Textron (TXT) 10-K risk factor changes: FY2013 vs FY2012

During [removed: 2012,] [added: 2013,] we derived approximately [removed: 29%] [added: 30%] of our revenues from sales to a variety of U.S. Government entities.

If we incur costs in excess of funds committed on a contract, we are [removed: more] at risk for non-reimbursement of those costs until additional funds are appropriated.

The [removed: reduction or] [added: reduction,] termination [removed: of funding,] or [removed: changes] [added: delay] in the timing of [removed: funding,] [added: funding] for U.S. Government programs [removed: in] [added: for] which we currently [removed: provide,] [added: provide] or propose to [removed: provide,] [added: provide] products or services [removed: would] [added: may] result in a [removed: reduction or] loss of anticipated future revenues [removed: and] [added: that] could materially and adversely impact our results of operations and financial condition.

[removed: In August 2011, Congress passed] [added: Under] the Budget Control Act of [removed: 2011 which committed] [added: 2011,] the U.S. Government [added: committed] to significantly reduce the federal deficit over ten years.

[added: In addition,] Congress and the Administration continue to debate [removed: how] the [removed: nation should proceed on these] [added: nation’s debt ceiling and other fiscal] issues.

There are many variables in how [removed: the sequester] [added: these budget cuts] could be implemented that make it difficult to determine specific impacts; however, we expect that sequestration, as currently provided for under the Budget Control Act, would result in lower revenues, profits and cash flows for our company.

An extended delay in the timely payment by the U.S. Government could result in a material adverse effect on our cash flows, [removed: earnings] [added: results of operations] and financial condition.

A termination arising out of our default for failure to perform could expose us to liability, including but not limited to, liability for re-procurement costs in excess [added: of the total original contract amount, net of the value of work performed and accepted by the customer under the contract.]

[removed: 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.

In addition, [removed: U.S. Government contracts generally require] [added: in] the [removed: contractor to continue to perform on a contract even if] [added: event that] the U.S. Government is unable to make timely [removed: payments;] [added: payments,] failure to continue contract performance places the contractor at risk of termination for default.

Failure to properly and timely [removed: disclose] [added: make disclosures under these provisions] may result in a termination for default or cause, suspension and/or debarment, and potential fines.

[removed: These efforts may] [added: In addition, the DoD’s “Better Buying Power Initiative,” which provides guidance for its acquisition workforce to obtain greater efficiency and productivity in defense spending,] significantly [removed: affect] [added: affects] the contracting environment in which we do business with our DoD customers and could have a significant impact on current programs, as well as new business opportunities.

These agencies review our performance under [removed: our] contracts, our cost structure and our compliance with laws and regulations applicable to U.S. Government contractors.

Under cost-reimbursement [removed: contracts, which] [added: 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 [removed: based.][added: 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.]

Under each type of contract, if we are unable to control costs [removed: we incur] [added: incurred] in performing under the contract, our [removed: financial condition and] [added: cash flows,] results of operations [added: and financial condition] could be adversely affected.

As a [removed: result of the continued worldwide economic softness,] [added: result,] we have experienced continued weak demand for our fixed-wing aircraft, particularly our business jets.

Soft demand for [removed: new and pre-owned] [added: our] jets could persist and could continue to adversely impact the pricing of new jets and the valuation of pre-owned [removed: jets.][added: jets, which comprise a significant portion of our inventory.]

[removed: In addition,] [added: For example,] both U.S. and foreign governments and government agencies regulate the aviation [removed: industry;] [added: industry, and] they may impose new regulations with additional aircraft security or other requirements or restrictions, including, for example, restrictions and/or fees related to carbon emissions [removed: levels that may adversely impact demand for jets and/or helicopters.][added: levels.]

A prolonged weakness in the markets for our [removed: commercial] aircraft products could adversely impact our results of operations and our future prospects.

Valuations of the types of collateral securing our [removed: captive] finance [added: asset] portfolio, particularly valuations of pre-owned aircraft, have decreased over [removed: the past several] [added: recent] years and may continue to decrease if weak economic conditions continue.

Declining collateral values could result in greater delinquencies, credit losses and foreclosures if customers elect to discontinue payments on loan balances that exceed asset [removed: values or, in the case of assets in our liquidating portfolios, if they are unable to obtain alternative sources of financing at loan maturity.][added: values.]

We may periodically need to obtain financing in order to meet our debt obligations as they come [removed: due and/or] [added: due,] to support our [removed: operations.][added: operations and/or to make acquisitions.]

Although we currently have access to the capital markets, our access and the cost of [removed: borrowings, is] [added: borrowings are] affected by a number of factors including market conditions and the strength of our credit ratings.

The risk of these adverse effects may be greater in circumstances where we rely on only one or two subcontractors or suppliers for a particular raw material, [added: product or service.]

_Our business could be negatively impacted by information technology [removed: security threats] [added: disruptions] and [removed: other disruptions._][added: security threats._]

[removed: As] [added: In addition, as] a U.S. defense contractor, we face certain security threats, including threats to our [removed: information technology] [added: IT] infrastructure, unlawful attempts to gain access to our proprietary or classified information and threats to the physical security of our facilities and employees, as do our customers, suppliers, subcontractors and joint venture partners.

Our information technology [removed: networks] [added: (IT)] and related systems are critical to the smooth operation of our business and essential to our ability to perform day to day operations.

An [removed: information technology] [added: IT] system [removed: failure] [added: failure, issues related to implementation of new IT systems] or breach of data security could disrupt our operations, cause the loss of business information or [removed: the] compromise [removed: of] confidential [removed: information and require significant management attention and resources.][added: information.]

In addition, we outsource certain support functions, including certain global [removed: information technology] [added: IT] infrastructure services, to third-party service providers.

Any disruption of such outsourced processes or functions also could have a material adverse impact on our [removed: results of] operations.

Our future performance depends, in part, on our ability to identify emerging technological trends and customer requirements [removed: in our current] and [removed: future markets and] to develop and maintain competitive products and services.

We also could be adversely affected if [removed: the general efficacy of] our research and development investments [removed: to develop products is] [added: are] less [added: successful] than expected or if we do not adequately protect the intellectual property developed through [removed: our research and development] [added: these] efforts.

Our international business is subject to U.S. and local government regulations and procurement policies and practices, which may change from time to time, including regulations relating to import-export control; [added: technology transfer;] environmental, health and safety; investments; exchange controls; and repatriation of earnings or cash settlement challenges, as well as to varying currency, geopolitical and economic risks.

These international risks may be especially significant with respect to aerospace and defense products for which we sometimes [removed: first] [added: initially] must obtain licenses and authorizations from various U.S. Government agencies before we are permitted to sell our products outside the U.S. Any significant impairment of our ability to sell products outside the U.S. could negatively impact our results of operations.

[added: The contracts] generally extend over several years and may include penalties if we fail to meet the offset requirements, which could adversely impact our results of operations.

Although we [removed: implement] [added: 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.

[removed: Compliance with new] [added: New] or changing laws and regulations or related interpretation and policies could increase our costs of doing business, affect how we conduct our [removed: operations and] [added: operations, adversely impact demand for our products, and/or] limit our ability to sell our products and services.

In addition, we own the rights to many patents, trademarks, brand names, trade names and trade secrets that are important to our [added: business.]

As a distributor of consumer products in the U.S., certain of our products also 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 [removed: unsafe or hazardous.]

Approximately [removed: 6,400] [added: 6,000] of our U.S. employees, or 26% of our total U.S. employees, are unionized, and approximately [removed: 2,800] [added: 2,900] of our non-U.S. employees, or [removed: 33%] [added: 32%] of our total non-U.S. employees, are represented by organized councils.

Notwithstanding the Bipartisan Budget Control Act of 2013, substantial spending cuts to the U.S. defense budget are likely in the future.

We also enter into “fee for service” contracts with the U.S.

Continued worldwide economic softness has adversely impacted the business jet market in recent years.

_We may make acquisitions that increase the risks of our business._

We may enter into acquisitions in an effort to expand our business and enhance shareholder value.

Acquisitions involve risks and uncertainties that 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 that may 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.

In addition, unanticipated delays or difficulties in effecting acquisitions may prevent the consummation of the acquisition or divert the attention of our management and resources from our existing operations.

On December 26, 2013 we entered into an agreement and plan of merger pursuant to which we will acquire all outstanding equity interests in Beech Holdings, LLC (“Beech”), the parent of Beechcraft Corporation, for approximately $1.4 billion in cash.

Each of the foregoing risks may impact the success of the Beech acquisition.

We plan to finance the purchase of the equity in Beech and the repayment of Beech’s outstanding debt, which is required at closing, through a combination of available cash at Beech and Textron and up to $1.1 billion in new debt.

While we believe that these sources of funds will be sufficient to complete the transaction, it is possible that unanticipated cash requirements, for working capital or other business needs, either at Beech or at Textron, could cause us to incur borrowings in excess of what we currently anticipate.

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, delays in production, shipments or other business operations.

While we have experienced cyber 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 these security threats, the possibility of any future material incidents cannot be completely mitigated.

Such an incident also could require significant management attention and resources and increased costs, and could adversely affect our competitiveness and our results of operations.

Conducting business internationally, including U.S. exports, exposes us to different and additional risks than if we conducted our business solely within the U.S. Our exposure to such risks increases as our international business continues to grow.

unsafe or hazardous.

Mounting pressure for U.S. Government deficit reduction and reduced national spending have created an environment where national security spending is being closely examined.

Under this Act, very substantial automatic spending cuts, known as “sequestration,” including approximately $600 billion in cuts to the U.S. defense budget over a nine year period, are scheduled to be triggered beginning in 2013.

In addition, the nation’s debt ceiling is currently expected to be reached during the first half of 2013.

of the total original contract amount, net of the value of work performed and accepted by the customer under the contract.

In 2010, the DoD issued guidance to its acquisition workforce to obtain greater efficiency and productivity in defense spending through an initiative known as the “Better Buying Power Initiative.” The DoD has announced that an updated initiative, to be known as “Better Buying Power 2.0” will be launched in early 2013.

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.

We have accepted a higher proportion of trade-ins of pre-owned jets in order to sell new jets, and we are winding down our fractional business jet ownership business.

