	230 		$	246 		
Change in fair value of plan assets					
Fair value of plan assets at beginning of year	$	8,129 		$	7,122 				
Actual return on plan assets	1,312 		1,350 				
Employer contributions	37 		38 				
Benefits paid	(429)		(421)				
Foreign exchange rate changes and other	31 		40 				
Fair value of plan assets at end of year	$	9,080 		$	8,129 				
Funded status at end of year	$	(753)		$	(809)		$	(230)		$	(246)		
Actuarial losses (gains) reflected in the table above for both 2020 and 2019 were largely the result of changes in the discount rate utilized.
Amounts recognized in our balance sheets are as follows:

	Pension Benefits	Postretirement Benefits
Other than Pensions	
(In millions)	January 2, 2021	January 4, 2020	January 2, 2021	January 4, 2020	
Non-current assets	$	216 		$	152 		$	— 		$	— 		
Current liabilities	(28)		(27)		(23)		(26)		
Non-current liabilities	(941)		(934)		(207)		(220)		
Recognized in Accumulated other comprehensive loss, pre-tax:					
Net loss (gain)	2,238 		2,271 		(23)		(21)		
Prior service cost (credit)	52 		55 		(15)		(20)		
The accumulated benefit obligation for all defined benefit pension plans was $9.3 billion and $8.5 billion at January 2, 2021 and January 4, 2020, respectively, which included $440 million and $404 million, respectively, in accumulated benefit obligations for unfunded plans where funding is not permitted or in foreign environments where funding is not feasible.
Pension plans with accumulated benefit obligation exceeding the fair value of plan assets are as follows:

(In millions)	January 2, 2021	January 4, 2020	
Accumulated benefit obligation	$	789 		$	8,050 		
Fair value of plan assets	282 		7,500 		
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Pension plans with projected benefit obligation exceeding the fair value of plan assets are as follows:

(In millions)	January 2, 2021	January 4, 2020	
Projected benefit obligation	$	9,333 		$	8,462 		
Fair value of plan assets	8,363 		7,500 		
Assumptions
The weighted-average assumptions we use for our pension and postretirement plans are as follows:

	Pension Benefits	Postretirement Benefits
Other than Pensions	
	2020	2019	2018	2020	2019	2018	
Net periodic benefit cost							
Discount rate	3.36%	4.24%	3.67%	3.20%	4.25%	3.50%	
Expected long-term rate of return on assets	7.55%	7.55%	7.58%				
Rate of compensation increase	3.50%	3.50%	3.50%				
Benefit obligations at year-end							
Discount rate	2.62%	3.36%	4.24%	2.35%	3.20%	4.25%	
Rate of compensation increase	3.50%	3.50%	3.50%				
Interest crediting rate for cash balance plans	5.25%	5.25%	5.25%				

For 2021, the long-term rate of return on assets for our domestic plans will be reduced from 7.75% to 7.25%, principally reflecting the impact of current expectations of long-term market conditions on certain investment returns. As discussed in Note 1, actuarial gains and losses are amortized into net periodic pension cost based on either the remaining service period of the active participants or the remaining life expectancy of the inactive participants. As of January 2, 2021, almost all of the participants for our largest domestic plan, the TMRP, were considered inactive largely due to actions taken in prior years to close the plan to new entrants. Accordingly, the amortization period for this plan will change to the average remaining life expectancy of the participant; this change from 7 years to 20 years will reduce 2021 pension cost by approximately $85 million.

Our assumed healthcare cost trend rate for both the medical and prescription drug cost was 7.00% in both 2020 and 2019. We expect this rate to gradually decline to 5% by 2024 where we assume it will remain.
Pension Assets
The expected long-term rate of return on plan assets is determined based on a variety of considerations, including the established asset allocation targets and expectations for those asset classes, historical returns of the plans’ assets and other market considerations. We invest our pension assets with the objective of achieving a total rate of return over the long term that will be sufficient to fund future pension obligations and to minimize future pension contributions. We are willing to tolerate a commensurate level of risk to achieve this objective based on the funded status of the plans and the long-term nature of our pension liability. Risk is controlled by maintaining a portfolio of assets that is diversified across a variety of asset classes, investment styles and investment managers. Where possible, investment managers are prohibited from owning our securities in the portfolios that they manage on our behalf.
For U.S. plan assets, which represent the majority of our plan assets, asset allocation target ranges are established consistent with our investment objectives, and the assets are rebalanced periodically.  For Non-U.S. plan assets, allocations are based on expected cash flow needs and assessments of the local practices and markets.  Our target allocation ranges are as follows:

U.S. Plan Assets				
Domestic equity securities	17 	%	to	33%	
International equity securities	8 	%	to	19%	
Global equities	5 	%	to	17%	
Debt securities	27 	%	to	38%	
Real estate	7 	%	to	13%	
Private investment partnerships	5 	%	to	11%	
Non-U.S. Plan Assets				
Equity securities	55 	%	to	75%	
Debt securities	25 	%	to	45%	
Real estate	0 	%	to	13%	
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The fair value of our pension plan assets by major category and valuation method is as follows:

	January 2, 2021	January 4, 2020	
(In millions)	Level 1	Level 2	Level 3	Not
Subject to
Leveling	Level 1	Level 2	Level 3	Not
Subject to
Leveling	
Cash and equivalents	$	49 		$	3 		$	— 		$	132 		$	18 		$	12 		$	— 		$	174 		
Equity securities:									
Domestic	1,591 		— 		— 		1,241 		1,257 		— 		— 		1,160 		
International	1,221 		— 		— 		735 		929 		— 		— 		780 		
Mutual funds	195 		— 		— 		— 		176 		— 		— 		— 		
Debt securities:									
National, state and local governments	482 		306 		— 		95 		414 		308 		— 		56 		
Corporate debt	69 		1,134 		— 		236 		14 		1,062 		— 		240 		
Asset-backed securities	— 		— 		— 		— 		— 		— 		— 		18 		
Private investment partnerships	— 		— 		— 		819 		— 		— 		— 		745 		
Real estate	— 		— 		458 		314 		— 		— 		473 		293 		
Total	$	3,607 		$	1,443 		$	458 		$	3,572 		$	2,808 		$	1,382 		$	473 		$	3,466 		
Cash and equivalents, equity securities and debt securities include comingled funds, which represent investments in funds offered to institutional investors that are similar to mutual funds in that they provide diversification by holding various equity and debt securities.  Since these comingled funds are not quoted on any active market, they are priced based on the relative value of the underlying equity and debt investments and their individual prices at any given time; these funds are not subject to leveling within the fair value hierarchy. Debt securities are valued based on same day actual trading prices, if available.  If such prices are not available, we use a matrix pricing model with historical prices, trends and other factors.
Private investment partnerships represents interests in funds which invest in equity, debt and other financial assets.  These funds are generally not publicly traded so the interests therein are valued using income and market methods that include cash flow projections and market multiples for various comparable investments.  Real estate includes owned properties and limited partnership interests in real estate partnerships.  Owned properties are valued using certified appraisals at least every three years that are updated at least annually by the real estate investment manager based on current market trends and other available information. These appraisals generally use the standard methods for valuing real estate, including forecasting income and identifying current transactions for comparable real estate to arrive at a fair value.  Limited partnership interests in real estate partnerships are valued similarly to private investment partnerships, with the general partner using standard real estate valuation methods to value the real estate properties and securities held within their portfolios.  Neither private investment nor real estate partnerships are subject to leveling within the fair value hierarchy.
The table below presents a reconciliation of the fair value measurements for owned real estate properties, which use significant unobservable inputs (Level 3):

