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

During [removed: 2015,] [added: 2016,] we derived approximately [removed: 24%] [added: 25%] of our revenues from sales to a variety of U.S. Government entities.

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

Significant changes in national and international [added: policies or] priorities for defense spending could impact the funding, or the timing of funding, of our programs, which could negatively impact our results of operations and financial condition.

Because our U.S. Government contracts generally require us to continue to perform even if the U.S. Government is unable to make timely payments; if, for example, the debt ceiling is not raised, and, as a result, our customer does not pay us on a timely basis, we [removed: would] [added: may] need to finance our continued performance of the impacted contracts from our other [removed: resources.][added: resources on an interim basis.]

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

[removed: We also enter into] “fee for service” contracts with the U.S. Government where we retain ownership of, and consequently the risk of loss on, aircraft and equipment supplied to perform under these contracts.

These laws and regulations, among other things, require certification and disclosure of all cost and pricing data in connection with contract negotiation, define allowable and unallowable costs and otherwise govern our right to reimbursement under certain cost-based U.S. Government contracts, and [added: safeguard and] restrict the use and dissemination of classified [removed: information] [added: information, covered defense information,] and the exportation of certain products and technical data.

Our U.S. Government contracts contain provisions that allow the U.S. Government to unilaterally suspend or debar us from receiving new contracts for a period of time, reduce the value of existing contracts, issue modifications to a contract, and control and potentially prohibit the export of our products, services and [added: associated materials.]

Portfolio quality may be adversely affected by several factors, including finance receivable underwriting procedures, [added: collateral value, geographic or industry concentrations, and the effect of general economic conditions.]

While we have experienced cybersecurity attacks, we have not suffered any material losses relating to such attacks, and we believe our threat detection and [removed: mitigation processes and procedures are robust.]

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

During [removed: 2015,] [added: 2016,] we derived approximately 38% of our revenues from international business, including U.S. exports, and we expect international revenues to continue to increase.

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

Approximately [removed: 7,200,] [added: 7,300,] or 28%, of our U.S. employees are unionized, and many of our non-U.S. employees are represented by organized councils.

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

We are subject to income taxes in [removed: both] the U.S. and various non-U.S. jurisdictions, and our domestic and international tax liabilities are subject to the [removed: allocation] [added: location] of income among these different jurisdictions.

Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes [added: in the amount of earnings indefinitely reinvested offshore, changes] to unrecognized tax benefits or changes in tax laws, which could affect our profitability.

We also enter into

mitigation processes and procedures are robust.

For example, both U.S. and foreign governments and government agencies regulate the

associated materials.

collateral value, geographic or industry concentrations, and the effect of general economic conditions.

protect the intellectual property developed through these efforts.

In some cases, we purchase

[removed: Several] [added: Financial] highlights of [removed: 2015] [added: 2016] include the following:

· Generated [removed: $1.0 billion] [added: $988 million] in cash from operating activities of our manufacturing businesses.

· Returned [removed: $241] [added: $263] million to our shareholders through share repurchases and dividend payments.

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

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

| _(Dollars in millions)_ | | [added: 2016 | |] 2015 | | 2014 | | [removed: 2013] [added: 2016] | | 2015 | [removed: 2014 |]

| Revenues | [added: $] | [added: 13,788 |] $ | 13,423 | $ | 13,878 | [removed: $] | [removed: 12,104] [added: 3%] | [removed: (3)%] | [removed: 15%] [added: (3)%] |

[removed: |] · [removed: |] 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. [removed: |]

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

[removed: |] · [removed: |] 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. [removed: 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. |]

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

Revenues increased [removed: $1.8 billion, 15%,] [added: $365 million, 3%,] in [removed: 2014,] [added: 2016,] compared with [removed: 2013, as] [added: 2015, largely driven by] increases in the [added: Industrial,] Textron [removed: Aviation] [added: Systems] and [removed: Industrial segments were] [added: Textron Aviation segments,] partially offset by lower revenues [removed: in] [added: at] the [removed: Bell, Textron Systems and Finance segments.][added: Bell segment.]

· Higher Industrial [removed: segment] revenues of [removed: $326] [added: $250] million, primarily due to [removed: $181 million in] higher [removed: volume,] [added: volume of $168 million,] largely in the Fuel Systems and Functional Components product line, and [removed: a $142 million] [added: the] impact from [removed: acquisitions.][added: acquired businesses of $121 million.]

· [removed: Lower Bell revenues of $266 million,] [added: $193 million decrease in commercial revenues,] largely [removed: due] [added: related] to a [removed: $183 million decrease] [added: change] in [added: mix of] commercial [removed: revenues] [added: aircraft sold during the period,] reflecting lower sales activity across the commercial helicopter market, and [removed: $99] [added: $92] million [removed: in lower other military volume, largely related to the H-1 program reflecting] [added: of] lower [removed: aircraft deliveries and production support.][added: aftermarket volume.]