These two factors have increased our inventory of pre-owned jets.

Concerns regarding the financial stability of certain Eurozone countries, the overall stability of the euro and the suitability of the euro as a single currency may have an adverse impact on financial institutions and capital markets in Europe and globally which could impede the ability of our customers to obtain financing to purchase our jets and helicopters and further reduce demand for our products.

The performance of our liquidating non-captive finance receivable portfolios may be adversely affected by other variables, including changes in our liquidation strategy and changes in external factors affecting the value and/or marketability of our assets.

Significant delay or difficulty in executing the continued liquidation of our liquidating portfolios and/or substantial losses in any of our finance asset portfolios could negatively impact the ability of our Finance segment to generate the cash necessary to service its debt, resulting in adverse effects on our cash flow, profitability and financial condition.

_Our ability to fund our captive financing activities at economically competitive levels depends on our ability to borrow and the cost of borrowing in the credit markets._

Our Finance segment’s ability to continue to offer customer financing for the products that we manufacture, and the long-term viability and profitability of the captive finance business, is largely dependent on our ability to obtain funding and at a reasonable cost both of which are dependent on a number of factors including market conditions and our credit ratings.

If we are unable to continue to offer customer financing or if we are unable to offer competitive customer financing, it could negatively impact our Manufacturing group’s ability to generate sales, which could adversely affect our results of operations and financial condition.

product or service.

The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties, diminution in the value of our investment in research, development and engineering and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness and our results of operations.

Our international business, including U.S. exports, exposes us to potentially greater risks than our domestic business.

Our exposure to such risks increases as our international business continues to grow.

The contracts

For example, we could be affected by U.S. or foreign laws or regulations imposed in response to climate change concerns.

Likewise, pursuant to the requirements of the Dodd-Frank Act and recently enacted Securities and Exchange Commission rules, we will be required to report on our use of “conflict minerals” originating from the Democratic Republic of Congo and surrounding countries.

Compliance with these rules is expected to be time-consuming and costly and also could affect the cost and availability of minerals used to manufacture certain of our products.

business.

Changes in the funded status of defined benefit pension plans are recognized in other comprehensive income (loss) in the year in which they occur.

In particular, the uncertainty with respect to the ability of certain European countries to continue to service their sovereign debt obligations and the related European financial restructuring efforts may cause the value of the euro to fluctuate.

For example, in the event that one or more European countries were to replace the euro with another currency, our sales into such countries, or into Europe generally, would likely be adversely affected until stable exchange rates are established.

| _(Dollars in [removed: millions, except per share amounts)_ | |] [added: millions)_] | [removed: 2012] | [added: 2013] | | [added: 2012] | | 2011 | | [removed: | | 2010 | | |]

| Revenues | | [removed: |] $ | [removed: 12,237 | | |] [added: 12,104] | $ | [removed: 11,275 | |] [added: 12,237] | $ | [removed: 10,525 |] [added: 11,275] |

| Operating [removed: expenses: | | | | | | |] [added: expenses] | | [added: $] | [added: 11,257] | [added: $] | [added: 11,184] | [added: $] | [added: 10,503] |

| [removed: Manufacturing cost] [added: Cost] of sales | | [removed: | 10,019 |] [added: 10,131] | | [added: 10,019] | | 9,308 | | [removed: | | 8,605 | | |]

| Selling and administrative expenses | | [removed: | 1,168 | | | | | 1,183 |] [added: 1,126] | | [added: 1,165] | [removed: 1,231] | [added: $] | [added: 1,195] |

[removed: An analysis of our consolidated operating results is provided below and a] [added: A] more detailed analysis of our segments’ operating results is provided in the Segment Analysis section on pages [removed: 21] [added: 20] to [removed: 30.][added: 28.]

The net revenue [removed: increase] [added: decrease] included the following factors:

[removed: |] · [removed: |] Higher Bell revenues of $749 million, primarily due to higher commercial aircraft volume of $476 million and an increase in V-22 program volume of $231 million, largely due to higher deliveries. [removed: |]

[removed: |] · [removed: |] Higher Cessna revenues of $121 million, primarily due to higher pre-owned aircraft volume of $68 million and Citation jet revenues of $57 million, reflecting a change in mix of jets sold during the period. [removed: |]

[removed: |] · [removed: |] Increased Industrial segment revenues of $115 million, primarily due to higher volume of $171 million, primarily reflecting higher market demand in the Fuel Systems and Functional Components and Golf, Turf Care and Light [removed: Transportation Vehicles product lines, partially offset by an unfavorable foreign exchange impact of $80 million, primarily related to the weakening of the euro. |]

[removed: |] · [removed: |] Higher Finance revenues of $112 million as described more fully in the Segment Analysis below. [removed: |]

[removed: |] · [removed: |] Lower Textron Systems revenues of $135 million, primarily due to lower volume across all product lines. [removed: |]

Revenues [removed: increased $750] [added: decreased $133] million, [removed: 7%,] [added: 1%,] in [removed: 2011,] [added: 2013,] compared with [removed: 2010, primarily due to an 8% increase in Manufacturing revenues with increases] [added: 2012, as revenue decreases] in the Cessna, [removed: Bell,] [added: Finance,] and [removed: Industrial] [added: Textron Systems] segments [removed: that] were partially offset by [removed: lower] [added: higher] revenues in the [removed: Textron Systems segment.][added: Bell and Industrial segments.]

[removed: |] · [removed: |] Higher Bell revenues of [removed: $284] [added: $237] million, largely due to higher volume [added: of $163 million] in our military programs, [removed: which included more deliveries of] [added: primarily reflecting higher] V-22 [added: deliveries] and [removed: H-1 aircraft. |][added: aftermarket volume, and $74 million of higher commercial revenues, largely due to higher aircraft volume.]

[removed: | · | Lower] [added: Revenues at] Textron Systems [removed: revenues of $107] [added: decreased $135] million, [added: 7%, in 2012, compared with 2011,] primarily due to [removed: $140 million] [added: lower volume] in [added: the Marine & Land product line of $76 million,] lower volume in the [removed: UAS and] Mission Support and Other product [removed: lines, partially offset by higher] [added: line of $45 million and lower] volume in [removed: the Land & Marine and] Weapons and Sensors [removed: product lines] of [removed: $28] [added: $13] million. [removed: |]

| _(Dollars in millions)_ | | [removed: | 2012] [added: 2013] | | [added: 2012] | | 2011 | | [removed: | | 2010 | | |]

| [removed: %] [added: _%] change compared with prior [removed: period | | | 7 | | % |] [added: period_] | [removed: 7] | [added: _(1)%_] | [removed: %] | [added: _9%_] | | | |

| [removed: %] [added: _%] change compared with prior [removed: period | | | 8 | | % |] [added: period_] | [removed: 8] | [added: _1%_] | [removed: %] | [added: _8%_] | | | |

| [removed: Gross] [added: _Gross] margin as a percentage of Manufacturing [removed: revenues | | | 16.7 | | % |] [added: revenues_] | [removed: 16.7] | [added: _15.4%_] | [removed: %] | [added: _16.7%_] | [removed: 16.5] | [added: _16.7%_] | [removed: %] |

| [removed: %] [added: _%] change compared with prior [removed: period | | | (1) | | % |] [added: period_] | [removed: (4)] | [added: _(3)%_] | [removed: %] | [added: _(3)%_] | | | |

Cost of sales as a percentage of manufacturing revenues was [added: 84.6% in 2013, and] 83.3% in both 2012 and [removed: 2011, and 83.5% in 2010.][added: 2011.]

[removed: Consolidated] [added: In 2012, consolidated] manufacturing cost of sales increased $711 million, 8%, [removed: in 2012,] compared with 2011, principally due to higher net sales volume.

Selling and administrative expense decreased [removed: $15] [added: $30] million, [removed: 1%, to $1,168 million] [added: 3%,] in 2012, compared with 2011.

Consolidated manufacturing cost of sales increased [removed: $703] [added: $112] million, [removed: 8%,] [added: 1%,] in [removed: 2011,] [added: 2013,] compared with [removed: 2010, principally] [added: 2012, primarily] due to higher sales volume [removed: in the Cessna,] [added: at] Bell and [removed: Industrial segments.][added: the impact from businesses acquired in 2013, partially offset by lower sales at Cessna and Textron Systems.]

| Interest expense | | [removed: |] $ | [removed: 212 | |] [added: 173] | $ | [removed: 246 | |] [added: 212] | $ | [removed: 270 |] [added: 246] |

| [removed: %] [added: _%] change compared with prior [removed: period | | | (14 | | )% |] [added: period_] | [removed: (9] | [added: _(18)%_] | [removed: )%] | [added: _(14)%_] | | | |

Consolidated interest expense decreased [added: $39 million, 18%, in 2013, compared with 2012, and] $34 million, 14%, in [removed: 2012,] [added: 2012] compared with 2011, primarily due to lower average debt outstanding.

In the fourth quarter of 2011, we determined that we no longer had the intent to hold the remaining Golf Mortgage portfolio for investment for the foreseeable future, and, accordingly, transferred $458 million of the remaining Golf Mortgage finance receivables, net of an $80 million allowance for loan losses, from the held for investment classification to the held for sale [removed: classification.]

In 2011, other losses, net included $55 million in losses on the early extinguishment of a portion of our convertible notes which was largely offset by a $52 million gain from the collection on notes receivable in connection with the disposition of the Fluid & Power business in [removed: 2008 as discussed in Note 2 to the Consolidated Financial Statements.][added: 2008.]

Income Tax [removed: Expense (Benefit)][added: Expense]

Our effective [added: tax] rate was [removed: 30.9%] [added: 26.1%] in [removed: 2012, 28.1%] [added: 2013, 30.9%] in [removed: 2011] [added: 2012] and [removed: (6.4)%] [added: 28.1%] in [removed: 2010,] [added: 2011,] and generally differs from the U.S. federal statutory [added: tax] rate of 35% due to certain earnings from our operations in lower-tax jurisdictions throughout the [removed: world.][added: world, as well as research credits.]

The jurisdictions with favorable tax rates that have the most significant effective [added: tax] rate impact in the periods presented include primarily Canada, [added: Germany,] Belgium and China.

