Item 8. Financial Statements and Supplementary Data

Our Consolidated Financial Statements and the related reports of our independent registered public accounting firm thereon are included in this Annual Report on Form 10-K on the pages indicated below:

			Page
Report of Management			38
Reports of Independent Registered Public Accounting Firm			39
Consolidated Statements of Operations for each of the years in the three-year period ended January 3, 2015			41
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended January 3, 2015			42
Consolidated Balance Sheets as of January 3, 2015 and December 28, 2013			43
Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended January 3, 2015			44
Consolidated Statements of Cash Flows for each of the years in the three-year period ended January 3, 2015			45
Notes to the Consolidated Financial Statements
Note 1.	Summary of Significant Accounting Policies		47
Note 2.	Business Acquisitions, Goodwill and Intangible Assets		52
Note 3.	Accounts Receivable and Finance Receivables		54
Note 4.	Inventories		56
Note 5.	Property, Plant and Equipment, Net		56
Note 6.	Accrued Liabilities		57
Note 7.	Debt and Credit Facilities		57
Note 8.	Derivative Instruments and Fair Value Measurements		58
Note 9.	Shareholders’ Equity		59
Note 10.	Share-Based Compensation		62
Note 11.	Retirement Plans		64
Note 12.	Income Taxes		68
Note 13.	Contingencies and Commitments		71
Note 14.	Supplemental Cash Flow Information		71
Note 15.	Segment and Geographic Data		72
Supplementary Information:
Quarterly Data for 2014 and 2013 (Unaudited)			74
Schedule II – Valuation and Qualifying Accounts			75

All other schedules are omitted either because they are not applicable or not required or because the required information is included in the financial statements or notes thereto.

Report of Management

Management is responsible for the integrity and objectivity of the financial data presented in this Annual Report on Form 10-K. The Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles and include amounts based on management’s best estimates and judgments. Management also is responsible for establishing and maintaining adequate internal control over financial reporting for Textron Inc. as such term is defined in Exchange Act Rules 13a-15(f). With the participation of our management, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation under the 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 January 3, 2015.

The independent registered public accounting firm, Ernst & Young LLP, has audited the Consolidated Financial Statements of Textron Inc. and has issued an attestation report on Textron’s internal controls over financial reporting as of January 3, 2015, as stated in its reports, which are included herein.

We conduct our business in accordance with the standards outlined in the Textron Business Conduct Guidelines, which are communicated to all employees. Honesty, integrity and high ethical standards are the core values of how we conduct business. Every Textron business prepares and carries out an annual Compliance Plan to ensure these values and standards are maintained. Our internal control structure is designed to provide reasonable assurance, at appropriate cost, that assets are safeguarded and that transactions are properly executed and recorded. The internal control structure includes, among other things, established policies and procedures, an internal audit function, and the selection and training of qualified personnel. Textron’s management is responsible for implementing effective internal control systems and monitoring their effectiveness, as well as developing and executing an annual internal control plan.

The Audit Committee of our Board of Directors, on behalf of the shareholders, oversees management’s financial reporting responsibilities. The Audit Committee consists of six directors who are not officers or employees of Textron and meets regularly with the independent auditors, management and our internal auditors to review matters relating to financial reporting, internal accounting controls and auditing.

/s/ Scott C. Donnelly		/s/ Frank T. Connor
Scott C. Donnelly		Frank T. Connor
Chairman, President and Chief Executive Officer		Executive Vice President and Chief Financial Officer
February 25, 2015

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Textron Inc.

We have audited Textron Inc.’s internal control over financial reporting as of January 3, 2015, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). Textron Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Textron Inc. maintained, in all material respects, effective internal control over financial reporting as of January 3, 2015, 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 January 3, 2015 and December 28, 2013, and the related Consolidated Statements of Operations, Comprehensive Income, Shareholders’ Equity and Cash Flows for each of the three years in the period ended January 3, 2015 of Textron Inc. and our report dated February 25, 2015 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Boston, Massachusetts
February 25, 2015

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Textron Inc.

We have audited the accompanying Consolidated Balance Sheets of Textron Inc. as of January 3, 2015 and December 28, 2013, and the related Consolidated Statements of Operations, Comprehensive Income, Shareholders’ Equity and Cash Flows for each of the three years in the period ended January 3, 2015. Our audits also included the financial statement schedule contained on page 75. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Textron Inc. at January 3, 2015 and December 28, 2013 and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 3, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

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 January 3, 2015, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 25, 2015 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Boston, Massachusetts
February 25, 2015

Consolidated Statements of Operations

For each of the years in the three-year period ended January 3, 2015

(In millions, except per share data)			2014				2013			2012
Revenues
Manufacturing revenues			$	13,775			$	11,972		$	12,022
Finance revenues			103				132			215
Total revenues			13,878				12,104			12,237
Costs and expenses
Cost of sales			11,421				10,131			10,019
Selling and administrative expense			1,361				1,126			1,165
Interest expense			191				173			212
Acquisition and restructuring costs			52				—			—
Total costs and expenses			13,025				11,430			11,396
Income from continuing operations before income taxes			853				674			841
Income tax expense			248				176			260
Income from continuing operations			605				498			581
Income (loss) from discontinued operations, net of income taxes			(5		)		—			8
Net income			$	600			$	498		$	589
Basic earnings per share
Continuing operations			$	2.17			$	1.78		$	2.07
Discontinued operations			(0.02		)		—			0.03
Basic earnings per share			$	2.15			$	1.78		$	2.10
Diluted earnings per share
Continuing operations			$	2.15			$	1.75		$	1.97
Discontinued operations			(0.02		)		—			0.03
Diluted earnings per share			$	2.13			$	1.75		$	2.00

See Notes to the Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

For each of the years in the three-year period ended January 3, 2015

(In millions)			2014				2013			2012
Net income			$	600			$	498		$	589
Other comprehensive income (loss), net of tax:
Pension and postretirement benefits adjustments, net of reclassifications			(401		)		747			(146		)
Foreign currency translation adjustments			(75		)		12			2
Deferred gains/losses on hedge contracts, net of reclassifications			(3		)		(16		)	(1		)
Other comprehensive income (loss)			(479		)		743			(145		)
Comprehensive income			$	121			$	1,241		$	444

See Notes to the Consolidated Financial Statements.

Consolidated Balance Sheets

(In millions, except share data)			January 3, 2015				December 28, 2013
Assets
Manufacturing group
Cash and equivalents			$	731			$	1,163
Accounts receivable, net			1,035				979
Inventories			3,928				2,963
Other current assets			579				467
Total current assets			6,273				5,572
Property, plant and equipment, net			2,497				2,215
Goodwill			2,027				1,735
Other assets			2,279				1,697
Total Manufacturing group assets			13,076				11,219
Finance group
Cash and equivalents			91				48
Finance receivables, net			1,238				1,493
Other assets			200				184
Total Finance group assets			1,529				1,725
Total assets			$	14,605			$	12,944
Liabilities and shareholders’ equity
Liabilities
Manufacturing group
Current portion of long-term debt			$	8			$	8
Accounts payable			1,014				1,107
Accrued liabilities			2,616				1,888
Total current liabilities			3,638				3,003
Other liabilities			2,587				2,118
Long-term debt			2,803				1,923
Total Manufacturing group liabilities			9,028				7,044
Finance group
Other liabilities			242				260
Debt			1,063				1,256
Total Finance group liabilities			1,305				1,516
Total liabilities			10,333				8,560
Shareholders’ equity
Common stock (285.5 million and 282.1 million shares issued, respectively, and 276.6 million and 282.1 million shares outstanding, respectively)			36				35
Capital surplus			1,459				1,331
Treasury stock			(340		)		—
Retained earnings			4,623				4,045
Accumulated other comprehensive loss			(1,506		)		(1,027		)
Total shareholders’ equity			4,272				4,384
Total liabilities and shareholders’ equity			$	14,605			$	12,944

See Notes to the Consolidated Financial Statements.

Consolidated Statements of Shareholders’ Equity

(In millions, except per share data)		Common Stock			Capital Surplus			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
Balance at December 31, 2011		$	35		$	1,081		$	(3	)	$	3,257		$	(1,625	)	$	2,745
Net income											589						589
Other comprehensive loss														(145		)	(145		)
Dividends declared ($0.08 per share)											(22		)				(22		)
Share-based compensation activity					96												96
Purchases of common stock								(272		)							(272		)
Balance at December 29, 2012		35			1,177			(275		)	3,824			(1,770		)	2,991
Net income											498						498
Other comprehensive income														743			743
Dividends declared ($0.08 per share)											(22		)				(22		)
Share-based compensation activity					99												99
Purchases/conversions of convertible notes		2			39			(41		)							—
Settlement of capped call					75												75
Retirement of treasury stock		(2		)	(59		)	316			(255		)				—
Balance at December 28, 2013		35			1,331			—			4,045			(1,027		)	4,384
Net income											600						600
Other comprehensive loss														(479		)	(479		)
Dividends declared ($0.08 per share)											(22		)				(22		)
Share-based compensation activity		1			134												135
Purchases of common stock								(340		)							(340		)
Other					(6		)										(6		)
Balance at January 3, 2015		$	36		$	1,459		$	(340	)	$	4,623		$	(1,506	)	$	4,272

See Notes to the Consolidated Financial Statements.

Consolidated Statements of Cash Flows

For each of the years in the three-year period ended January 3, 2015

		Consolidated
(In millions)			2014				2013			2012
Cash flows from operating activities
Net income			$	600			$	498		$	589
Less: Income (loss) from discontinued operations			(5		)		—			8
Income from continuing operations			605				498			581
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Non-cash items:
Depreciation and amortization			459				389			383
Deferred income taxes			(19		)		86			171
Other, net			100				61			86
Changes in assets and liabilities:
Accounts receivable, net			56				(118		)	32
Inventories			(209		)		(118		)	(316		)
Other assets			(33		)		(42		)	7
Accounts payable			(228		)		65			179
Accrued and other liabilities			311				(182		)	(96		)
Income taxes, net			(22		)		(84		)	52
Pension, net			46				17			(240		)
Captive finance receivables, net			150				237			96
Other operating activities, net			(5		)		4			—
Net cash provided by operating activities of continuing operations			1,211				813			935
Net cash used in operating activities of discontinued operations			(3		)		(3		)	(8		)
Net cash provided by operating activities			1,208				810			927
Cash flows from investing activities
Net cash used in acquisitions			(1,628		)		(196		)	(11		)
Capital expenditures			(429		)		(444		)	(480		)
Finance receivables repaid			91				190			599
Proceeds from sales of receivables and other finance assets			43				178			249
Other investing activities, net			4				8			21
Net cash provided by (used in) investing activities			(1,919		)		(264		)	378
Cash flows from financing activities
Proceeds from long-term debt			1,567				448			106
Principal payments on long-term debt and nonrecourse debt			(904		)		(1,056		)	(615		)
Settlement of convertible notes			—				(215		)	(2		)
Proceeds from settlement of capped call			—				75			—
Purchases of Textron common stock			(340		)		—			(272		)
Proceeds from exercise of stock options			50				31			19
Dividends paid			(28		)		(22		)	(17		)
Other financing activities, net			(10		)		(3		)	—
Net cash provided by (used in) financing activities			335				(742		)	(781		)
Effect of exchange rate changes on cash and equivalents			(13		)		(6		)	4
Net increase (decrease) in cash and equivalents			(389		)		(202		)	528
Cash and equivalents at beginning of year			1,211				1,413			885
Cash and equivalents at end of year			$	822			$	1,211		$	1,413

See Notes to the Consolidated Financial Statements.

