Textron (TXT) 10-K risk factor changes: FY2016 vs FY2015

During [removed: 2014,] [added: 2015,] we derived approximately [removed: 28%] [added: 24%] of our revenues from sales to a variety of U.S. Government entities.

_If our Finance segment is unable to maintain portfolio credit quality, our financial performance could be adversely [removed: affected__._][added: affected._]

Conducting business [removed: internationally, including U.S. exports,] [added: internationally] exposes us to additional risks than if we conducted our business solely within the U.S. We maintain manufacturing facilities, service centers, supply centers and other facilities worldwide, including in various emerging market countries.

Additionally, some international government customers require contractors to agree to specific in-country purchases, [added: technology transfers,] manufacturing agreements or financial support arrangements, known as offsets, as a condition for a contract award.

The contracts generally extend over several years and may include penalties if we fail to perform in accordance with the offset requirements which are [removed: typically] [added: often] subjective.

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 [added: regulations; production partners; product liability; patent and trademark infringement; employment disputes; and environmental, safety and health matters.]

Approximately [removed: 7,100,] [added: 7,200,] or 28%, of our U.S. employees are unionized, and many of our non-U.S. employees are represented by organized councils.

Currency variations also contribute to variations in sales of products and services in impacted [added: jurisdictions.]

[removed: In some cases, we purchase] derivatives or enter into contracts to insulate our results of operations from these fluctuations.

During 2015, we derived approximately 38% of our revenues from international business, including U.S. exports, and we expect international revenues to continue to increase.

In some cases, we purchase

We expect that our international business and our investment in emerging market countries will continue to increase.

regulations; production partners; product liability; patent and trademark infringement; employment disputes; and environmental, safety and health matters.

In addition, medical costs are rising at a rate faster than the general inflation rate.

Continued medical cost inflation in excess of the general inflation rate would increase the risk that we will not be able to mitigate the rising costs of medical benefits.

Moreover, we expect that some of the requirements of the new comprehensive healthcare law will increase our future costs.

Increases to the costs of pension and medical benefits could have an adverse effect on our results of operations.

jurisdictions.

Several highlights of [removed: the year] [added: 2015] include the following:

· Raised diluted earnings per share from continuing operations by [removed: 23%.][added: 16%, from $2.15 to $2.50.]

A more detailed analysis of our segments’ operating results is provided in the Segment Analysis section on pages [removed: 21] [added: 20] to [removed: 28.][added: 27.]

| _(Dollars in millions)_ | | [removed: 2014] [added: 2015] | | [added: 2014] | [added: |] 2013 | | [added: 2015] | [removed: 2012] [added: 2014] |

| Revenues | [added: |] $ | [removed: 13,878] [added: 13,423] | [added: $] | [added: 13,878 |] $ | 12,104 | [removed: | $] [added: (3)%] | [removed: 12,237] [added: 15%] |

Revenues decreased [removed: $133] [added: $455] million, [removed: 1%,] [added: 3%,] in [removed: 2013,] [added: 2015,] compared with [removed: 2012,] [added: 2014,] as decreases in the [removed: Textron Aviation, Finance] [added: Bell] and Textron Systems segments were partially offset by higher revenues in the [removed: Bell] [added: Textron Aviation] and Industrial segments.

[added: |] · [added: |] Lower Textron Systems revenues of [removed: $72] [added: $104] million, [removed: largely] [added: primarily] due to lower volume [removed: of $51 million] in the [removed: Marine and Land] [added: Unmanned] Systems product [removed: line and] [added: line, largely reflecting] lower [removed: volume of $28 million] [added: deliveries] in the [removed: Unmanned Systems product line.][added: fourth quarter. |]

[added: |] · [added: |] Higher Industrial segment revenues of [removed: $112] [added: $206] million, primarily due to higher volume of [removed: $58 million] [added: $357 million, largely in the Fuel Systems] and [added: Functional Components product line, and] the impact from acquisitions of [removed: $46] [added: $103 million, partially offset by an unfavorable foreign exchange impact of $240] million. [added: |]

| _(Dollars in millions)_ | | [added: 2015 | |] 2014 | | 2013 | | [removed: 2012] [added: 2015] | [added: 2014] |

| Operating expenses | | $ | [added: 12,283 | $ |] 12,782 | $ | 11,257 | [removed: $] [added: (4)%] | [removed: 11,184] [added: 14%] |

| Cost of sales | | [added: | 10,979 | |] 11,421 | | 10,131 | [removed: | 10,019] [added: (4)%] | [added: 13%] |

| [removed: _Gross] [added: Gross] margin as a percentage of Manufacturing [removed: revenues_] [added: revenues] | | [removed: _17.1%_] | [added: 17.7%] | [removed: _15.4%_] | [added: 17.1%] | [removed: _16.7%_] | [added: 15.4%] | [added: | |]

| Selling and administrative expenses | | [added: $ | 1,304 | $ |] 1,361 | [added: $] | 1,126 | [removed: | 1,165] [added: (4)%] | [added: 21%] |

[removed: Cost] [added: Manufacturing cost] of sales increased $1.3 billion, 13%, in 2014, compared with 2013, largely due to the impact of acquired businesses, primarily Beechcraft.

In 2014, gross margin as a percentage of manufacturing revenues increased 170 [removed: basis points] [added: basis-points] largely due to improved leverage resulting from higher revenues primarily at [added: the] Textron [removed: Aviation.][added: Aviation segment.]

These increases were partially offset by $28 million in severance costs incurred in 2013 in connection with a voluntary separation program at [added: the] Textron [removed: Aviation.][added: Aviation segment.]

[removed: Manufacturing cost] [added: Cost] of sales [removed: increased $112] [added: decreased $442] million, [removed: 1%,] [added: 4%,] in [removed: 2013,] [added: 2015,] compared with [removed: 2012, primarily] [added: 2014, largely] due to [removed: higher] [added: lower] volume at [added: the] Bell [added: segment] and [removed: the] [added: a $217 million favorable foreign exchange] impact [added: mostly] from [removed: businesses acquired in 2013,] [added: the strengthening of the U.S. dollar against the Euro,] partially offset by [removed: lower sales] [added: higher volume] at [removed: Textron Aviation] [added: the Industrial segment,] and [removed: Textron Systems.][added: an increase from acquired businesses, primarily Beechcraft.]

In [removed: connection with the integration of Beechcraft,] [added: 2014,] we [removed: initiated] [added: executed] a restructuring program in our Textron Aviation segment [removed: 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 [removed: activities that] [added: activities, along with $11 million of transaction costs, which] were included in the Acquisition and restructuring costs line on the Consolidated Statements of Operations.

| Interest expense | | $ | [added: 169 | $ |] 191 | $ | 173 | [removed: $] [added: (12)%] | [removed: 212] [added: 10%] |

Interest expense on the Consolidated [removed: Statement] [added: Statements] of Operations includes interest for both the [removed: Manufacturing and] Finance [added: and Manufacturing] borrowing groups with interest related to intercompany borrowings eliminated.

[removed: Consolidated] [added: In 2014, consolidated] interest expense increased $18 million, 10%, [removed: in 2014,] compared with 2013, primarily due to a $31 million impact related to financing the Beechcraft acquisition, partially offset by $9 million of lower interest expense due to the maturity of our convertible notes in the second quarter of 2013.

[removed: In 2013, consolidated] [added: Consolidated] interest expense decreased [removed: $39] [added: $22] million, [removed: 18%,] [added: 12%, in 2015,] compared with [removed: 2012,] [added: 2014,] primarily due to [added: favorable borrowing costs and] lower average debt outstanding.

Our effective tax rate was [added: 28.1%,] 29.1% [removed: in 2014,] [added: and] 26.1% in [removed: 2013] [added: 2015, 2014] and [removed: 30.9% in 2012.][added: 2013, respectively.]

This rate generally differs from the U.S. federal statutory tax rate of 35% due to certain earnings from operations in lower-tax jurisdictions throughout the world, as well as the [added: domestic manufacturing deduction and the] research [added: and development] credit.

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

[removed: In 2014, this] [added: This] credit was [added: subsequently] extended [removed: through the end of 2014,] [added: in 2014 and in 2015,] resulting in a 1.5% reduction in our effective tax [removed: rate.][added: rate for each year.]

We operate in, and report financial information for, the following five business segments: Textron Aviation, [removed: which consists of the legacy Cessna segment combined with the recently-acquired Beechcraft business,] Bell, Textron Systems, Industrial and Finance.