(In millions)	2020	2019	
Balance at beginning of year	$	473 		$	460 		
Unrealized gains (losses), net	(18)		7 		
Realized gains, net	6 		5 		
Purchases, sales and settlements, net	(3)		1 		
Balance at end of year	$	458 		$	473 		
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Estimated Future Cash Flow Impact
Defined benefits under salaried plans are based on salary and years of service.  Hourly plans generally provide benefits based on stated amounts for each year of service.  Our funding policy is consistent with applicable laws and regulations.  In 2021, we expect to contribute approximately $51 million to our pension plans. Benefit payments provided below reflect expected future employee service, as appropriate, and are expected to be paid, net of estimated participant contributions. These payments are based on the same assumptions used to measure our benefit obligation at the end of 2020. While pension benefit payments primarily will be paid out of qualified pension trusts, we will pay postretirement benefits other than pensions out of our general corporate assets. Benefit payments that we expect to pay on an undiscounted basis are as follows:

(In millions)	2021	2022	2023	2024	2025	2026-2030	
Pension benefits	$	434 		$	441 		$	450 		$	459 		$	470 		$	2,460 		
Postretirement benefits other than pensions	24 		23 		22 		20 		19 		77 		

Note 17. Special Charges
Special charges recorded by segment and type of cost are as follows:

(In millions)	Severance
Costs	Contract
Terminations
and Other	Asset
Impairments	Total Restructuring Charges	Other
Charges	Total	
2020							
Textron Aviation	$	31 		$	— 		$	2 		$	33 		$	32 		$	65 		
Industrial	27 		1 		6 		34 		7 		41 		
Textron Systems	11 		12 		14 		37 		— 		37 		
Corporate	4 		— 		— 		4 		— 		4 		
Total special charges	$	73 		$	13 		$	22 		$	108 		$	39 		$	147 		
2019							
Industrial	$	21 		$	11 		$	6 		$	38 		$	— 		$	38 		
Textron Aviation	25 		— 		4 		29 		— 		29 		
Corporate	— 		— 		— 		— 		5 		5 		
Total special charges	$	46 		$	11 		$	10 		$	67 		$	5 		$	72 		
2018							
Industrial	$	8 		$	18 		$	47 		$	73 		$	— 		$	73 		
Total special charges	$	8 		$	18 		$	47 		$	73 		$	— 		$	73 		
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. As a result of ongoing evaluations, this plan was expanded in the third quarter of 2020 to include additional headcount reductions and facility consolidations in the Industrial segment. The plan primarily impacts the TRU business within the Textron Systems segment, and the Industrial and Textron Aviation segments. At TRU, there has been a substantial decline in demand and order cancellations for flight simulators in light of the expected long-term impact of the pandemic on the commercial air transportation business. Accordingly, we ceased manufacturing at TRU’s facility in Montreal, Canada, resulting in a production suspension of its commercial air transport simulators, along with workforce reductions, contract terminations, facility closures and asset impairments. As a result of market conditions and the cessation of manufacturing at this facility, we incurred an inventory valuation charge of $55 million in the second quarter of 2020, which was recorded in Cost of Sales, to write-down TRU’s inventory to its net realizable value. In the fourth quarter of 2020, we reached a definitive agreement to sell TRU Simulation + Training Canada Inc. as described in Note 2.
Through the end of 2020, we recorded pre-tax charges of $108 million since the inception of the plan. In 2021, we expect to incur additional contract termination costs and other charges in the range of $20 million to $30 million, primarily in the Industrial segment. We estimate a total reduction of 2,700 positions, representing 8% of our workforce, and expect the plan to be substantially completed in the first half of 2021.
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2020 Other Charges
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 at April 4, 2020. Fair value of these assets was determined utilizing the relief of royalty method assuming an increase in the discount rate based on market data to 9.7% and revised expectations of future revenues for the products and services associated with the tradenames. This analysis resulted in an impairment charge of $32 million. At January 2, 2021, these intangible assets totaled $169 million.  In the Industrial segment, we fully impaired the Arctic Cat trade name intangible asset within the Specialized Vehicles product line and recorded a $7 million impairment charge.
Other Restructuring Plans
In 2019, we recorded $67 million of special charges in connection with a restructuring plan that was designed to reduce costs and improve overall operating efficiency through headcount reductions, facility consolidations and other actions in the Industrial and Textron Aviation segments. In the Industrial segment, in connection with the strategic review of our Kautex business, cost reduction and other measures were initiated to maximize its operating margin, and we took further cost cutting actions in our Textron Specialized Vehicles businesses. In the Textron Aviation segment, we conducted a review of our ongoing workforce requirements, resulting in targeted headcount reductions and other actions to realign our cost structure. Headcount reductions totaling approximately 1,000 positions, which included business support and administrative functions within both segments, were completed in 2020. The headcount reductions at Textron Aviation were primarily related to engineering positions, reflecting completion of the Longitude certification activities and reduced requirements for ongoing development programs.
In 2018, we recorded $73 million of special charges in connection with a plan to restructure the Textron Specialized Vehicles businesses within our Industrial segment, which included asset impairment charges of $47 million, primarily intangible assets related to product rationalization, contract termination and other costs of $18 million and severance costs of $8 million. Headcount reductions totaled approximately 400 positions, representing 10% of Textron Specialized Vehicles’ workforce.
Restructuring Reserve
Our restructuring reserve activity is summarized below:

(In millions)	Severance
Costs	Contract
Terminations
and Other	Total	
Balance at December 29, 2018	$	8 		$	32 		$	40 		
Provision for 2019 plan	46 		11 		57 		
Cash paid	(8)		(23)		(31)		
Foreign currency translation	— 		(1)		(1)		
Balance at January 4, 2020	$	46 		$	19 		$	65 		
Provision for 2020 COVID-19 restructuring plan	73 		13 		86 		
Cash paid	(77)		(11)		(88)		
Reclassifications*	(1)		(12)		(13)		
Foreign currency translation	2 		— 		2 		
Balance at January 2, 2021	$	43 		$	9 		$	52 		
* Reclassifications include amounts classified as held for sale in connection with a business disposition described in Note 2.
The majority of the remaining cash outlays of $52 million is expected to be paid in the first half of 2021. Severance costs generally are paid on a lump-sum basis and include outplacement costs, which are paid in accordance with normal payment terms.