We have not provided for U.S. taxes for those earnings because we plan to reinvest all of those earnings indefinitely outside of the [removed: United States.][added: U.S. Our effective tax rate will fluctuate based on the mix of earnings from our U.S. and non-U.S. operations.]

For a full reconciliation of our effective [added: tax] rate to the U.S. federal statutory [added: tax] rate of 35% see Note [removed: 14] [added: 12] to the Consolidated Financial Statements.

[removed: Subsequent to year end,] [added: In addition,] the American Taxpayer Relief Act of 2012 was enacted on January 2, 2013 to retroactively reinstate and extend the Federal Research and Development Tax Credit from January 1, 2012 to December 31, 2013.

As a [removed: result,] [added: result] our income tax provision [removed: in the first quarter of] [added: for] 2013 [removed: will include] [added: includes] a [removed: discrete] tax benefit that [removed: will reduce] [added: reduced] the annual effective tax rate by approximately [removed: one] [added: four] percent.

Segment profit for the manufacturing segments excludes interest [removed: expense,] [added: expense and] certain corporate [removed: expenses and special charges.][added: expenses.]

The measurement for the Finance segment [removed: excludes special charges and] includes interest income and expense along with intercompany interest expense.

Approximately [removed: 29%] [added: 30%] of our [added: 2013] revenues were derived from contracts with the U.S. [removed: Government in 2012.][added: Government.]

| | | | | | | | | [removed: | | | | | |] % Change | | [removed: | | |]

Overview and Consolidated Results of Operations

For Textron, 2013 was an important year with significant new product introductions, strategic acquisitions and investments in the future of our businesses.

During 2013, we accomplished the following:

· Invested $651 million in research and development costs, a 12% increase over the prior year, demonstrating our commitment to expanding our current product lines across all of our businesses.

As a result, we brought new products to market in many of our businesses, including the certification of two new models of Cessna aircraft, the Citation M2 and the Sovereign+ jet.

· Acquired six companies, including two flight simulation and aircraft training product companies for the Textron Systems segment, two companies to augment our Greenlee business in the Industrial segment and two service centers at Cessna for an aggregate cash payment of $196 million.

· Made $204 million in contributions to our pension plans and ended the year with an unfunded pension plan liability of $199 million, compared to $1.3 billion at the end of 2012.

· Reduced our debt-to-capital, net of cash ratio to 15% from 24% in the prior year, in part due to the maturity of our convertible senior notes and the settlement of the related call option and warrants.

An analysis of our consolidated operating results is set forth below.

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· Lower Cessna revenues of $327 million, primarily due to lower Citation jet volume of $384 million and CitationAir volume of $114 million, partially offset by higher aftermarket volume of $65 million and higher pre-owned aircraft volume of $53 million.

· Lower Finance revenues of $83 million, primarily attributable to an unfavorable impact of $46 million from lower average finance receivables and a decrease of $25 million in revenues related to the resolution of a Timeshare account in 2012.

· Lower Textron Systems revenues of $72 million, largely due to lower volume of $51 million in the Marine & Land product line and lower volume of $28 million in the UAS product line.

· Higher Industrial segment revenues of $112 million, primarily due to higher volume of $58 million and the impact of acquisitions of $46 million.

Transportation Vehicles product lines, partially offset by an unfavorable foreign exchange impact of $80 million, primarily related to the weakening of the euro.

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In 2013, gross margin as a percentage of manufacturing revenues decreased 130 basis points primarily due to unfavorable performance at Bell, largely due to manufacturing inefficiencies associated with labor disruptions resulting from negotiations with bargained employees and with the implementation of a new enterprise resource planning system in the first quarter of 2013, as well as lower Citation jet and CitiationAir volume at Cessna.

Selling and administrative expenses decreased $39 million, 3%, in 2013 compared with 2012, largely due to a reduction in administrative expenses of $26 million and lower provision for loan losses of $20 million at the Finance segment, both primarily associated with the non-captive business.

Selling and administrative expense was also impacted by $28 million in severance costs incurred in 2013 at Cessna, which were largely offset by a $27 million charge from an unfavorable arbitration award incurred in 2012 at Cessna.

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classification.

We estimate our full year annual effective tax rate in 2014 to be approximately 31.5%.

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| _(In millions)_ | | 2013 versus 2012 | | |

| Acquisitions | | 33 | | |

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In 2013, Cessna’s revenues decreased $327 million, 11%, compared with 2012, primarily due to lower Citation jet volume of $384 million and lower CitationAir volume of $114 million, largely related to the wind-down of our fractional share business.

These decreases were partially offset by higher aftermarket volume of $65 million, largely due to increased service demand, and higher pre-owned aircraft volume of $53 million.

We delivered 139 Citation jets in 2013, compared with 181 jets in 2012.

Cessna’s operating expenses decreased $197 million, 7%, in 2013, compared with 2012, primarily due to lower sales volume as discussed above.

The volume-related decrease in operating expenses was partially offset by $37 million of operating costs incurred by service centers acquired at the beginning of 2013 and $33 million of inflation, largely due to higher pension expense of $17 million.

Operating expenses in 2013 were impacted by $28 million in severance costs incurred during the first half of the year in connection with a voluntary separation program offered to qualifying salaried employees and a reduction of certain direct production positions due to an adjustment of our production schedule.

Operating expenses in 2012 included a $27 million charge from an unfavorable arbitration award recorded in the fourth quarter.

| | | | |

| Net cash provided by operating activities of continuing operations for Manufacturing group | | | 958 | | | | | 761 | | | | 730 | | |

| Diluted earnings per share (EPS) from continuing operations | | | 1.97 | | | | | 0.79 | | | | 0.30 | | |

| --- | --- |

| · | Higher Cessna revenues of $427 million, primarily due to higher volume, largely due to the impact of higher Citation jet volume and the mix of light- and mid-size jets sold during the period. |

| · | Increased Industrial segment revenues of $261 million, primarily due to higher volume of $138 million, mostly reflecting higher automotive industry demand, and a favorable foreign exchange impact of $77 million, largely related to strengthening of the euro. |

| · | Lower revenues at the Finance segment of $115 million, primarily attributable to the lower average finance receivable portfolio balance resulting from continued liquidation. |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Operating expenses | | | $ | 11,187 | | | $ | 10,491 | | | $ | 9,836 | |

| Cost of sales | | | $ | 10,019 | | | $ | 9,308 | | | $ | 8,605 | |

| Selling and administrative expenses | | | $ | 1,168 | | | $ | 1,183 | | | $ | 1,231 | |

In 2011, gross margin increased as a percentage of revenues primarily due to favorable product mix and improved leverage and manufacturing efficiencies on higher volume at Cessna and Bell.

These improvements were partially offset by a $64 million increase in engineering and development expenses throughout our manufacturing businesses and $60 million in charges at Textron Systems related to the impairment of certain intangible assets and severance costs.

In 2011, selling and administrative expense decreased $48 million, 4%, to $1.2 billion, compared with 2010, primarily due to $44 million in lower operating expense at the Finance segment, largely reflecting progress towards our exit from the non-captive commercial finance business, and a $23 million decrease in corporate expense, primarily due to the impact of changes in our stock price on compensation expense.

These decreases were partially offset by higher bid and proposal costs at Textron Systems in 2011.

| | | | | | | | | | | | | | |

In 2011, consolidated interest expense decreased $24 million, 9%, compared with 2010, primarily due to a decrease in the Finance group, largely due to the reduction in its debt from liquidations in the non-captive portfolio.

Special Charges

There were no amounts recorded within special charges in 2012 and 2011.

In 2010, special charges included restructuring charges totaling $99 million, including $76 million of severance costs.

These charges were related to a global restructuring program initiated in the fourth quarter of 2008 to reduce overhead costs and improve productivity across the company and included the announcement of the exit of portions of our commercial finance business.

This restructuring program was substantially completed at the end of 2011.

In 2010, special charges also included a $91 million non-cash pre-tax charge to reclassify a foreign exchange loss from equity to the Statement of Operations as a result of substantially liquidating a Canadian Finance entity.

Our effective rate will fluctuate based on the mix of earnings from our U.S. and foreign operations.

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| --- | --- | --- | --- | --- |

On November 16, 2012, in an arbitration proceeding initiated by Avcorp Industries, Inc. against Cessna, an arbitral panel entered an award against Cessna in the amount of $27 million.

The dispute related to an alleged breach of a supply agreement under which Avcorp made various components for Cessna aircraft.

Although we are vigorously contesting this award, we recorded a charge of $27 million in the fourth quarter of 2012.

Cessna’s revenues increased $427 million, 17%, in 2011, compared with 2010, primarily due to higher Citation jet volume and the mix of light- and mid-size jets sold during the period, which had a $262 million impact, higher pre-owned aircraft volume of $76 million reflecting improved market demand and higher aftermarket volume of $62 million, in part due to continued investment in additional service offerings.

We delivered 183 Citation jets in 2011, compared with 179 jets in 2010.

Cessna’s operating expenses increased by $338 million, 13%, in 2011, compared with 2010, principally due to higher sales volume, which resulted in a $271 million increase in direct material costs and a $27 million increase in manufacturing overhead.

Operating expenses also increased due to higher engineering and development expenses of $28 million, primarily due to new product development.

Cost inflation was offset by a $45 million favorable benefit related to the last-in, first-out (LIFO) method of accounting for inventories.

In 2011, Cessna had a LIFO benefit of $22 million resulting from operational improvements that led to a reduction in inventory levels, compared with expense of $23 million in 2010.

| · | $(27) million unfavorable arbitration award as described above. |

Cessna’s segment profit increased $89 million in 2011, compared with 2010, primarily due to higher volume of $85 million.

Segment profit was also impacted by the following contributing factors included within the Other line:

| · | $28 million in higher engineering and development expenses, primarily due to new product development. |

| · | $22 million in cost improvements realized during the period, which were driven by factory efficiencies due to higher production volume. |

| · | $16 million in lower pre-owned aircraft write-downs. |

Our financial results are affected by changes in [removed: the U.S. and foreign] interest rates.

For our Finance group, we limit our risk to changes in interest rates [removed: for the captive business] with a strategy of matching floating-rate assets with floating-rate [removed: liabilities, which] [added: liabilities that] includes the use of interest rate exchange agreements.