· [removed: Lower] [added: Higher] Textron Systems revenues of [removed: $41] [added: $236] million, primarily due to [removed: lower] [added: higher] volume of [removed: $233] [added: $106] million in the Marine and Land Systems product [removed: line, reflecting lower vehicle deliveries, partially offset by higher volume of $130] [added: line and $77] million in the Unmanned Systems product [removed: line and a $62 million impact from acquisitions.][added: line.]

| Cost of sales | [added: $] | [added: 11,311] | [added: $ |] 10,979 | [added: $] | 11,421 | | [removed: 10,131] [added: 3%] | [removed: (4)%] | [removed: 13%] [added: (4)%] |

| Gross margin as a percentage of Manufacturing revenues | | [added: 17.5%] | [added: |] 17.7% | | 17.1% | | [removed: 15.4%] | | |

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

In 2014, we executed a restructuring program in our Textron Aviation segment to align the Cessna and [added: acquired] Beechcraft [removed: businesses,] [added: business,] reduce operating redundancies and maximize [added: operating] efficiencies.

[removed: During 2014, we] [added: We] recorded [added: special] charges of $41 million related to these restructuring [removed: activities,] [added: activities in 2014,] along with $11 million of transaction [removed: costs, which were included in the Acquisition and restructuring] costs [removed: line on] [added: from] the [removed: Consolidated Statements] [added: acquisition] of [removed: Operations.][added: Beechcraft.]

| Interest expense | [added: $] | [added: 174 |] $ | 169 | $ | 191 | [removed: $] | [removed: 173] [added: 3%] | [removed: (12)%] | [removed: 10%] [added: (12)%] |

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

For a full reconciliation of our effective tax rate to the U.S. federal statutory tax rate of 35% see Note [removed: 12] [added: 13] to the Consolidated Financial Statements.

Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses and [removed: acquisition and restructuring costs related to the Beechcraft acquisition.][added: special charges.]

Approximately [removed: 24%] [added: 25%] of our [removed: 2015] [added: 2016] revenues were derived from contracts with the U.S. Government.

Changes in volume that are [removed: discussed] [added: described] in net sales typically drive corresponding changes in our segment profit based on the profit rate for a particular contract.

| Revenues | [added: $] | [added: 4,921 |] $ | 4,822 | $ | 4,568 | [removed: $] | [removed: 2,784] [added: 2%] | [removed: 6%] | [removed: 64%] [added: 6%] |

| Operating expenses | | [added: 4,532] | [added: |] 4,422 | | 4,334 | | [removed: 2,832 |] 2% | [removed: 53%] | [added: 2% |]

| Segment profit [removed: (loss)] | | [added: 389] | [added: |] 400 | | 234 | | [removed: (48)] [added: (3)%] | [removed: 71%] | [removed: —] [added: 71%] |

| Profit margin | | [added: 7.9%] | [added: |] 8.3% | | 5.1% | | [removed: (1.7)%] | | |

| Backlog | [added: $] | [added: 1,041 |] $ | 1,074 | $ | 1,365 | [removed: $] | [removed: 1,018] [added: (3)%] | [removed: (21)%] | [removed: 34%] [added: (21)%] |

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

| Acquisitions | | | | | | | [removed: | | | | | | | | | |] $ | 219 | [removed: |]

| Volume and mix | | | | | | | | [removed: | | | | | | | | | 35 | |] [added: 42] |

| Total change | | | | | | | [removed: | | | | | | | | | |] $ | 254 | [removed: |]

Factors contributing to the [removed: 2014] [added: 2016] year-over-year revenue change are provided below:

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

| Acquisitions | | | | | | | [removed: | | | | | | | | | |] $ | [removed: 1,480 |] [added: 66] |

| Volume | | | | | | | | [removed: | | | | | | | | | 263 | |] [added: 11] |

| Total change | | | | | | | [removed: | | | | | | | | | |] $ | [removed: 1,784 |] [added: 99] |

In 2016, revenues and segment profit grew by 3% and 4%, respectively, despite challenging and weaker than expected end markets, most notably the business jet and commercial helicopter markets.

We continued to invest in our businesses through the ongoing development of new products and services, and the completion of several strategic business acquisitions to support growth and create long-term shareholder value.

· Invested $677 million in research and development activities, $446 million in capital expenditures and $186 million in business acquisitions.

· Initiated a plan to restructure and realign our businesses to improve overall operating efficiency and to better position our businesses for the future, which resulted in special charges of $123 million.

· Higher Textron Aviation revenues of $99 million, primarily due to the impact from an acquired business of $66 million and higher volume and mix of $42 million, largely the result of higher Citation jet volume of $165 million, partially offset by lower turboprop volume.

· Lower Bell revenues of $215 million, primarily due to a decrease in commercial revenues of $269 million, largely reflecting lower aircraft deliveries.

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.

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

In 2016, cost of sales increased $332 million, 3%, compared with 2015, largely due to higher volume at the Textron Systems, Industrial and Textron Aviation segments, and an increase from acquired businesses.