Note 18. Income Taxes
We conduct business globally and, as a result, file numerous consolidated and separate income tax returns within and outside the U.S.  For all of our U.S. subsidiaries, we file a consolidated federal income tax return.  Income before income taxes is as follows:

(In millions)	2020	2019	2018	
U.S.	$	202 		$	668 		$	557 		
Non-U.S.	80 		274 		827 		
Income before income taxes	$	282 		$	942 		$	1,384 		

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Income tax expense (benefit) is summarized as follows:

(In millions)	2020	2019	2018	
Current expense (benefit):				
Federal	$	(1)		$	(48)		$	3 		
State	(76)		16 		9 		
Non-U.S.	57 		70 		101 		
	(20)		38 		113 		
Deferred expense (benefit):				
Federal	3 		112 		60 		
State	5 		(20)		(5)		
Non-U.S.	(15)		(3)		(6)		
	(7)		89 		49 		
Income tax expense (benefit)	$	(27)		$	127 		$	162 		
The following table reconciles the federal statutory income tax rate to our effective income tax rate:

	2020	2019	2018	
U.S. Federal statutory income tax rate	21.0%	21.0%	21.0%	
Increase (decrease) resulting from:				
State income tax audit settlement (net of federal impact)	(18.6)	—	—	
Research and development tax credits (a)	(18.2)	(7.6)	(2.9)	
Outside basis difference in assets held for sale	(2.7)	—	—	
State income taxes (net of federal impact)	(1.2)	0.3	(0.1)	
Non-U.S. tax rate differential and foreign tax credits (b)	10.8	1.4	1.3	
U.S. tax reform enactment impact	—	—	(1.0)	
U.S. amended returns tax rate differential	—	(1.2)	—	
Gain on business disposition, primarily in non-U.S. jurisdictions	—	—	(5.0)	
Other, net	(0.7)	(0.4)	(1.6)	
Effective income tax rate	(9.6)%	13.5%	11.7%	
(a)In 2020, the benefit of research and development tax credits as a percentage of pre-tax income was higher than prior periods primarily due to lower pre-tax income. In 2019, $61 million in benefits were recognized for additional tax credits related to prior years as a result of the completion of a research and development tax analysis.
(b)In 2020, the effective tax rate was unfavorably impacted by a $55 million inventory charge and special charges in a non-U.S. jurisdiction where tax benefits cannot be realized, along with a $10 million tax expense related to a decision to dividend cash back from select non-U.S. jurisdictions to the U.S., partially offset by a $14 million valuation allowance release.
Unrecognized Tax Benefits
Our unrecognized tax benefits represent tax positions for which reserves have been established, with unrecognized  state tax benefits reflected net of applicable federal tax benefits. At the end of 2020, 2019 and 2018, if our unrecognized tax benefits were recognized in future periods, they would favorably impact our effective tax rate. A reconciliation of these unrecognized tax benefits is as follows:

(In millions)	2020	2019	2018	
Balance at beginning of year	$	221 		$	141 		$	182 		
Additions for tax positions related to current year	11 		9 		5 		
Additions for tax positions of prior years	21 		74 		13 		
Reductions for settlements and expiration of statute of limitations	(69)		(1)		(22)		
Reductions for tax positions of prior years	(1)		(2)		(37)		
Balance at end of year	$	183 		$	221 		$	141 		
In 2020, certain tax positions related to state tax attributes were reduced by $68 million based on an audit settlement with respect to certain state income tax returns. In 2019, additional tax positions primarily reflect the completion of a research and development tax credit analysis for tax credits related to prior years. In 2018, certain tax positions related to research and development tax credits were reduced by $25 million based on new information, including interactions with the tax authorities and recent audit settlements.
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Table of Contents
In the normal course of business, we are subject to examination by tax authorities throughout the world. We are generally no longer subject to U.S. federal tax examinations for years before 2014, state and local income tax examinations for years before 2015, and non-U.S. income tax examinations for years before 2011. In 2019, we filed U.S. federal amended returns for 2012 and 2013 for additional research and development tax credits that are subject to examination.
Deferred Taxes
The significant components of our net deferred tax assets/(liabilities) are provided below:

(In millions)	January 2,
2021	January 4,
2020	
U.S. operating loss and tax credit carryforwards (a)	$	320 		$	235 		
Obligation for pension and postretirement benefits	287 		289 		
Accrued liabilities (b)	202 		214 		
Deferred compensation	100 		95 		
Operating lease liabilities	97 		70 		
Non-U.S. operating loss and tax credit carryforwards (c)	65 		52 		
Property, plant and equipment, principally depreciation	(199)		(153)		
Amortization of goodwill and other intangibles	(171)		(160)		
Valuation allowance on deferred tax assets	(157)		(145)		
Operating lease right-of-use assets	(95)		(68)		
Other leasing transactions, principally leveraged leases	(79)		(80)		
Prepaid pension benefits	(44)		(29)		
Other, net	16 		(51)		
Deferred taxes, net	$	342 		$	269 		
(a)At January 2, 2021, U.S. operating loss and tax credit carryforward benefits of $283 million expire through 2040 if not utilized and $37 million may be carried forward indefinitely.
(b)Accrued liabilities include warranty reserves, self-insured liabilities and interest.
(c)At January 2, 2021, non-U.S. operating loss and tax credit carryforward benefits of $29 million expire through 2040 if not utilized and $36 million may be carried forward indefinitely.
We believe earnings during the period when the temporary differences become deductible will be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not more than likely, a valuation allowance is provided.
The following table presents the breakdown of our deferred taxes:

(In millions)	January 2,
2021	January 4,
2020	
Manufacturing group:			
Deferred tax assets, net of valuation allowance	$	423 		$	341 		
Deferred tax liabilities	(19)		(4)		
Finance group – Deferred tax liabilities	(62)		(68)		
Net deferred tax asset	$	342 		$	269 		
Non-U.S. and U.S. state income taxes have not been provided for on basis differences in certain investments, primarily as a result of unremitted earnings in foreign subsidiaries that are indefinitely reinvested, totaled $1.7 billion at January 2, 2021 and January 4, 2020. Should these earnings be distributed in the future in the form of dividends or otherwise, we would be subject to withholding and income taxes payable to various non-U.S. jurisdictions and U.S. states.  Determination of the deferred tax liability associated with indefinitely reinvested earnings is not practicable due to multiple factors, including the complexity of non-U.S. tax laws and tax treaty interpretations, exchange rate fluctuations, and the uncertainty of available credits or exemptions under U.S. federal and state tax laws.
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Table of Contents
Note 19. Commitments and Contingencies
We 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.
In the ordinary course of business, we enter into standby letter of credit agreements and surety bonds with financial institutions to meet various performance and other obligations.  These outstanding letter of credit arrangements and surety bonds aggregated to approximately $216 million and $247 million at January 2, 2021 and January 4, 2020, respectively.
Environmental Remediation
As with other industrial enterprises engaged in similar businesses, we are involved in a number of remedial actions under various federal and state laws and regulations relating to the environment that impose liability on companies to clean up, or contribute to the cost of cleaning up, sites on which hazardous wastes or materials were disposed or released.  Our accrued environmental liabilities relate to installation of remediation systems, disposal costs, U.S. Environmental Protection Agency oversight costs, legal fees, and operating and maintenance costs for both currently and formerly owned or operated facilities.  Circumstances that can affect the reliability and precision of the accruals include the identification of additional sites, environmental regulations, level of cleanup required, technologies available, number and financial condition of other contributors to remediation and the time period over which remediation may occur.  We believe that any changes to the accruals that may result from these factors and uncertainties will not have a material effect on our financial position or results of operations.
Based upon information currently available, we estimate that our potential environmental liabilities are within the range of $40 million to $150 million. At January 2, 2021, environmental reserves of $76 million have been established to address these specific estimated liabilities. We estimate that we will likely pay our accrued environmental remediation liabilities over the next ten years and have classified $15 million as current liabilities. Expenditures to evaluate and remediate contaminated sites were $7 million, $13 million and $13 million in 2020, 2019 and 2018, respectively.