The notional amount of outstanding foreign exchange contracts and foreign currency options was approximately [removed: $0.7 billion] [added: $636 million] and [removed: $0.6 billion] [added: $664 million] at the end of [removed: 2012] [added: 2013] and [removed: 2011,] [added: 2012,] respectively.

The impact of foreign exchange rate changes for [removed: 2012] [added: 2013] and [removed: 2011] [added: 2012] from the prior year for each period is provided below:

| _(In millions)_ | | [removed: 2012] [added: 2013] | | | | [removed: 2011] [added: 2012] | | |

| Revenues | | $ | [removed: (80] [added: 6] | [removed: )] | | $ | [removed: 77] [added: (80] | [added: )] |

| Segment profit | | [removed: (10] [added: (1] | | ) | | [removed: 8] [added: (10] | | [added: )] |

| Debt | | $ | [removed: (564] [added: (249] | ) | $ | [removed: (598] [added: (275] | ) | $ | [removed: (60] [added: (27] | ) | | $ | [removed: (543] [added: (564] | ) | $ | [removed: (564] [added: (598] | ) | $ | [removed: (56] [added: (60] | ) |

| Foreign currency exchange contracts | | [removed: 6] [added: (12] | | [added: )] | [removed: 6] [added: (12] | | [added: )] | [removed: 34] [added: 33] | | | | [removed: 5] [added: 6] | | | [removed: 5] [added: 6] | | | [removed: 46] [added: 34] | | |

| Debt | | $ | [removed: (2,225] [added: (1,854] | ) | $ | [removed: (2,636] [added: (2,027] | ) | $ | [removed: (9] [added: (13] | ) | | $ | [removed: (2,328] [added: (2,225] | ) | $ | [removed: (2,561] [added: (2,636] | ) | $ | [removed: (14] [added: (9] | ) |

| Finance receivables | | $ | [removed: 1,766] [added: 1,296] | | $ | [removed: 1,793] [added: 1,356] | | $ | [removed: 36] [added: 24] | | | $ | [removed: 2,415] [added: 1,766] | | $ | [removed: 2,266] [added: 1,793] | | $ | [removed: 90] [added: 36] | |

| Debt, including intergroup | | [removed: (1,687] [added: (1,256] | | ) | [removed: (1,678] [added: (1,244] | | ) | [removed: (13] [added: (4] | | ) | | [removed: (2,467] [added: (1,687] | | ) | [removed: (2,347] [added: (1,678] | | ) | [removed: (24] [added: (13] | | ) |

| | | $ | [removed: 79] [added: 40] | | $ | [removed: 115] [added: 112] | | $ | [removed: 23] [added: 20] | | | $ | [removed: (52] [added: 79] | [removed: )] | $ | [removed: (81] [added: 115] | [removed: )] | $ | [removed: 66] [added: 23] | |

| | | 2013 | | | | | | | | | | 2012 | | | | | | | | |

| | | $ | (261 | ) | $ | (287 | ) | $ | 6 | | | $ | (558 | ) | $ | (592 | ) | $ | (26 | ) |

| | | 2012 | | | | | | | | | | 2011 | | | | | | | | |

| | | $ | (558 | ) | $ | (592 | ) | $ | (26 | ) | | $ | (538 | ) | $ | (559 | ) | $ | (10 | ) |

We have approximately [removed: 33,000] [added: 32,000] employees worldwide.

Financial information by business segment and geographic area appears in Note [removed: 17] [added: 15] to the Consolidated Financial Statements on pages [removed: 80] [added: 75] through [removed: 81] [added: 76] of this Annual Report on Form 10-K.

The following description of our business should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages [removed: 19] [added: 18] through [removed: 38] [added: 37] of this Annual Report on Form 10-K.

Aircraft sales include Citation jets, Caravan single-engine utility [removed: turboprops,] [added: turboprops and] single-engine [removed: piston aircraft] [added: utility] and [removed: lift solutions by CitationAir.][added: high-performance piston aircraft.]

Revenues in the Cessna segment accounted for approximately [removed: 25%, 26%] [added: 23%, 25%] and [removed: 24%] [added: 26%] of our total revenues in [removed: 2012, 2011] [added: 2013, 2012] and [removed: 2010,] [added: 2011,] respectively.

| _(In millions)_ | | | [removed: 2012] [added: 2013] | | | | | [removed: 2011] [added: 2012] | | | | | [removed: 2010] [added: 2011] | | |

| Aircraft sales | | | $ | [removed: 2,318] [added: 1,868] | | | | $ | [removed: 2,263] [added: 2,318] | | | | $ | [removed: 1,896] [added: 2,263] | |

| Aftermarket | | | [removed: 793] [added: 916] | | | | | [removed: 727] [added: 793] | | | | | [removed: 667] [added: 727] | | |

| | | | $ | [removed: 3,111] [added: 2,784] | | | | $ | [removed: 2,990] [added: 3,111] | | | | $ | [removed: 2,563] [added: 2,990] | |

The family of jets currently produced by Cessna includes the Mustang, Citation [added: M2, Citation] CJ2+, Citation CJ3, Citation CJ4, Citation [removed: XLS+, Citation Sovereign] [added: XLS+] and [added: the new] Citation [removed: X.][added: Sovereign+.]

International uses of Caravans include [added: air taxi service,] humanitarian flights, tourism and freight transport.

Cessna also offers a single-engine piston product [removed: line, which] [added: line that] includes the [removed: Skycatcher,] Skyhawk SP, [removed: Skylane,] Stationair and the [removed: Corvalis TTX.][added: new high performance TTx which we began delivering during 2013.]

Cessna’s aircraft compete with other aircraft that vary in size, speed, range, capacity and handling characteristics on the basis of price, product quality and reliability, [added: direct operating costs,] product support and reputation.

Revenues for Bell accounted for approximately [removed: 35%, 31%] [added: 37%, 35%] and 31% of our total revenues in [removed: 2012, 2011] [added: 2013, 2012] and [removed: 2010,] [added: 2011,] respectively.

| V-22 Program | | | $ | [removed: 1,611] [added: 1,755] | | | | $ | [removed: 1,380] [added: 1,611] | | | | $ | [removed: 1,155] [added: 1,380] | |

| Other Military | | | [removed: 940] [added: 959] | | | | | [removed: 919] [added: 940] | | | | | [removed: 845] [added: 919] | | |

| Commercial | | | [removed: 1,723] [added: 1,797] | | | | | [removed: 1,226] [added: 1,723] | | | | | [removed: 1,241] [added: 1,226] | | |

| | | | $ | [removed: 4,274] [added: 4,511] | | | | $ | [removed: 3,525] [added: 4,274] | | | | $ | [removed: 3,241] [added: 3,525] | |

Bell also continues to support the OH-58D Kiowa Warrior [removed: helicopter.][added: armed scout helicopter for the U.S. Army.]

The helicopters currently offered by Bell for commercial applications include the 206L-4, 407, 407GX, [removed: 412,] [added: 412EP/EPI,] 429 and Huey II.

For both its military programs and its commercial products, Bell provides post-sale support and service for its installed base of approximately 13,000 helicopters through a network of [added: 8] Bell-operated service [removed: sites, service facilities] [added: centers, two of which are] co-located with Cessna, [removed: 108] [added: 106] independent service centers [added: located in 34 countries] and [removed: six] [added: four] supply centers that are located worldwide.

Textron Systems’ product lines consist of unmanned aircraft systems, [removed: land and] marine [added: and land] systems, weapons and sensors and a variety of defense and aviation mission support products and services.

Textron Systems is a supplier to the defense, aerospace, homeland security and general aviation markets, and represents approximately 14%, [removed: 17%] [added: 14%] and [removed: 19%] [added: 17%] of Textron’s revenues in [removed: 2012, 2011] [added: 2013, 2012] and [removed: 2010,] [added: 2011,] respectively.

| Unmanned Aircraft Systems | | | $ | [removed: 694] [added: 666] | | | | $ | [removed: 701] [added: 694] | | | | $ | [removed: 785] [added: 701] | |

| [removed: Land and] Marine [added: and Land] Systems | | | [removed: 443] [added: 392] | | | | | [removed: 519] [added: 443] | | | | | [removed: 503] [added: 519] | | |

| Weapons and Sensors | | | [removed: 285] [added: 311] | | | | | [removed: 298] [added: 285] | | | | | [removed: 284] [added: 298] | | |

| Mission Support and Other | | | [removed: 315] [added: 296] | | | | | [removed: 354] [added: 315] | | | | | [removed: 407] [added: 354] | | |

| | | | $ | [removed: 1,737] [added: 1,665] | | | | $ | [removed: 1,872] [added: 1,737] | | | | $ | [removed: 1,979] [added: 1,872] | |

[removed: _Land] [added: _Marine] and [removed: Marine] [added: Land] Systems_

The [removed: Land and] Marine [added: and Land] Systems business is operated as Textron Marine & Land Systems (TMLS).

TMLS produces a family of extremely mobile, highly protective vehicles for the U.S. Army and international [removed: allies.][added: allies, and is developing the U.S. Navy’s next generation air cushion vehicle.]

This business consists of state-of-the-art smart weapons; airborne and ground-based sensors and surveillance systems; and protection systems for the defense, aerospace and homeland security [removed: communities.][added: industries.]

Mission Support and Other includes three businesses: AAI Test & Training, Lycoming and [removed: Textron Systems Advanced Systems.][added: Overwatch.]

| Fuel Systems and Functional Components | | | $ | [removed: 1,842] [added: 1,853] | | | | $ | [removed: 1,823] [added: 1,842] | | | | $ | [removed: 1,640] [added: 1,823] | |

| Golf, Turf Care and Light Transportation Vehicles | | | [removed: 660] [added: 713] | | | | | [removed: 560] [added: 660] | | | | | [removed: 554] [added: 560] | | |

| Powered Tools, Testing and Measurement Equipment | | | [removed: 398] [added: 446] | | | | | [removed: 402] [added: 398] | | | | | [removed: 330] [added: 402] | | |

| | | | $ | [removed: 2,900] [added: 3,012] | | | | $ | [removed: 2,785] [added: 2,900] | | | | $ | [removed: 2,524] [added: 2,785] | |

Revenues of Kautex accounted for approximately 15%, [removed: 16%] [added: 15%] and 16% of our total revenues in [removed: 2012, 2011] [added: 2013, 2012] and [removed: 2010,] [added: 2011,] respectively.