Approximately [removed: 28%] [added: 24%] of our [removed: 2014] [added: 2015] revenues were derived from contracts with the U.S. Government.

| _(Dollars in millions)_ | | [added: 2015 | |] 2014 | | 2013 | | [removed: 2012 |] [added: 2015] | 2014 | [removed: 2013 |]

| Revenues | | $ | [removed: 4,568] [added: 4,822] | $ | [removed: 2,784] [added: 4,568] | $ | [removed: 3,111] [added: 2,784] | [removed: 64%] [added: 6%] | [removed: (11)%] [added: 64%] |

| Operating expenses | | [removed: 4,334] | [added: 4,422] | [removed: 2,832] | [added: 4,334] | [removed: 3,029] | [added: 2,832] | [removed: 53%] [added: 2%] | [removed: (7)%] [added: 53%] |

| Segment profit (loss) | | [removed: 234] | [added: 400] | [removed: (48)] | [added: 234] | [removed: 82] | [added: (48)] | [removed: —] [added: 71%] | — |

| Profit margin | | [removed: 5.1%] | [added: 8.3%] | [removed: (1.7)%] | [added: 5.1%] | [removed: 2.6%] | [added: (1.7)%] | | |

| Backlog | | $ | [removed: 1,365] [added: 1,074] | $ | [removed: 1,018] [added: 1,365] | $ | [removed: 1,062] [added: 1,018] | [removed: 34%] [added: (21)%] | [removed: (4)%] [added: 34%] |

| [removed: _(In millions)_] [added: (_In millions_)] | | [added: | | | | | | | | | | | | | | |] 2014 versus 2013 | | |

| Acquisitions | | [added: | | | | | | | | | | | | | | |] $ | 1,480 | |

| Volume | | [added: | | | | | | | | | | | | | | |] 263 | | |

| Pricing | | [added: | | | | | | | | | | | | | | |] 41 | | |

| Total change | | [added: | | | | | | | | | | | | | | |] $ | 1,784 | |

For Textron, 2015 was a year of solid execution across our business segments.

We improved operational performance enabling us to increase profitability despite an overall decline in revenues.

In addition, we continued our strategy of development and investment in new products to position our businesses for future growth.

· Improved gross margin by 60 basis-points from 17.1% to 17.7%.

· Grew segment profit to $1.3 billion, a 3% increase, despite a 3% decline in revenues.

· Generated $1.0 billion in cash from operating activities of our manufacturing businesses.

· Increased our investment in research and development activities by 12% to $778 million.

· Invested $420 million in capital expenditures and $81 million in complementary acquisitions.

· Returned $241 million to our shareholders through share repurchases and dividend payments.

· Reduced our debt-to-capital, net of cash ratio to 26% from 33%.

| · | Lower Bell revenues of $791 million, largely due to a decrease of $577 million in V-22 program revenues, primarily reflecting lower aircraft deliveries, a decrease of $193 million in commercial revenues, largely related to a change in mix of commercial aircraft sold during the period, and lower commercial aftermarket volume of $92 million. |

| --- | --- |

| · | Higher Textron Aviation revenues of $254 million, primarily due to the first quarter impact of the Beechcraft acquisition of $219 million and higher volume and mix of $35 million. We completed the acquisition of Beechcraft on March 14, 2014, and as a result, 2014 does not reflect a full twelve months of its revenues. |

The 60 basis-point improvement in gross margin was largely driven by the Textron Aviation segment, primarily reflecting the net impact of the Beechcraft acquisition, which includes the benefit of the integrated cost structure of Beechcraft and Cessna, and lower amortization of fair value step-up adjustments related to acquired Beechcraft inventories.

Selling and administrative expense decreased $57 million, 4%, in 2015, compared with 2014.

Significant factors contributing to the decrease in expense include a favorable impact from ongoing cost reduction activities at the Bell Segment and lower share-based compensation expense of $22 million, which were partially offset by an increase from acquired businesses, primarily Beechcraft.

| | | | | | | | | | |

Interest expense for the Finance segment is included within segment profit and includes intercompany interest.

Revenues generated by acquired businesses are reflected in Acquisitions for a twelve-month period.

| (_In millions_) | | | | | | | | | | | | | | | | | 2015 versus 2014 | | |

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

Textron Aviation’s revenues increased $254 million, 6%, in 2015, compared with 2014, primarily due to the first quarter impact of the Beechcraft acquisition of $219 million and higher volume and mix of $35 million.

We delivered 166 Citation jets and 117 King Air turboprops in 2015, compared with 159 Citation jets and 113 King Air turboprops in 2014.

The portion of the segment’s revenues derived from aftermarket sales and services represented 29% of its total revenues in 2015, compared with 30% in 2014.

Textron Aviation’s operating expenses increased $88 million in 2015, compared with 2014, primarily due to the incremental operating costs related to the Beechcraft acquisition and higher volume, partially offset by lower amortization of $51 million related to fair value step-up adjustments of acquired Beechcraft inventories sold during the period.

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

| (_In millions_) | | | | | | | | | | | | | | | | | 2015 versus 2014 | | |

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

| Performance and other | | | | | | | | | | | | | | | | | $ | 119 | |

Segment profit at Textron Aviation increased $166 million, 71%, in 2015, compared with 2014, primarily due to an increase in performance and other, reflecting the net profit impact from the Beechcraft acquisition, which includes the benefit of the integrated cost structure of Beechcraft and Cessna, and lower amortization of $51 million related to fair value step-up adjustments as described above.

Segment profit was also favorably impacted by higher volume as well as the mix of products sold.

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

Textron Aviation’s backlog decreased $291 million, 21%, in 2015, primarily due to deliveries on military contracts.

In 2014, backlog increased $347 million, 34%, which included the impact of the Beechcraft acquisition.

| | | | | | | | | % Change | |

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

Factors contributing to the 2015 year-over-year revenue change are provided below:

| (_In millions_) | | | | | | | | | | | | | | | | | 2015 versus 2014 | | |

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

| Volume and mix | | | | | | | | | | | | | | | | | $ | (807 | ) |

Our revenues increased 15% in 2014 reflecting the success of our strategy of investing in new products and complementary acquisitions.

· Invested $694 million in research and development activities demonstrating our continued commitment to expand our current product lines across our businesses.

· Invested $1.6 billion in strategic acquisitions along with $429 million in capital expenditures.

· Delivered strong cash flow performance as manufacturing operating cash flows from continuing operations increased 67% to $1.1 billion.

· Grew segment profit by 26% to $1.2 billion.

On March 14, 2014, we completed the acquisition of Beech Holdings, LLC, which included Beechcraft Corporation and other subsidiaries, (collectively “Beechcraft”); this business and the legacy Cessna segment were combined to form a new segment named Textron Aviation.

We also made seven acquisitions in the Industrial and Textron Systems segments, which complemented our products and services.

The results of these acquisitions are included in Textron’s consolidated financial statements only for the period subsequent to the completion of each acquisition and do not reflect a full year of operations.

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

| _% change compared with prior period_ | | _15_ | _%_ | | _(1)_ | _%_ | | |

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

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

· Higher Bell revenues of $237 million, largely due to higher volume of $163 million in our military programs, primarily reflecting higher V-22 deliveries and aftermarket volume, and $74 million of higher commercial revenues, largely due to higher aircraft volume.

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

| _% change compared with prior period_ | | _13%_ | | _1%_ | | | |

| _% change compared with prior period_ | | _21%_ | | _(3)%_ | | | |

| | | | | | | | |

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

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

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

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.

| _% change compared with prior period_ | | _10%_ | | _(18)%_ | | | |

Acquisitions refers to the revenues generated from businesses that were acquired within the previous 12 months.

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

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

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

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

During 2013, the portion of Textron Aviation’s revenues derived from aftermarket sales and services increased to 33%, compared with 25% in 2012, due to higher aftermarket volume and the impact of lower Citation jet revenues.

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

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

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

| Inflation, net of pricing | | (21 | | ) |

Textron Aviation’s segment profit decreased $130 million in 2013, compared with 2012, primarily due to a $99 million impact from lower volume as described above and $21 million in inflation, net of pricing, largely due to higher pension expense of $17 million.

Segment profit was also impacted by $28 million in severance costs incurred in 2013, largely offset by a $27 million charge from an unfavorable arbitration award incurred in 2012.

Textron Aviation’s backlog increased $347 million, 34%, in 2014 and decreased $44 million, 4%, in 2013.

The increase in 2014 included the Beechcraft acquisition.

Bell delivered 178 commercial aircraft in 2014, compared with 213 commercial aircraft in 2013.

Lower volume was partially offset by $41 million recorded in the second quarter of 2014, related to the settlement of the SDD phase of the ARH program, which was terminated in October 2008.

Bell delivered 24 H-1 aircraft in 2014, compared with 25 aircraft in 2013.

The notional amount of outstanding foreign currency exchange contracts was approximately [removed: $696] [added: $706] million and [removed: $636] [added: $696] million at the end of [removed: 2014] [added: 2015] and [removed: 2013,] [added: 2014,] respectively.

The impact of foreign currency exchange rate changes on revenues and segment profit for 2014 and 2013 [removed: from the prior year] was not significant.

The financial instruments that are subject to market risk [removed: (interest rate risk and foreign exchange rate risk)] include finance receivables (excluding leases), debt (excluding [added: capital] lease obligations) and foreign currency exchange contracts.

[removed: We estimate the] [added: The] fair value of [removed: the] [added: these] financial instruments [added: is estimated] using discounted cash flow analysis and indicative market pricing as reported by leading financial news and data providers.