Note 20. Supplemental Cash Flow Information
Our cash payments and receipts are as follows:

(In millions)	2020	2019	2018	
Interest paid:				
Manufacturing group	$	139 		$	138 		$	132 		
Finance group	20 		23 		25 		
Net taxes paid:				
Manufacturing group	34 		120 		129 		
Finance group	8 		1 		17 		

69

Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Textron Inc.
Opinion on the Financial Statements
We have audited the accompanying Consolidated Balance Sheets of Textron Inc. (the Company) as of January 2, 2021 and January 4, 2020, the related Consolidated Statements of Operations, Comprehensive Income, Shareholders’ Equity and Cash Flows for each of the three years in the period ended January 2, 2021, and the related notes and the financial statement schedule contained on page 73 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 2, 2021 and January 4, 2020 and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 19, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

		Long Term Contracts	
Description of the Matter		As described in Note 1 to the consolidated financial statements, revenues under long-term contracts with the U.S. Government are generally recognized over time using the cost-to-cost method of accounting. Under this method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion, and revenue is recorded proportionally as costs are incurred. Contract costs, which are estimated utilizing current contract specifications and expected engineering requirements, typically are incurred over a period of several years, and the estimation of these costs at completion requires substantial judgment. The Company’s cost estimation process is based on professional knowledge and experience of engineers and program managers along with finance professionals. The Company updates its projections of costs quarterly or more frequently when circumstances significantly change. When adjustments are required, any changes from prior estimates are recognized using the cumulative catch-up method with the impact of the change from inception-to-date of the contract recorded in the current period and required disclosure is provided in the consolidated financial statements. Anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable.	
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		Auditing the Company’s estimated costs at completion was challenging and complex due to the judgment involved in evaluating management’s assumptions and key estimates over the duration of long-term contracts.  The estimated costs at completion consider risks surrounding the Company’s ability to achieve the technical requirements and specifications of the contract, schedule, and other cost elements of the contract, and depend on whether the Company is able to successfully retire risks surrounding such aspects of the contract.	
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls related to the Company’s revenue recognition process, including controls over management’s review of the estimated costs at completion and related key assumptions and management’s review that the data underlying the estimated costs at completion was complete and accurate.	
		To test the accuracy of the Company’s estimated costs at completion, our audit procedures included, among others, evaluating the key assumptions used by management to determine such estimates. This included evaluating the historical accuracy of management’s estimates by comparing planned costs to actual costs incurred to date. We also tested the completeness and accuracy of the underlying data back to source documents and contracts.	
		Defined Benefit Pension Obligations	
Description of the Matter		As described in Note 16 to the consolidated financial statements, at January 2, 2021, the aggregate qualified defined benefit pension obligation was $9.8 billion and exceeded the fair value of pension plan assets of $9.1 billion, resulting in an unfunded defined benefit pension obligation of $753 million. As explained in Note 1 to the consolidated financial statements, the Company updates the estimates used to measure the defined benefit pension obligation and plan assets annually in the fourth quarter or upon a remeasurement event to reflect the actual return on plan assets and updated actuarial assumptions.	
		Auditing the defined benefit pension obligations was complex due to the highly judgmental nature of the actuarial assumptions (e.g., discount rate, mortality rate, expected return on plan assets) used in the measurement process.  These assumptions have a significant effect on the projected benefit obligation.	
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls that address the risks of material misstatement relating to the measurement and valuation of the defined benefit pension obligation.  For example, we tested controls over management’s review of the defined benefit pension obligation actuarial calculations, the significant actuarial assumptions, and the data inputs provided to the actuaries.	
		To test the defined benefit pension obligation, our audit procedures included, among others, evaluating the methodology used, the significant actuarial assumptions discussed above, and the underlying data used by management and its actuaries.  We compared the actuarial assumptions used by management to historical trends and evaluated the change in the defined benefit pension obligation from the prior year due to the change in service cost, interest cost, benefit payments, actuarial gains and losses, contributions, new longevity assumptions and plan amendments, as applicable.  In addition, we involved an actuarial specialist to assist in evaluating management’s methodology for determining the discount rate that reflects the maturity and duration of the benefit payments and is used to measure the defined benefit pension obligation.  As part of this assessment, we compared the projected cash flows to prior year and compared the current year benefits paid to the prior year projected cash flows.  To evaluate the mortality rate, we assessed whether the information is consistent with publicly available information and entity-specific data.  We also tested the completeness and accuracy of the underlying data, including the participant data provided to the Company’s actuaries.  Lastly, to evaluate the expected return on plan assets, we assessed whether management’s assumption is consistent with a range of returns for a portfolio of comparative investments.	

/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1957.
Boston, Massachusetts
February 19, 2021

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Quarterly Data

(Unaudited)	2020	2019	
(Dollars in millions, except per share amounts)	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	
Revenues									
Textron Aviation	$	872 		$	747 		$	795 		$	1,560 		$	1,134 		$	1,123 		$	1,201 		$	1,729 		
Bell	823 		822 		793 		871 		739 		771 		783 		961 		
Textron Systems	328 		326 		302 		357 		307 		308 		311 		399 		
Industrial	740 		562 		832 		866 		912 		1,009 		950 		927 		
Finance	14 		15 		13 		13 		17 		16 		14 		19 		
Total revenues	$	2,777 		$	2,472 		$	2,735 		$	3,667 		$	3,109 		$	3,227 		$	3,259 		$	4,035 		
Segment profit (loss)									
Textron Aviation	$	3 		$	(66)		$	(29)		$	108 		$	106 		$	105 		$	104 		$	134 		
Bell	115 		118 		119 		110 		104 		103 		110 		118 		
Textron Systems	26 		37 		40 		49 		28 		49 		31 		33 		
Industrial	9 		(11)		58 		55 		50 		76 		47 		44 		
Finance	3 		4 		1 		2 		6 		6 		5 		11 		
Total segment profit	156 		82 		189 		324 		294 		339 		297 		340 		
Corporate expenses and other, net	(14)		(30)		(28)		(50)		(47)		(24)		(17)		(22)		
Interest expense, net for Manufacturing group	(34)		(37)		(38)		(36)		(35)		(36)		(39)		(36)		
Special charges *	(39)		(78)		(7)		(23)		— 		— 		— 		(72)		
Inventory charge *	— 		(55)		— 		— 		— 		— 		— 		— 		
Income tax (expense) benefit	(19)		26 		(1)		21 		(33)		(62)		(21)		(11)		
Net income (loss)	$	50 		$	(92)		$	115 		$	236 		$	179 		$	217 		$	220 		$	199 		
Earnings per share									
Basic	$	0.22 		$	(0.40)		$	0.50 		$	1.03 		$	0.76 		$	0.94 		$	0.96 		$	0.87 		
Diluted	0.22 		(0.40)		0.50 		1.03 		0.76 		0.93 		0.95 		0.87 		
Basic average shares outstanding (in thousands)	228,311 		228,247 		228,918 		228,666 		234,839 		232,013 		229,755 		228,653 		
Diluted average shares outstanding (in thousands)	228,927 		228,247 		229,279 		229,365 		236,437 		233,545 		231,097 		229,790 		
Segment profit (loss) margins									
Textron Aviation	0.3%	(8.8%)	(3.6%)	6.9%	9.3%	9.4%	8.7%	7.8%	
Bell	14.0	14.4	15.0	12.6	14.1	13.4	14.0	12.3	
Textron Systems	7.9	11.3	13.2	13.7	9.1	15.9	10.0	8.3	
Industrial	1.2	(2.0)	7.0	6.4	5.5	7.5	4.9	4.7	
Finance	21.4	26.7	7.7	15.4	35.3	37.5	35.7	57.9	
Segment profit margin	5.6%	3.3%	6.9%	8.8%	9.5%	10.5%	9.1%	8.4%	