Consolidated Statements of Cash Flows continued

For each of the years in the three-year period ended January 3, 2015

		Manufacturing Group											Finance Group
(In millions)			2014				2013			2012				2014				2013			2012
Cash flows from operating activities
Net income			$	585			$	470		$	542			$	15			$	28		$	47
Less: Income (loss) from discontinued operations			(5		)		—			8				—				—			—
Income from continuing operations			590				470			534				15				28			47
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Non-cash items:
Depreciation and amortization			446				371			358				13				18			25
Deferred income taxes			(7		)		51			102				(12		)		35			69
Other, net			86				86			97				14				(25		)	(11		)
Changes in assets and liabilities:
Accounts receivable, net			56				(118		)	32				—				—			—
Inventories			(168		)		(135		)	(300		)		—				—			—
Other assets			(18		)		(41		)	21				(15		)		—			(11		)
Accounts payable			(228		)		65			179				—				—			—
Accrued and other liabilities			316				(171		)	(77		)		(5		)		(21		)	(19		)
Income taxes, net			(17		)		(119		)	148				(5		)		35			(96		)
Pension, net			46				21			(241		)		—				(4		)	1
Dividends received from Finance group			—				175			345				—				—			—
Capital contributions paid to Finance group			—				(1		)	(240		)		—				—			—
Other operating activities, net			(5		)		4			—				—				—			—
Net cash provided by operating activities of continuing operations			1,097				658			958				5				66			5
Net cash used in operating activities of discontinued operations			(3		)		(3		)	(8		)		—				—			—
Net cash provided by operating activities			1,094				655			950				5				66			5
Cash flows from investing activities
Net cash used in acquisitions			(1,628		)		(196		)	(11		)		—				—			—
Capital expenditures			(429		)		(444		)	(480		)		—				—			—
Finance receivables repaid			—				—			—				456				675			1,004
Finance receivables originated			—				—			—				(215		)		(271		)	(331		)
Proceeds from sales of receivables and other finance assets			—				—			—				43				178			249
Other investing activities, net			(8		)		16			15				(29		)		42			12
Net cash provided by (used in) investing activities			(2,065		)		(624		)	(476		)		255				624			934
Cash flows from financing activities
Proceeds from long-term debt			1,439				150			—				128				298			106
Principal payments on long-term and nonrecourse debt			(559		)		(313		)	(189		)		(345		)		(743		)	(426		)
Settlement of convertible notes			—				(215		)	(2		)		—				—			—
Proceeds from settlement of capped call			—				75			—				—				—			—
Purchases of Textron common stock			(340		)		—			(272		)		—				—			—
Proceeds from exercise of stock options			50				31			19				—				—			—
Dividends paid			(28		)		(22		)	(17		)		—				(175		)	(345		)
Intergroup financing			—				57			490				—				(57		)	(493		)
Capital contributions paid to Finance group			—				—			—				—				1			240
Other financing activities, net			(10		)		(3		)	—				—				(1		)	—
Net cash provided by (used in) financing activities			552				(240		)	29				(217		)		(677		)	(918		)
Effect of exchange rate changes on cash and equivalents			(13		)		(6		)	4				—				—			—
Net increase (decrease) in cash and equivalents			(432		)		(215		)	507				43				13			21
Cash and equivalents at beginning of year			1,163				1,378			871				48				35			14
Cash and equivalents at end of year			$	731			$	1,163		$	1,378			$	91			$	48		$	35

See Notes to the Consolidated Financial Statements.

Notes to the Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Financial Statement Presentation

Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. On March 14, 2014, we completed the acquisition of all of the outstanding equity interests in Beech Holdings, LLC, which included Beechcraft Corporation and other subsidiaries, (collectively “Beechcraft”). The results of Beechcraft have been included in our consolidated financial statements only for the period subsequent to the completion of the acquisition. As a result, the consolidated financial results for the year ended January 3, 2015 do not reflect a full year of Beechcraft operations.

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

Our Finance group provides captive financing for retail purchases and leases for new and pre-owned aircraft manufactured by our Manufacturing group. In the Consolidated Statements of Cash Flows, cash received from customers or from the sale of receivables is reflected as operating activities when received from third parties. However, in the cash flow information provided for the separate borrowing groups, cash flows related to captive financing activities are reflected based on the operations of each group. For example, when product is sold by our Manufacturing group to a customer and is financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. Although cash is transferred between the two borrowing groups, there is no cash transaction reported in the consolidated cash flows at the time of the original financing. These captive financing activities, along with all significant intercompany transactions, are reclassified or eliminated in consolidation.

Collaborative Arrangements

Our Bell segment has a strategic alliance agreement with The Boeing Company (Boeing) to provide engineering, development and test services related to the V-22 aircraft, as well as to produce the V-22 aircraft, under a number of separate contracts with the U.S. Government (V-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity interest. We account for this alliance as a collaborative arrangement with Bell and Boeing reporting costs incurred and revenues generated from transactions with the U.S. Government in each company’s respective income statement. Neither Bell nor Boeing is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are allocated between Bell and Boeing on a 50%-50% basis. Negotiated profits on fixed-price contracts are also allocated 50%-50%; however, Bell and Boeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. Based on the contractual arrangement established under the alliance, Bell accounts for its rights and obligations under the specific requirements of the V-22 Contracts allocated to Bell under the work breakdown structure. We account for all of our rights and obligations, including warranty, product and any contingent liabilities, under the specific requirements of the V-22 Contracts allocated to us under the agreement. Revenues and cost of sales reflect our performance under the V-22 Contracts with revenues recognized using the units-of-delivery method. We include all assets used in performance of the V-22 Contracts that we own, including inventory and unpaid receivables and all liabilities arising from our obligations under the V-22 Contracts in our Consolidated Balance Sheets.

Use of Estimates

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

During 2014, 2013 and 2012, we changed our estimates of revenues and costs on certain long-term contracts that are accounted for under the percentage-of-completion method of accounting. These changes in estimates increased income from continuing operations before income taxes in 2014, 2013 and 2012 by $95 million, $29 million and $15 million, respectively, ($60 million,

$18 million and $9 million after tax, or $0.21, $0.06 and $0.03 per diluted share, respectively). For 2014, 2013 and 2012, the gross favorable program profit adjustments totaled $132 million, $51 million and $88 million, respectively. For 2014, 2013 and 2012, the gross unfavorable program profit adjustments totaled $37 million, $22 million and $73 million, respectively. The increase in net program profit adjustments in 2014, compared with 2013, is largely driven by the Bell segment related to the impact of cost reduction activities in 2014 as well as unfavorable performance in 2013 related to manufacturing inefficiencies. In addition, gross favorable program profit adjustments in 2014 included $16 million related to the settlement of the System Development and Demonstration phase of the Armed Reconnaissance Helicopter (ARH) program which was terminated in October 2008.

Revenue Recognition

We generally recognize revenue for the sale of products, which are not under long-term contracts, upon delivery. For commercial aircraft, delivery is upon completion of manufacturing, customer acceptance, and the transfer of the risk and rewards of ownership. Taxes collected from customers and remitted to government authorities are recorded on a net basis.

When a sale arrangement involves multiple deliverables, such as sales of products that include customization and other services, we evaluate the arrangement to determine whether there are separate items that are required to be delivered under the arrangement that qualify as separate units of accounting. These arrangements typically involve the customization services we offer to customers who purchase Bell helicopters, and the services generally are provided within the first six months after the customer accepts the aircraft and assumes risk of loss. We consider the aircraft and the customization services to be separate units of accounting and allocate contract price between the two on a relative selling price basis using the best evidence of selling price for each of the arrangement deliverables, typically by reference to the price charged when the same or similar items are sold separately by us, taking into consideration any performance, cancellation, termination or refund-type provisions. We recognize revenue when the recognition criteria for each unit of accounting are met.

Long-Term Contracts — Revenues under long-term contracts are accounted for under the percentage-of-completion method of accounting. Under this method, we estimate profit as the difference between the total estimated revenues and cost of a contract. We then recognize that estimated profit over the contract term based on either the units-of-delivery method or the cost-to-cost method (which typically is used for development effort as costs are incurred), as appropriate under the circumstances. Revenues under fixed-price contracts generally are recorded using the units-of-delivery method. Revenues under cost-reimbursement contracts are recorded using the cost-to-cost method.

Long-term contract profits are based on estimates of total contract cost and revenues utilizing current contract specifications, expected engineering requirements, the achievement of contract milestones and product deliveries. Certain contracts are awarded with fixed-price incentive fees that also are considered when estimating revenues and profit rates. Contract costs typically are incurred over a period of several years, and the estimation of these costs requires substantial judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We update our projections of costs at least semiannually or when circumstances significantly change. When adjustments are required, any changes from prior estimates are recognized using the cumulative catch-up method with the impact of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.

Finance Revenues — Finance revenues primarily include interest on finance receivables, capital lease earnings and portfolio gains/losses. Portfolio gains/losses include impairment charges related to repossessed assets and properties and gains/losses on the sale or early termination of finance assets. We recognize interest using the interest method, which provides a constant rate of return over the terms of the receivables. Accrual of interest income is suspended if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically suspend the accrual of interest income for accounts that are contractually delinquent by more than three months unless collection is not doubtful. Cash payments on nonaccrual accounts, including finance charges, generally are applied to reduce the net investment balance. We resume the accrual of interest when the loan becomes contractually current through payment according to the original terms of the loan or, if a loan has been modified, following a period of performance under the terms of the modification, provided we conclude that collection of all principal and interest is no longer doubtful. Previously suspended interest income is recognized at that time.

Cash and Equivalents

Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less.

Inventories

Inventories are stated at the lower of cost or estimated net realizable value. We value our inventories generally using the first-in, first-out (FIFO) method or the last-in, first-out (LIFO) method for certain qualifying inventories where LIFO provides a better matching of costs and revenues. We determine costs for our commercial helicopters on an average cost basis by model considering the expended and estimated costs for the current production release. Inventoried costs related to long-term contracts are stated at

actual production costs, including allocable operating overhead, advances to suppliers, and, in the case of contracts with the U.S. Government, allocable research and development and general and administrative expenses. Since our inventoried costs include amounts related to contracts with long production cycles, a portion of these costs is not expected to be realized within one year. Pursuant to contract provisions, agencies of the U.S. Government have title to, or security interest in, inventories related to such contracts as a result of advances, performance-based payments and progress payments. Such advances and payments are reflected as an offset against the related inventory balances. Customer deposits are recorded against inventory when the right of offset exists. All other customer deposits are recorded in accrued liabilities.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. We capitalize expenditures for improvements that increase asset values and extend useful lives. Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying value of the asset exceeds the sum of the undiscounted expected future cash flows, the asset generally is written down to fair value.

Goodwill and Intangible Assets

For our business acquisitions, we estimate the fair value of intangible assets primarily using discounted cash flow analysis of anticipated cash flows reflecting incremental revenues and/or cost savings resulting from the acquired intangible asset using market participant assumptions. Goodwill represents the excess of cost over the fair values assigned to intangible and other net assets of the acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing. We evaluate the recoverability of these assets in the fourth quarter of each year or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate a potential impairment.