[removed: The following table illustrates] [added: To quantify] the [added: market risk inherent in these financial instruments, we utilize a] sensitivity [removed: to] [added: analysis that includes] a hypothetical change in [removed: the] fair value [removed: of the financial instruments] assuming a 10% decrease in interest rates and a 10% strengthening in [added: foreign] exchange rates against the U.S. dollar.

| (_In millions_) | | Carrying Value* | | | Fair Value* | | [added: |] Sensitivity of Fair Value to a 10% Change | | | [removed: | |] Carrying Value* | | | Fair Value* | | [added: |] Sensitivity of Fair Value to a 10% Change | | | [removed: |]

| Manufacturing group | | | | | | | | | | | | | | | | | | | | [removed: |]

| _Foreign exchange rate risk_ | | | | | | | | | | | | | | | | | | | | [removed: |]

| Debt | | $ | [removed: (236] [added: (224] | ) | $ | [removed: (277] [added: (250] | ) | $ | [removed: (28] [added: (25] | ) | [removed: |] $ | [removed: (249] [added: (236] | ) | $ | [removed: (275] [added: (277] | ) | $ | [removed: (27] [added: (28] | ) |

| Foreign currency exchange contracts | | [removed: (11] [added: (21] | | ) | [removed: (11] [added: (21] | | ) | [removed: 52 |] [added: 31] | | | [removed: (12] [added: (11] | | ) | [removed: (12] [added: (11] | | ) | [removed: 33] [added: 52] | | |

| _Interest rate risk_ | | | | | | | | | | | | | | | | | | | | [removed: |]

| Debt | | $ | [removed: (2,742] [added: (2,628] | ) | $ | [removed: (2,944] [added: (2,744] | ) | $ | [removed: (21] [added: (18] | ) | [removed: |] $ | [removed: (1,854] [added: (2,742] | ) | $ | [removed: (2,027] [added: (2,944] | ) | $ | [removed: (13] [added: (21] | ) |

| Finance group | | | | | | | | | | | | | | | | | | | | [removed: |]

| Finance receivables | | $ | [removed: 1,039] [added: 894] | | $ | [removed: 1,056] [added: 850] | | $ | [removed: 20 |] [added: 21] | | $ | [removed: 1,296] [added: 1,039] | | $ | [removed: 1,356] [added: 1,056] | | $ | [removed: 24] [added: 20] | |

| Debt, including intergroup | | [removed: (1,063] [added: (913] | | ) | [removed: (1,051] [added: (840] | | ) | [removed: 9 |] [added: 19] | | | [removed: (1,256] [added: (1,063] | | ) | [removed: (1,244] [added: (1,051] | | ) | [removed: (4] [added: 9] | | [removed: )] |

Foreign currency exchange rate changes decreased both revenues and segment profit in 2015 by $244 million and $20 million, respectively.

At the end of each year, the table below provides the carrying and fair values of these financial instruments along with the sensitivity of fair value to the hypothetical changes discussed above.

| | | 2015 | | | | | | | | | 2014 | | | | | | | | |

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

| | | $ | (245 | ) | $ | (271 | ) | $ | 6 | | $ | (247 | ) | $ | (288 | ) | $ | 24 | |

| _Interest rate risk_ | | | | | | | | | | | | | | | | | | | |

To quantify the market risk inherent in our financial instruments, we utilize a sensitivity analysis.

Presented below is a sensitivity analysis of the fair value of financial instruments outstanding at year-end.

| | | 2014 | | | | | | | | | | 2013 | | | | | | | | |

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

| | | $ | (247 | ) | $ | (288 | ) | $ | 24 | | | $ | (261 | ) | $ | (287 | ) | $ | 6 | |

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

We have approximately [removed: 34,000] [added: 35,000] employees worldwide.

Financial information by business segment and geographic area appears in Note 15 to the Consolidated Financial Statements on pages [removed: 72] [added: 66] through [removed: 73] [added: 67] of this Annual Report on Form 10-K.

The following description of our business should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages [removed: 19] [added: 18] through [removed: 36] [added: 33] of this Annual Report on Form 10-K.

Aircraft sales include business jets, turboprop aircraft, piston [added: engine] aircraft, and military trainer and defense aircraft.

Aftermarket includes [added: commercial] parts sales, and maintenance, inspection and repair services.

Revenues in the Textron Aviation segment accounted for approximately [removed: 33%, 23%] [added: 36%, 33%] and [removed: 25%] [added: 23%] of our total revenues in [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012,] [added: 2013,] respectively.

| [removed: _(In millions)_] [added: (_In millions_)] | | [added: | | | | | | | | | 2015 | | |] 2014 | | [added: |] 2013 | | [removed: 2012] |

| Aircraft sales | [added: | | | | | | | | | |] $ | [removed: 3,182] [added: 3,404] | [added: |] $ | [removed: 1,868] [added: 3,182] | [added: |] $ | [removed: 2,318] [added: 1,868] | [added: |]

| Aftermarket | | [added: | | | | | | | | | 1,418 | | |] 1,386 | | [added: |] 916 | | [removed: 793] |

| Total revenues | [added: | | | | | | | | | |] $ | [removed: 4,568] [added: 4,822] | [added: |] $ | [removed: 2,784] [added: 4,568] | [added: |] $ | [removed: 3,111] [added: 2,784] | [added: |]

The family of jets currently produced by Textron Aviation includes the Mustang, Citation M2, Citation CJ3+, Citation CJ4, Citation XLS+, Citation [removed: Sovereign+] [added: Latitude, which entered into service during 2015, Citation Sovereign+,] and the [removed: recently certified] Citation X+, the fastest civilian jet in the world.

Textron Aviation’s [removed: single-engine] piston [added: engine] aircraft include the [removed: Baron,] [added: Beechcraft Baron and] Bonanza, [removed: Skyhawk SP,] [added: and the Cessna Skyhawk, Skylane,] Turbo Stationair and the high performance TTx.

More than [removed: 25] [added: 20] countries [removed: now operate] [added: utilize] the T-6 aircraft as a part of their military training fleet.

[removed: The Textron Aviation] [added: In support of its] family of [removed: aircraft is supported by] [added: aircraft, Textron Aviation operates] a global network of 21 service [removed: centers operated by Textron Aviation,] [added: centers,] two of which are co-located with Bell Helicopter, along with [removed: 401] [added: more than 400] authorized independent service centers located in [removed: 49] [added: 50] countries throughout the world.

[added: Textron] Aviation provides its customers with around-the-clock parts support and also offers ServiceDirect® for Citation, King Air and Hawker aircraft.

ServiceDirect® delivers service capabilities directly to customer locations with a mobile service unit fleet in the [removed: United States,] [added: U.S.,] Canada and Europe.

Revenues for Bell accounted for approximately [removed: 31%, 37%] [added: 26%, 31%] and [removed: 35%] [added: 37%] of our total revenues in [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012,] [added: 2013,] respectively.

| Military: | | | | | | | [added: | | | | | | | | | | | | |]

| V-22 Program | [added: | | | | | | | | | |] $ | [removed: 1,771] [added: 1,194] | [added: |] $ | [removed: 1,755] [added: 1,771] | [added: |] $ | [removed: 1,611] [added: 1,755] | [added: |]

| Other Military | | [added: | | | | | | | | | 839 | | |] 860 | | [added: |] 959 | | [removed: 940] |

| Commercial | | [added: | | | | | | | | | | 1,421 | | |] 1,614 | | [removed: 1,797] | [added: 1,797] | [removed: 1,723] |

| Total revenues | [added: | | | | | | | | | |] $ | [removed: 4,245] [added: 3,454] | [added: |] $ | [removed: 4,511] [added: 4,245] | [added: |] $ | [removed: 4,274] [added: 4,511] | [added: |]

Through its strategic alliance with Boeing, Bell produces and supports the V-22 tiltrotor aircraft for the U.S. Department of Defense [removed: (DoD).][added: (DoD), and recently entered into its first contract to sell the V-22 tiltrotor aircraft under the U.S. Government sponsored foreign military sales program.]

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

The new 505 Jet Ranger X, a short-light single helicopter, [removed: achieved its first flight] [added: is expected to receive certification and begin deliveries] in [removed: late 2014.][added: 2016.]

In addition, Bell [removed: continues to develop] [added: achieved first flight in 2015 for] the 525 Relentless, its first super medium commercial helicopter, and [removed: first flight is expected] [added: expects certification] in [removed: 2015.][added: 2017.]

For both its military programs and its commercial products, Bell provides post-sale support and service for an installed base of approximately 13,000 helicopters through a network of eight Bell-operated service centers, [removed: four supply] [added: five global parts distribution] centers and over 100 independent service centers located in 34 countries.