* See Note 17 for additional information.
72

Schedule II — Valuation and Qualifying Accounts

(In millions)	2020	2019	2018	
Allowance for doubtful accounts				
Balance at beginning of year	$	29 		$	27 		$	27 		
Charged to costs and expenses	25 		7 		5 		
Deductions from reserves*	(18)		(5)		(5)		
Balance at end of year	$	36 		$	29 		$	27 		
Allowance for losses on finance receivables				
Balance at beginning of year	$	25 		$	29 		$	31 		
Provision (reversal) for losses	7 		(6)		(3)		
Charge-offs	— 		(4)		(4)		
Recoveries	3 		6 		5 		
Balance at end of year	$	35 		$	25 		$	29 		
Inventory FIFO reserves				
Balance at beginning of year	$	309 		$	280 		$	262 		
Charged to costs and expenses	105 		58 		56 		
Deductions from reserves*	(57)		(29)		(38)		
Balance at end of year	$	357 		$	309 		$	280 		
* Deductions primarily include amounts written off on uncollectible accounts (less recoveries), inventory disposals, changes to prior year estimates, reclassifications to held for sale, business dispositions and currency translation adjustments.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.

Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We performed an evaluation of the effectiveness of our disclosure controls and procedures as of January 2, 2021. The evaluation was performed with the participation of senior management of each business segment and key Corporate functions, under the supervision of our Chairman, President and Chief Executive Officer (CEO) and our Executive Vice President and Chief Financial Officer (CFO). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were operating and effective as of January 2, 2021.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of the fiscal year covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for Textron Inc. as such term is defined in Exchange Act Rules 13a-15(f). Our internal control structure is designed to provide reasonable assurance, at appropriate cost, that assets are safeguarded and that transactions are properly executed and recorded. The internal control structure includes, among other things, established policies and procedures, an internal audit function, the selection and training of qualified personnel as well as management oversight.
With the participation of our management, we performed an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation under the 2013 Framework, we have concluded that Textron Inc. maintained, in all material respects, effective internal control over financial reporting as of January 2, 2021.
The independent registered public accounting firm, Ernst & Young LLP, has audited the Consolidated Financial Statements of Textron Inc. and has issued an attestation report on Textron’s internal controls over financial reporting as of January 2, 2021, as stated in its report, which is included herein.
73

Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Textron Inc.
Opinion on Internal Control over Financial Reporting
We have audited Textron Inc.’s internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), (the COSO criteria). In our opinion, Textron, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 2, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Consolidated Balance Sheets of the Company as of January 2, 2021 and January 4, 2020, and the related Consolidated Statements of Operations, Comprehensive Income, Shareholder’s Equity and Cash Flows for each of the three years in the period ended January 2, 2021, and the related notes and the financial statement schedule contained on page 73, of the Company and our report dated February 19, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP
Boston, Massachusetts
February 19, 2021
74

PART III

Item 10. Directors, Executive Officers and Corporate Governance
The information appearing under “ELECTION OF DIRECTORS — Nominees for Director,” “CORPORATE GOVERNANCE — Corporate Governance Guidelines and Policies,” “— Code of Ethics,” and “— Board Committees — Audit Committee,” in the Proxy Statement for our 2021 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10-K.
Information regarding our executive officers is contained in Part I of this Annual Report on Form 10-K.

Item 11. Executive Compensation
The information appearing under “CORPORATE GOVERNANCE — Compensation of Directors,” “COMPENSATION COMMITTEE REPORT,” “COMPENSATION DISCUSSION AND ANALYSIS” and “EXECUTIVE COMPENSATION” in the Proxy Statement for our 2021 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information appearing under “SECURITY OWNERSHIP” and “EXECUTIVE COMPENSATION – Equity Compensation Plan Information” in the Proxy Statement for our 2021 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10-K.

Item 13. Certain Relationships and Related Transactions and Director Independence
The information appearing under “CORPORATE GOVERNANCE — Director Independence” and “EXECUTIVE COMPENSATION — Transactions with Related Persons” in the Proxy Statement for our 2021 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10-K.

Item 14. Principal Accountant Fees and Services
The information appearing under “RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM — Fees to Independent Auditors” in the Proxy Statement for our 2021 Annual Meeting of Shareholders is incorporated by reference into this Annual Report on Form 10-K.
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PART IV

Item 15. Exhibits and Financial Statement Schedules
Financial Statements and Schedules — See Index on Page 34.
									
Exhibits			
			
3.1A		Restated Certificate of Incorporation of Textron as filed with the Secretary of State of Delaware on April 29, 2010. Incorporated by reference to Exhibit 3.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2010. (SEC File No. 1-5480)	
			
3.1B		Certificate of Amendment of Restated Certificate of Incorporation of Textron Inc., filed with the Secretary of State of Delaware on April 27, 2011. Incorporated by reference to Exhibit 3.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2011. (SEC File No. 1-5480)	
			
3.2		Amended and Restated By-Laws of Textron Inc., effective April 28, 2010 and further amended April 27, 2011, July 23, 2013, February 25, 2015 and December 6, 2016. Incorporated by reference to Exhibit 3.2 to Textron’s Current Report on Form 8-K filed on December 8, 2016.	
			
4.1A		Support Agreement dated as of May 25, 1994, between Textron Inc. and Textron Financial Corporation. Incorporated by reference to Exhibit 4.1 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. (SEC File No. 1-5480)	
			
4.1B		Amendment to Support Agreement, dated as of December 23, 2015, by and between Textron Inc. and Textron Financial Corporation. Incorporated by reference to Exhibit 4.1B to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016.	
			
4.2		Description of registrant’s securities. Incorporated by reference to Exhibit 4.6 to Textron's Annual Report on Form 10-K for the fiscal year ended January 4, 2020.	
			
NOTE:		Instruments defining the rights of holders of certain issues of long-term debt of Textron have not been filed as exhibits because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of Textron and its subsidiaries on a consolidated basis. Textron agrees to furnish a copy of each such instrument to the Commission upon request.	
			
NOTE:		Exhibits 10.1 through 10.17 below are management contracts or compensatory plans, contracts or agreements.	
			
10.1A		Textron Inc. 2007 Long-Term Incentive Plan (Amended and Restated as of April 28, 2010). Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2012. (SEC File No. 1-5480)	
			
10.1B		Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007. (SEC File No. 1-5480)	
			
10.1C		Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014. (SEC File No. 1-5480)	
			
10.2A		Textron Inc. Short-Term Incentive Plan. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2017.	
			
10.2B		Amended and Restated Textron Inc. Short-Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2020.	
			
10.3A		Textron Inc. 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 2015.	
			
76

									
10.3B		Form of Non-Qualified Stock Option Agreement under 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2016.	
			
10.3C		Form of Stock-Settled Restricted Stock Unit (with Dividend Equivalents) Grant Agreement under 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2016.	
			
10.3D		Form of Performance Share Unit Grant Agreement under 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2016.	
			
10.3E		Form of Performance Share Unit Grant Agreement under 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 4, 2020.	
			
10.3F		Form of Stock-Settled Restricted Stock Unit (with Dividend Equivalents) Grant Agreement under 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to Textron's Quarterly Report on Form 10-Q for the fiscal quarter ended April 4, 2020.	
			
10.4		Textron Spillover Savings Plan, effective October 5, 2015. Incorporated by reference to Exhibit 10.4 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016.	
			