These increases were partially offset by lower volume at the Bell segment and favorable cost performance across all of our manufacturing segments.

Selling and administrative expense was unchanged in 2016, compared with 2015.

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

| _(Dollars in millions)_ | | 2016 | | 2015 | | 2014 | | 2016 | | 2015 |

Consolidated interest expense increased $5 million, 3%, in 2016, compared with 2015, primarily due to higher average debt outstanding.

Special Charges

Special charges recorded in 2016 by segment are as follows:

| _(In millions)_ | | Severance Costs | | Asset Impairments | | Contract Terminations and Other | | Total Special Charges |

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

| Textron Systems | $ | 15 | $ | 34 | $ | 13 | $ | 62 |

| Textron Aviation | | 33 | | 1 | | 1 | | 35 |

| Industrial | | 17 | | 2 | | 1 | | 20 |

| Bell | | 4 | | 1 | | — | | 5 |

| Corporate | | 1 | | — | | — | | 1 |

| | $ | 70 | $ | 38 | $ | 15 | $ | 123 |

In 2016, we initiated a plan to restructure and realign our businesses by implementing headcount reductions, facility consolidations and other actions in order to improve overall operating efficiency across Textron.

As part of this plan, Textron Systems will discontinue production of its sensor-fuzed weapon product by the end of the first quarter of 2017, resulting in headcount reductions, facility consolidations and asset impairments within its Weapons and Sensors operating unit.

Historically, sensor-fuzed weapon sales have relied on foreign military and direct commercial international customers for which both executive branch and congressional approval is required.

The political environment has made it difficult to obtain these approvals.

Within our Industrial segment, the plan provides for the combination of our Jacobsen business with the Textron Specialized Vehicles businesses, resulting in the consolidation of certain facilities and general and administrative functions and related headcount reductions.

In addition, we initiated restructuring actions, principally headcount reductions, in our Textron Aviation segment, as well as other businesses and corporate

functions.

The total headcount reduction related to restructuring activities is expected to be approximately 1,700 positions, representing approximately 5% of our workforce.

We expect to incur additional pre-tax charges under this plan in the range of $17 million to $47 million, primarily related to contract termination, severance, facility consolidation and relocation costs.

The remaining charges are expected to primarily be in the Industrial, Textron Systems and Textron Aviation segments.

We anticipate the plan to be substantially completed by the end of the first half of 2017.

Total expected cash outlays for restructuring activities are estimated to be approximately $100 million to $120 million, of which $22 million was paid in 2016 and the remainder will be paid in 2017.

| | | | | 2016 | | 2015 | | 2014 |

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

| Effective tax rate | | | | 3.8% | | 28.1% | | 29.1% |

In 2016, our effective tax rate was significantly lower than the U.S. federal statutory tax rate of 35%, largely due to a settlement with the U.S. Internal Revenue Service Office of Appeals for our 1998 to 2008 tax years.

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.

· Raised diluted earnings per share from continuing operations by 16%, from $2.15 to $2.50.

· 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.

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

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

| | | | | | | | | | |

| --- | --- |

· Higher Textron Aviation revenues of $1.8 billion, primarily due to a $1.5 billion impact from the Beechcraft acquisition and a $263 million increase in volume, largely related to Citation jets.

· Lower Finance revenues of $29 million, primarily attributable to gains on the disposition of finance receivables held for sale during 2013.

| Operating expenses | | $ | 12,283 | $ | 12,782 | $ | 11,257 | (4)% | 14% |

Manufacturing cost of sales and selling and administrative expenses together comprise our operating expenses.

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 basis-points largely due to improved leverage resulting from higher revenues primarily at the Textron Aviation segment.

Selling and administrative expense increased $235 million, 21%, in 2014, compared with 2013, largely related to businesses acquired in the past year and compensation expense.

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

Acquisition and Restructuring Costs

In 2014, consolidated interest expense increased $18 million, 10%, 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.

Income Tax Expense

Our effective tax rate was 28.1%, 29.1% and 26.1% in 2015, 2014 and 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 domestic manufacturing deduction and the research 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, United Kingdom, Belgium and China.

We have not provided for U.S. taxes for those earnings because we plan to reinvest all of those earnings indefinitely outside of the U.S.

In 2013, our effective tax rate was reduced by approximately 4.0% due to the tax benefit recognized upon the retroactive reinstatement and extension of the Federal Research and Development Tax Credit for the period from January 1, 2012 to December 31, 2013.

This credit was subsequently extended in 2014 and in 2015, resulting in a 1.5% reduction in our effective tax rate for each year.

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

| Pricing | | | | | | | | | | | | | | | | | 41 | | |

The increase in volume was primarily the result of higher Citation jet volume of $344 million, partially offset by lower CitationAir volume of $78 million related to exiting our fractional share business.

Textron Aviation’s operating expenses increased $1.5 billion, 53%, in 2014, compared with 2013, primarily due to the incremental operating costs related to the Beechcraft acquisition, and higher net volume as described above.