Textron Systems is a supplier to the defense, aerospace and general aviation markets, and represents approximately [removed: 12%, 14%] [added: 11%, 12%] and 14% of [removed: Textron’s] [added: our total] revenues in [removed: 2014, 2013] [added: 2015, 2014] and [removed: 2012,] [added: 2013,] respectively.

| Unmanned Systems | [added: | | | | | | | | | |] $ | [removed: 797] [added: 686] | [added: |] $ | [removed: 666] [added: 797] | [added: |] $ | [removed: 694] [added: 666] | [added: |]

| Weapons and Sensors | | [added: | | | | | | | | | | 255 | | |] 264 | | [removed: 311] | [added: 311] | [removed: 285] |

| Marine and Land Systems | | [added: | | | | | | | | | 188 | | |] 158 | | [added: |] 392 | | [removed: 443] |

| Simulation, Training and Other | | [added: | | | | | | | | | | 391 | | |] 405 | | [removed: 296] | [added: 296] | [removed: 315] |

| Total revenues | [added: | | | | | | | | | |] $ | [removed: 1,624] [added: 1,520] | [added: |] $ | [removed: 1,665] [added: 1,624] | [added: |] $ | [removed: 1,737] [added: 1,665] | [added: |]

It produces a family of extremely mobile, highly protective vehicles for the U.S. Army and international allies, and is developing the U.S. Navy’s next generation [removed: air cushion vehicle.][added: Landing Craft Air Cushion as part of the Ship-to-Shore Connector program.]

Through its training centers, TRU Simulation + Training provides initial type-rating and recurrency training for [removed: pilots.][added: pilots, as well as maintenance training in its recently opened Aviation Maintenance Training Academy.]

Our Industrial segment designs and manufactures a variety of products [removed: under] [added: within] three principal product lines.

| Fuel Systems and Functional Components | [added: | | | | | | | | | |] $ | [removed: 1,975] [added: 2,078] | [added: |] $ | [removed: 1,853] [added: 1,975] | [added: |] $ | [removed: 1,842] [added: 1,853] | [added: |]

| Specialized Vehicles and Equipment | | [added: | | | | | | | | | | 1,021 | | |] 868 | | [removed: 713] | [added: 713] | [removed: 660] |

| Tools and Test Equipment | | [added: | | | | | | | | | 445 | | |] 495 | | [added: |] 446 | | [removed: 398] |

| Total revenues | [added: | | | | | | | | | |] $ | [removed: 3,338] [added: 3,544] | [added: |] $ | [removed: 3,012] [added: 3,338] | [added: |] $ | [removed: 2,900] [added: 3,012] | [added: |]

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

In addition, Textron Aviation is developing the Citation Longitude, a super-midsize jet expected to enter into service in 2017, and recently announced the Citation Hemisphere, a large-cabin jet for which first flight is targeted in 2019.

Textron Aviation’s turboprop aircraft include the Beechcraft King Air, which offers the King Air C90GTx, King Air 250, King Air 350ER and King Air 350i, and the Cessna Caravan, a utility turboprop.

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

| (_In millions_) | | | | | | | | | | | 2015 | | | 2014 | | | 2013 | | |

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

| (_In millions_) | | | | | | | | | | | 2015 | | | 2014 | | | 2013 | | |

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

Although Textron Specialized Vehicles is

| (_In millions_) | | | | | | | | | | | | | | January 2, 2016 | | | January 3, 2015 | | |

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

· Cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption.

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

In addition, Textron Aviation is developing the Citation Latitude, a midsize business jet expected to enter into service in 2015, as well as the larger Citation Longitude expected to enter into service in 2017.

Textron Aviation’s turboprop aircraft include the best-selling business turboprop family in the world, the King Air, which offers the King Air C90GTx, with recently announced performance enhancements, the King Air 250, available with a new payload upgrade and the King Air 350.

The world’s best-selling utility turboprop, the Cessna Caravan, is used in the United States primarily for overnight express package shipments and for personal transportation.

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

The Turbo Skylane JT-A, Textron Aviation’s first Jet-A fueled piston aircraft is expected to be certified and begin delivering in 2015.

During 2014, Textron Aviation received new orders from the U.S. Government, Mexico and New Zealand for T-6 aircraft.

Textron

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

CJ4; Clairity; CLAW; Commando; Corvalis; Cushman; DataScout; Dixie Chopper; Eclipse; Excel; Extreme; Extreme Ti-METAL; E-Z-GO; Fury; GTS-1930 Saber, G3 Tugger; GatorEye; Gator Grips; GLOBAL MISSION SUPPORT; Grand Caravan; Greenlee; H-1; HDE; Hawker; Huey; Huey II; iCommand; IE2; Instinct; Integrated Command Suite; Jacobsen; Jet Ranger X; Kautex; King Air; King Air C90GTx; King Air

counsel of Siemens AG for the Americas since 2008.

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

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

For the fiscal year ended January [removed: 3, 2015][added: 2, 2016]

The aggregate market value of the registrant’s Common Stock held by non-affiliates at [removed: June 28, 2014] [added: July 4, 2015] was approximately [removed: $10.8] [added: $12.3] billion based on the New York Stock Exchange closing price for such shares on that date.

At February [removed: 7, 2015, 276,834,630] [added: 6, 2016, 271,171,585] shares of Common Stock were outstanding.

Part III of this Report incorporates information from certain portions of the registrant’s Definitive Proxy Statement for its Annual Meeting of Shareholders to be held on April [removed: 22, 2015.][added: 27, 2016.]

| [removed: [PART I](#Parti_080153] [added: [PART I](#PARTI_095739] "Click to goto [removed: ")] [added: ")] | | Page |

| [Item [removed: 1.](#Item1_Business_080155)] [added: 1.](#Item1_Business_095740)] | [removed: [Business](#Item1_Business_080155)] [added: [Business](#Item1_Business_095740)] | 3 |

| [Item [removed: 1A.](#Item1a_RiskFactors_081935)] [added: 1A.](#Item1A_RiskFactors_103808)] | [Risk [removed: Factors](#Item1a_RiskFactors_081935)] [added: Factors](#Item1A_RiskFactors_103808)] | 10 |

| [Item [removed: 1B.](#Item1b_UnresolvedStaffComments_082320)] [added: 1B.](#Item1B_UnresolvedStaffComments_103943)] | [Unresolved Staff [removed: Comments](#Item1b_UnresolvedStaffComments_082320)] [added: Comments](#Item1B_UnresolvedStaffComments_103943)] | 15 |

| [Item [removed: 2.](#Item2_Properties_082329)] [added: 2.](#Item2_Properties_103946)] | [removed: [Properties](#Item2_Properties_082329)] [added: [Properties](#Item2_Properties_103946)] | 15 |

| [Item [removed: 3.](#Item3_LegalProceedings_082331)] [added: 3.](#Item3_LegalProceedings_103947)] | [Legal [removed: Proceedings](#Item3_LegalProceedings_082331)] [added: Proceedings](#Item3_LegalProceedings_103947)] | 15 |

| [Item [removed: 4.](#Item4_MineSafetyDisclosures_082347)] [added: 4.](#Item4_MineSafetyDisclosures_103954)] | [Mine Safety [removed: Disclosures](#Item4_MineSafetyDisclosures_082347)] [added: Disclosures](#Item4_MineSafetyDisclosures_103954)] | 15 |

| [removed: [PART II](#Partii_082815] [added: [PART II](#PARTII_114423] "Click to goto [removed: ")] [added: ")] | | |

| [Item [removed: 5.](#Item5_MarketForRegistrantsCommonE_082813)] [added: 5.](#Item5_MarketforRegistrantsCommon_114424)] | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#Item5_MarketForRegistrantsCommonE_082813)] [added: Securities](#Item5_MarketforRegistrantsCommon_114424)] | 16 |

| [Item [removed: 6.](#Item6_SelectedFinancialData_084536)] [added: 6.](#Item6_SelectedFinancialData_112026)] | [Selected Financial [removed: Data](#Item6_SelectedFinancialData_084536)] [added: Data](#Item6_SelectedFinancialData_112026)] | [removed: 18] [added: 17] |

| [Item [removed: 7.](#Item7_ManagementsDiscussionAndAna_084617)] [added: 7.](#Item7_ManagementsDiscussionandAn_121220)] | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#Item7_ManagementsDiscussionAndAna_084617)] [added: Operations](#Item7_ManagementsDiscussionandAn_121220)] | [removed: 19] [added: 18] |

| [Item [removed: 7A.](#Item7a_QuantitativeAndQualitative_075333)] [added: 7A.](#Item7A_QuantitativeandQualitativ_112509)] | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#Item7a_QuantitativeAndQualitative_075333)] [added: Risk](#Item7A_QuantitativeandQualitativ_112509)] | [removed: 36] [added: 33] |

| [Item [removed: 8.](#Item8_FinancialStatementsAndSuppl_075402)] [added: 8.](#Item8_FinancialStatementsandSupp_045722)] | [Financial Statements and Supplementary [removed: Data](#Item8_FinancialStatementsAndSuppl_075402)] [added: Data](#Item8_FinancialStatementsandSupp_045722)] | [removed: 37] [added: 35] |

| [Item [removed: 9.](#Item9_ChangesInAndDisagreementsWi_104009)] [added: 9.](#Item9_ChangesInandDisagreementsW_041559)] | [Changes In and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#Item9_ChangesInAndDisagreementsWi_104009)] [added: Disclosure](#Item9_ChangesInandDisagreementsW_041559)] | [removed: 76] [added: 70] |

| [Item [removed: 9A.](#Item9a_ControlsAndProcedures_104048)] [added: 9A.](#Item9A_ControlsandProcedures_041600)] | [Controls and [removed: Procedures](#Item9a_ControlsAndProcedures_104048)] [added: Procedures](#Item9A_ControlsandProcedures_041600)] | [removed: 76] [added: 70] |