10.5A		Textron Spillover Pension Plan, As Amended and Restated Effective January 3, 2010, including Appendix A (as amended and restated effective January 3, 2010), Defined Benefit Provisions of the Supplemental Benefits Plan for Textron Key Executives (As in effect before January 1, 2007). Incorporated by reference to Exhibit 10.4 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2010. (SEC File No. 1-5480)	
			
10.5B		Amendments to the Textron Spillover Pension Plan, dated October 12, 2011. Incorporated by reference to Exhibit 10.5B to Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. (SEC File No. 1-5480)	
			
10.5C		Second Amendment to the Textron Spillover Pension Plan, dated October 7, 2013. Incorporated by reference to Exhibit 10.5C to Textron’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013. (SEC File No. 1-5480)	
			
10.6		Deferred Income Plan for Textron Executives, Effective October 5, 2015. Incorporated by reference to Exhibit 10.6 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016.	
			
10.7A		Deferred Income Plan for Non-Employee Directors, As Amended and Restated Effective January 1, 2009, including Appendix A, Prior Plan Provisions (As in effect before January 1, 2008). Incorporated by reference to Exhibit 10.9 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. (SEC File No. 1-5480)	
			
10.7B		Amendment No. 1 to Deferred Income Plan for Non-Employee Directors, as Amended and Restated Effective January 1, 2009, dated as of November 6, 2012. Incorporated by reference to Exhibit 10.8B to Textron’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012. (SEC File No. 1-5480)	
			
10.7C		Amendment No. 2 to Deferred Income Plan for Non-Employee Directors, as Amended and Restated Effective January 1, 2009. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2017.	
			
10.7D		Amendment No. 3 to Deferred Income Plan for Non-Employee Directors, as Amended and Restated Effective January 1, 2009. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 29, 2018.	
			
10.7E		Amendment No. 4 to Deferred Income Plan for Non-Employee Directors, as Amended and Restated Effective January 1, 2009. Incorporated by reference to Exhibit 10.7E to Textron's Annual Report on Form 10-K for the fiscal year ended January 4, 2020.	
77

									
			
10.8A		Severance Plan for Textron Key Executives, As Amended and Restated Effective January 1, 2010. Incorporated by reference to Exhibit 10.10 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2010. (SEC File No. 1-5480)	
			
10.8B		First Amendment to the Severance Plan for Textron Key Executives, dated October 26, 2010. Incorporated by reference to Exhibit 10.10B to Textron’s Annual Report on Form 10-K for the fiscal year ended January 1, 2011. (SEC File No. 1-5480)	
			
10.8C		Second Amendment to the Severance Plan for Textron Key Executives, dated March 24, 2014. Incorporated by reference to Exhibit 10.5 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014. (SEC File No. 1-5480)	
			
10.9		Form of Indemnity Agreement between Textron and its executive officers. Incorporated by reference to Exhibit 10.9 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017.	
			
10.10		Form of Indemnity Agreement between Textron and its non-employee directors (approved by the Nominating and Corporate Governance Committee of the Board of Directors on July 21, 2009 and entered into with all non-employee directors, effective as of August 1, 2009). Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2009. (SEC File No. 1-5480)	
			
10.11A		Letter Agreement between Textron and Scott C. Donnelly, dated June 26, 2008. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2008. (SEC File No. 1-5480)	
			
10.11B		Amendment to Letter Agreement between Textron and Scott C. Donnelly, dated December 16, 2008, together with Addendum No.1 thereto, dated December 23, 2008. Incorporated by reference to Exhibit 10.15B to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. (SEC File No. 1-5480)	
			
10.11C		Amended and Restated Hangar License and Services Agreement, made and entered into as of October 1, 2015, between Textron Inc. and Mr. Donnelly’s limited liability company. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2015.	
			
10.11D		Aircraft Dry Lease Agreement, made and entered into as of December 18, 2018, between Mr. Donnelly’s limited liability company and Textron Inc. Incorporated by reference to Exhibit 10.11D to Textron's Annual Report on Form 10-K for the fiscal year ended December 29, 2018.	
			
10.12A		Letter Agreement between Textron and Frank Connor, dated July 27, 2009. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2009. (SEC File No. 1-5480)	
			
10.12B		Amended and Restated Hangar License and Services Agreement, made and entered into on July 24, 2015, between Textron Inc. and Mr. Connor’s limited liability company. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2015.	
			
10.13		Letter Agreement between Textron and Julie G. Duffy, dated July 27, 2017. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2017.	
			
10.14A		Letter Agreement between Textron and E. Robert Lupone, dated December 22, 2011. Incorporated by reference to Exhibit 10.17 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. (SEC File No. 1-5480)	
			
10.14B		Amendment to letter agreement between Textron and E. Robert Lupone, dated July 27, 2012. Incorporated by reference to Exhibit 10.5 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 29, 2012. (SEC File No. 1-5480)	
			
78

									
10.15		Textron Inc. 2015 Long-Term Incentive Plan Equity Program for Non-Employee Directors. Incorporated by reference to Exhibit 10.15 to Textron's Annual Report on Form 10-K for the fiscal year ended January 4, 2020. (SEC File No. 1-5480).	
			
10.16		Director Compensation. Incorporated by reference to Exhibit 10.16 to Textron's Annual Report on Form 10-K for the fiscal year ended January 4, 2020 (SEC File No. 1-5480).	
			
10.17		Form of Aircraft Time Sharing Agreement between Textron and its executive officers. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2008. (SEC File No. 1-5480)	
			
10.18		Credit Agreement, dated as of October 18, 2019, among Textron, the Lenders listed therein, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citibank, N.A., as Syndication Agents, and MUFG Bank, Ltd., as Documentation Agent. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2019.	
			
21		Certain subsidiaries of Textron. Other subsidiaries, which considered in the aggregate do not constitute a significant subsidiary, are omitted from such list.	
			
23		Consent of Independent Registered Public Accounting Firm.	
			
24		Power of attorney.	
			
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
			
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
			
32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
			
32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
			
101		The following materials from Textron Inc.’s Annual Report on Form 10-K for the year ended January 2, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, (vi) the Notes to the Consolidated Financial Statements, and (vii) Schedule II – Valuation and Qualifying Accounts.	
			
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).	

Item 16. Form 10-K Summary
Not applicable.
79

Signatures
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 19th day of February 2021.

		TEXTRON INC.	
		Registrant	
			
	By:	/s/ Frank T. Connor	
		Frank T. Connor
Executive Vice President and Chief Financial Officer	
80

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below on this 19th day of February 2021 by the following persons on behalf of the registrant and in the capacities indicated:

Name		Title	
			
	/s/ Scott C. Donnelly			
	Scott C. Donnelly		Chairman, President and Chief Executive Officer
(principal executive officer)	
				
	*			
	Kathleen M. Bader		Director	
				
	*			
	R. Kerry Clark		Director	
				
	*			
	James T. Conway		Director	
				
	*			
	Paul E. Gagné		Director	
				
	*			
	Ralph D. Heath		Director	
				
	*			
	Deborah Lee James		Director	
				
	*			
	Lionel L. Nowell III		Director	
				
	*			
	James L. Ziemer		Director	
				
	*			
	Maria T. Zuber		Director	
				
	/s/ Frank T. Connor			
	Frank T. Connor		Executive Vice President and Chief Financial Officer
(principal financial officer)	
				
	/s/ Mark S. Bamford			
	Mark S. Bamford		Vice President and Corporate Controller
(principal accounting officer)	
				
*By:	/s/ Jayne M. Donegan			
	Jayne M. Donegan, Attorney-in-fact			
81

                Exhibit 21
Certain Subsidiaries of Textron Inc.*
(Unless indicated otherwise, all entities listed are wholly-owned.)
* Other subsidiaries, which considered in the aggregate do not constitute a significant subsidiary, are omitted from this list.