Textron Aviation’s operating expenses exclude acquisition and restructuring costs incurred across the segment as a result of the Beechcraft integration, which are reported separately and are discussed in the Acquisition and Restructuring Costs section above.

| 2013 Voluntary Separation Program | | | | | | | | | | | | | | | | | 28 | | |

Textron Aviation segment profit increased $282 million in 2014, compared with 2013, primarily due to an increase in performance and other, higher volume as described above, favorable pricing and inflation and $28 million in severance costs incurred in 2013.

During the second quarter of 2014, the cost structures of Beechcraft and Cessna were significantly integrated, and as a result, performance and other reflects the net profit impact of Beechcraft, including the benefit of the integrated cost structure.

Performance and other also includes amortization of $63 million in 2014, related to fair value step-up adjustments of acquired inventories sold during the periods.

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

| · | $193 million decrease in commercial revenues, largely related to a change in mix of commercial aircraft sold during the period, reflecting lower sales activity across the commercial helicopter market, and $92 million of lower aftermarket volume. Bell delivered 175 commercial aircraft in 2015, compared with 178 commercial aircraft in 2014. |

The notional amount of outstanding foreign currency exchange contracts was approximately [removed: $706] [added: $665] million and [removed: $696] [added: $706] million at the end of [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] respectively.

Foreign currency exchange rate changes decreased both revenues and segment profit in [added: 2016 by $36 million and $12 million, respectively, and in] 2015 by $244 million and $20 million, respectively.

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

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

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

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

| Debt | [removed: |] $ | [removed: (224 | )] [added: (187)] | $ | [removed: (250 | )] [added: (211)] | $ | [removed: (25 | )] [added: (21)] | $ | [removed: (236 | )] [added: (224)] | $ | [removed: (277 | )] [added: (250)] | $ | [removed: (28 | )] [added: (25)] |

| Foreign currency exchange contracts | | [removed: (21 | | ) | (21 | | ) | 31 |] [added: (3)] | | [removed: (11] [added: (3)] | | [removed: )] [added: 29] | [removed: (11] | [added: (21)] | [removed: )] | [removed: 52] [added: (21)] | | [added: 31] |

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

| Debt | [removed: |] $ | [removed: (2,628 | )] [added: (2,690)] | $ | [removed: (2,744 | )] [added: (2,809)] | $ | [removed: (18 | )] [added: (22)] | $ | [removed: (2,742 | )] [added: (2,628)] | $ | [removed: (2,944 | )] [added: (2,744)] | $ | [removed: (21 | )] [added: (18)] |

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

| Finance receivables | [removed: |] $ | [removed: 894 |] [added: 759] | $ | [removed: 850 |] [added: 788] | $ | [removed: 21 |] [added: 15] | $ | [removed: 1,039 |] [added: 894] | $ | [removed: 1,056 |] [added: 850] | $ | [removed: 20 |] [added: 21] |

| | 2016 | | | | | | 2015 | | | | | |

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

| | $ | (190) | $ | (214) | $ | 8 | $ | (245) | $ | (271) | $ | 6 |

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

| Debt | | (903) | | (831) | | 20 | | (913) | | (840) | | 19 |

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

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

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

| Debt, including intergroup | | (913 | | ) | (840 | | ) | 19 | | | (1,063 | | ) | (1,051 | | ) | 9 | | |

We have approximately [removed: 35,000] [added: 36,000] employees worldwide.

Financial information by business segment and geographic area appears in Note [removed: 15] [added: 16] to the Consolidated Financial Statements on pages 66 through [removed: 67] [added: 68] 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: 18] [added: 19] through [removed: 33] [added: 35] of this Annual Report on Form 10-K.

Revenues in the Textron Aviation segment accounted for approximately 36%, [removed: 33%] [added: 36%] and [removed: 23%] [added: 33%] of our total revenues in [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013,] [added: 2014,] respectively.

| [removed: (_In millions_) | | | | |] [added: _(In millions)_] | | | | [added: 2016] | | 2015 | | [removed: |] 2014 | [removed: | | 2013 | | |]

| Aircraft sales | | | [removed: | | | | | |] [added: $] | [added: 3,412] | $ | 3,404 | [removed: |] $ | 3,182 | [removed: | $ | 1,868 | |]

| Aftermarket | | | | [removed: | | | | |] [added: 1,509] | | 1,418 | | [removed: |] 1,386 | [removed: | | 916 | | |]

| Total revenues | | | [removed: | | | | | |] [added: $] | [added: 4,921] | $ | 4,822 | [removed: |] $ | 4,568 | [removed: | $ | 2,784 | |]

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

In addition, Textron Aviation is developing the Citation Longitude, a super-midsize jet [added: which achieved first flight in October 2016 and is] expected to enter into service in 2017, and [removed: recently announced] the Citation Hemisphere, a large-cabin jet for which first flight is targeted in 2019.

Textron Aviation also offers the T-6 [removed: trainer] [added: trainer, which is used to train pilots of more than 20 countries,] and [added: the] AT-6 light attack military aircraft.