For our annual impairment test, we calculate the fair value of each reporting unit and indefinite-lived intangible asset primarily using discounted cash flows. A reporting unit represents the operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment, in which case such component is the reporting unit. In certain instances, we have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics. For the goodwill impairment test, the discounted cash flows incorporate assumptions for revenue growth, operating margins and discount rates that represent our best estimates of current and forecasted market conditions, cost structure, anticipated net cost reductions, and the implied rate of return that we believe a market participant would require for an investment in a business having similar risks and characteristics to the reporting unit being assessed. If the reporting unit’s estimated fair value exceeds its carrying value, there is no impairment. Otherwise, the amount of the impairment is determined by comparing the carrying amount of the reporting unit’s goodwill to the implied fair value of that goodwill. The implied fair value of goodwill is determined by assigning a fair value to all of the reporting unit’s assets and liabilities as if the reporting unit had been acquired in a business combination. If the carrying amount of the goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess.

Acquired intangible assets with finite lives are subject to amortization. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Amortization of intangible assets with finite lives is recognized over their estimated useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. Approximately 76% of our gross intangible assets are amortized based on the cash flow streams used to value the assets, with the remaining assets amortized using the straight-line method.

Finance Receivables

Finance receivables primarily include loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. Finance receivables are generally recorded at the amount of outstanding principal less allowance for losses.

We maintain an allowance for losses on finance receivables at a level considered adequate to cover inherent losses in the portfolio based on management’s evaluation. For larger balance accounts specifically identified as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable’s effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying amount. The expected future cash flows consider collateral value; financial performance and liquidity of our borrower; existence and financial strength of guarantors; estimated recovery costs, including legal expenses; and costs associated with the repossession and eventual disposal of collateral. When there is a range of potential outcomes, we perform multiple discounted cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results. While our analysis is specific to each

individual account, critical factors included in this analysis include industry valuation guides, age and physical condition of the collateral, payment history and existence and financial strength of guarantors.

We also establish an allowance for losses to cover probable but specifically unknown losses existing in the portfolio. This allowance is established as a percentage of non-recourse finance receivables, which have not been identified as requiring specific reserves. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values and both general economic and specific industry trends. Finance receivables are charged off at the earlier of the date the collateral is repossessed or when no payment has been received for six months, unless management deems the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell.

Pension and Postretirement Benefit Obligations

We maintain various pension and postretirement plans for our employees globally. These plans include significant pension and postretirement benefit obligations, which are calculated based on actuarial valuations. Key assumptions used in determining these obligations and related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. We evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases. We recognize the overfunded or underfunded status of our pension and postretirement plans in the Consolidated Balance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income in the year in which they occur. Actuarial gains and losses that are not immediately recognized as net periodic pension cost are recognized as a component of other comprehensive income (loss) (OCI) and are amortized into net periodic pension cost in future periods.

Derivatives and Hedging Activities

We are exposed to market risk primarily from changes in currency exchange rates and interest rates. We do not hold or issue derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. Credit risk related to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through periodic settlements of positions.

All derivative instruments are reported at fair value in the Consolidated Balance Sheets. Designation to support hedge accounting is performed on a specific exposure basis. For financial instruments qualifying as fair value hedges, we record changes in fair value in earnings, offset, in part or in whole, by corresponding changes in the fair value of the underlying exposures being hedged. For cash flow hedges, we record changes in the fair value of derivatives (to the extent they are effective as hedges) in OCI, net of deferred taxes. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings.

Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or substantially liquidated. We use foreign currency financing transactions to effectively hedge long-term investments in foreign operations with the same corresponding currency. Foreign currency gains and losses on the hedge of the long-term investments are recorded in the cumulative translation adjustment account.

Product Liabilities

We accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. Our estimates are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience.

Environmental Liabilities and Asset Retirement Obligations

Liabilities for environmental matters are recorded on a site-by-site basis when it is probable that an obligation has been incurred and the cost can be reasonably estimated. We estimate our accrued environmental liabilities using currently available facts, existing technology, and presently enacted laws and regulations, all of which are subject to a number of factors and uncertainties. Our environmental liabilities are not discounted and do not take into consideration possible future insurance proceeds or significant amounts from claims against other third parties.

We have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and asbestos materials used in insulation, adhesive fillers and floor tiles. There is no legal requirement to remove these items, and there currently is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset retirement obligations are not estimable, there is no related liability recorded in the Consolidated Balance Sheets.

Warranty and Product Maintenance Liabilities

We provide limited warranty and product maintenance programs, including parts and labor, for certain products for periods ranging from one to five years. We estimate the costs that may be incurred under warranty programs and record a liability in the amount of such costs at the time product revenues are recognized. Factors that affect this liability include the number of products sold, historical costs per claim, contractual recoveries from vendors and historical and anticipated rates of warranty claims, including production and warranty patterns for new models. We assess the adequacy of our recorded warranty and product maintenance liabilities periodically and adjust the amounts as necessary. Additionally, we may establish warranty liabilities related to the issuance of aircraft service bulletins for aircraft no longer covered under the limited warranty programs.

Research and Development Costs

Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. Government contracts. In accordance with government regulations, we recover a portion of company-funded research and development costs through overhead rate charges on our U.S. Government contracts. Research and development costs that are not reimbursable under a contract with the U.S. Government or another customer are charged to expense as incurred. Company-funded research and development costs were $694 million, $651 million, and $584 million in 2014, 2013 and 2012, respectively, and are included in cost of sales.

Income Taxes

Deferred income tax balances reflect the effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and their tax bases, as well as from net operating losses and tax credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including the future reversal of existing taxable temporary differences, taxable income in carryback years, available tax planning strategies and estimated future taxable income. We recognize net tax-related interest and penalties for continuing operations in income tax expense.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers,” that outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption. This ASU is effective for our company at the beginning of fiscal 2017; early adoption is not permitted. We are currently evaluating the new guidance to determine the impact it is expected to have on our consolidated financial statements, along with the transition method we expect to utilize.

Note 2. Business Acquisitions, Goodwill and Intangible Assets

2014 Beechcraft Acquisition

On March 14, 2014, we acquired Beechcraft for an aggregate cash payment of $1.5 billion that included a repayment of a portion of Beechcraft’s working capital credit facility at closing. The acquisition of Beechcraft and the formation of the Textron Aviation segment provide increased scale and complementary product offerings, allowing us to strengthen our position across the aviation industry and enhance our ability to support our customers. We financed a portion of the purchase price with the issuance of $600 million in senior notes on January 30, 2014 and by drawing $500 million under the five-year term loan agreement entered into on January 24, 2014. The balance was paid from cash on hand.

The consideration paid for this business was allocated on a preliminary basis to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. As of January 3, 2015, the valuation process is substantially complete, however, due to the size and breadth of this acquisition, additional time is necessary to complete the valuation of certain liabilities and the related income tax impact. We will finalize the purchase accounting within the one-year measurement period allowed under generally accepted accounting principles. Our allocation of the purchase price as of January 3, 2015 is presented below.

(In millions)
Accounts receivable		$	129
Inventories		775
Other current assets		175
Property, plant and equipment		261
Intangible assets		581
Goodwill		228
Other assets		172
Accounts payable		(143		)
Accrued liabilities		(294		)
Other liabilities		(406		)
Total net assets acquired		$	1,478

Goodwill of $228 million was primarily related to expected synergies from combining operations and the value of the existing workforce. Intangible assets of $581 million included unpatented technology related to original equipment manufactured parts and designs and customer relationships valued at $373 million and trade names valued at $208 million. The unpatented technology and customer relationships assets have a life of 15 years, resulting in amortization expense in the range of approximately $17 million to $31 million annually. Substantially all of the trade names have an indefinite life and therefore are not subject to amortization. We acquired tax-deductible goodwill of approximately $260 million in this transaction.

In connection with the integration of Beechcraft, we initiated a restructuring program in our Textron Aviation segment in the first quarter of 2014 to align the Cessna and Beechcraft businesses, reduce operating redundancies and maximize efficiencies. During 2014, we recorded charges of $41 million related to these restructuring activities that were included in the Acquisition and restructuring costs line on the Consolidated Statements of Operations. In addition, we incurred transaction costs of $11 million in 2014 related to the acquisition that were also included in the Acquisition and restructuring costs line. We expect to incur additional restructuring costs in 2015, but do not expect these costs to be material.

Other Acquisitions

During 2014, we made aggregate cash payments of $149 million for seven acquisitions within our Industrial and Systems Segments, including Tug Technologies Corporation, a manufacturer of ground support equipment in the aviation industry.

We made aggregate cash payments of $196 million in 2013 for acquisitions of four businesses within our Textron Systems and Industrial segments and two service centers in our Textron Aviation segment.

Actual and Pro-Forma Impact from 2014 Acquisitions

The operating results for the 2014 acquisitions are included in the Consolidated Statement of Operations since their respective closing dates. From the closing dates through January 3, 2015, revenues related to these acquisitions totaled $1.6 billion. The cost structures of the Beechcraft and Cessna businesses have been significantly integrated since the acquisition of Beechcraft; therefore, it is not possible to separately report earnings for this acquisition. The earnings related to the other 2014 acquisitions were not significant for this period.

The unaudited supplemental pro-forma data included in the table below presents consolidated information as if our 2014 acquisitions had been completed on December 30, 2012. This pro-forma information should not be considered indicative of the results that would have occurred if the acquisitions and related financing had been consummated on December 30, 2012, nor are they necessarily indicative of future results as they do not reflect the potential realization of cost savings and synergies associated with the acquisitions.

(In millions, except per share amounts)		2014				2013
Revenues		$	14,240			$	13,956
Income from continuing operations, net of income taxes		689				482
Diluted earnings per share from continuing operations		$	2.45			$	1.69

Certain pro-forma adjustments were made to reflect the allocation of the preliminary purchase price to the acquired net assets, which included depreciation and intangible amortization expense resulting from the valuation of tangible and intangible assets, amortization of inventory fair value step-up adjustments and the related tax effects. The pro-forma results for 2013 were also adjusted to include transaction and restructuring costs of $52 million, related to the Beechcraft acquisition; these costs were excluded from the 2014 pro-forma results. In addition, the pro-forma results exclude the financial impact related to Beechcraft’s emergence from bankruptcy in 2013.

Goodwill

The changes in the carrying amount of goodwill by segment are as follows:

(In millions)		Textron Aviation			Bell			Textron Systems			Industrial			Total
Balance at December 29, 2012		$	326		$	31		$	974		$	318		$	1,649
Acquisitions		—			—			52			30			82
Foreign currency translation		—			—			—			4			4
Balance at December 28, 2013		326			31			1,026			352			1,735
Acquisitions		228			—			35			50			313
Foreign currency translation		—			—			(4		)	(17		)	(21		)
Balance at January 3, 2015		$	554		$	31		$	1,057		$	385		$	2,027

Intangible Assets

Our Intangible assets are summarized below:

					January 3, 2015										December 28, 2013
(Dollars in millions)		Weighted-Average Amortization Period (in years)			Gross Carrying Amount			Accumulated Amortization			Net				Gross Carrying Amount			Accumulated Amortization			Net
Patents and technology		15			$	513		$	(92)		$	421			$	142		$	(63)		$	79
Customer relationships and contractual agreements		15			364			(192)			172				331			(165)			166
Trade names and trademarks		16			263			(28)			235				49			(24)			25
Other		9			23			(18)			5				23			(17)			6
Total					$	1,163		$	(330)		$	833			$	545		$	(269)		$	276

Trade names and trademarks in the table above include $204 million of indefinite-lived intangible assets at January 3, 2015. There were no indefinite-lived intangible assets at December 28, 2013.