[added: Competition is based] primarily on price, product quality and reliability, product support and reputation.

Our Finance segment, or the Finance group, is a commercial finance business that consists of Textron Financial Corporation (TFC) and its consolidated [removed: subsidiaries, along with three other finance subsidiaries owned by Textron Inc. In the fourth quarter of 2008, we announced a plan to exit the non-captive portion of the commercial finance business of our Finance segment while retaining the captive portion of the business that supports customer purchases of products that we manufacture.][added: subsidiaries.]

The new Citation X+, recently verified by the FAA as the fastest civilian jet in the world, is expected to be certified in early 2014.

In addition, Cessna is developing the Citation Latitude, a midsize business jet scheduled for first flight in 2014 and expected to enter into service in 2015, as well as the Citation Longitude, a super midsize business jet expected to enter into service in 2017.

The Turbo Skylane JT-A, Cessna’s first Jet-A fueled piston aircraft, is expected to be certified and to begin delivering in 2014.

During 2013, the Bell Boeing V-22 program was awarded a five-year contract for the production and delivery of an additional 99 V-22 tiltrotor aircraft from 2014 through 2019.

In addition, during 2013 Bell announced the development of the Bell SLS, a high performance, short-light single helicopter, which will reenter Bell into the market it created with the introduction of the original JetRanger.

| _(In millions)_ | | | 2013 | | | | | 2012 | | | | | 2011 | | |

TDS primarily sells its products to international allies through foreign military sales.

AAI Test & Training provides high technology test equipment and electronic warfare test and training solutions.

Overwatch, operated as Overwatch Geospatial Solutions and Overwatch Intelligence Solutions, provides intelligence software solutions for U.S. and international defense, intelligence and law enforcement communities.

In December 2013, we acquired two flight simulation and aircraft training product companies, Mechtronix, Inc. and OPINICUS Corporation.

We intend to combine these businesses with our existing training and simulation business, currently included in the UAS product line, which serves the military aircraft market, to form Textron Simulation & Training Systems.

This business designs, develops, installs and provides maintenance of advanced full flight simulators for both rotary- and fixed-wing aircraft and designs, markets and supports aviation training products and related services for airlines, aircraft OEMs, flight training centers and training organizations worldwide.

| _(In millions)_ | | | 2013 | | | | | 2012 | | | | | 2011 | | |

During 2013, our Greenlee business acquired Sherman & Reilly, Inc., a manufacturer of underground and aerial transmission and distribution products, and HD Electric Company, a designer and manufacturer of power utility products.

| _(In millions)_ | | | December 28, 2013 | | | | | December 29, 2012 | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

· Interruptions in the U.S. Government’s ability to fund its activities and/or pay its obligations;

· The inability to complete announced acquisitions;

· Difficulty or unanticipated expenses in connection with integrating acquired businesses; and

· The risk that anticipated synergies and opportunities as a result of acquisitions will not be realized or the risk that acquisitions do not perform as planned, including, for example, the risk that acquired businesses will not achieve revenue projections.

Deliveries of the Citation M2 are expected to begin in the second half of 2013, and Cessna anticipates receiving certification and beginning delivery of the new Citation X model, with updated design and performance from the original Citation X, in late 2013.

During 2012, Cessna announced the development of the Citation Longitude, a super midsize business jet expected to enter into service in 2017, as well as the new Citation Sovereign, an upgraded midsize business jet planned for a late 2013 entry into service.

In addition, Cessna increased the range for the previously announced Citation Latitude to 2,500 nautical miles; this aircraft is expected to enter into service in 2015.

The Turbo Skylane JT-A was announced in 2012 with deliveries expected to begin in 2013.

CitationAir provides a spectrum of private aviation lift solutions, including Jet Charter, Jet Management and Corporate Solutions throughout the contiguous U.S. and in Canada, Mexico, the Caribbean, the Bahamas and Bermuda.

TDS is the U.S. Air Force’s prime contractor for the Sensor Fuzed Weapon and the U.S. Army’s lead provider for networked munitions systems.

AAI Test & Training provides training and simulation systems and automated aircraft test and maintenance equipment.

Textron Systems Advanced Systems brings together cutting-edge technologies and innovations, including intelligence software solutions for U.S. and international defense, intelligence and law enforcement communities, through its Overwatch business.

Competition is based

The non-captive portion of this business is based primarily in North America and includes the following product lines: Golf Mortgage, Timeshare and Structured Capital.

The exit plan is being effected through a combination of orderly liquidation and selected sales.

During 2012, we reduced our total finance receivable portfolio by $821 million primarily through liquidations.

We expect to liquidate the majority of the remaining $370 million in the non-captive portfolio over the next two years.

We also provide financing to purchasers of pre-owned Cessna aircraft and Bell helicopters on a limited basis.

New originations in the U.S. are primarily for purchasers who had difficulty in accessing other sources of financing for the purchase of Textron-manufactured products.

Our Cessna and Industrial segments also received proceeds in those years of $19 million, $2 million and $10 million, respectively, from the sale of equipment from their manufacturing operations to our Finance group for use under operating lease agreements.

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Cessna | | | — | | | | 45 | | |

| --- | --- |

| · | Difficult conditions in the financial markets which may adversely impact our customers’ ability to fund or finance purchases of our products; and |

[removed: These lawsuits] [added: Plaintiffs] alleged that the [removed: defendants] [added: company and certain of its present and former employees, officers and directors had] violated the United States Employee Retirement Income Security Act (ERISA) by imprudently permitting participants in the Textron Savings Plan to invest in Textron common stock.

[removed: On] [added: As reported in Textron’s Annual Report on Form 10-K for the fiscal year ended] December [added: 29, 2012, on December] 13, 2012, as a result of a mediation process overseen by an independent mediator, the parties reached an agreement in principle, subject to settlement documentation and court approval, to settle the plaintiffs’ claims for an immaterial amount.

[removed: These] [added: We also are subject to other actual and threatened legal] proceedings [removed: include] [added: and other] claims [added: 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 [added: and claims] seek damages, fines or [added: penalties in substantial amounts or remediation of environmental contamination.]

On August 21, 2013, the Court entered an order preliminarily approving the settlement, certifying a settlement class, and approving the form and manner of class notice.

On February 10, 2014, the Court entered an order giving final approval of the settlement and final judgment in the case.

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.

Six additional substantially similar class action lawsuits were subsequently filed by other individuals.

The complaints varyingly name Textron and certain present and former employees, officers and directors as defendants.

On February 2, 2010, an amended class action complaint was filed consolidating the seven previous lawsuits into a single complaint.

On March 19, 2010, all defendants moved to dismiss the consolidated amended complaint, and on September 6, 2011, the Court granted the motion to dismiss in part and denied the motion in part.

Specifically, the Court ruled that plaintiffs failed to plead sufficient allegations to support any claim that defendants made material misrepresentations that would be actionable under ERISA, but permitted the remainder of the Amended Complaint to survive the pleadings stage.

On September 20, 2011, all defendants moved for partial reconsideration of the Court’s decision not to dismiss the Amended Complaint.

On December 5, 2011, the Court denied the motion for partial reconsideration without rendering a decision on the merits of the issues raised therein.

Because this is a class action, settlements of this type are subject to preliminary and final review by the Court with an opportunity for class members to respond to the proposed settlement and object if they so desire.

As previously reported in Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, 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 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 alleged 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 sought avoidance and recovery of alleged fraudulent transfers in the amount of $316 million, as well as damages of $223 million on the other claims.

The Trustee also sought trebled damages on all claims under Ohio law.

TFC moved to dismiss all claims in the complaint, and on November 9, 2012, the court granted TFC’s motion to dismiss in its entirety and dismissed TFC from the lawsuit.

We also are subject to other actual and threatened legal proceedings and other claims arising out of the conduct of our business.

penalties in substantial amounts or remediation of environmental contamination.

For the fiscal year ended December [removed: 29, 2012][added: 28, 2013]

The aggregate market value of the registrant’s Common Stock held by non-affiliates at June [removed: 29, 2012] [added: 28, 2013] was approximately [removed: $7.0] [added: $7.3] billion based on the New York Stock Exchange closing price for such shares on that date.

At February [removed: 2, 2013, 271,544,305] [added: 1, 2014, 282,500,851] shares of Common Stock were outstanding.

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 [removed: 24, 2013.][added: 23, 2014.]

10-K 1 a13-26941_110k.htm 10-K

10-K 1 a12-30151_410k.htm 10-K

On December [removed: 29, 2012,] [added: 28, 2013,] we operated a total of [removed: 61] [added: 52] plants located throughout the U.S. and [removed: 50] [added: 52] plants outside the U.S. We own [removed: 54] [added: 53] plants and lease the remainder for a total manufacturing space of approximately [removed: 20.9] [added: 21.1] million square feet.

The principal market on which our common stock is traded is the New York Stock Exchange under the symbol “TXT.” At December [removed: 29, 2012,] [added: 28, 2013,] there were approximately [removed: 12,500] [added: 11,500] record holders of Textron common stock.

| | | | High | | | [removed: |] Low | | | [removed: |] Dividends per Share | | | | [removed: |] High | | | [removed: |] Low | | | [removed: |] Dividends per Share | | | [added: |]

| First quarter | | | $ | [removed: 28.29 |] [added: 31.30] | | $ | [removed: 18.37 |] [added: 23.94] | | $ | 0.02 | | | [removed: |] $ | [removed: 28.87 |] [added: 28.29] | | $ | [removed: 23.50 |] [added: 18.37] | | $ | 0.02 | | [added: |]

| Second quarter | | | [removed: 29.18 | |] [added: 30.22] | | [removed: 21.97] | [added: 24.87] | | | 0.02 | | | | [removed: | 28.65 | |] [added: 29.18] | | [removed: 20.86] | [added: 21.97] | | | 0.02 | | | [added: |]

| Third quarter | | | [removed: 28.80 | |] [added: 29.81] | | [removed: 22.15] | [added: 25.36] | | | 0.02 | | | | [removed: | 25.17 | |] [added: 28.80] | | [removed: 14.66] | [added: 22.15] | | | 0.02 | | | [added: |]

| Fourth quarter | | | [removed: 26.75 | |] [added: 37.43] | | [removed: 22.84] | [added: 26.17] | | | 0.02 | | | | [removed: | 20.41 | |] [added: 26.75] | | [removed: 16.37] | [added: 22.84] | | | 0.02 | | | [added: |]

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, [removed: 2007] [added: 2008] with the Standard & Poor’s (S&P) 500 Stock Index, the S&P 500 Aerospace & Defense (A&D) Index and the S&P Industrial Conglomerates (IC) Index.