Name	Jurisdiction	
TEXTRON INC.	Delaware	
Avco Corporation	Delaware	
International Product Support Inc.	Delaware	
United Industrial Corporation	Delaware	
Textron Systems Corporation	Maryland	
AAI Services Corporation	Maryland	
Airborne Tactical Advantage Company, LLC	Colorado	
Howe & Howe Inc.	Delaware	
Overwatch Systems, Ltd.	Delaware	
Medical Numerics, Inc.	Virginia	
Textron Systems Canada Inc.	Ontario	
Opto-Electronics Inc.	Ontario	
Textron Systems Electronic Systems UK (Holdings) Limited	England	
Textron Systems Electronic Systems UK Limited	England	
Textron Systems Australia Holding Pty Ltd	Australia	
Textron Systems Australia Pty Ltd	Australia	
Bell Helicopter KK	Japan	
Bell Helicopter GK	Japan	
Bell Textron Inc.	Delaware	
Aeronautical Accessories LLC	Tennessee	
Bell Textron Miami Inc.	Delaware	
Bell Textron Rhode Island Inc.	Delaware	
Bell Textron Services Inc.	Delaware	
Bell Textron Asia (Pte.) Ltd.	Singapore	
Zhenjiang Bell Textron Aviation Services Limited	PRC	
Bell Textron Korea Inc.	Delaware	
Bell Textron Technical Services Inc.	Delaware	
B/K Navigational Equipment sro	Czech Republic	
Bell Textron Prague, a.s. (67%; 33% - Bell Textron Services Inc.)	Czech Republic	
Aviation Service servis letal, doo, Ljubljana	Slovenia	
Response Technologies, LLC	Rhode Island	
Kautex Inc.	Delaware	
McCord Corporation	Michigan	
Kautex of Georgia Inc.	Massachusetts	
MillenWorks	California	
Premiair Aviation Maintenance Pty Ltd	Australia	
Textron Atlantic LLC	Delaware	
Bell Textron Supply Center BV	Netherlands	
Bell Textron Canada Limited/Limitée	Canada	
Bell Textron Canada International Inc.	Canada	
Cessna Spanish Citation Service Center SLU	Spain	
Cessna Zurich Citation Service Center GmbH	Switzerland	
Textron Trading (Shanghai) Co., Ltd.	PRC	
Kautex Textron CVS Limited	England	
Kautex Textron Ibérica SL	Spain	
Kautex Craiova srl (99.9797%; 0.0203% - Bell Textron Supply Center BV)	Romania	
Kautex Textron do Brasil Ltda. (99.9%; 1 share - Bell Textron Supply Center BV)	Brazil	
Kautex Textron Portugal – Produtos Plásticos, Sociedade Unipessoal, Lda.	Portugal	
LLC Textron RUS (99.98%; 0.02% - Textron Limited)	Russian Federation	
Textron Capital BV	Netherlands	
Kautex Textron GmbH & Co. KG (94.82%; 5.18% - Bell Textron Supply Center BV)	Germany	
Cessna Düsseldorf Citation Service Center GmbH	Germany	
Textron Aviation Prague Service Center sro	Czech Republic	
Kautex (Changchun) Plastics Technology Co., Ltd.	PRC	
Kautex Germany Holding GmbH	Germany	
Kautex Corporation	Nova Scotia	
Kautex Textron Benelux BVBA (99.9%; 1 share – Kautex Textron Ibérica SL)	Belgium	
Kautex Textron Bohemia spol sro	Czech Republic	
Kautex Textron Italia Srl (95%; 5% - Kautex Textron Ibérica SL)	Italy	
Kautex Japan KK	Japan	
Kautex Shanghai GmbH	Germany	

						
Name	Jurisdiction	
TEXTRON INC.	Delaware	
Textron Atlantic LLC	Delaware	
Bell Textron Supply Center BV	Netherlands	
Textron Capital BV	Netherlands	
Kautex Textron GmbH & Co. KG (94.82%; 5.18% - Bell Textron Supply Center BV)	Germany	
Kautex Germany Holding GmbH	Germany	
Kautex Shanghai GmbH (continued from prior page)	Germany	
Kautex (Chongqing) Plastic Technology Co., Ltd.	PRC	
Kautex (Guangzhou) Plastic Technology Co., Ltd.	PRC	
Kautex (Pinghu) Plastic Technology Co., Ltd.	PRC	
Kautex (Wuhan) Plastic Technology Co., Ltd.	PRC	
Wuxi Textron Specialized Vehicles Co., Ltd. (96.08%; 3.92% – Textron Far East Pte. Ltd.)	PRC	
Kautex (Shanghai) Plastic Technology Co., Ltd.	PRC	
Kautex Textron de Mexico, S de RL de CV (99.97%; 0.03% - Bell Textron Supply Center BV)	Mexico	
Kautex Textron Management Services Company de Puebla, S. de RL de CV (98%; 2% - Bell Textron Supply Center BV)	Mexico	
Textron Motors GmbH	Germany	
Textron France Holding SAS (99.9%; 1 share – Textron France SAS)	France	
Cessna Citation European Service Center SAS (99.9%; 1 share – Textron France SAS)	France	
Textron France SAS	France	
Ransomes Jacobsen France SAS	France	
TRU Simulation & Training Spain, SL	Spain	
E-Z-GO Canada Limited	Canada	
TekGPS Engineering Srl	Romania	
Ransomes Investment LLC	Delaware	
Cushman Inc.	Delaware	
Ransomes Inc.	Wisconsin	
Textron Limited	England	
Doncaster Citation Service Centre Limited	England	
Kautex Textron (UK) Limited	England	
Ransomes Limited	England	
Ransomes Jacobsen Limited	England	
Ransomes Pensions Trustee Company Limited	England	
Rotor Blades Limited	England	
Textron Ground Support Equipment UK Limited	England	
Textron UK Pension Trustee Limited	England	
Textron Shared Service Centre (Canada) Inc.	Canada	
Textron Verwaltungs-GmbH	Germany	
Textron Aviation Australia Pty. Ltd.	Australia	
Textron Aviation Canada Ltd.	British Columbia	
Textron Aviation Inc.	Kansas	
Able Aerospace Services, Inc.	Arizona	
Replacement Part Solutions, LLC	Illinois	
Arkansas Aerospace, Inc.	Arkansas	
Beech Aircraft Corporation	Kansas	
Beechcraft Domestic Service Company	Kansas	
Beechcraft International Service Company	Kansas	
Beechcraft Germany GmbH	Germany	
Beechcraft International Holding LLC	Delaware	
Beechcraft Service Company UK Limited	England	
Hawker Beechcraft Argentina SA (95%; 5% - Arkansas Aerospace, Inc.)	Argentina	
Textron Aviation Services de Mexico S de RL de CV (99%; 1% - HBC, LLC)	Mexico	
Cessna Mexico, S de RL de CV (99.97%; 0.03% - Citation Parts Distribution International, Inc.)	Mexico	
Citation Parts Distribution International, Inc.	Kansas	
HBC, LLC	Kansas	
Hawker Beech de Mexico, S de RL de CV (>99%; <1% - HBC, LLC)	Mexico	
Textron Airland, LLC	Delaware	
Textron Aviation Defense LLC	Delaware	
Beechcraft Defense Support Holding, LLC	Delaware	
Beechcraft New Zealand	New Zealand	
Textron Aviation Rhode Island Inc.	Delaware	
Textron Communications Inc.	Delaware	
Textron Far East Pte. Ltd.	Singapore	
Textron India Private Limited (98.6%; 1.39% – Beechcraft International Service Company; 0.01% - Beechcraft International Holding LLC; 1 share - Textron Atlantic LLC; 1 share – Textron Inc.)	India	