| [removed: [PART III](#Partiii_104042] [added: [PART III](#PARTIII_112135] "Click to goto [removed: ")] [added: ")] | | |

| [Item [removed: 10.](#Item10_DirectorsExecutiveOfficers_104041)] [added: 10.](#Item10_DirectorsExecutiveOfficer_112137)] | [Directors, Executive Officers and Corporate [removed: Governance](#Item10_DirectorsExecutiveOfficers_104041)] [added: Governance](#Item10_DirectorsExecutiveOfficer_112137)] | [removed: 76] [added: 72] |

| [Item [removed: 11.](#Item11_ExecutiveCompensation_104059)] [added: 11.](#Item11_ExecutiveCompensation_112140)] | [Executive [removed: Compensation](#Item11_ExecutiveCompensation_104059)] [added: Compensation](#Item11_ExecutiveCompensation_112140)] | [removed: 76] [added: 72] |

| [Item [removed: 12.](#Item12_SecurityOwnershipOfCertain_104121)] [added: 12.](#Item12_SecurityOwnershipofCertai_112142)] | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#Item12_SecurityOwnershipOfCertain_104121)] [added: Matters](#Item12_SecurityOwnershipofCertai_112142)] | [removed: 77] [added: 72] |

| [Item [removed: 13.](#Item13_CertainRelationshipsAndRel_104123)] [added: 13.](#Item13_CertainRelationshipsandRe_112143)] | [Certain Relationships and Related Transactions and Director [removed: Independence](#Item13_CertainRelationshipsAndRel_104123)] [added: Independence](#Item13_CertainRelationshipsandRe_112143)] | [removed: 77] [added: 72] |

| [Item [removed: 14.](#Item14_PrincipalAccountantFeesAnd_104128)] [added: 14.](#Item14_PrincipalAccountantFeesan_112147)] | [Principal Accountant Fees and [removed: Services](#Item14_PrincipalAccountantFeesAnd_104128)] [added: Services](#Item14_PrincipalAccountantFeesan_112147)] | [removed: 77] [added: 72] |

| [removed: [PART IV](#Partiv_104131] [added: [PART IV](#PARTIV_112203] "Click to goto [removed: ")] [added: ")] | | |

| [Item [removed: 15.](#Item15_ExhibitsAndFinancialStatem_104132)] [added: 15.](#Item15_ExhibitsandFinancialState_112206)] | [Exhibits and Financial Statement [removed: Schedules](#Item15_ExhibitsAndFinancialStatem_104132)] [added: Schedules](#Item15_ExhibitsandFinancialState_112206)] | [removed: 77] [added: 72] |

| [removed: [SIGNATURES](#Signatures_105517] [added: [SIGNATURES](#Signatures_071120] "Click to goto ") | | [removed: 82] [added: 77] |

10-K 1 a15-23451_110k.htm 10-K

For the Fiscal Year Ended January 2, 2016

10-K 1 a14-26298_110k.htm 10-K

| | | |

| [Item 9B.](#Item9b_OtherInformation_104045) | [Other Information](#Item9b_OtherInformation_104045) | 76 |

On January [removed: 3, 2015,] [added: 2, 2016,] we operated a total of [removed: 56] [added: 59] plants located throughout the U.S. and [removed: 54] [added: 52] plants outside the U.S. We own [removed: 59] [added: 57] plants and lease the remainder for a total manufacturing space of approximately [removed: 23.4] [added: 24.3] million square feet.

We also own or lease offices, warehouses, [added: training and] service centers and other space at various locations.

The principal market on which our common stock is traded is the New York Stock Exchange under the symbol “TXT.” At January [removed: 3, 2015,] [added: 2, 2016,] there were approximately [removed: 10,700] [added: 10,000] record holders of Textron common stock.

| First quarter | | $ | [removed: 40.18] [added: 45.61] | | $ | [removed: 34.28] [added: 40.95] | | $ | 0.02 | | | $ | [removed: 31.30] [added: 40.18] | | $ | [removed: 23.94] [added: 34.28] | | $ | 0.02 | |

| Second quarter | | [removed: 40.93] [added: 46.93] | | | [removed: 36.96] [added: 42.97] | | | 0.02 | | | | [removed: 30.22] [added: 40.93] | | | [removed: 24.87] [added: 36.96] | | | 0.02 | | |

| Third quarter | | [removed: 39.03] [added: 44.98] | | | [removed: 35.54] [added: 32.20] | | | 0.02 | | | | [removed: 29.81] [added: 39.03] | | | [removed: 25.36] [added: 35.54] | | | 0.02 | | |

| Fourth quarter | | [removed: 44.23] [added: 43.93] | | | [removed: 32.28] [added: 38.18] | | | 0.02 | | | | [removed: 37.43] [added: 44.23] | | | [removed: 26.17] [added: 32.28] | | | 0.02 | | |

The following provides information about our fourth quarter [removed: 2014] [added: 2015] repurchases of equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:

| Period _(shares in thousands)_ | | [removed: Total Number of Shares Purchased (1)] [added: Total Number of Shares Purchased (1)] | | Average Price Paid per Share (excluding commissions) | | | Total Number [removed: of Shares] [added: of Shares] Purchased as part of Publicly Announced [removed: Plan (1)] [added: Plan (1)] | | [removed: Maximum Number] [added: Maximum Number] of Shares that may yet be Purchased [removed: under the] [added: under the] Plan | |

The following graph compares the total return on a cumulative basis at the end of each year of $100 invested in our common stock on December 31, [removed: 2009] [added: 2010] with the Standard & Poor’s (S&P) 500 Stock Index, the S&P 500 Aerospace & Defense (A&D) Index and the S&P 500 Industrials Index, all of which include Textron.

[removed: ][added: ]

| | | [removed: 2009 | | |] 2010 | | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | [added: 2015 | | |]

| | | 2015 | | | | | | | | | | 2014 | | | | | | | | |

| October 4, 2015 – November 7, 2015 | | 208 | | $ | 37.63 | | 208 | | 10,882 | |

| November 8, 2015 – December 5, 2015 | | — | | — | | | — | | 10,882 | |

| December 6, 2015 – January 2, 2016 | | — | | — | | | — | | 10,882 | |

| Total | | 208 | | $ | 37.63 | | 208 | | | |

| Textron Inc. | | $ | 100.00 | | $ | 78.53 | | $ | 105.62 | | $ | 157.05 | | $ | 180.27 | | $ | 180.18 | |

| S&P 500 | | 100.00 | | | 102.11 | | | 118.45 | | | 156.82 | | | 178.29 | | | 180.75 | | |

| S&P 500 A&D | | 100.00 | | | 105.28 | | | 120.61 | | | 186.85 | | | 208.21 | | | 219.52 | | |

| S&P 500 Industrials | | 100.00 | | | 105.43 | | | 120.98 | | | 159.26 | | | 178.94 | | | 184.13 | | |

| | | 2014 | | | | | | | | | | 2013 | | | | | | | | |

| September 28, 2014 – November 1, 2014 | | 225 | | $ | 35.90 | | 225 | | 16,399 | |

| November 2, 2014 – November 29, 2014 | | — | | — | | | — | | — | |

| November 30, 2014 – January 3, 2015 | | 320 | | 39.66 | | | 320 | | 16,079 | |

| Total | | 545 | | $ | 38.11 | | 545 | | | |

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 from the counterparty for an initial estimated purchase price of $150 million.

Final settlement of the ASR occurred in December 2014 and resulted in a final average price of $38.90 per share.

In 2014, we changed from the S&P Industrial Conglomerates Index to the S&P 500 Industrials Index, which we believe is a better comparator for the performance of our business.

We have provided the S&P Industrial Conglomerates Index in the graph below for comparison purposes only.

| Textron Inc. | | $ | 100.00 | | $ | 126.17 | | $ | 99.08 | | $ | 133.26 | | $ | 198.15 | | $ | 227.77 | |

| S&P 500 | | 100.00 | | | 115.06 | | | 117.49 | | | 136.30 | | | 180.44 | | | 205.10 | | |

| S&P 500 A&D | | 100.00 | | | 115.11 | | | 121.19 | | | 138.84 | | | 215.08 | | | 239.90 | | |

| S&P 500 Industrials | | 100.00 | | | 115.73 | | | 122.01 | | | 140.01 | | | 184.31 | | | 206.98 | | |

| S&P 500 Industrial Conglomerates | | 100.00 | | | 118.70 | | | 119.53 | | | 143.14 | | | 201.91 | | | 203.64 | | |

| (_Dollars in millions, except per share amounts_) | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | [removed: 2012] [added: 2013] | | | [removed: 2011] [added: 2012] | | | [removed: 2010] [added: 2011] | | |

| Textron Aviation | | $ | [removed: 4,568] [added: 4,822] | | | $ | [removed: 2,784] [added: 4,568] | | $ | [removed: 3,111] [added: 2,784] | | $ | [removed: 2,990] [added: 3,111] | | $ | [removed: 2,563] [added: 2,990] | |