Amortization expense totaled $62 million, $37 million and $40 million in 2014, 2013 and 2012, respectively. Amortization expense is estimated to be approximately $61 million, $62 million, $62 million, $59 million and $57 million in 2015, 2016, 2017, 2018 and 2019, respectively.

Note 3. Accounts Receivable and Finance Receivables

Accounts Receivable

Accounts receivable is composed of the following:

(In millions)			January 3, 2015				December 28, 2013
Commercial			$	765			$	654
U.S. Government contracts			300				347
			1,065				1,001
Allowance for doubtful accounts			(30		)		(22		)
Total			$	1,035			$	979

We have unbillable receivables primarily on U.S. Government contracts that arise when the revenues we have appropriately recognized based on performance cannot be billed yet under terms of the contract. Unbillable receivables within accounts receivable totaled $151 million at January 3, 2015 and $163 million at December 28, 2013.

Finance Receivables

Finance receivables are presented in the following table.

(In millions)			January 3, 2015				December 28, 2013
Finance receivables			$	1,289			$	1,548
Allowance for losses			(51		)		(55		)
Total finance receivables, net			$	1,238			$	1,493

Finance receivables primarily includes loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. These agreements typically have initial terms ranging from five to ten years and amortization terms ranging from eight to fifteen years. The average balance of loans was $1 million at January 3, 2015. Loans generally require the customer to pay a significant down payment, along with periodic scheduled principal payments that reduce the outstanding balance through the term of the loan. Finance receivables also includes held for sale receivables of $35 million and $65 million at January 3, 2015 and December 28, 2013, respectively. These finance receivables held for sale are recorded at fair value and are not included in the portfolio quality tables below.

Our finance receivables are diversified across geographic region and borrower industry. At January 3, 2015, 37% of our finance receivables were distributed throughout the U.S. compared with 41% at the end of 2013. At January 3, 2015 and December 28, 2013, finance receivables included $113 million and $200 million, respectively, of receivables that have been legally sold to a special purpose entity (SPE), which is a consolidated subsidiary of TFC. The assets of the SPE are pledged as collateral for its debt, which is reflected as securitized on-balance sheet debt in Note 7. Third-party investors have no legal recourse to TFC beyond the credit enhancement provided by the assets of the SPE. In addition, at the end of 2014 and 2013, finance receivables of $565 million and $610 million, respectively, have been pledged as collateral for our debt.

Credit Quality Indicators and Nonaccrual Finance Receivables

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

We classify finance receivables as nonaccrual if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three months unless collection of principal and interest is not doubtful. Recognition of interest income is suspended for these accounts and all cash collections are used to reduce the net investment balance. We resume the accrual of interest when the loan becomes contractually current through payment according to the original terms of the loan or, if a loan has been modified, following a period of performance under the terms of the modification, provided we conclude that collection of all principal and interest is no longer doubtful. Previously suspended interest income is recognized at that time. Accounts are classified as watchlist when credit quality indicators have deteriorated as compared with typical underwriting criteria, and we believe collection of full principal and interest is probable but not certain. All other finance receivables that do not meet the watchlist or nonaccrual categories are classified as performing.

Finance receivables categorized based on the credit quality indicators discussed above are summarized as follows:

(In millions)			January 3, 2015				December 28, 2013
Performing			$	1,062			$	1,285
Watchlist			111				93
Nonaccrual			81				105
Total			$	1,254			$	1,483
Nonaccrual as a percentage of finance receivables			6.46		%		7.08		%

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

Finance receivables by delinquency aging category are summarized in the table below:

(In millions)			January 3, 2015				December 28, 2013
Less than 31 days past due			$	1,080			$	1,295
31-60 days past due			117				108
61-90 days past due			28				37
Over 90 days past due			29				43
Total			$	1,254			$	1,483
60+ days contractual delinquency as a percentage of finance receivables			4.55		%		5.39		%

Impaired Loans

On a quarterly basis, we evaluate individual finance receivables for impairment in non-homogeneous portfolios and larger balance accounts in homogeneous loan portfolios. A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators discussed above. Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified. If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification. Interest income recognized on impaired loans was not significant in 2014 or 2013.

A summary of impaired finance receivables and the average recorded investment is provided below:

(In millions)			January 3, 2015				December 28, 2013
Recorded investment:
Impaired loans with related allowance for credit losses			$	68			$	59
Impaired loans with no related allowance for credit losses			42				78
Total			$	110			$	137
Unpaid principal balance			$	115			$	141
Allowance for losses on impaired loans			20				14
Average recorded investment			115				155

Allowance for Losses

A rollforward of the allowance for losses on finance receivables and a summary of its composition, based on how the underlying finance receivables are evaluated for impairment, is provided below. The finance receivables reported in this table specifically exclude $121 million and $120 million of leveraged leases at January 3, 2015 and December 28, 2013, respectively, in accordance with generally accepted accounting principles.

(In millions)			January 3, 2015				December 28, 2013
Balance at the beginning of year			$	55			$	84
Provision for losses			6				(23		)
Charge-offs			(17		)		(17		)
Recoveries			7				12
Transfers			—				(1		)
Balance at the end of year			$	51			$	55
Allowance based on collective evaluation				31				41
Allowance based on individual evaluation			20				14
Finance receivables evaluated collectively			1,023				1,226
Finance receivables evaluated individually			110				137

Note 4. Inventories

Inventories are composed of the following:

(In millions)	January 3, 2015	December 28, 2013
Finished goods	$ 1,582	$ 1,276
Work in process	2,683	2,477
Raw materials and components	546	407
	4,811	4,160
Progress/milestone payments	(883)	(1,197)
Total	$ 3,928	$ 2,963

Inventories valued by the LIFO method totaled $1.4 billion and $1.3 billion at January 3, 2015 and December 28, 2013, respectively, and the carrying values of these inventories would have been higher by approximately $468 million and $461 million, respectively, had our LIFO inventories been valued at current costs. Inventories related to long-term contracts, net of progress/milestone payments, were $447 million and $359 million at January 3, 2015 and December 28, 2013, respectively.

Note 5. Property, Plant and Equipment, Net

Our Manufacturing group’s property, plant and equipment, net are composed of the following:

(Dollars in millions)	Useful Lives (in years)		January 3, 2015	December 28, 2013
Land and buildings	3 - 40		$ 1,818	$ 1,636
Machinery and equipment	1 - 20		4,364	4,042
			6,182	5,678
Accumulated depreciation and amortization			(3,685)	(3,463)
Total			$ 2,497	$ 2,215

At January 3, 2015 and December 28, 2013, assets under capital leases totaled $279 million and $247 million and had accumulated amortization of $68 million and $56 million, respectively. The Manufacturing group’s depreciation expense, which included amortization expense on capital leases, totaled $379 million, $335 million and $315 million in 2014, 2013 and 2012, respectively.

Note 6. Accrued Liabilities

The accrued liabilities of our Manufacturing group are summarized below:

(In millions)			January 3, 2015				December 28, 2013
Customer deposits			$	1,412			$	888
Salaries, wages and employer taxes			332				246
Current portion of warranty and product maintenance contracts			169				142
Retirement plans			73				74
Other			630				538
Total			$	2,616			$	1,888

Changes in our warranty and product maintenance contract liability are as follows:

(In millions)			2014				2013				2012
Accrual at the beginning of period			$	223			$	222			$	224
Provision			334				299				255
Settlements			(323		)		(293		)		(250		)
Acquisitions			67				—				—
Adjustments*			(20		)		(5		)		(7		)
Accrual at the end of period			$	281			$	223			$	222

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

Note 7. Debt and Credit Facilities

Our debt is summarized in the table below:

(In millions)			January 3, 2015				December 28, 2013
Manufacturing group
Long-term senior debt:
6.20% due 2015			$	—			$	350
4.625% due 2016			250				250
Variable-rate note due 2016 (average rate of 1.48% and 1.54%, respectively)			150				150
5.60% due 2017			350				350
7.25% due 2019			250				250
Variable-rate note due 2018-2019 (average rate of 1.67%)			300				—
6.625% due 2020			234				246
5.95% due 2021			250				250
3.65% due 2021			250				—
4.30% due 2024			350				—
3.875% due 2025			350				—
Other (weighted-average rate of 1.32% and 1.57%, respectively)			77				85
Total Manufacturing group debt			$	2,811			$	1,931
Less: current portion of long-term debt			(8		)		(8		)
Total long-term debt			$	2,803			$	1,923
Finance group
Fixed-rate note due 2014 (5.13%)			$	—			$	100
Fixed-rate notes due 2014-2017* (weighted-average rate of 4.59%)			32				42
Variable-rate notes due 2016 (weighted-average rate of 1.73% and 1.78%, respectively)			200				200
Fixed-rate notes due 2017-2024* (weighted-average rate of 2.76% and 2.67%, respectively)			381				378
Variable-rate notes due 2015-2024* (weighted-average rate of 1.18% and 1.19%, respectively)			52				63
Securitized debt (weighted-average rate of 1.50%)			98				172
6% Fixed-to-Floating Rate Junior Subordinated Notes			299				299
Fair value adjustments and unamortized discount			1				2
Total Finance group debt			$	1,063			$	1,256

* Notes amortize on a quarterly or semi-annual basis.

The following table shows required payments during the next five years on debt outstanding at January 3, 2015:

(In millions)		2015			2016			2017			2018			2019
Manufacturing group		$	8		$	408		$	358		$	82		$	480
Finance group		128			302			96			70			54
Total		$	136		$	710		$	454		$	152		$	534

Textron has a senior unsecured revolving credit facility that expires in October 2018 for an aggregate principal amount of $1.0 billion, of which up to $100 million is available for the issuance of letters of credit. At January 3, 2015, there were no amounts borrowed against the facility, and there were $35 million of letters of credit issued against it.

6% Fixed-to-Floating Rate Junior Subordinated Notes

The Finance group’s $299 million of 6% Fixed-to-Floating Rate Junior Subordinated Notes are unsecured and rank junior to all of its existing and future senior debt. The notes mature on February 15, 2067; however, we have the right to redeem the notes at par on or after February 15, 2017 and are obligated to redeem the notes beginning on February 15, 2042. Interest on the notes is fixed at 6% until February 15, 2017 and floats at the three-month London Interbank Offered Rate + 1.735% thereafter.

Support Agreement

Under a Support Agreement, Textron Inc. is required to ensure that TFC maintains fixed charge coverage of no less than 125% and consolidated shareholder’s equity of no less than $200 million. Cash payments of $240 million were made to TFC in 2012 to maintain compliance with the fixed charge coverage ratio.

Note 8. Derivative Instruments and Fair Value Measurements

We measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We prioritize the assumptions that market participants would use in pricing the asset or liability into a three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exist, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of Level 1, which include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect our estimates about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. Valuation techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are utilized only to the extent that observable inputs are not available or cost effective to obtain.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

We manufacture and sell our products in a number of countries throughout the world, and, therefore, we are exposed to movements in foreign currency exchange rates. We utilize foreign currency exchange contracts to manage this volatility. Our foreign currency exchange contracts are measured at fair value using the market method valuation technique. The inputs to this technique utilize current foreign currency exchange forward market rates published by third-party leading financial news and data providers. These are observable data that represent the rates that the financial institution uses for contracts entered into at that date; however, they are not based on actual transactions so they are classified as Level 2. At January 3, 2015 and December 28, 2013, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $696 million and $636 million, respectively. At January 3, 2015, the fair value amounts of our foreign currency exchange contracts were a $16 million asset and a $26 million liability. At December 28, 2013, the fair value amounts of our foreign currency exchange contracts were a $2 million asset and a $15 million liability.