[removed: ][added: ]

| | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | 2013 | | | | | | | | | | 2012 | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | |

There were no shares purchased under the plan during 2013.

On February 5, 2014, we entered into an accelerated share repurchase agreement (ASR) with a counterparty to repurchase an aggregate of 4.3 million shares of our outstanding common stock from the counterparty for $150 million.

The ASR is scheduled to expire in December 2014.

Upon final settlement of the ASR, we may receive additional shares or pay additional cash or shares, at our option, based on the daily volume weighted average market price of our common stock over the course of a calculation period, less a discount.

| | | 2012 | | | | | | | | | | | | | 2011 | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Fourth Quarter _(shares in millions)_ | | 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 be Purchased under the Plan | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Month 1 (September 30, 2012 – November 3, 2012) | | 3,532 | | $ | 25.34 | | 3,532 | | 7,571 | |

| Month 2 (November 4, 2012 – December 1, 2012) | | 4,465 | | 24.11 | | | 4,465 | | 3,106 | |

| Month 3 (December 2, 2012 – December 29, 2012) | | 3,106 | | 24.09 | | | 3,106 | | — | |

| Total | | 11,103 | | $ | 24.51 | | 11,103 | | | |

*_These shares were purchased pursuant to a plan authorizing the repurchase of up to 24 million shares of Textron common stock that had been announced on July 19, 2007, which had no expiration date.

During the fourth quarter of 2012, all remaining shares available under this plan were repurchased._

| | | 2007 | | | 2008 | | | 2009 | | | 2010 | | | 2011 | | | 2012 | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Textron Inc. | | $ | 100.00 | | $ | 20.04 | | $ | 27.40 | | $ | 34.57 | | $ | 27.14 | | $ | 35.52 | |

| S&P 500 | | 100.00 | | | 63.00 | | | 79.68 | | | 91.68 | | | 93.61 | | | 106.78 | | |

| S&P 500 A&D | | 100.00 | | | 63.46 | | | 79.10 | | | 91.05 | | | 95.86 | | | 108.37 | | |

| S&P 500 IC | | 100.00 | | | 48.50 | | | 53.43 | | | 63.41 | | | 63.86 | | | 76.92 | | |

| | | | | | | | | | | | | | | | | | | | |

| [removed: _(Dollars] [added: (_Dollars] in millions, except per share [removed: amounts)_ |] [added: amounts_)] | | [removed: 2012] [added: 2013] | | [added: 2012] | | 2011 | | [removed: |] 2010 | | [removed: |] 2009 | | [removed: | 2008 | | |]

| Revenues | | | | | | | | | | | | [removed: | | | | | | |]

| Cessna | | [removed: |] $ | [removed: 3,111] [added: 2,784] | [added: $] | [added: 3,111] | $ | 2,990 | [removed: |] $ | 2,563 | [removed: |] $ | 3,320 | [removed: | $ | 5,662 | |]

| Bell | | [removed: | 4,274] [added: 4,511] | | [added: 4,274] | | 3,525 | | [removed: |] 3,241 | | [removed: |] 2,842 | | [removed: | 2,827 | | |]

| Textron Systems | | [removed: | 1,737] [added: 1,665] | | [added: 1,737] | | 1,872 | | [removed: |] 1,979 | | [removed: |] 1,899 | | [removed: | 1,880 | | |]

| Industrial | | [removed: | 2,900] [added: 3,012] | | [added: 2,900] | | 2,785 | | [removed: |] 2,524 | | [removed: |] 2,078 | | [removed: | 2,918 | | |]

| Finance | | [removed: | 215] [added: 132] | | [added: 215] | | 103 | | [removed: |] 218 | | [removed: |] 361 | | [removed: | 723 | | |]

| Total revenues | | [removed: |] $ | [removed: 12,237] [added: 12,104] | [added: $] | [added: 12,237] | $ | 11,275 | [removed: |] $ | 10,525 | [removed: |] $ | 10,500 | [removed: | $ | 14,010 | |]

| Segment profit | | | | | | | | | | | | [removed: | | | | | | |]

| Cessna | | [removed: |] $ | [removed: 82] [added: (48)] | [added: $] | [added: 82] | $ | 60 | [removed: |] $ | [removed: (29 | )] [added: (29)] | $ | 198 | [removed: | $ | 905 | |]

| Bell | | [removed: | 639] [added: 573] | | [added: 639] | | 521 | | [removed: |] 427 | | [removed: |] 304 | | [removed: | 278 | | |]

| Textron Systems | | [removed: | 132] [added: 147] | | [added: 132] | | 141 | | [removed: |] 230 | | [removed: |] 240 | | [removed: | 251 | | |]

| Industrial | | [removed: | 215] [added: 242] | | [added: 215] | | 202 | | [removed: |] 162 | | [removed: |] 27 | | [removed: | 67 | | |]

| Finance (a) | | [removed: | 64 | | | | (333 | | )] [added: 49] | [removed: (237] | [added: 64] | [removed: )] | [removed: (294] [added: (333)] | | [removed: )] [added: (237)] | [removed: (50] | [added: (294)] | [removed: )] |

| Total segment profit | | [removed: | 1,132] [added: 963] | | [added: 1,132] | | 591 | | [removed: |] 553 | | [removed: |] 475 | | [removed: | 1,451 | | |]

| Special charges (b) | | [removed: |] — | | [removed: | |] — | | [removed: | (190 | | ) | (317] [added: —] | | [removed: )] [added: (190)] | [removed: (526] | [added: (317)] | [removed: )] |

| Corporate expenses and other, net | | [removed: | (148 | | ) | | (114 | | )] [added: (166)] | [removed: (137] | [added: (148)] | [removed: )] | [removed: (164] [added: (114)] | | [removed: )] [added: (137)] | [removed: (171] | [added: (164)] | [removed: )] |

| Interest expense, net for Manufacturing group | | [removed: | (143 | | ) | | (140 | | )] [added: (123)] | [removed: (140] | [added: (143)] | [removed: )] | [removed: (143] [added: (140)] | | [removed: )] [added: (140)] | [removed: (125] | [added: (143)] | [removed: )] |

| Income tax (expense) benefit | | [removed: | (260 |] [added: (176)] | [removed: )] | [added: (260)] | [removed: (95] | [added: (95)] | [removed: )] | 6 | | [removed: |] 76 | | [removed: | (305 | | ) |]

| Income (loss) from continuing operations | | [removed: |] $ | [removed: 581] [added: 498] | [added: $] | [added: 581] | $ | 242 | [removed: |] $ | 92 | [removed: |] $ | [removed: (73 | ) | $ | 324 |] [added: (73)] |

| Per share of common stock | | | | | | | | | | | | [removed: | | | | | | |]

| Income (loss) from continuing operations — basic | | [removed: |] $ | [removed: 2.07] [added: 1.78] | [added: $] | [added: 2.07] | $ | 0.87 | [removed: |] $ | 0.33 | [removed: |] $ | [removed: (0.28 | ) | $ | 1.32 |] [added: (0.28)] |

| Income (loss) from continuing operations — diluted (c) | | [removed: |] $ | [removed: 1.97] [added: 1.75] | [added: $] | [added: 1.97] | $ | 0.79 | [removed: |] $ | 0.30 | [removed: |] $ | [removed: (0.28 | ) | $ | 1.29 |] [added: (0.28)] |

| Dividends declared | | [removed: |] $ | 0.08 | [removed: | |] $ | 0.08 | [removed: |] $ | 0.08 | [removed: |] $ | 0.08 | [removed: |] $ | [removed: 0.92 |] [added: 0.08] |

| Book value at year-end | | [removed: |] $ | [removed: 11.03] [added: 15.54] | [added: $] | [added: 11.03] | $ | 9.84 | [removed: |] $ | 10.78 | [removed: |] $ | 10.38 | [removed: | $ | 9.75 | |]

| Common stock price: High | | [removed: |] $ | [removed: 29.18] [added: 37.43] | [added: $] | [added: 29.18] | $ | 28.87 | [removed: |] $ | 25.30 | [removed: |] $ | 21.00 | [removed: | $ | 71.69 | |]

| Low | | [removed: |] $ | [removed: 18.37] [added: 23.94] | [added: $] | [added: 18.37] | $ | 14.66 | [removed: |] $ | 15.88 | [removed: |] $ | 3.57 | [removed: | $ | 10.09 | |]

| Year-end | | [removed: |] $ | [removed: 24.12] [added: 36.61] | [added: $] | [added: 24.12] | $ | 18.49 | [removed: |] $ | 23.64 | [removed: |] $ | 18.81 | [removed: | $ | 15.37 | |]

| Common shares outstanding _(In thousands)_ | | | | | | | | | | | | [removed: | | | | | | |]

| Basic average | | [removed: | 280,182] [added: 279,299] | | [added: 280,182] | | 277,684 | | [removed: |] 274,452 | | [removed: |] 262,923 | | [removed: | 246,208 | | |]

| Diluted average (c) | | [removed: | 294,663] [added: 284,428] | | [added: 294,663] | | 307,255 | | [removed: |] 302,555 | | [removed: |] 262,923 | | [removed: | 250,338 | | |]

| Year-end | | [removed: | 271,263] [added: 282,059] | | [added: 271,263] | | 278,873 | | [removed: |] 275,739 | | [removed: |] 272,272 | | [removed: | 242,041 | | |]

| Financial position | | | | | | | | | | | | [removed: | | | | | | |]

| Total assets | | [removed: |] $ | [removed: 13,033] [added: 12,944] | [added: $] | [added: 13,033] | $ | 13,615 | [removed: |] $ | 15,282 | [removed: |] $ | 18,940 | [removed: | $ | 20,031 | |]