| Bell | | [removed: 4,245] [added: 3,454] | | | | [removed: 4,511] [added: 4,245] | | | [removed: 4,274] [added: 4,511] | | | [removed: 3,525] [added: 4,274] | | | [removed: 3,241] [added: 3,525] | | |

| Textron Systems | | [removed: 1,624] [added: 1,520] | | | | [removed: 1,665] [added: 1,624] | | | [removed: 1,737] [added: 1,665] | | | [removed: 1,872] [added: 1,737] | | | [removed: 1,979] [added: 1,872] | | |

| Industrial | | [removed: 3,338] [added: 3,544] | | | | [removed: 3,012] [added: 3,338] | | | [removed: 2,900] [added: 3,012] | | | [removed: 2,785] [added: 2,900] | | | [removed: 2,524] [added: 2,785] | | |

| Finance | | [removed: 103] [added: 83] | | | | [removed: 132] [added: 103] | | | [removed: 215] [added: 132] | | | [removed: 103] [added: 215] | | | [removed: 218] [added: 103] | | |

| Total revenues | | $ | [removed: 13,878] [added: 13,423] | | | $ | [removed: 12,104] [added: 13,878] | | $ | [removed: 12,237] [added: 12,104] | | $ | [removed: 11,275] [added: 12,237] | | $ | [removed: 10,525] [added: 11,275] | |

| Textron Aviation (a) | | $ | [removed: 234] [added: 400] | | | $ | [removed: (48] [added: 234] | [removed: )] | $ | [removed: 82] [added: (48] | [added: )] | $ | [removed: 60] [added: 82] | | $ | [removed: (29] [added: 60] | [removed: )] |

| Bell | | [removed: 529] [added: 400] | | | | [removed: 573] [added: 529] | | | [removed: 639] [added: 573] | | | [removed: 521] [added: 639] | | | [removed: 427] [added: 521] | | |

| Textron Systems | | [removed: 150] [added: 129] | | | | [removed: 147] [added: 150] | | | [removed: 132] [added: 147] | | | [removed: 141] [added: 132] | | | [removed: 230] [added: 141] | | |

| Industrial | | [removed: 280] [added: 302] | | | | [removed: 242] [added: 280] | | | [removed: 215] [added: 242] | | | [removed: 202] [added: 215] | | | [removed: 162] [added: 202] | | |

| Finance (b) | | [removed: 21] [added: 24] | | | | [removed: 49] [added: 21] | | | [removed: 64] [added: 49] | | | [removed: (333] [added: 64] | | [removed: )] | [removed: (237] [added: (333] | | ) |

| Total segment profit | | [removed: 1,214] [added: 1,255] | | | | [removed: 963] [added: 1,214] | | | [removed: 1,132] [added: 963] | | | [removed: 591] [added: 1,132] | | | [removed: 553] [added: 591] | | |

| Corporate expenses and other, net | | [removed: (161] [added: (154] | | ) | | [removed: (166] [added: (161] | | ) | [removed: (148] [added: (166] | | ) | [removed: (114] [added: (148] | | ) | [removed: (137] [added: (114] | | ) |

| Interest expense, net for Manufacturing group | | [removed: (148] [added: (130] | | ) | | [removed: (123] [added: (148] | | ) | [removed: (143] [added: (123] | | ) | [removed: (140] [added: (143] | | ) | (140 | | ) |

| Acquisition and restructuring costs (c) | | [removed: (52] [added: —] | | [removed: )] | | [removed: —] [added: (52] | | [added: )] | — | | | — | | | — | | |

| Income tax [removed: (expense) benefit] [added: expense] | | [removed: (248] [added: (273] | | ) | | [removed: (176] [added: (248] | | ) | [removed: (260] [added: (176] | | ) | [removed: (95] [added: (260] | | ) | [removed: 6] [added: (95] | | [added: )] |

| Income from continuing operations | | $ | [removed: 605] [added: 698] | | | $ | [removed: 498] [added: 605] | | $ | [removed: 581] [added: 498] | | $ | [removed: 242] [added: 581] | | $ | [removed: 92] [added: 242] | |

| Income from continuing operations — basic | | $ | [removed: 2.17] [added: 2.52] | | | $ | [removed: 1.78] [added: 2.17] | | $ | [removed: 2.07] [added: 1.78] | | $ | [removed: 0.87] [added: 2.07] | | $ | [removed: 0.33] [added: 0.87] | |

| Income from continuing operations — diluted | | $ | [removed: 2.15] [added: 2.50] | | | $ | [removed: 1.75] [added: 2.15] | | $ | [removed: 1.97] [added: 1.75] | | $ | [removed: 0.79] [added: 1.97] | | $ | [removed: 0.30] [added: 0.79] | |

| Book value at year-end | | $ | [removed: 15.45] [added: 18.10] | | | $ | [removed: 15.54] [added: 15.45] | | $ | [removed: 11.03] [added: 15.54] | | $ | [removed: 9.84] [added: 11.03] | | $ | [removed: 10.78] [added: 9.84] | |

| Common stock price: High | | $ | [removed: 44.23] [added: 46.93] | | | $ | [removed: 37.43] [added: 44.23] | | $ | [removed: 29.18] [added: 37.43] | | $ | [removed: 28.87] [added: 29.18] | | $ | [removed: 25.30] [added: 28.87] | |

| Low | | $ | [removed: 32.28] [added: 32.20] | | | $ | [removed: 23.94] [added: 32.28] | | $ | [removed: 18.37] [added: 23.94] | | $ | [removed: 14.66] [added: 18.37] | | $ | [removed: 15.88] [added: 14.66] | |

| Year-end | | $ | [removed: 42.17] [added: 42.01] | | | $ | [removed: 36.61] [added: 42.17] | | $ | [removed: 24.12] [added: 36.61] | | $ | [removed: 18.49] [added: 24.12] | | $ | [removed: 23.64] [added: 18.49] | |

| Basic average | | [removed: 279,409] [added: 276,682] | | | | [removed: 279,299] [added: 279,409] | | | [removed: 280,182] [added: 279,299] | | | [removed: 277,684] [added: 280,182] | | | [removed: 274,452] [added: 277,684] | | |

| Diluted average | | [removed: 281,790] [added: 278,727] | | | | [removed: 284,428] [added: 281,790] | | | [removed: 294,663] [added: 284,428] | | | [removed: 307,255] [added: 294,663] | | | [removed: 302,555] [added: 307,255] | | |

| Year-end | | [removed: 276,582] [added: 274,228] | | | | [removed: 282,059] [added: 276,582] | | | [removed: 271,263] [added: 282,059] | | | [removed: 278,873] [added: 271,263] | | | [removed: 275,739] [added: 278,873] | | |

| Total assets | | $ | [removed: 14,605] [added: 14,708] | | | $ | [removed: 12,944] [added: 14,605] | | $ | [removed: 13,033] [added: 12,944] | | $ | [removed: 13,615] [added: 13,033] | | $ | [removed: 15,282] [added: 13,615] | |

| Manufacturing group debt | | $ | [removed: 2,811] [added: 2,697] | | | $ | [removed: 1,931] [added: 2,811] | | $ | [removed: 2,301] [added: 1,931] | | $ | [removed: 2,459] [added: 2,301] | | $ | [removed: 2,302] [added: 2,459] | |

| Finance group debt | | $ | [removed: 1,063] [added: 913] | | | $ | [removed: 1,256] [added: 1,063] | | $ | [removed: 1,686] [added: 1,256] | | $ | [removed: 1,974] [added: 1,686] | | $ | [removed: 3,660] [added: 1,974] | |

| Shareholders’ equity | | $ | [removed: 4,272] [added: 4,964] | | | $ | [removed: 4,384] [added: 4,272] | | $ | [removed: 2,991] [added: 4,384] | | $ | [removed: 2,745] [added: 2,991] | | $ | [removed: 2,972] [added: 2,745] | |

| Manufacturing group debt-to-capital (net of cash) | | [removed: 33] [added: 26] | | % | | [removed: 15] [added: 33] | | % | [removed: 24] [added: 15] | | % | [removed: 37] [added: 24] | | % | [removed: 32] [added: 37] | | % |

| Manufacturing group debt-to-capital | | [removed: 40] [added: 35] | | % | | [removed: 31] [added: 40] | | % | [removed: 44] [added: 31] | | % | [removed: 47] [added: 44] | | % | [removed: 44] [added: 47] | | % |

| Capital expenditures | | $ | [removed: 429] [added: 420] | | | $ | [removed: 444] [added: 429] | | $ | [removed: 480] [added: 444] | | $ | [removed: 423] [added: 480] | | $ | [removed: 270] [added: 423] | |

| Depreciation | | $ | [removed: 389] [added: 391] | | | $ | [removed: 349] [added: 389] | | $ | [removed: 336] [added: 349] | | $ | [removed: 343] [added: 336] | | $ | [removed: 334] [added: 343] | |

_(a)_ [removed: _In 2014, segment] [added: _Segment] profit includes amortization of [added: $12 million and] $63 million [added: in 2015 and 2014, respectively,] related to fair value step-up adjustments of Beechcraft acquired inventories sold during the period._

| Special charges (d) | | — | | | | — | | | — | | | — | | | (190 | | ) |

_(d)_ _Special charges include restructuring charges of $99 million, primarily related to severance and asset impairment charges, and a $91 million non-cash pre-tax charge to reclassify a foreign exchange loss from equity as a result of substantially liquidating a Finance segment entity._