In support of its family of aircraft, Textron Aviation operates a global network of [removed: 21] [added: 19] service centers, two of which are co-located with Bell Helicopter, along with more than [removed: 400] [added: 350] authorized independent service centers located [removed: in 50 countries] throughout the world.

Textron Aviation [added: also] provides its customers with around-the-clock parts support and [removed: also] offers [removed: ServiceDirect® for Citation, King Air] [added: a mobile support program with over 60 mobile service units] and [removed: Hawker] [added: several dedicated support] aircraft.

Revenues for Bell accounted for approximately [removed: 26%, 31%] [added: 23%, 26%] and [removed: 37%] [added: 31%] of our total revenues in [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013,] [added: 2014,] respectively.

| Military: | | | | | | | | | [removed: | | | | | | | | | | |]

| V-22 Program | | | [removed: | | | | | |] [added: $] | [added: 1,151] | $ | 1,194 | [removed: |] $ | 1,771 | [removed: | $ | 1,755 | |]

| Other Military | | | | [removed: | | | | |] [added: 936] | | 839 | | [removed: |] 860 | [removed: | | 959 | | |]

| Commercial | | | | [removed: | | | | | |] [added: 1,152] | | 1,421 | | [removed: |] 1,614 | [removed: | | 1,797 | |]

| Total revenues | | | [removed: | | | | | |] [added: $] | [added: 3,239] | $ | 3,454 | [removed: |] $ | 4,245 | [removed: | $ | 4,511 | |]

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

The [removed: U.S. Marine Corps] H-1 helicopter program includes a utility model, the UH-1Y, and an advanced attack model, the AH-1Z, which have 84% parts commonality between them.

Through its commercial business, Bell is a leading supplier of commercially certified helicopters and support to corporate, offshore petroleum exploration and development, utility, charter, police, fire, [removed: rescue,] [added: rescue and] emergency medical helicopter [removed: operators] [added: operators,] and foreign governments.

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

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 [removed: eight] [added: six] Bell-operated service centers, [removed: five] [added: four] global parts distribution centers and over 100 independent service centers located in [removed: 34] [added: 32] countries.

Textron Systems is a supplier to the defense, aerospace and general aviation markets, and represents approximately [removed: 11%, 12%] [added: 13%, 11%] and [removed: 14%] [added: 12%] of our total revenues in [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013,] [added: 2014,] respectively.

| Unmanned Systems | | | [removed: | | | | | |] [added: $] | [added: 763] | $ | 686 | [removed: |] $ | 797 | [removed: | $ | 666 | |]

| Weapons and Sensors | | | | [removed: | | | | | |] [added: 282] | | 255 | | [removed: |] 264 | [removed: | | 311 | |]

| Marine and Land Systems | | | | [removed: | | | | |] [added: 294] | | 188 | | [removed: |] 158 | [removed: | | 392 | | |]

| Simulation, Training and Other | | | | [removed: | | | | | |] [added: 417] | | 391 | | [removed: |] 405 | [removed: | | 296 | |]

| Total revenues | | | [removed: | | | | | |] [added: $] | [added: 1,756] | $ | 1,520 | [removed: |] $ | 1,624 | [removed: | $ | 1,665 | |]

The Unmanned Systems business has designed, manufactured and fielded combat-proven unmanned aircraft systems for more than 25 [removed: years, including the U.S. Army’s premier tactical unmanned aircraft system, the Shadow.][added: years.]

[removed: This business’s] [added: In addition, its] unmanned aircraft and interoperable command and control technologies provide critical situational awareness and actionable intelligence for users worldwide.

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

Simulation, Training and Other includes [removed: five] [added: six] businesses: TRU Simulation + Training, Lycoming, Electronic Systems, Advanced Information [added: Solutions, Geospatial] Solutions and [removed: Geospatial] [added: Textron Airborne] Solutions.

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

| Fuel Systems and Functional Components | | | [removed: | | | | | |] [added: $] | [added: 2,273] | $ | 2,078 | [removed: |] $ | 1,975 | [removed: | $ | 1,853 | |]

| Specialized Vehicles and Equipment | | | | [removed: | | | | | |] [added: 1,080] | | 1,021 | | [removed: |] 868 | [removed: | | 713 | |]

| Tools and Test Equipment | | | | [removed: | | | | |] [added: 441] | | 445 | | [removed: |] 495 | [removed: | | 446 | | |]

| Total revenues | | | [removed: | | | | | |] [added: $] | [added: 3,794] | $ | 3,544 | [removed: |] $ | 3,338 | [removed: | $ | 3,012 | |]

Revenues of Kautex accounted for approximately [removed: 15%, 14% and] [added: 16%,] 15% [added: and 14%] of our total revenues in [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013,] [added: 2014,] respectively.

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

In addition, Textron Aviation recently announced the Cessna Denali, a high-performance single engine turboprop aircraft, which is targeted to achieve its first flight in 2018.