| Manufacturing group debt | | [removed: |] $ | [removed: 2,301] [added: 1,931] | [added: $] | [added: 2,301] | $ | 2,459 | [removed: |] $ | 2,302 | [removed: |] $ | 3,584 | [removed: | $ | 2,569 | |]

| Finance group debt | | [removed: |] $ | [removed: 1,686] [added: 1,256] | [added: $] | [added: 1,686] | $ | 1,974 | [removed: |] $ | 3,660 | [removed: |] $ | 5,667 | [removed: | $ | 7,388 | |]

| Shareholders’ equity | | [removed: |] $ | [removed: 2,991] [added: 4,384] | [added: $] | [added: 2,991] | $ | 2,745 | [removed: |] $ | 2,972 | [removed: |] $ | 2,826 | [removed: | $ | 2,366 | |]

| Manufacturing group debt-to-capital (net of cash) | | [removed: | 24 | | % | | 37 | | %] [added: 15%] | [removed: 32] | [added: 24%] | [removed: %] | [removed: 39] [added: 37%] | | [removed: %] [added: 32%] | [removed: 46] | [added: 39%] | [removed: %] |

| Manufacturing group debt-to-capital | | [removed: | 44 | | % | | 47 | | %] [added: 31%] | [removed: 44] | [added: 44%] | [removed: %] | [removed: 56] [added: 47%] | | [removed: %] [added: 44%] | [removed: 52] | [added: 56%] | [removed: %] |

| Investment data | | | | | | | | | | | | [removed: | | | | | | |]

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

_(b)_ _Special charges include restructuring charges of $99 million and $237 million in 2010 and 2009, respectively, primarily related to severance and asset impairment charges.

In 2009, special charges include a goodwill impairment charge of $80 million in the Industrial segment._

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| --- | --- |

| | |

| [Report of [removed: Management](#ReportOfManagement_113224] [added: Management](#ReportOfManagement_005328] "Click to goto ") | | [removed: 41] [added: 40] |

| [Reports of Independent Registered Public Accounting [removed: Firm](#ReportOfIndependentRegisteredPubl_113227] [added: Firm](#ReportOfIndependentRegisteredPubl_005734] "Click to goto ") | | [removed: 42] [added: 41] |

| [Consolidated Statements of Operations for each of the years in the three-year period ended December [removed: 29, 2012](#ConsolidatedStatementsOfOperation_113246] [added: 28, 2013](#ConsolidatedStatementsOfOperation_012031] "Click to goto ") | | [removed: 44] [added: 43] |

| [Consolidated Statements of Comprehensive Income (Loss) for each of the years in the three-year period ended December [removed: 29, 2012](#ConsolidatedStatementsOfComprehen_113248] [added: 28, 2013](#ConsolidatedStatementsOfComprehen_012036] "Click to goto ") | | [removed: 45] [added: 44] |

| [Consolidated Balance Sheets as of December [removed: 29, 2012] [added: 28, 2013] and December [removed: 31, 2011](#ConsolidatedBalanceSheets_153804] [added: 29, 2012](#ConsolidatedBalanceSheets_012050] "Click to goto ") | | [removed: 46] [added: 45] |

| [Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended December [removed: 29, 2012](#ConsolidatedStatementsOfSharehold_153807] [added: 28, 2013](#ConsolidatedStatementsOfSharehold_012059] "Click to goto ") | | [removed: 47] [added: 46] |

| [Consolidated Statements of Cash Flows for each of the years in the three-year period ended December [removed: 29, 2012](#ConsolidatedStatementsOfCashFlows_153811] [added: 28, 2013](#ConsolidatedStatementsOfCashFlows_012101] "Click to goto ") | | [removed: 48] [added: 47] |

| [Notes to the Consolidated Financial [removed: Statements](#NotesToTheConsolidatedFinancialSt_154400] [added: Statements](#NotesToTheConsolidatedFinancialSt_012127] "Click to goto ") | | |

| [Note 1. Summary of Significant Accounting [removed: Policies](#Note1_SummaryOfSignificantAccount_154416] [added: Policies](#Note1_SummaryOfSignificantAccount_012136] "Click to goto ") | | [removed: 50] [added: 49] |

| [Note [removed: 3.] [added: 2. Business Acquisitions,] Goodwill and Intangible [removed: Assets](#Note3_GoodwillAndIntangibleAssets_154432] [added: Assets](#Note2_BusinessAcquisitionsGoodwil_012649] "Click to goto ") | | [removed: 55] [added: 53] |

| [Note [removed: 4.] [added: 3.] Accounts Receivable and Finance [removed: Receivables](#Note4_AccountsReceivableAndFinanc_154435] [added: Receivables](#Note3_AccountsReceivableAndFinanc_012652] "Click to goto ") | | 55 |

| [Note [removed: 5. Inventories](#Note5_Inventories_154520] [added: 4. Inventories](#Note4_Inventories_012653] "Click to goto ") | | [removed: 59] [added: 58] |

| [Note [removed: 6.] [added: 5.] Property, Plant and Equipment, [removed: Net](#Note6_PropertyPlantAndEquipmentNe_154523] [added: Net](#Note5_PropertyPlantAndEquipmentNe_012655] "Click to goto ") | | [removed: 60] [added: 58] |

| [Note [removed: 7.] [added: 6.] Accrued [removed: Liabilities](#Note7_AccruedLiabilities_154524] [added: Liabilities](#Note6_AccruedLiabilities_012657] "Click to goto ") | | [removed: 60] [added: 58] |

| [Note [removed: 8.] [added: 7.] Debt and Credit [removed: Facilities](#Note8_DebtAndCreditFacilities_111718] [added: Facilities](#Note7_DebtAndCreditFacilities_012658] "Click to goto ") | | [removed: 61] [added: 59] |

| [Note [removed: 9.] [added: 8.] Derivative Instruments and Fair Value [removed: Measurements](#Note9_DerivativeInstrumentsAndFai_111722] [added: Measurements](#Note8_DerivativeInstrumentsAndFai_041119] "Click to goto ") | | [removed: 63] [added: 60] |

| [Note [removed: 10.] [added: 9.] Shareholders’ [removed: Equity](#Note10_ShareholdersEquity_114405] [added: Equity](#Note9_ShareholdersEquity_041122] "Click to goto ") | | [removed: 67] [added: 62] |

| [Note [removed: 12.] [added: 10.] Share-Based [removed: Compensation](#Note12_SharebasedCompensation_154954] [added: Compensation](#Note10_SharebasedCompensation_041125] "Click to goto ") | | [removed: 69] [added: 65] |

| [Note [removed: 13.] [added: 11.] Retirement [removed: Plans](#Note13_RetirementPlans_155519] [added: Plans](#Note11_RetirementPlans_023300] "Click to goto ") | | [removed: 71] [added: 67] |

| [Note [removed: 14.] [added: 12.] Income [removed: Taxes](#Note14_IncomeTaxes_123106] [added: Taxes](#Note12_IncomeTaxes_022111] "Click to goto ") | | [removed: 76] [added: 71] |

| [Note [removed: 15.] [added: 13.] Contingencies and [removed: Commitments](#Note15_ContingenciesAndCommitment_123927] [added: Commitments](#Note13_ContingenciesAndCommitment_111702] "Click to goto ") | | [removed: 79] [added: 74] |

| [Note [removed: 16.] [added: 14.] Supplemental Cash Flow [removed: Information](#Note16_SupplementalCashFlowInform_123928] [added: Information](#Note14_SupplementalCashFlowInform_111705] "Click to goto ") | | [removed: 79] [added: 74] |

| [Note [removed: 17.] [added: 15.] Segment and Geographic [removed: Data](#Note17_SegmentAndGeographicData_123923] [added: Data](#Note15_SegmentAndGeographicData_111708] "Click to goto ") | | [removed: 80] [added: 75] |

| [Quarterly Data for [removed: 2012] [added: 2013] and [removed: 2011 (Unaudited)](#QuarterlyData_121633] [added: 2012 (Unaudited)](#QuarterlyData_133134] "Click to goto ") | | [removed: 82] [added: 77] |

| [Schedule II – Valuation and Qualifying [removed: Accounts](#ScheduleIiValuationAndQualifyingA_121638] [added: Accounts](#ScheduleIiValuationAndQualifyingA_133140] "Click to goto ") | | [removed: 83] [added: 78] |

With the participation of our management, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway [removed: Commission.][added: Commission (1992 Framework).]

Based on our evaluation under the framework in Internal Control – Integrated Framework, we have concluded that Textron Inc. maintained, in all material respects, effective internal control over financial reporting as of December [removed: 29, 2012.][added: 28, 2013.]

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 December [removed: 29, 2012,] [added: 28, 2013,] as stated in its reports, which are included herein.

We have audited Textron Inc.’s internal control over financial reporting as of December [removed: 29, 2012,] [added: 28, 2013,] based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission [added: (1992 Framework)] (the COSO criteria).

In our opinion, Textron Inc. maintained, in all material respects, effective internal control over financial reporting as of December [removed: 29, 2012,] [added: 28, 2013,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheets of Textron Inc. as of December [removed: 29, 2012] [added: 28, 2013] and December [removed: 31, 2011,] [added: 29, 2012,] and the related Consolidated Statements of Operations, Comprehensive Income (Loss), Shareholders’ Equity and Cash Flows for each of the three years in the period ended December [removed: 29, 2012] [added: 28, 2013] of Textron Inc. and our report dated February [removed: 15, 2013] [added: 14, 2014] expressed an unqualified opinion thereon.

We have audited the accompanying Consolidated Balance Sheets of Textron Inc. as of December [removed: 29, 2012] [added: 28, 2013] and December [removed: 31, 2011,] [added: 29, 2012,] and the related Consolidated Statements of Operations, Comprehensive Income (Loss), Shareholders’ Equity and Cash Flows for each of the three years in the period ended December [removed: 29, 2012.][added: 28, 2013.]

Our audits also included the financial statement schedule contained on page [removed: 83.][added: 78.]