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

| | [removed: | |] Page |

| [removed: [Reports] [added: [Report] of Independent Registered Public Accounting [removed: Firm](#ReportOfIndependentRegisteredPubl_075429] [added: Firm](#ReportofIndependentRegisteredPub_051143] "Click to goto ") | [removed: | | 39] [added: 68] |

| [Consolidated Statements of Operations for each of the years in the three-year period ended January [removed: 3, 2015](#ConsolidatedStatementsOfOperation_080254] [added: 2, 2016](#ConsolidatedStatementsofOperatio_050616] "Click to goto ") | [removed: | | 41] [added: 36] |

| [Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended January [removed: 3, 2015](#ConsolidatedStatementsOfComprehen_080309] [added: 2, 2016](#ConsolidatedStatementsofComprehe_050617] "Click to goto ") | [removed: | | 42] [added: 37] |

| [Consolidated Balance Sheets as of January [removed: 3, 2015] [added: 2, 2016] and [removed: December 28, 2013](#ConsolidatedBalanceSheets_080811] [added: January 3, 2015](#ConsolidatedBalanceSheets_050621] "Click to goto ") | [removed: | | 43] [added: 38] |

| [Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended January [removed: 3, 2015](#ConsolidatedStatementsOfSharehold_082139] [added: 2, 2016](#ConsolidatedStatementsofSharehol_050656] "Click to goto ") | [removed: | | 44] [added: 39] |

| [Consolidated Statements of Cash Flows for each of the years in the three-year period ended January [removed: 3, 2015](#ConsolidatedStatementsOfCashFlows_082934] [added: 2, 2016](#ConsolidatedStatementsofCashFlow_050659] "Click to goto ") | [removed: | | 45] [added: 40] |

| [Notes to the Consolidated Financial [removed: Statements](#NotesToTheConsolidatedFinancialSt_170957] [added: Statements](#NotestotheConsolidatedFinancialS_050740] "Click to goto ") | | [removed: | |]

| [Note [removed: 1.](#Note1_SummaryOfSignificantAccount_171001) | [Summary] [added: 1. Summary] of Significant Accounting [removed: Policies](#Note1_SummaryOfSignificantAccount_171001) |] [added: Policies](#Note1_SummaryofSignificantAccoun_050743 "Click to goto ")] | [removed: 47] [added: 42] |

| [Note [removed: 2.](#Note2_BusinessAcquisitionsGoodwil_171016) | [Business] [added: 2. Business] Acquisitions, Goodwill and Intangible [removed: Assets](#Note2_BusinessAcquisitionsGoodwil_171016) |] [added: Assets](#Note2_BusinessAcquisitionsGoodwi_050749 "Click to goto ")] | [removed: 52] [added: 46] |

| [Note [removed: 3.](#Note3_AccountsReceivableAndFinanc_171110) | [Accounts] [added: 3. Accounts] Receivable and Finance [removed: Receivables](#Note3_AccountsReceivableAndFinanc_171110) |] [added: Receivables](#Note3_AccountsReceivableandFinan_050819 "Click to goto ")] | [removed: 54] [added: 48] |

| [Note [removed: 4.](#Note4_Inventories_171114) | [Inventories](#Note4_Inventories_171114) |] [added: 4. Inventories](#Note4_Inventories_050823 "Click to goto ")] | [removed: 56] [added: 50] |

| [Note [removed: 5.](#Note5_PropertyPlantAndEquipmentNe_171115) | [Property,] [added: 5. Property,] Plant and Equipment, [removed: Net](#Note5_PropertyPlantAndEquipmentNe_171115) |] [added: Net](#Note5_PropertyPlantandEquipmentN_050825 "Click to goto ")] | [removed: 56] [added: 51] |

| [Note [removed: 6.](#Note6_AccruedLiabilities_171143) | [Accrued Liabilities](#Note6_AccruedLiabilities_171143) |] [added: 6. Accrued Liabilities](#Note6_AccruedLiabilities_050827 "Click to goto ")] | [removed: 57] [added: 51] |

| [Note [removed: 7.](#Note7_DebtAndCreditFacilities_171145) | [Debt] [added: 7. Debt] and Credit [removed: Facilities](#Note7_DebtAndCreditFacilities_171145) |] [added: Facilities](#Note7_DebtandCreditFacilities_050859 "Click to goto ")] | [removed: 57] [added: 52] |

| [Note [removed: 8.](#Note8_DerivativeInstrumentsAndFai_171149) | [Derivative] [added: 8. Derivative] Instruments and Fair Value [removed: Measurements](#Note8_DerivativeInstrumentsAndFai_171149) |] [added: Measurements](#Note8_DerivativeInstrumentsandFa_050908 "Click to goto ")] | [removed: 58] [added: 53] |

| [Note [removed: 9.](#Note9_ShareholdersEquity_171153) | [Shareholders’ Equity](#Note9_ShareholdersEquity_171153) |] [added: 9. Shareholders’ Equity](#Note9_ShareholdersEquity_050910 "Click to goto ")] | [removed: 59] [added: 54] |

| [Note [removed: 10.](#Note10_SharebasedCompensation_101137) | [Share-Based Compensation](#Note10_SharebasedCompensation_101137) |] [added: 10. Share-Based Compensation](#Note10_ShareBasedCompensation_050933 "Click to goto ")] | [removed: 62] [added: 56] |

| [Note [removed: 11.](#Note11_RetirementPlans_101144) | [Retirement Plans](#Note11_RetirementPlans_101144) |] [added: 11. Retirement Plans](#Note11_RetirementPlans_050936 "Click to goto ")] | [removed: 64] [added: 58] |

| [Note [removed: 12.](#Note12_IncomeTaxes_100951) | [Income Taxes](#Note12_IncomeTaxes_100951) |] [added: 12. Income Taxes](#Note12_IncomeTaxes_060804 "Click to goto ")] | [removed: 68] [added: 62] |

| [Note [removed: 13.](#Note13_ContingenciesAndCommitment_171517) | [Contingencies] [added: 13. Commitments] and [removed: Commitments](#Note13_ContingenciesAndCommitment_171517) |] [added: Contingencies](#Note13_CommitmentsandContingenci_051049 "Click to goto ")] | [removed: 71] [added: 65] |

| [Note [removed: 14.](#Note14_SupplementalCashFlowInform_171521) | [Supplemental] [added: 14. Supplemental] Cash Flow [removed: Information](#Note14_SupplementalCashFlowInform_171521) |] [added: Information](#Note14_SupplementalCashFlowInfor_051051 "Click to goto ")] | [removed: 71] [added: 65] |

| [Note [removed: 15.](#Note15_SegmentAndGeographicData_171524) | [Segment] [added: 15. Segment] and Geographic [removed: Data](#Note15_SegmentAndGeographicData_171524) |] [added: Data](#Note15_SegmentandGeographicData_051053 "Click to goto ")] | [removed: 72] [added: 66] |

| Supplementary Information: | | [removed: | |]

| [Quarterly Data for [removed: 2014] [added: 2015] and [removed: 2013 (Unaudited)](#QuarterlyData_171714] [added: 2014 (Unaudited)](#QuarterlyData_051201] "Click to goto ") | [removed: | | 74] [added: 69] |

| [Schedule II – Valuation and Qualifying [removed: Accounts](#ScheduleIiValuationAndQualifyingA_171650] [added: Accounts](#ScheduleIIValuationandQualifying_051206] "Click to goto ") | [removed: | | 75] [added: 70] |

[removed: With] [added: We also have audited, in accordance with] the [removed: participation of our management, we conducted an evaluation] [added: standards] of the [removed: effectiveness of our] [added: Public Company Accounting Oversight Board (United States), Textron Inc.’s] internal control over financial reporting [added: as of January 2, 2016,] based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 [removed: Framework).][added: Framework) and our report dated February 24, 2016 expressed an unqualified opinion thereon.]

We [removed: also] have [removed: audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),] [added: audited] the [added: accompanying] Consolidated Balance Sheets of Textron Inc. as of January [removed: 3, 2015] [added: 2, 2016] and [removed: December 28, 2013,] [added: January 3, 2015,] 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 [removed: 3, 2015 of Textron Inc. and our report dated February 25, 2015 expressed an unqualified opinion thereon.][added: 2, 2016.]

[removed: |] /s/ Ernst & Young LLP [removed: | |]

[removed: |] Boston, Massachusetts [removed: | |]

Our audits also included the financial statement schedule contained on page [removed: 75.][added: 70.]

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Textron Inc. at January [added: 2, 2016 and January] 3, 2015 and [removed: 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 [removed: 3, 2015,] [added: 2, 2016,] in conformity with U.S. generally accepted accounting principles.