The Scorpion was added to the Textron Aviation product line and will be included in this segment’s results beginning January 1, 2017.

The Scorpion represents a highly affordable, multi-mission aircraft offering diverse capabilities including intelligence, surveillance and reconnaissance, humanitarian assistance, disaster relief, advanced training and precision strike, designed primarily for the tactical military jet aviation market.

The Scorpion has completed more than 800 flight hours, and the first flight of a production conforming aircraft was achieved in December 2016.

Also, in 2016, we entered into a cooperative research and development agreement with the U.S. Air Force under which an airworthiness assessment of this aircraft will be performed.

To further enhance its service capabilities, during 2016, Textron Aviation acquired Able Engineering and Component Services, Inc. and Able Aerospace, Inc., an industry-leading repair and overhaul business that provides component repairs, component exchanges and replacement parts, among other support and service offerings for commercial rotorcraft and fixed-wing aircraft customers around the world.

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

While the U.S. Marine Corps is the primary customer for H-1 helicopters, we have received orders for Pakistan under the U.S. Government-sponsored foreign military sales program.

The new 505 Jet Ranger X, a short-light single helicopter, achieved certification in Canada at the end of 2016, with a follow-on Federal Aviation Administration (FAA) certification expected in the first quarter of 2017.

On July 6, 2016, one of the two test aircraft used in flight testing for the 525 Relentless helicopters crashed.

We are cooperating fully with the National Transportation Safety Board in its investigation of the accident and working closely with the FAA on progressing toward certification of the 525.

While we have temporarily suspended flight activity for the remaining test aircraft, other certification activities and production work on the 525 program continue.

The timing of the aircraft’s certification and entry into service will be determined upon resumption of flight testing.

| _(In millions)_ | | | | 2016 | | 2015 | | 2014 |

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

This business’s products include the U.S. Army’s premier tactical unmanned aircraft system, the Shadow, which surpassed one million flight hours during 2016, and the Aerosonde Small Unmanned Aircraft System, a multi-mission capable unmanned aircraft system that has amassed more than 150,000 flight hours in commercial and military operations around the world.

During the third quarter of 2016, as discussed in Note 12 to the consolidated financial statements, we announced a plan to discontinue production of our sensor-fuzed weapon product by the end of the first quarter of 2017, with final deliveries to be completed by the end of 2017.

Textron Airborne Solutions focuses on live military air-to-air and air-to-ship training and support services for U.S. Navy, Marine and Air Force pilots, and includes the recently acquired Airborne Tactical Advantage Company.

| _(In millions)_ | | | | 2016 | | 2015 | | 2014 |

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

As discussed in Note 12 to the consolidated financial statements, the Jacobsen business is being combined into the Textron Specialized Vehicles business in order to optimize efficiencies and better serve their shared customers and distributors.

The Specialized Vehicles and Equipment product line includes the E-Z-GO, Textron Off Road, TUG Technologies, Douglas Equipment, Ransomes, Jacobsen, Cushman, Dixie Chopper, and the recently acquired Premier and Safeaero, businesses and brands.

The businesses in this product line design, manufacture and sell golf cars, off-road utility vehicles, light transportation vehicles, aviation ground support equipment and professional turf-maintenance equipment, as well as specialized turf-care vehicles.

We recently entered into an agreement to acquire Arctic Cat Inc., a leader in the recreational vehicle industry.

The company manufactures and markets all-terrain vehicles, side-by-sides and snowmobiles, in addition to related parts, garments and accessories under the Arctic Cat® and Motorfist® brand names.

Subject to customary closing conditions, we expect the transaction to close in March 2017.

| _(In millions)_ | | | | | | December 31,2016 | | January 2,2016 |

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

and mechanical systems for aircraft.

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

· The risk that acquisitions do not perform as planned, including, for example, the risk that acquired businesses will not achieve revenues and profit projections.

On March 14, 2014, we completed the acquisition of Beech Holdings, LLC, which included Beechcraft Corporation and other subsidiaries (collectively “Beechcraft”).

We combined Beechcraft with our legacy Cessna segment to form the Textron Aviation segment.

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

More than 20 countries utilize the T-6 aircraft as a part of their military training fleet.

ServiceDirect® delivers service capabilities directly to customer locations with a mobile service unit fleet in the U.S., Canada and Europe.

The new 505 Jet Ranger X, a short-light single helicopter, is expected to receive certification and begin deliveries in 2016.

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

Textron Specialized Vehicles, which includes the E-Z-GO, Bad Boy Off Road, Cushman, TUG Technologies and Douglas Equipment businesses and brands, designs, manufactures and sells golf cars, off-road utility vehicles, light transportation vehicles and aviation ground support equipment.

Although Textron Specialized Vehicles is

best known for its electric-vehicle technology, it also manufactures and sells models powered by internal combustion engines.

Jacobsen designs, manufactures and sells professional turf-maintenance equipment, as well as specialized turf-care vehicles.

Brand names include Ransomes, Jacobsen, Cushman and Dixie Chopper.