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Textron Inc. at December [removed: 29, 2012] [added: 28, 2013] and December [removed: 31, 2011] [added: 29, 2012] and the consolidated results of its operations and its cash flows for each of the three years in the period ended December [removed: 29, 2012,] [added: 28, 2013,] 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), Textron Inc.’s internal control over financial reporting as of December [removed: 29, 2012,] [added: 28, 2013,] based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission [added: (1992 Framework)] and our report dated February [removed: 15, 2013] [added: 14, 2014] expressed an unqualified opinion thereon.

For each of the years in the three-year period ended December [removed: 29, 2012][added: 28, 2013]

| _(In millions, except per share data)_ | | [removed: 2012] | [added: 2013] | | | [removed: 2011] | [added: 2012] | | [removed: 2010] | [added: 2011] | | [added: |]

| Revenues | | | | | | | | | | | | [added: |]

| Manufacturing revenues | | [added: |] $ | [removed: 12,022] [added: 11,972] | | | $ | [removed: 11,172] [added: 12,022] | | $ | [removed: 10,307] [added: 11,172] | |

| Finance revenues | | [removed: 215] | [added: 132] | | | [removed: 103] | [added: 215] | | [removed: 218] | [added: 103] | | [added: |]

| | | |

| February 14, 2014 | | |

February 14, 2014

February 14, 2014

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | |

For each of the years in the three-year period ended December 28, 2013

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Finance receivables, net | | | 1,493 | | | | 1,990 | | |

| Other liabilities | | | 260 | | | | 280 | | |

| | | | 4,384 | | | | 3,266 | | |

| Purchases/conversions of convertible notes | | 2 | | | 39 | | | | | | (41 | | ) | | | | — | | |

| Retirement of treasury stock | | (2 | | ) | (59 | | ) | (255 | | ) | 316 | | | | | | — | | |

| Balance at December 28, 2013 | | $ | 35 | | $ | 1,331 | | $ | 4,045 | | $ | — | | $ | (1,027 | ) | $ | 4,384 | |

For each of the years in the three-year period ended December 28, 2013

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Net income | | | $ | 498 | | | $ | 589 | | $ | 242 | |

| Income taxes, net | | | (84 | | ) | | 52 | | | 48 | | |

| Proceeds from sales of receivables and other finance assets | | | 178 | | | | 249 | | | 530 | | |

| Proceeds from settlement of capped call | | | 75 | | | | — | | | — | | |

| Proceeds from exercise of stock options | | | 31 | | | | 19 | | | 3 | | |

For each of the years in the three-year period ended December 28, 2013

| Income taxes, net | | | (119 | | ) | | 148 | | | (22 | | ) | | 35 | | | | (96 | | ) | 70 | | |

| Proceeds from sales of receivables and other finance assets | | | — | | | | — | | | — | | | | 178 | | | | 249 | | | 585 | | |

| Proceeds from settlement of capped call | | | 75 | | | | — | | | — | | | | — | | | | — | | | — | | |

| Proceeds from exercise of stock options | | | 31 | | | | 19 | | | 3 | | | | — | | | | — | | | — | | |

We designed this framework to enhance our borrowing power by separating the Finance group.

Pending Business Acquisition

On December 26, 2013, we entered into an agreement and plan of merger pursuant to which we will acquire all outstanding equity interests in Beech Holdings, LLC (“Beech”), the parent of Beechcraft Corporation, for approximately $1.4 billion in cash.

Beech designs, builds and supports aircraft, including the King Air turboprops, piston-engine Baron and Bonanza, and the T-6 trainer and AT-6 light attack military aircraft.

Beech also has a global network of both factory-owned and authorized service centers.

We plan to finance the purchase of the equity in Beech and the repayment of Beech’s outstanding debt, which is required at closing, through a combination of available cash at Beech and Textron and up to $1.1 billion in new debt.

The transaction is expected to close during the first half of 2014, subject to customary closing conditions, including regulatory approvals.

2013 Business Acquisitions

In 2013, we acquired the following businesses for an aggregate cash payment of $196 million:

· Mechtronix, Inc. and OPINICUS Corporation, both acquired on December 6, 2013, design, develop, install and provide maintenance of advanced full flight simulators for both rotary- and fixed-wing aircraft.

· Sherman & Reilly, Inc., a manufacturer of underground and aerial transmission and distribution products was acquired by our Greenlee business on May 1, 2013.

· HD Electric Company, a designer and manufacturer of power utility products that test, measure and control electric power was also acquired by our Greenlee business on December 18, 2013.

· Two service centers located in Zurich, Switzerland and Düsseldorf, Germany were acquired on December 31, 2012.

The consideration paid for each of these businesses was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.

| [Note 2. Discontinued Operations](#Note2_DiscontinuedOperations_154413 "Click to goto ") | | 54 |

| [Note 11. Special Charges](#Note11_SpecialCharges_154959 "Click to goto ") | | 69 |

Both the independent auditors and the internal auditors have free and full access to senior management and the Audit Committee.

| February 15, 2013 | | |

February 15, 2013

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Special charges | | — | | | | — | | | 190 | | |

| | | | | | | | | | | | |

| Recognition of currency translation loss (see Note 11) | | — | | | | — | | | 74 | | |

| | | | 3,266 | | | | 2,748 | | |

| Balance at January 2, 2010 | | $ | 35 | | $ | 1,369 | | $ | 2,973 | | $ | (230 | ) | $ | (1,321 | ) | $ | 2,826 | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Proceeds on receivables sales | | | 116 | | | | 421 | | | | 528 | | |

| Proceeds from sale of repossessed assets and properties | | | 133 | | | | 109 | | | | 129 | | |

| Intergroup financing | | | — | | | | — | | | | — | | |

| | | | | | | | | | | | | | |

| Dividends received from Finance group | | | 345 | | | | 179 | | | 505 | | | | — | | | | — | | | — | | |

| Capital contributions paid to Finance group | | | (240 | | ) | | (182 | | ) | (383 | | ) | | — | | | | — | | | — | | |

| Proceeds on receivables sales | | | — | | | | — | | | — | | | | 116 | | | | 476 | | | 655 | | |

| Proceeds from sale of repossessed assets and properties | | | — | | | | — | | | — | | | | 133 | | | | 109 | | | 129 | | |

| Capital contributions paid to Finance group under Support Agreement | | | — | | | | — | | | — | | | | 240 | | | | 182 | | | 383 | | |

| Capital contributions paid to Cessna Export Finance Corp. | | | — | | | | — | | | — | | | | — | | | | 60 | | | 30 | | |

Cash payments on nonaccrual accounts, including finance charges, generally are applied to reduce the net investment balance.

This valuation allowance is adjusted quarterly.

We may perform a qualitative assessment based on economic, industry and company-specific factors as the initial step in our annual goodwill impairment test for selected reporting units.

If we determine that it is more likely than not that a reporting unit’s fair value exceeds its carrying value, we do not perform a quantitative assessment.

In pursuing our business strategies, we have periodically divested certain non-core businesses.

For several previously-disposed businesses, we have retained certain assets and liabilities.

All residual activity relating to our previously-disposed businesses that meet the appropriate criteria is included in discontinued operations.

In connection with the 2008 sale of the Fluid & Power business unit, we received a six-year note with a face value of $28 million and a five-year note with a face value of $30 million, which were both recorded in the Consolidated Balance Sheet net of a valuation allowance.

In the fourth quarter of 2011, we received full payment of both of these notes plus interest, resulting in a gain of $52 million that was recorded in Other losses, net.

| Balance at January 2, 2010 | | $ | 322 | | $ | 30 | | $ | 958 | | $ | 312 | | $ | 1,622 | |

In the fourth quarter of 2011, we recorded a $41 million impairment charge to write down $37 million in customer agreements and contractual relationships and $4 million in patents and technology.

See Note 9 for more information on this charge.

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | 848 | | | | 874 | | |

Finance receivables by product line, which includes both finance receivables held for investment and finance receivables held for sale, are presented in the following table.

| Captive | | $ | 1,704 | | | $ | 1,945 | |

| Non-captive: | | | | | | | | |

| Golf Mortgage | | 140 | | | | 381 | | |

_Report of Management_ — See page [removed: 41.][added: 40.]

_Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting_ — See page [removed: 42.][added: 41.]

The information appearing under “ELECTION OF DIRECTORS— Nominees for Director,” “—The Board of Directors— _Corporate Governance_,” “—The Board of Directors— _Code of Ethics_,” “–Board Committees— _Audit Committee_,” and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April [removed: 24, 2013] [added: 23, 2014] is incorporated by reference into this Annual Report on Form 10-K.

The information appearing under “ELECTION OF DIRECTORS — The Board of Directors-- _Compensation of Directors_,” “ELECTION OF DIRECTORS — Board Committees-- _Compensation Committee Interlocks and Insider Participation_,” “COMPENSATION COMMITTEE REPORT,” “COMPENSATION DISCUSSION AND ANALYSIS” and “EXECUTIVE COMPENSATION” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April [removed: 24, 2013] [added: 23, 2014] is incorporated by reference into this Annual Report on Form 10-K.

The information appearing under “SECURITY OWNERSHIP” and “EXECUTIVE COMPENSATION – Equity Compensation Plan Information” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April [removed: 24, 2013] [added: 23, 2014] is incorporated by reference into this Annual Report on Form 10-K.

The information appearing under “ELECTION OF DIRECTORS — The Board of Directors--_Director Independence_” and “EXECUTIVE COMPENSATION — Transactions with Related Persons” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April [removed: 24, 2013] [added: 23, 2014] is incorporated by reference into this Annual Report on Form 10-K.

The information appearing under “RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM — Fees to Independent Auditors” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April [removed: 24, 2013] [added: 23, 2014] is incorporated by reference into this Annual Report on Form 10-K.

Financial Statements and Schedules — See Index on Page [removed: 40.][added: 39.]

| Exhibits | | | [added: |]

| 3.1A | | [added: |] 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. |

| 3.1B | | [added: |] 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. |

| 3.2 | | [added: |] Amended and Restated By-Laws of Textron Inc., effective April 28, 2010 and [removed: as] further amended April 27, [removed: 2011.] [added: 2011 and July 23, 2013.] Incorporated by reference to Exhibit 3.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended [removed: April 2, 2011.] [added: June 29, 2013.] |