We primarily utilize forward exchange contracts which have maturities of no more than three years. These contracts qualify as cash flow hedges and are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and overhead expenses. At January 3, 2015, we had a net deferred loss of $13 million in Accumulated other comprehensive loss related to these cash flow hedges. Net gains and losses recognized in earnings and Accumulated other comprehensive loss on cash flow hedges, including gains and losses related to hedge ineffectiveness, were not significant in the periods presented.

We hedge our net investment position in major currencies and generate foreign currency interest payments that offset other transactional exposures in these currencies. To accomplish this, we borrow directly in foreign currency and designate a portion of foreign currency debt as a hedge of a net investment. We record changes in the fair value of these contracts in other comprehensive

income to the extent they are effective as cash flow hedges. Currency effects on the effective portion of these hedges, which are reflected in the foreign currency translation adjustments within Accumulated other comprehensive loss, were not significant in the periods presented.

Assets Recorded at Fair Value on a Nonrecurring Basis

During the years ended January 3, 2015 and December 28, 2013, the Finance group’s impaired nonaccrual finance receivable of $49 million and $45 million, respectively, were measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). Impaired nonaccrual finance receivables represent assets recorded at fair value on a nonrecurring basis since the measurement of required reserves on our impaired finance receivables is significantly dependent on the fair value of the underlying collateral. For impaired nonaccrual finance receivables secured by aviation assets, the fair values of collateral are determined primarily based on the use of industry pricing guides. Fair value measurements recorded on impaired finance receivables resulted in charges to provision for loan losses totaling $18 million and $7 million for 2014 and 2013, respectively.

Assets and Liabilities Not Recorded at Fair Value

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

			January 3, 2015							December 28, 2013
(In millions)			Carrying Value			Estimated Fair Value				Carrying Value			Estimated Fair Value
Manufacturing group
Long-term debt, excluding leases			$	(2,742	)	$	(2,944	)		$	(1,854	)	$	(2,027	)
Finance group
Finance receivables, excluding leases			1,004			1,021				1,231			1,290
Debt			(1,063		)	(1,051		)		(1,256		)	(1,244		)

Fair value for the Manufacturing group debt is determined using market observable data for similar transactions (Level 2). At January 3, 2015 and December 28, 2013, approximately 75% and 70%, respectively, of the fair value of term debt for the Finance group was determined based on discounted cash flow analyses using observable market inputs from debt with similar duration, subordination and credit default expectations (Level 2). The remaining Finance group debt was determined based on observable market transactions (Level 1). Fair value estimates for finance receivables held for investment were determined based on internally developed discounted cash flow models primarily utilizing significant unobservable inputs (Level 3), which include estimates of the rate of return, financing cost, capital structure and/or discount rate expectations of current market participants combined with estimated loan cash flows based on credit losses, payment rates and expectations of borrowers’ ability to make payments on a timely basis.

Note 9. Shareholders’ Equity

Capital Stock

We have authorization for 15 million shares of preferred stock with a par value of $0.01 and 500 million shares of common stock with a par value of $0.125. Outstanding common stock activity for the three years ended January 3, 2015 is presented below:

(In thousands)		2014			2013		2012
Beginning balance		282,059			271,263		278,873
Exercise of stock options		1,910			1,333		1,159
Issued to Textron Savings Plan		1,490			1,921		2,159
Stock repurchases		(8,921	)		—		(11,103	)
Exercise of warrants		—			7,435		—
Issued upon vesting of restricted stock units		44			107		175
Ending balance		276,582			282,059		271,263

Earnings per Share

In February 2014, we entered into an Accelerated Share Repurchase agreement (ASR) with a counterparty and repurchased 4.3 million shares of our outstanding common stock. The initial delivery of shares under the ASR resulted in an immediate reduction of the outstanding shares used to calculate the weighted average common shares for basic and diluted earnings per share. We settled the ASR in December 2014 for a final purchase price of $167 million.

We calculate basic and diluted earnings per share (EPS) based on net income, which approximates income available to common shareholders for each period. Basic EPS is calculated using the two-class method, which includes the weighted-average number of common shares outstanding during the period and restricted stock units to be paid in stock that are deemed participating securities as they provide nonforfeitable rights to dividends. Diluted EPS considers the dilutive effect of all potential future common stock, including stock options and, prior to the maturity of our convertible notes on May 1, 2013, the shares that could have been issued upon the conversion of the notes and upon the exercise of the related warrants.

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

(In thousands)		2014			2013		2012
Basic weighted-average shares outstanding		279,409			279,299		280,182
Dilutive effect of:
Stock options		2,049			328		428
ASR		332			—		—
Convertible notes and warrants		—			4,801		14,053
Diluted weighted-average shares outstanding		281,790			284,428		294,663

In 2014, 2013 and 2012, stock options to purchase 2 million, 5 million and 7 million shares, respectively, of common stock outstanding are excluded from our calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive.

Accumulated Other Comprehensive Loss

The components of Accumulated Other Comprehensive Loss are presented below:

(In millions)		Pension and Postretirement Benefits Adjustments			Deferred Gains/Losses on Hedge Contracts			Foreign Currency Translation Adjustments			Accumulated Other Comprehensive Loss
Balance at December 29, 2012		$	(1,857	)	$	6		$	81		$	(1,770	)
Other comprehensive income before reclassifications		626			(15		)	12			623
Amounts reclassified from Accumulated other comprehensive loss		121			(1		)	—			120
Other comprehensive income (loss)		747			(16		)	12			743
Balance at December 28, 2013		(1,110		)	(10		)	93			(1,027		)
Other comprehensive loss before reclassifications		(471		)	(12		)	(75		)	(558		)
Amounts reclassified from Accumulated other comprehensive loss		70			9			—			79
Other comprehensive loss		(401		)	(3		)	(75		)	(479		)
Balance at January 3, 2015		$	(1,511	)	$	(13	)	$	18		$	(1,506	)

Other Comprehensive Income (Loss)

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

(In millions)		Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
2014
Pension and postretirement benefits adjustments:
Unrealized losses		$	(734	)	$	252		$	(482	)
Amortization of net actuarial loss*		114			(40		)	74
Amortization of prior service credit*		(8		)	4			(4		)
Recognition of prior service cost		18			(7		)	11
Pension and postretirement benefits adjustments, net		(610		)	209			(401		)
Deferred gains/losses on hedge contracts:
Current deferrals		(16		)	4			(12		)
Reclassification adjustments		12			(3		)	9
Deferred gains/losses on hedge contracts, net		(4		)	1			(3		)
Foreign currency translation adjustments		(71		)	(4		)	(75		)
Total		$	(685	)	$	206		$	(479	)
2013
Pension and postretirement benefits adjustments:
Unrealized gains		$	1,019		$	(410	)	$	609
Amortization of net actuarial loss*		189			(67		)	122
Amortization of prior service credit*		(2		)	1			(1		)
Recognition of prior service cost		29			(12		)	17
Pension and postretirement benefits adjustments, net		1,235			(488		)	747
Deferred gains/losses on hedge contracts:
Current deferrals		(20		)	5			(15		)
Reclassification adjustments		(1		)	—			(1		)
Deferred gains/losses on hedge contracts, net		(21		)	5			(16		)
Foreign currency translation adjustments		13			(1		)	12
Total		$	1,227		$	(484	)	$	743
2012
Pension and postretirement benefits adjustments:
Unrealized losses		$	(417	)	$	186		$	(231	)
Amortization of net actuarial loss*		124			(43		)	81
Amortization of prior service cost*		5			(2		)	3
Recognition of prior service cost		2			(1		)	1
Pension and postretirement benefits adjustments, net		(286		)	140			(146		)
Deferred gains/losses on hedge contracts:
Current deferrals		14			(3		)	11
Reclassification adjustments		(15		)	3			(12		)
Deferred gains/losses on hedge contracts, net		(1		)	—			(1		)
Foreign currency translation adjustments		(6		)	8			2
Total		$	(293	)	$	148		$	(145	)

*These components of other comprehensive income are included in the computation of net periodic pension cost. See Note 11 for additional information.

Note 10. Share-Based Compensation

Our 2007 Long-Term Incentive Plan (Plan) authorizes awards to our key employees in the form of options to purchase our shares, restricted stock, restricted stock units, stock appreciation rights, performance stock awards and other awards. A maximum of 12 million shares is authorized for issuance for all purposes under the Plan plus any shares that become available upon cancellation, forfeiture or expiration of awards granted under the 1999 Long-Term Incentive Plan. No more than 12 million shares may be awarded pursuant to incentive stock options, and no more than 3 million shares may be awarded pursuant to restricted stock units or other awards intended to be paid in shares. The Plan also authorizes performance share units to be paid in cash based upon the value of our common stock.

Through our Deferred Income Plan for Textron Executives, we provide certain executives the opportunity to voluntarily defer up to 80% of their base salary, along with incentive and other compensation. Elective deferrals may be put into either a stock unit account or an interest-bearing account. Participants cannot move amounts between the two accounts while actively employed by us and cannot receive distributions until termination of employment. The intrinsic value of amounts paid under this deferred income plan totaled $3 million, $1 million and $1 million in 2014, 2013 and 2012, respectively.

Share-based compensation costs are reflected primarily in selling and administrative expenses. Compensation expense included in net income for our share-based compensation plans is as follows:

(In millions)		2014		2013		2012
Compensation expense	$	85	$	86	$	71
Income tax benefit		(32)		(32)		(26)
Total net compensation cost included in net income	$	53	$	54	$	45

Compensation expense included approximately $21 million, $26 million and $23 million in 2014, 2013 and 2012, respectively, for a portion of the fair value of options issued and the portion of previously granted options for which the requisite service has been rendered.

Compensation cost for awards subject only to service conditions that vest ratably are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. As of January 3, 2015, we had not recognized $54 million of total compensation costs associated with unvested awards subject only to service conditions. We expect to recognize compensation expense for these awards over a weighted-average period of approximately two years.

Stock Options

Options to purchase our shares have a maximum term of ten years and generally vest ratably over a three-year period. The stock option compensation cost calculated under the fair value approach is recognized over the vesting period of the stock options. We estimate the fair value of options granted on the date of grant using the Black-Scholes option-pricing model. Expected volatilities are based on implied volatilities from traded options on our common stock, historical volatilities and other factors. The expected term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior.

The weighted-average fair value of options granted during the past three years and the assumptions used in our option-pricing model for such grants are as follows:

		2014		2013		2012
Fair value of options at grant date	$	12.72	$	9.69	$	10.19
Dividend yield		0.2%		0.3%		0.3%
Expected volatility		34.5%		37.0%		40.0%
Risk-free interest rate		1.5%		0.9%		0.9%
Expected term (in years)		5.0		5.5		5.5

The stock option activity during 2014 is provided below:

(Options in thousands)		Number of Options		Weighted- Average Exercise Price
Outstanding at beginning of year		9,018			$	27.57
Granted		1,838			39.65
Exercised		(1,842	)		(26.07		)
Forfeited or expired		(377	)		(38.35		)
Outstanding at end of year		8,637			$	29.99
Exercisable at end of year		4,739			$	27.22

At January 3, 2015, our outstanding options had an aggregate intrinsic value of $108 million and a weighted-average remaining contractual life of six years. Our exercisable options had an aggregate intrinsic value of $73 million and a weighted-average remaining contractual life of five years at January 3, 2015. The total intrinsic value of options exercised during 2014, 2013 and 2012 was $25 million, $10 million and $11 million, respectively.