Jacobsen’s customers include golf courses, resort communities, sporting venues, municipalities and landscaping professionals.

Products are sold primarily through a worldwide network of distributors and dealers, as well as factory direct.

Jacobsen has two major competitors for professional turf-maintenance equipment and several other major competitors for specialized turf-care products.

Competition is based primarily on price, product features, product quality and reliability and product support.

ONSLAUGHT; OPINICUS; Overwatch; PDCue; Power Advantage; Pro-Fit; ProParts; Ransomes; REALCue; REALFeel; Recoil; Relentless; ROCONNECT; RT2; RXV; SABER; Scorpion; Sensor Fuzed Weapon; ServiceDirect; Shadow; Shadow Knight; Shadow Master; Sherman+Reilly; Skyhawk; Skyhawk SP; Skylane; SkyPLUS; Sovereign; Speed Punch; Spider; Stationair; ST 4X4; Super Cargomaster; Super Medium; SuperCobra; SYMTX; TDCue; Textron; Textron Aviation; Textron Defense Systems; Textron Financial Corporation; Textron Marine & Land Systems; Textron Systems; TI-Metal; TRUESET; TRU Simulation + Training; TRUCKSTER; TTx; TUG; Turbo Skylane; Turbo Stationair; UH-1Y; V-Watch Connect; VALOR; V-22 Osprey; V-280; Wolverine; 2FIVE; 206; 407; 407GT; 407GX; 412, 429, 505; 525 and 525 Relentless.

On February 7, 2012, a lawsuit was filed in the United States Bankruptcy Court, Northern District of Ohio, Eastern Division (Akron) by Brian A.

Bash, Chapter 7 Trustee for Fair Finance Company against TFC, Fortress Credit Corp. and Fair Facility I, LLC.

TFC provided a revolving line of credit of up to $17.5 million to Fair Finance Company from 2002 through 2007.

The complaint alleges numerous counts against TFC, as Fair Finance Company’s working capital lender, including receipt of fraudulent transfers and assisting in fraud perpetrated on Fair Finance investors.

The Trustee seeks avoidance and recovery of alleged fraudulent transfers in the amount of $316 million as well as damages of $223 million on the other claims.

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

On November 9, 2012, the Court dismissed all claims against TFC.

The trustee appealed, and on August 23, 2016, the 6th Circuit Court of Appeals reversed the dismissal in part and remanded certain claims back to the trial court.

We intend to vigorously defend this lawsuit.

On October 7, 2014, the Federal Aviation Administration of the U.S. Department of Transportation (DOT) issued a Notice of Proposed Civil Penalty to McCauley Propeller Systems, a Division of Cessna Aircraft Company, for alleged violations of DOT’s hazardous materials shipment regulations in connection with the shipment of resin product by air from McCauley’s Columbus, GA facility.

The DOT has proposed a civil penalty of $238,000, and Cessna Aircraft Company is currently negotiating the disposition of the matter.

For the fiscal year ended [removed: January 2,] [added: December 31,] 2016

| [removed: |] Delaware | | 05-0315468 | [removed: |]

| [removed: |] (State or other jurisdiction of [added: incorporation or organization)] | | (I.R.S. Employer [removed: |] [added: Identification No.)] |

| [removed: |] 40 Westminster Street, Providence, RI | | 02903 | [removed: |]

| [removed: |] (Address of principal executive offices) | | (Zip code) | [removed: |]

The aggregate market value of the registrant’s Common Stock held by non-affiliates at July [removed: 4, 2015] [added: 2, 2016] was approximately [removed: $12.3] [added: $9.8] billion based on the New York Stock Exchange closing price for such shares on that date.

At February [removed: 6, 2016, 271,171,585] [added: 4, 2017, 270,086,401] 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: 27, 2016.][added: 26, 2017.]

| [PART [removed: I](#PARTI_095739] [added: I](#PARTI_112249] "Click to goto ") | | Page |

| [Item [removed: 1.](#Item1_Business_095740)] [added: 1.](#Item1_Business_112251)] | [removed: [Business](#Item1_Business_095740)] [added: [Business](#Item1_Business_112251)] | 3 |

| [Item [removed: 1A.](#Item1A_RiskFactors_103808)] [added: 1A.](#Item1A_RiskFactors_121640)] | [Risk [removed: Factors](#Item1A_RiskFactors_103808)] [added: Factors](#Item1A_RiskFactors_121640)] | 10 |

| [Item [removed: 1B.](#Item1B_UnresolvedStaffComments_103943)] [added: 1B.](#Item1B_UnresolvedStaffComments_122249)] | [Unresolved Staff [removed: Comments](#Item1B_UnresolvedStaffComments_103943)] [added: Comments](#Item1B_UnresolvedStaffComments_122249)] | 15 |

| [Item [removed: 2.](#Item2_Properties_103946)] [added: 2.](#Item2_Properties_122251)] | [removed: [Properties](#Item2_Properties_103946)] [added: [Properties](#Item2_Properties_122251)] | 15 |