For each of the years in the three-year period ended January [removed: 3, 2015][added: 2, 2016]

| _(In millions, except per share data)_ | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | [removed: 2012] [added: 2013] | | |

| Manufacturing revenues | | | $ | [removed: 13,775] [added: 13,340] | | | $ | [removed: 11,972] [added: 13,775] | | $ | [removed: 12,022] [added: 11,972] | |

| Finance revenues | | | [removed: 103] [added: 83] | | | | [removed: 132] [added: 103] | | | [removed: 215] [added: 132] | | |

| Total revenues | | | [removed: 13,878] [added: 13,423] | | | | [removed: 12,104] [added: 13,878] | | | [removed: 12,237] [added: 12,104] | | |

| Cost of sales | | | [removed: 11,421] [added: 10,979] | | | | [removed: 10,131] [added: 11,421] | | | [removed: 10,019] [added: 10,131] | | |

| Selling and administrative expense | | | [removed: 1,361] [added: 1,304] | | | | [removed: 1,126] [added: 1,361] | | | [removed: 1,165] [added: 1,126] | | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

| | |

For each of the years in the three-year period ended January 2, 2016

| Other comprehensive income | | | | | | | | | | | | | | 108 | | | 108 | | |

| Balance at January 2, 2016 | | $ | 36 | | $ | 1,587 | | $ | (559 | ) | $ | 5,298 | | $ | (1,398 | ) | $ | 4,964 | |

For each of the years in the three-year period ended January 2, 2016

| Net income | | | $ | 697 | | | $ | 600 | | $ | 498 | |

For each of the years in the three-year period ended January 2, 2016

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

In addition, gross favorable program profit adjustments in 2014 included $16 million related to the settlement of the System

as an offset against the related inventory balances.

For indefinite-lived intangible assets, if the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

A significant portion of these liabilities arises from our commercial aircraft businesses.

For our product maintenance contracts,

revenue is recognized on a straight-line basis over the contract period, unless sufficient historical evidence indicates that the cost of providing these services is incurred on a basis other than straight-line.

In those circumstances, revenue is recognized over the contract period in proportion to the costs expected to be incurred in performing the service.

In July 2015, the FASB approved a one-year deferral of the effective date of the standard to the beginning of 2018 for public companies, with an option that would permit companies to adopt the standard as early as the original effective date of 2017.

The new standard may be adopted either retrospectively or on a modified retrospective basis whereby it would be applied to new contracts and existing contracts with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for those contracts.

We are currently evaluating the impacts of adoption on our consolidated financial position, results of operations and related disclosures, along with the implementation approach to be used.

2015 Acquisitions

We financed $1.1 billion of the purchase price with the issuance of long-term debt and the remaining balance was paid from cash on hand.

| Balance at January 2, 2016 | | $ | 560 | | $ | 31 | | $ | 1,051 | | $ | 381 | | $ | 2,023 | |

| Other | | 9 | | | 23 | | | (19) | | | 4 | | | | 23 | | | (18) | | | 5 | | |

| | | | | | | | | | | | | | | | 1,080 | | | 1,065 | |

At January 2, 2016 and January 3, 2015, finance receivables of $493 million and $565 million, respectively, have been pledged as collateral for TFC’s debt of $352 million and $434 million, respectively.

Finance Receivable Portfolio Quality

_Delinquency_

| (_In millions_) | | | | | | | | | | | | | | January 2, 2016 | | | January 3, 2015 | | |

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

| (_In millions_) | | | | | | | | | | | | | | January 2, 2016 | | | January 3, 2015 | | |

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

| (_In millions_) | | | | | | | | | | | | | | January 2, 2016 | | | January 3, 2015 | | |

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

| (_In millions_) | | | | | | | | | | | | | | January 2, 2016 | | | January 3, 2015 | | |

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

| [Report of Management](#ReportOfManagement_075423 "Click to goto ") | | | 38 |

| | | | |

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).

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.

| --- | --- |

| February 25, 2015 | |

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.

_Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting_ [removed: — See page 39.]

[removed: _Changes in Internal Controls_ —] There [removed: have been] [added: were] no changes in our internal control over financial reporting during the fourth quarter of the fiscal year covered by this report that [removed: have] materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

_Disclosure Controls and Procedures_

We performed an evaluation of the effectiveness of our disclosure controls and procedures as of January 2, 2016.

The evaluation was performed with the participation of senior management of each business segment and key Corporate functions, under the supervision of our Chairman, President and Chief Executive Officer (CEO) and our Executive Vice President and Chief Financial Officer (CFO).

Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were operating and effective as of January 2, 2016.

_Changes in Internal Controls Over Financial Reporting_

_Management’s Report on Internal Control Over Financial Reporting_

Management is responsible for establishing and maintaining adequate internal control over financial reporting for Textron Inc. as such term is defined in Exchange Act Rules 13a-15(f).

Our internal control structure is designed to provide reasonable assurance, at appropriate cost, that assets are safeguarded and that transactions are properly executed and recorded.

The internal control structure includes, among other things, established policies and procedures, an internal audit function, the selection and training of qualified personnel as well as management oversight.

With the participation of our management, we performed an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework).

Based on our evaluation under the 2013 Framework, we have concluded that Textron Inc. maintained, in all material respects, effective internal control over financial reporting as of January 2, 2016.

The independent registered public accounting firm, Ernst & Young LLP, has audited the Consolidated Financial Statements of Textron Inc. and has issued an attestation report on Textron’s internal controls over financial reporting as of January 2, 2016, as stated in its report, which is included herein.

The Board of Directors and Shareholders of Textron Inc.

We have audited Textron Inc.’s internal control over financial reporting as of January 2, 2016, 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 Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We 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 2, 2016, 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 2, 2016 and January 3, 2015, 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 2, 2016 of Textron Inc. and our report dated February 24, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Boston, Massachusetts

February 24, 2016

PART III

_Disclosure Controls and Procedures_ — We have carried out an evaluation, under the supervision and with the participation of our management, including our Chairman, President and Chief Executive Officer (CEO) and our Executive Vice President and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”)) as of the end of the fiscal year covered by this report.

Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective in providing reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

_Report of Management_ — See page 38.

The information appearing under “ELECTION OF DIRECTORS— Nominees for Director,” [removed: “—The Board of Directors— _Corporate Governance_,” “—The Board of Directors— _Code] [added: “CORPORATE GOVERNANCE—Corporate Governance Guidelines and Policies,” “— Code] of [removed: Ethics_,” “–Board] [added: Ethics,” “—Board] Committees— _Audit Committee_,” and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April [removed: 22, 2015] [added: 27, 2016] is incorporated by reference into this Annual Report on Form 10-K.

[added: The information appearing under “CORPORATE GOVERNANCE —Compensation of Directors,”] “COMPENSATION COMMITTEE REPORT,” “COMPENSATION DISCUSSION AND ANALYSIS” and “EXECUTIVE COMPENSATION” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April [removed: 22, 2015] [added: 27, 2016] is incorporated by reference into this Annual Report on Form 10-K.

The information appearing under “ELECTION OF DIRECTORS — The Board of Directors-- _Compensation of Directors_,” “ELECTION OF DIRECTORS — Board Committees-- _Compensation Committee Interlocks and Insider Participation_,”

The information appearing under “SECURITY OWNERSHIP” and “EXECUTIVE COMPENSATION [removed: –] [added: —] Equity Compensation Plan Information” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April [removed: 22, 2015] [added: 27, 2016] is incorporated by reference into this Annual Report on Form 10-K.

The information appearing under [removed: “ELECTION OF DIRECTORS — The Board of Directors--_Director Independence_”] [added: “CORPORATE GOVERNANCE—Director Independence”] and “EXECUTIVE COMPENSATION — Transactions with Related Persons” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April [removed: 22, 2015] [added: 27, 2016] is incorporated by reference into this Annual Report on Form 10-K.

The information appearing under “RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM — Fees to Independent Auditors” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April [removed: 22, 2015] [added: 27, 2016] is incorporated by reference into this Annual Report on Form 10-K.

Financial Statements and Schedules — See Index on Page [removed: 37.][added: 35.]

| 3.1A | | Restated Certificate of Incorporation of Textron as filed with the Secretary of State of Delaware on April 29, 2010. Incorporated by reference to Exhibit 3.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2010. [added: (SEC File No. 001-05480)] |

| 3.2 | | Amended and Restated By-Laws of Textron Inc., effective April 28, 2010 and further amended April 27, 2011, July 23, 2013 and February 25, 2015. [added: Incorporated by reference to Exhibit 3.2 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2015.] |

| [removed: 4.1] [added: 4.1A] | | Support Agreement dated as of May 25, 1994, between Textron Inc. and Textron Financial Corporation. Incorporated by reference to Exhibit 4.1 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. |

| [removed: 10.2] [added: 10.2A] | | Textron Inc. Short-Term Incentive Plan (As amended and restated effective January 3, 2010). Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2010. [added: (SEC File No. 001-05480)] |

| [removed: 10.3A] [added: 10.2B] | | [added: Amendment No. 1 to] Textron Inc. [removed: 1999 Long-Term] [added: Short-Term] Incentive Plan [removed: for Textron Employees (Amended] [added: (As amended] and [removed: Restated Effective April 28, 2010).] [added: restated effective January 3, 2010), dated July 22, 2015.] Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended [removed: July] [added: October] 3, [removed: 2010.] [added: 2015.] |