Restricted Stock Units

We issue restricted stock units settled in both cash and stock (vesting one-third each in the third, fourth and fifth year following the year of the grant), which include the right to receive dividend equivalents. The fair value of these units is based on the trading price of our common stock and is recognized ratably over the vesting period. For units settled in stock, we use the trading price on the grant date, while units settled in cash are remeasured using the price at each reporting period date. Prior to 2012, we issued restricted stock units that vested in equal installments over five years. The 2014 activity for restricted stock units is provided below:

		Units Payable in Stock						Units Payable in Cash
(Shares/Units in thousands)		Number of Shares		Weighted- Average Grant Date Fair Value				Number of Units		Weighted- Average Grant Date Fair Value
Outstanding at beginning of year, nonvested		780			$	27.56		2,025			$	23.73
Granted		217			39.44			433			39.65
Vested		(70	)		(25.69		)	(593	)		(16.54		)
Forfeited		(21	)		(27.93		)	(199	)		(28.65		)
Outstanding at end of year, nonvested		906			$	30.59		1,666			$	29.84

The fair value of the restricted stock awards that vested and/or amounts paid under these awards is as follows:

(In millions)		2014			2013			2012
Fair value of awards vested		$	25		$	26		$	35
Cash paid		23			23			25

Performance Share Units

The fair value of share-based compensation awards accounted for as liabilities includes performance share units, which are paid in cash in the first quarter of the year following vesting. Payouts under performance share units vary based on certain performance criteria generally set for each year of a three-year performance period. The performance share units vest at the end of three years. The fair value of these awards is based on the trading price of our common stock and is remeasured at each reporting period date.

The 2014 activity for our performance share units is as follows:

(Units in thousands)								Number of Units		Weighted- Average Grant Date Fair Value
Outstanding at beginning of year, nonvested								895			$	28.08
Granted								296			39.70
Vested								(468	)		(27.76		)
Forfeited								(46	)		(28.19		)
Outstanding at end of year, nonvested								677			$	33.38

The fair value of the performance share units that vested and/or amounts paid under these awards is as follows:

(In millions)		2014			2013			2012
Fair value of awards vested		$	20		$	13		$	10
Cash paid		12			11			52

Note 11. Retirement Plans

Our defined benefit and defined contribution plans cover substantially all of our employees. A significant number of our U.S.-based employees participate in the Textron Retirement Plan, which is designed to be a “floor-offset” arrangement with both a defined benefit component and a defined contribution component. The defined benefit component of the arrangement includes the Textron Master Retirement Plan (TMRP) and the Bell Helicopter Textron Master Retirement Plan (BHTMRP), and the defined contribution component is the Retirement Account Plan (RAP). The defined benefit component provides a minimum guaranteed benefit (or “floor” benefit). Under the RAP, participants are eligible to receive contributions from Textron of 2% of their eligible compensation but may not make contributions to the plan. Upon retirement, participants receive the greater of the floor benefit or the value of the RAP. Both the TMRP and the BHTMRP are subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Effective on January 1, 2010, the Textron Retirement Plan was closed to new participants, and employees hired after that date receive an additional 4% annual cash contribution to their Textron Savings Plan account based on their eligible compensation.

We also have other funded and unfunded defined benefit pension plans that cover certain of our U.S. and foreign employees. In addition, several defined contribution plans are sponsored by our various businesses, of which the largest plan is the Textron Savings Plan, which is a qualified 401(k) plan subject to ERISA. Our defined contribution plans cost approximately $99 million, $93 million and $88 million in 2014, 2013 and 2012, respectively; these amounts include $16 million, $19 million and $21 million, respectively, in contributions to the RAP. We also provide postretirement benefits other than pensions for certain retired employees in the U.S., which include healthcare, dental care, Medicare Part B reimbursement and life insurance benefits.

Periodic Benefit Cost

The components of net periodic benefit cost and other amounts recognized in OCI are as follows:

			Pension Benefits										Postretirement Benefits Other than Pensions
(In millions)			2014				2013			2012				2014				2013			2012
Net periodic benefit cost
Service cost			$	109			$	133		$	119			$	4			$	6		$	6
Interest cost			334				290			305				19				19			25
Expected return on plan assets			(462		)		(418		)	(407		)		—				—			—
Amortization of prior service cost (credit)			15				15			16				(23		)		(17		)	(11		)
Amortization of net actuarial loss			112				183			118				2				6			7
Net periodic benefit cost			$	108			$	203		$	151			$	2			$	14		$	27
Other changes in plan assets and benefit obligations recognized in OCI
Current year actuarial loss (gain)			$	729			$	(964	)	$	402			$	5			$	(55	)	$	15
Current year prior service cost (credit)			12				16			—				(30		)		(45		)	(2		)
Amortization of net actuarial loss			(112		)		(183		)	(118		)		(2		)		(6		)	(7		)
Amortization of prior service credit (cost)			(15		)		(15		)	(16		)		23				17			11
Total recognized in OCI, before taxes			$	614			$	(1,146	)	$	268			$	(4	)		$	(89	)	$	17
Total recognized in net periodic benefit cost and OCI			$	722			$	(943	)	$	419			$	(2	)		$	(75	)	$	44

The estimated amount that will be amortized from Accumulated other comprehensive loss into net periodic pension costs in 2015 is as follows:

(In millions)		Pension Benefits			Postretirement Benefits Other than Pensions
Net actuarial loss		$	156		$	2
Prior service cost (credit)		16			(25		)
Total		$	172		$	(23	)

Obligations and Funded Status

All of our plans are measured as of our fiscal year-end. The changes in the projected benefit obligation and in the fair value of plan assets, along with our funded status, are as follows:

		Pension Benefits									Postretirement Benefits Other than Pensions
(In millions)			2014				2013				2014				2013
Change in benefit obligation
Benefit obligation at beginning of year			$	6,544			$	7,053			$	445			$	564
Service cost			109				133				4				6
Interest cost			334				290				19				19
Acquisitions			570				—				13				—
Amendments			12				16				(30		)		(45		)
Plan participants’ contributions			—				—				5				4
Actuarial losses (gains)			886				(566		)		4				(55		)
Benefits paid			(400		)		(373		)		(47		)		(48		)
Foreign exchange rate changes and other			(49		)		(9		)		—				—
Benefit obligation at end of year			$	8,006			$	6,544			$	413			$	445
Change in fair value of plan assets
Fair value of plan assets at beginning of year			$	6,345			$	5,715
Actual return on plan assets			623				819
Acquisitions			390				—
Employer contributions			60				185
Benefits paid			(400		)		(373		)
Foreign exchange rate changes and other			(39		)		(1		)
Fair value of plan assets at end of year			$	6,979			$	6,345
Funded status at end of year			$	(1,027	)		$	(199	)		$	(413	)		$	(445	)
Amounts recognized in our balance sheets are as follows:
		Pension Benefits								Postretirement Benefits Other than Pensions
(In millions)			2014				2013				2014				2013
Non-current assets			$	60			$	413			$	—			$	—
Current liabilities			(26		)		(26		)		(45		)		(48		)
Non-current liabilities			(1,061		)		(586		)		(368		)		(397		)
Recognized in Accumulated other comprehensive loss, pre-tax:
Net loss			2,193				1,596				40				38
Prior service cost (credit)			110				114				(75		)		(69		)

The accumulated benefit obligation for all defined benefit pension plans was $7.6 billion and $6.1 billion at January 3, 2015 and December 28, 2013, respectively, which included $392 million and $359 million, respectively, in accumulated benefit obligations for unfunded plans where funding is not permitted or in foreign environments where funding is not feasible.

Pension plans with accumulated benefit obligations exceeding the fair value of plan assets are as follows:

(In millions)			2014				2013
Projected benefit obligation			$	3,096			$	2,828
Accumulated benefit obligation			2,900				2,629
Fair value of plan assets			2,215				2,215

Assumptions

The weighted-average assumptions we use for our pension and postretirement plans are as follows:

		Pension Benefits									Postretirement Benefits Other than Pensions
			2014			2013		2012			2014			2013		2012
Net periodic benefit cost
Discount rate			4.92%			4.23%		4.94%			4.50%			3.75%		4.75%
Expected long-term rate of return on assets			7.60%			7.56%		7.58%
Rate of compensation increase			3.50%			3.47%		3.49%
Benefit obligations at year-end
Discount rate			4.18%			4.94%		4.23%			4.00%			4.50%		3.75%
Rate of compensation increases			3.49%			3.51%		3.48%

During 2014, the Society of Actuaries released new mortality tables that reflect increased life expectancy over the previous tables. We incorporated these new tables in the 2014 fair value measurement of our U.S. pension plans which resulted in an increase in the projected benefit obligation as of January 3, 2015.

Our assumed healthcare cost trend rate for both the medical and prescription drug cost was 6.6% in 2014 and 7.2% in 2013. We expect this rate to gradually decline to 5.0% by 2021 where we assume it will remain. These assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement benefits other than pensions. A one-percentage-point change in these assumed healthcare cost trend rates would have the following effects:

(In millions)		One- Percentage- Point Increase			One- Percentage- Point Decrease
Effect on total of service and interest cost components		$	1		$	(1	)
Effect on postretirement benefit obligations other than pensions		18			(16		)

Pension Assets

The expected long-term rate of return on plan assets is determined based on a variety of considerations, including the established asset allocation targets and expectations for those asset classes, historical returns of the plans’ assets and other market considerations. We invest our pension assets with the objective of achieving a total rate of return, over the long term, sufficient to fund future pension obligations and to minimize future pension contributions. We are willing to tolerate a commensurate level of risk to achieve this objective based on the funded status of the plans and the long-term nature of our pension liability. Risk is controlled by maintaining a portfolio of assets that is diversified across a variety of asset classes, investment styles and investment managers. Where possible, investment managers are prohibited from owning our stock in the portfolios that they manage on our behalf.

For U.S. plan assets, which represent the majority of our plan assets, asset allocation target ranges are established consistent with our investment objectives, and the assets are rebalanced periodically. For foreign plan assets, allocations are based on expected cash flow needs and assessments of the local practices and markets. Our target allocation ranges are as follows:

U.S. Plan Assets
Domestic equity securities		23% to 38%
International equity securities		11% to 22%
Debt securities		27% to 38%
Private investment partnerships		5% to 11%
Real estate		7% to 13%
Hedge funds		0% to 5%
Foreign Plan Assets
Equity securities		49% to 67%
Debt securities		28% to 41%
Real estate		3% to 12%

The fair value of total pension plan assets by major category and level in the fair value hierarchy as defined in Note 8 is as follows:

		January 3, 2015										December 28, 2013
(In millions)			Level 1			Level 2			Level 3				Level 1			Level 2			Level 3
Cash and equivalents			$	27		$	194		$	—			$	17		$	144		$	—
Equity securities:
Domestic			1,417			595			—				1,179			866			—
International			1,185			253			—				1,140			258			—
Debt securities:
National, state and local governments			526			419			—				506			411			—
Corporate debt			—			950			—				—			638			—
Asset-backed securities			—			110			—				—			153			—
Private investment partnerships			—			—			380				—			—			305
Real estate			—			—			744				—			—			553
Hedge funds			—			—			179				—			—			175
Total			$	3,155		$	2,521		$	1,303			$	2,842		$	2,470		$	1,033

Cash equivalents and equity and debt securities include comingled funds, which represent investments in funds offered to institutional investors that are similar to mutual funds in that they provide diversification by holding various equity and debt securities. Since these comingled funds are not quoted on any active market, they are priced based on the relative value of the underlying equity and debt investments and their individual prices at any given time; accordingly, they are classified as Level 2. Debt securities are valued based on same day actual trading prices, if available. If such prices are not available, we use a matrix pricing model with historical prices, trends and other factors.