						
Name	Jurisdiction	
TEXTRON INC.	Delaware	
Textron Financial Corporation	Delaware	
Cessna Finance Corporation	Kansas	
Textron Finance Holding Company	Delaware	
Cessna Finance Export Corporation	Delaware	
Textron Aviation Finance Corporation	Delaware	
Textron Financial Corporation Receivables Trust 2002-CP-2	Delaware	
Textron Fluid and Power Inc.	Delaware	
Textron Global Services Inc.	Delaware	
Textron International Inc.	Delaware	
Textron International Mexico, S de RL de CV (99%; 1% - Textron Atlantic LLC)	Mexico	
Textron IPMP Inc.	Delaware	
Textron Innovations Inc.	Delaware	
Textron Management Services Inc.	Delaware	
Textron Realty Corporation	Delaware	
Textron Specialized Vehicles Inc.	Delaware	
Arctic Cat Inc.	Minnesota	
Arctic Cat Production LLC	Minnesota	
Arctic Cat Production Support LLC	Minnesota	
Arctic Cat Sales Inc.	Minnesota	
Arctic Cat ACE Holding GmbH	Austria	
Arctic Cat GmbH	Austria	
Arctic Cat France SARL	France	
Arctic Cat UK Ltd.	England/Wales	
MotorFist LLC	Minnesota	
Arctic Cat Shared Services LLC	Minnesota	
MillenWorks Themed Technologies	California	
Textron Ground Support Equipment Inc.	Delaware	
Textron Motors North America Inc.	Delaware	
Textron Outdoor Power Equipment Inc.	Delaware	
Textron Sweden AB	Sweden	
TRU Simulation + Training Inc.	Delaware	
OPINICUS Simulation and Training Services, LLC	Delaware	
TRU Simulation + Training LLC	California	
Turbine Engine Components Textron (Newington Operations) Inc.	Connecticut	
Westminster Insurance Company	Vermont	

Exhibit 23

Consent of Independent Registered Public Accounting Firm
 
We consent to the incorporation by reference in the following Registration Statements: Form S-8 No. 333-240117 pertaining to the Textron Savings Plan and the Textron Canada Savings Plan, Form S-8 No. 333-205932 pertaining to the 2015 Long-Term Incentive Plan, Form S-8 No. 333-144977 pertaining to the 2007 Long-Term Incentive Plan, and Form S-3 No. 333-240116 pertaining to the automatic shelf registration of common stock, preferred stock, senior debt securities and subordinated debt securities of Textron Inc. of our reports dated February 19, 2021, with respect to the Consolidated Financial Statements and schedule of Textron Inc. and the effectiveness of internal control over financial reporting of Textron Inc. included in this Annual Report (Form 10-K) of Textron Inc. for the year ended January 2, 2021.

/s/ Ernst & Young LLP
 
Boston, Massachusetts
February 19, 2021

        
                                            Exhibit 24

POWER OF ATTORNEY

The undersigned, Textron Inc. (“Textron”), a Delaware corporation, and the undersigned directors and officers of Textron, do hereby constitute and appoint E. Robert Lupone, Janet S. Fogarty, and Jayne M. Donegan, and each of them, with full powers of substitution, their true and lawful attorneys and agents to do or cause to be done any and all acts and things and to execute and deliver any and all instruments and documents which said attorneys and agents, or any of them, may deem necessary or advisable in order to enable Textron to comply with the Securities and Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2021, which is hereby approved by the undersigned, including specifically, but without limitation, power and authority to sign the names of the undersigned directors and officers in the capacities indicated below and to sign the names of such officers on behalf of Textron to such Annual Report filed with the Securities and Exchange Commission, to any and all amendments to such Annual Report, to any instruments or documents or other writings in which the original or copies thereof are to be filed as a part of or in connection with such Annual Report or amendments thereto, and to file or cause to be filed the same with the Securities and Exchange Commission; and each of the undersigned hereby approves, ratifies and confirms all that such attorneys and agents, and each of them, shall do or cause to be done hereunder and such attorneys and agents, and each of them, shall have, and may exercise, all of the powers hereby conferred.

IN WITNESS WHEREOF, Textron has caused this Power of Attorney to be executed and delivered in its name and on its behalf by the undersigned duly authorized officer and its corporate seal affixed, and each of the undersigned has signed his or her name thereto, as of the 18th day of February 2021.

TEXTRON INC.

SEAL
By: /s/ Scott C. Donnelly
Scott C. Donnelly
Chairman,President and
Chief Executive Officer

ATTEST:

/s/ E. Robert Lupone
E. Robert Lupone
Executive Vice President, General Counsel,
Secretary and Chief Compliance Officer

        

/s/ Scott C. Donnelly
Scott C. Donnelly
Chairman, President, Chief
Executive Officer and Director
(principal executive officer)

/s/ Kathleen M. Bader
Kathleen M. Bader
Director

/s/ R. Kerry Clark
R. Kerry Clark
Director

/s/ James T. Conway
James T. Conway
Director

/s/ Paul E. Gagné
Paul E. Gagné
Director

/s/ Ralph D. Heath
Ralph D. Heath
Director

/s/ Deborah Lee James
Deborah Lee James
Director

/s/ Lionel L. Nowell III
Lionel L. Nowell III
Director

/s/ James L. Ziemer
James L. Ziemer
Director

/s/ Maria T. Zuber
Maria T. Zuber
Director

/s/ Frank T. Connor
Frank T. Connor
Executive Vice President and Chief
Financial Officer
(principal financial officer)

/s/ Mark S. Bamford
Mark S. Bamford
Vice President and Corporate Controller
(principal accounting officer)	

Exhibit 31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Scott C. Donnelly, Chairman, President and Chief Executive Officer of Textron Inc. certify that:
1.I have reviewed this annual report on Form 10-K of Textron Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

												
Date:	February 19, 2021		/s/ Scott C. Donnelly	
			Scott C. Donnelly
Chairman, President and Chief Executive Officer	

Exhibit 31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Frank T. Connor, Executive Vice President and Chief Financial Officer of Textron Inc. certify that:
1.I have reviewed this annual report on Form 10-K of Textron Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

												
Date:	February 19, 2021		/s/ Frank T. Connor	
			Frank T. Connor
Executive Vice President and Chief Financial Officer	

Exhibit 32.1
TEXTRON INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Textron Inc. (the "Company") on Form 10-K for the period ended January 2, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Scott C. Donnelly,  Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

												
Date:	February 19, 2021		/s/ Scott C. Donnelly	
			Scott C. Donnelly
Chairman, President and Chief Executive Officer	

Exhibit 32.2
TEXTRON INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Textron Inc. (the "Company") on Form 10-K for the period ended January 2, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Frank T. Connor, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

												
Date:	February 19, 2021		/s/ Frank T. Connor	
			Frank T. Connor
Executive Vice President and Chief Financial Officer