Private investment partnerships represent investments in funds, which, in turn, invest in stocks and debt securities of companies that, in most cases, are not publicly traded. These partnerships are valued using income and market methods that include cash flow projections and market multiples for various comparable companies. Real estate includes owned properties and investments in partnerships. Owned properties are valued using certified appraisals at least every three years, which then are updated at least annually by the real estate investment manager based on current market trends and other available information. These appraisals generally use the standard methods for valuing real estate, including forecasting income and identifying current transactions for comparable real estate to arrive at a fair value. Real estate partnerships are valued similar to private investment partnerships, with the general partner using standard real estate valuation methods to value the real estate properties and securities held within their fund portfolios. We believe these assumptions are consistent with assumptions that market participants would use in valuing these investments.

Hedge funds represent an investment in a diversified fund of hedge funds of which we are the sole investor. The fund invests in portfolio funds that are not publicly traded and are managed by various portfolio managers. Investments in portfolio funds are typically valued on the basis of the most recent price or valuation provided by the relevant fund’s administrator. The administrator for the fund aggregates these valuations with the other assets and liabilities to calculate the net asset value of the fund.

The table below presents a reconciliation of the beginning and ending balances for fair value measurements that use significant unobservable inputs (Level 3) by major category:

(In millions)		Private Investment Partnerships			Real Estate			Hedge Funds
Balance at beginning of year		$	305		$	553		$	175
Actual return on plan assets:
Related to assets still held at reporting date		(7		)	6			4
Related to assets sold during the period		41			28			—
Purchases, sales and settlements, net		41			157			—
Balance at end of year		$	380		$	744		$	179

Estimated Future Cash Flow Impact

Defined benefits under salaried plans are based on salary and years of service. Hourly plans generally provide benefits based on stated amounts for each year of service. Our funding policy is consistent with applicable laws and regulations. In 2015, we expect to contribute approximately $80 million to fund our pension plans and the RAP. Benefit payments provided below reflect expected future employee service, as appropriate, and are expected to be paid, net of estimated participant contributions. These payments are based on the same assumptions used to measure our benefit obligation at the end of fiscal 2014. While pension

benefit payments primarily will be paid out of qualified pension trusts, we will pay postretirement benefits other than pensions out of our general corporate assets. Benefit payments that we expect to pay are as follows:

(In millions)		2015			2016			2017			2018			2019			2020-2024
Pension benefits		$	401		$	398		$	405		$	411		$	420		$	2,254
Post-retirement benefits other than pensions		46			44			42			39			37			150

Note 12. Income Taxes

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

(In millions)			2014				2013			2012
U.S.			$	553			$	454		$	644
Non-U.S.			300				220			197
Income from continuing operations before income taxes			$	853			$	674		$	841

Income tax expense for continuing operations is summarized as follows:

(In millions)			2014				2013			2012
Current:
Federal			$	195			$	23		$	40
State			18				10			9
Non-U.S.			54				56			29
			267				89			78
Deferred:
Federal			(12		)		91			169
State			(4		)		13			23
Non-U.S.			(3		)		(17		)	(10		)
			(19		)		87			182
Income tax expense			$	248			$	176		$	260

The current federal and state provisions for 2012 included $25 million of tax related to the sale of certain leveraged leases in the Finance segment for which we had previously recorded significant deferred tax liabilities.

The following table reconciles the federal statutory income tax rate to our effective income tax rate for continuing operations:

			2014				2013				2012
U.S. Federal statutory income tax rate			35.0%				35.0%				35.0%
Increase (decrease) in taxes resulting from:
State income taxes			1.0				2.4				2.2
Non-U.S. tax rate differential and foreign tax credits			(5.8)				(7.2)				(5.4)
Research credit			(1.5)				(3.8)				—
Other, net			0.4				(0.3)				(0.9)
Effective income tax rate			29.1%				26.1%				30.9%

The amount of income taxes we pay is subject to ongoing audits by U.S. federal, state and non-U.S. tax authorities, which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting date. For those tax positions for which it is more likely than not that a tax benefit will be sustained, we record the largest amount of tax benefit with a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. Interest and penalties are accrued, where applicable. If we do not believe that it is not more likely than not that a tax benefit will be sustained, no tax benefit is recognized.

Our future results may include favorable or unfavorable adjustments to our estimated tax liabilities due to settlement of income tax examinations, new regulatory or judicial pronouncements, expiration of statutes of limitations or other relevant events. As a result, our effective tax rate may fluctuate significantly on a quarterly and annual basis.

Our unrecognized tax benefits represent tax positions for which reserves have been established. Unrecognized state tax benefits and interest related to unrecognized tax benefits are reflected net of applicable tax benefits. A reconciliation of our unrecognized tax benefits, excluding accrued interest, is as follows:

(In millions)	January 3, 2015	December 28, 2013	December 29, 2012
Balance at beginning of year	$ 284	$ 290	$ 294
Additions for tax positions related to current year	10	15	5
Additions for current year acquisitions	100	—	—
Additions for tax positions of prior years	—	1	2
Reductions for tax positions of prior years	(6)	(17)	(3)
Reductions for expiration of statute of limitations and settlements	(3)	(5)	(8)
Balance at end of year	$ 385	$ 284	$ 290

At January 3, 2015 and December 28, 2013, approximately $305 million and $204 million, respectively, of these unrecognized tax benefits, if recognized, would favorably affect our effective tax rate in a future period. At January 3, 2015 and December 28, 2013, the remaining $80 million in unrecognized tax benefits were related to discontinued operations.

It is reasonably possible that within the next 12 months our unrecognized tax benefits, exclusive of interest, may decrease in the range of approximately $0 to $215 million, as a result of the conclusion of audits and any related appeals or review processes, the expiration of statutes of limitations and additional worldwide uncertain tax positions. This potential decrease primarily relates to uncertainties with respect to prior dispositions and research tax credits. However, based on the process of finalizing audits and any required review process by relevant authorities, it is difficult to estimate the timing and amount of potential changes to our unrecognized tax benefits. Although the outcome of these matters cannot be determined, we believe adequate provision has been made for any potential unfavorable financial statement impact.

In the normal course of business, we are subject to examination by taxing authorities throughout the world, including major jurisdictions such as Canada, China, Germany, Japan, Mexico and the U.S. With few exceptions, we no longer are subject to U.S. federal, state and local income tax examinations for years before 1997. We are no longer subject to non-U.S. income tax examinations in our major jurisdictions for years before 2009.

During 2014, 2013 and 2012, we recognized net tax-related interest expense totaling approximately $6 million, $6 million and $9 million, respectively, in the Consolidated Statements of Operations. At January 3, 2015 and December 28, 2013, we had a total of $132 million and $126 million, respectively, of net accrued interest expense included in our Consolidated Balance Sheets.

The tax effects of temporary differences that give rise to significant portions of our net deferred tax assets and liabilities are as follows:

(In millions)		January 3, 2015			December 28, 2013
Deferred tax assets
Obligation for pension and postretirement benefits		$	541		$	358
Accrued expenses*		287			182
Deferred compensation		190			161
Loss carryforwards		137			84
Inventory		79			18
Allowance for credit losses		36			29
Deferred income		22			14
Other, net		91			130
Total deferred tax assets		1,383			976
Valuation allowance for deferred tax assets		(167		)	(166		)
		$	1,216		$	810
Deferred tax liabilities
Property, plant and equipment, principally depreciation		$	(167	)	$	(174	)
Leasing transactions		(165		)	(184		)
Amortization of goodwill and other intangibles		(118		)	(109		)
Prepaid pension and postretirement benefits		(14		)	(143		)
Total deferred tax liabilities		(464		)	(610		)
Net deferred tax asset		$	752		$	200

• Accrued expenses includes warranty and product maintenance reserves, self-insured liabilities and interest.

We believe that our earnings during the periods when the temporary differences become deductible will be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not more than likely, a valuation allowance is provided.

The following table presents the breakdown between current and long-term net deferred tax assets:

(In millions)		January 3, 2015			December 28, 2013
Manufacturing group:
Other current assets		$	259		$	206
Other assets		630			270
Other liabilities		(19		)	(147		)
Finance group - Other liabilities		(118		)	(129		)
Net deferred tax asset		$	752		$	200

Our net operating loss and credit carryforwards at January 3, 2015 are as follows:

(In millions)
Non-U.S. net operating loss with no expiration		$	84
Non-U.S. net operating loss expiring through 2034		56
U.S. federal net operating losses expiring through 2034, related to 2014 acquisitions		290
U.S. foreign tax credits expiring through 2022, related to 2014 acquisitions		8
State net operating loss and tax credits, net of tax benefits, expiring through 2034		109

The undistributed earnings of our non-U.S. subsidiaries approximated $995 million at January 3, 2015. We consider the undistributed earnings to be indefinitely reinvested; therefore, we have not provided a deferred tax liability for any residual U.S. tax that may be due upon repatriation of these earnings. Because of the effect of U.S. foreign tax credits, it is not practicable to estimate the amount of tax that might be payable on these earnings in the event they no longer are indefinitely reinvested.

Note 13. Contingencies and Commitments

We are subject to legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims relating to commercial and financial transactions; government contracts; alleged lack of compliance with applicable laws and regulations; production partners; product liability; patent and trademark infringement; employment disputes; and environmental, safety and health matters. Some of these legal proceedings and claims seek damages, fines or penalties in substantial amounts or remediation of environmental contamination. As a government contractor, we are subject to audits, reviews and investigations to determine whether our operations are being conducted in accordance with applicable regulatory requirements. Under federal government procurement regulations, certain claims brought by the U.S. Government could result in our suspension or debarment from U.S. Government contracting for a period of time. On the basis of information presently available, we do not believe that existing proceedings and claims will have a material effect on our financial position or results of operations.

In the ordinary course of business, we enter into standby letter of credit agreements and surety bonds with financial institutions to meet various performance and other obligations. These outstanding letter of credit arrangements and surety bonds aggregated to approximately $790 million and $298 million at January 3, 2015 and December 28, 2013, respectively.

Environmental Remediation

As with other industrial enterprises engaged in similar businesses, we are involved in a number of remedial actions under various federal and state laws and regulations relating to the environment that impose liability on companies to clean up, or contribute to the cost of cleaning up, sites on which hazardous wastes or materials were disposed or released. Our accrued environmental liabilities relate to installation of remediation systems, disposal costs, U.S. Environmental Protection Agency oversight costs, legal fees, and operating and maintenance costs for both currently and formerly owned or operated facilities. Circumstances that can affect the reliability and precision of the accruals include the identification of additional sites, environmental regulations, level of cleanup required, technologies available, number and financial condition of other contributors to remediation and the time period over which remediation may occur. We believe that any changes to the accruals that may result from these factors and uncertainties will not have a material effect on our financial position or results of operations.

Based upon information currently available, we estimate that our potential environmental liabilities are within the range of $40 million to $160 million. At January 3, 2015, environmental reserves of approximately $80 million have been established to address these specific estimated liabilities. We estimate that we will likely pay our accrued environmental remediation liabilities over the next ten years and have classified $24 million as current liabilities. Expenditures to evaluate and remediate contaminated sites approximated $13 million, $12 million and $15 million in 2014, 2013 and 2012, respectively.

Leases

Rental expense approximated $121 million, $95 million and $97 million in 2014, 2013 and 2012, respectively. Future minimum rental commitments for noncancelable operating leases in effect at January 3, 2015 approximated $73 million for 2015, $57 million for 2016, $47 million for 2017, $37 million for 2018, $31 million for 2019 and $193 million thereafter. The total future minimum rental receipts under noncancelable subleases at January 3, 2015 approximated $23 million.

Note 14. Supplemental Cash Flow Information

We have made the following cash payments:

(In millions)		2014			2013			2012
Interest paid:
Manufacturing group		$	134		$	124		$	135
Finance group		41			46			64
Net taxes paid /(received):
Manufacturing group		266			223			(7		)
Finance group		23			(49		)	43

Cash paid for interest by the Finance group included amounts paid to the Manufacturing group of $11 million in 2012. Cash paid for interest by the Finance group to the Manufacturing group was not significant in 2014 and 2013.

Note 15. Segment and Geographic Data

We operate in, and report financial information for, the following five business segments: Textron Aviation, which includes the legacy Cessna segment and the acquired Beechcraft business, Bell, Textron Systems, Industrial and Finance. The accounting policies of the segments are the same as those described in Note 1.

Textron Aviation products include Citation jets, King Air turboprops, Caravan utility turboprops, single-engine piston aircraft, T-6 and AT-6 military aircraft, and aftermarket sales and services sold to a diverse base of corporate and individual buyers.

Bell products include military and commercial helicopters, tiltrotor aircraft and related spare parts and services. Bell supplies military helicopters and, in association with The Boeing Company, military tiltrotor aircraft, and aftermarket services to the U.S. and non-U.S. governments. Bell also supplies commercial helicopters and aftermarket services to corporate, offshore petroleum exploration and development, utility, charter, police, fire, rescue, emergency medical helicopter operators and foreign governments.

Textron Systems products include unmanned aircraft systems, marine and land systems, weapons and sensors, simulation, training and other defense and aviation mission support products and services primarily for U.S. and non-U.S. governments.

Industrial products and markets include the following:

· Kautex products include blow-molded plastic fuel systems, windshield and headlamp washer systems, selective catalytic reduction systems and engine camshafts that are marketed primarily to automobile OEMs, as well as plastic bottles and containers for various uses;

· Tools and Test Equipment products include powered equipment, electrical test and measurement instruments, mechanical and hydraulic tools, cable connectors, fiber optic assemblies, underground and aerial transmission and distribution products, and power utility products, principally used in the construction, maintenance, telecommunications, data communications, electrical, utility and plumbing industries; and

· Specialized Vehicles and Equipment products include golf cars, off-road utility and light transportation vehicles, aviation ground support equipment, professional turf-maintenance equipment and turf-care vehicles that are marketed primarily to golf courses, resort communities, municipalities, sporting venues, consumers, and commercial and industrial users.

The Finance segment provides financing primarily to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters.

Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses and acquisition and restructuring costs related to the Beechcraft acquisition. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.

Our revenues by segment, along with a reconciliation of segment profit to income from continuing operations before income taxes, are as follows:

		Revenues									Segment Profit (Loss)
(In millions)		2014			2013			2012			2014			2013			2012
Textron Aviation		$	4,568		$	2,784		$	3,111		$	234		$	(48	)	$	82
Bell		4,245			4,511			4,274			529			573			639
Textron Systems		1,624			1,665			1,737			150			147			132
Industrial		3,338			3,012			2,900			280			242			215
Finance		103			132			215			21			49			64
Total		$	13,878		$	12,104		$	12,237		$	1,214		$	963		$	1,132
Corporate expenses and other, net											(161		)	(166		)	(148		)
Interest expense, net for Manufacturing group											(148		)	(123		)	(143		)
Acquisition and restructuring costs											(52		)	—			—
Income from continuing operations before income taxes											$	853		$	674		$	841

Revenues by major product type are summarized below:

(In millions)		2014			2013			2012
Fixed-wing aircraft		$	4,568		$	2,784		$	3,111
Rotor aircraft		4,245			4,511			4,274
Unmanned aircraft systems, armored vehicles, precision weapons and other		1,624			1,665			1,737
Fuel systems and functional components		1,975			1,853			1,842
Specialized vehicles and equipment		868			713			660
Tools and test equipment		495			446			398
Finance		103			132			215
Total revenues		$	13,878		$	12,104		$	12,237

Our revenues included sales to the U.S. Government of approximately $3.8 billion, $3.7 billion and $3.6 billion in 2014, 2013 and 2012, respectively, primarily in the Bell and Textron Systems segments.

Other information by segment is provided below:

			Assets							Capital Expenditures									Depreciation and Amortization
(In millions)				January 3, 2015			December 28, 2013			2014			2013			2012			2014			2013			2012
Textron Aviation				$	4,085		$	2,260		$	96		$	72		$	93		$	137		$	87		$	102
Bell				2,858			2,899			152			197			172			132			116			102
Textron Systems				2,283			2,106			65			66			108			84			89			75
Industrial				2,171			1,956			97			89			97			76			72			70
Finance				1,529			1,725			—			—			—			13			18			25
Corporate				1,679			1,998			19			20			10			17			7			9
Total				$	14,605		$	12,944		$	429		$	444		$	480		$	459		$	389		$	383

Geographic Data

Presented below is selected financial information of our continuing operations by geographic area:

		Revenues*									Property, Plant and Equipment, net**
(In millions)		2014			2013			2012			January 3, 2015			December 28, 2013
United States		$	8,677		$	7,512		$	7,586		$	2,015		$	1,701
Europe		1,761			1,535			1,655			272			288
Latin America and Mexico		1,261			878			893			44			45
Asia and Australia		1,155			1,111			1,264			74			80
Middle East and Africa		641			693			392			—			—
Canada		383			375			447			92			101
Total		$	13,878		$	12,104		$	12,237		$	2,497		$	2,215

* Revenues are attributed to countries based on the location of the customer.

** Property, plant and equipment, net are based on the location of the asset.

Quarterly Data

(Unaudited)			2014													2013
(Dollars in millions, except per share amounts)			Q1			Q2			Q3			Q4				Q1			Q2			Q3			Q4
Revenues
Textron Aviation			$	785		$	1,183		$	1,080		$	1,520			$	708		$	560		$	593		$	923
Bell			873			1,119			1,182			1,071				949			1,025			1,162			1,375
Textron Systems			363			282			358			621				429			422			405			409
Industrial			797			894			785			862				727			801			711			773
Finance			29			27			25			22				42			31			33			26
Total revenues			$	2,847		$	3,505		$	3,430		$	4,096			$	2,855		$	2,839		$	2,904		$	3,506
Segment profit
Textron Aviation (a)			$	14		$	28		$	62		$	130			$	(8	)	$	(50	)	$	(23	)	$	33
Bell			96			141			146			146				129			135			131			178
Textron Systems			39			34			27			50				38			34			35			40
Industrial			66			94			53			67				57			79			52			54
Finance			4			7			5			5				19			15			13			2
Total segment profit			219			304			293			398				235			213			208			307
Corporate expenses and other, net			(43		)	(38		)	(22		)	(58		)		(55		)	(20		)	(34		)	(57		)
Interest expense, net for Manufacturing group			(35		)	(36		)	(37		)	(40		)		(37		)	(30		)	(29		)	(27		)
Acquisition and restructuring costs (b)			(16		)	(20		)	(3		)	(13		)		—			—			—			—
Income tax expense			(38		)	(65		)	(71		)	(74		)		(28		)	(49		)	(47		)	(52		)
Income from continuing operations			87			145			160			213				115			114			98			171
Income (loss) from discontinued operations, net of income taxes			(2		)	(1		)	(1		)	(1		)		4			(1		)	1			(4		)
Net income			$	85		$	144		$	159		$	212			$	119		$	113		$	99		$	167
Basic earnings per share
Continuing operations			$	0.31		$	0.52		$	0.57		$	0.77			$	0.42		$	0.41		$	0.35		$	0.60
Discontinued operations			(0.01		)	—			—			(0.01		)		0.02			(0.01		)	—			(0.01		)
Basic earnings per share			$	0.30		$	0.52		$	0.57		$	0.76			$	0.44		$	0.40		$	0.35		$	0.59
Basic average shares outstanding (In thousands)			281,094			280,280			278,860			277,347				273,200			280,163			281,525			282,308
Diluted earnings per share
Continuing operations			$	0.31		$	0.51		$	0.57		$	0.76			$	0.40		$	0.40		$	0.35		$	0.60
Discontinued operations			(0.01		)	—			—			—				0.01			—			—			(0.01		)
Diluted earnings per share			$	0.30		$	0.51		$	0.57		$	0.76			$	0.41		$	0.40		$	0.35		$	0.59
Diluted average shares outstanding (In thousands)			283,327			282,764			281,030			279,771				288,978			283,824			281,710			282,707
Segment profit margins
Textron Aviation			1.8%			2.4%			5.7%			8.6%				(1.1)%			(8.9)%			(3.9)%			3.6%
Bell			11.0			12.6			12.4			13.6				13.6			13.2			11.3			12.9
Textron Systems			10.7			12.1			7.5			8.1				8.9			8.1			8.6			9.8
Industrial			8.3			10.5			6.8			7.8				7.8			9.9			7.3			7.0
Finance			13.8			25.9			20.0			22.7				45.2			48.4			39.4			7.7
Segment profit margin			7.7%			8.7%			8.5%			9.7%				8.2%			7.5%			7.2%			8.8%
Common stock information
Price range: High			$	40.18		$	40.93		$	39.03		$	44.23			$	31.30		$	30.22		$	29.81		$	37.43
Low			$	34.28		$	36.96		$	35.54		$	32.28			$	23.94		$	24.87		$	25.36		$	26.17
Dividends declared per share			$	0.02		$	0.02		$	0.02		$	0.02			$	0.02		$	0.02		$	0.02		$	0.02

(a) Includes amortization of $12 million, $33 million, $10 million and $8 million for the first, second, third and fourth quarters of 2014, respectively, related to fair value step-up adjustments of Beechcraft acquired inventories sold during the periods. The second quarter of 2013 includes $28 million in severance costs.

(b) Acquisition and restructuring costs include restructuring costs of $5 million, $20 million, $3 million and $13 million for the first, second, third and fourth quarters of 2014, respectively, related to the acquisition of Beech Holdings, LLC, the parent of Beechcraft Corporation, which was completed on March 14, 2014. Transaction costs of $11 million related to the Beechcraft acquisition are also included in the first quarter of 2014.

Schedule II — Valuation and Qualifying Accounts

(In millions)		2014			2013			2012
Allowance for doubtful accounts
Balance at beginning of year		$	22		$	19		$	18
Charged to costs and expenses		11			7			4
Deductions from reserves*		(3		)	(4		)	(3		)
Balance at end of year		$	30		$	22		$	19
Inventory FIFO reserves
Balance at beginning of year		$	150		$	136		$	134
Charged to costs and expenses		51			54			42
Deductions from reserves*		(32		)	(40		)	(40		)
Balance at end of year		$	169		$	150		$	136

***** Deductions primarily include amounts written off on uncollectable accounts (less recoveries), inventory disposals and currency translation adjustments.