| [Item [removed: 3.](#Item3_LegalProceedings_103947)] [added: 3.](#Item3_LegalProceedings_122252)] | [Legal [removed: Proceedings](#Item3_LegalProceedings_103947)] [added: Proceedings](#Item3_LegalProceedings_122252)] | 15 |

| [Item [removed: 4.](#Item4_MineSafetyDisclosures_103954)] [added: 4.](#Item4_MineSafetyDisclosures_011558)] | [Mine Safety [removed: Disclosures](#Item4_MineSafetyDisclosures_103954)] [added: Disclosures](#Item4_MineSafetyDisclosures_011558)] | [removed: 15] [added: 16] |

| [PART [removed: II](#PARTII_114423] [added: II](#PARTII_011600] "Click to goto ") | | |

| [Item [removed: 5.](#Item5_MarketforRegistrantsCommon_114424)] [added: 5.](#Item5_MarketforRegistrantsCommon_011603)] | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#Item5_MarketforRegistrantsCommon_114424)] [added: Securities](#Item5_MarketforRegistrantsCommon_011603)] | 16 |

| [Item [removed: 6.](#Item6_SelectedFinancialData_112026)] [added: 6.](#Item6_SelectedFinancialData_011615)] | [Selected Financial [removed: Data](#Item6_SelectedFinancialData_112026)] [added: Data](#Item6_SelectedFinancialData_011615)] | [removed: 17] [added: 18] |

| [Item [removed: 7.](#Item7_ManagementsDiscussionandAn_121220)] [added: 7.](#Item7_ManagementsDiscussionandAn_011623)] | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#Item7_ManagementsDiscussionandAn_121220)] [added: Operations](#Item7_ManagementsDiscussionandAn_011623)] | [removed: 18] [added: 19] |

| [Item [removed: 7A.](#Item7A_QuantitativeandQualitativ_112509)] [added: 7A.](#Item7A_QuantitativeandQualitativ_010114)] | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#Item7A_QuantitativeandQualitativ_112509)] [added: Risk](#Item7A_QuantitativeandQualitativ_010114)] | [removed: 33] [added: 35] |

| [Item [removed: 8.](#Item8_FinancialStatementsandSupp_045722)] [added: 8.](#Item8_FinancialStatementsandSupp_010756)] | [Financial Statements and Supplementary [removed: Data](#Item8_FinancialStatementsandSupp_045722)] [added: Data](#Item8_FinancialStatementsandSupp_010756)] | [removed: 35] [added: 36] |

| [Item [removed: 9.](#Item9_ChangesInandDisagreementsW_041559)] [added: 9.](#Item9_ChangesInandDisagreementsW_013605)] | [Changes In and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#Item9_ChangesInandDisagreementsW_041559)] [added: Disclosure](#Item9_ChangesInandDisagreementsW_013605)] | [removed: 70] [added: 71] |

| [Item [removed: 9A.](#Item9A_ControlsandProcedures_041600)] [added: 9A.](#Item9A_ControlsandProcedures_013606)] | [Controls and [removed: Procedures](#Item9A_ControlsandProcedures_041600)] [added: Procedures](#Item9A_ControlsandProcedures_013606)] | [removed: 70] [added: 71] |

| [PART [removed: III](#PARTIII_112135] [added: III](#PARTIII_013620] "Click to goto ") | | |

| [Item [removed: 10.](#Item10_DirectorsExecutiveOfficer_112137)] [added: 10.](#Item10_DirectorsExecutiveOfficer_013609)] | [Directors, Executive Officers and Corporate [removed: Governance](#Item10_DirectorsExecutiveOfficer_112137)] [added: Governance](#Item10_DirectorsExecutiveOfficer_013609)] | [removed: 72] [added: 73] |

| [Item [removed: 11.](#Item11_ExecutiveCompensation_112140)] [added: 11.](#Item11_ExecutiveCompensation_013610)] | [Executive [removed: Compensation](#Item11_ExecutiveCompensation_112140)] [added: Compensation](#Item11_ExecutiveCompensation_013610)] | [removed: 72] [added: 73] |

| [Item [removed: 12.](#Item12_SecurityOwnershipofCertai_112142)] [added: 12.](#Item12_SecurityOwnershipofCertai_013612)] | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#Item12_SecurityOwnershipofCertai_112142)] [added: Matters](#Item12_SecurityOwnershipofCertai_013612)] | [removed: 72] [added: 73] |

| [Item [removed: 13.](#Item13_CertainRelationshipsandRe_112143)] [added: 13.](#Item13_CertainRelationshipsandRe_013613)] | [Certain Relationships and Related Transactions and Director [removed: Independence](#Item13_CertainRelationshipsandRe_112143)] [added: Independence](#Item13_CertainRelationshipsandRe_013613)] | [removed: 72] [added: 73] |

| [Item [removed: 14.](#Item14_PrincipalAccountantFeesan_112147)] [added: 14.](#Item14_PrincipalAccountantFeesan_013615)] | [Principal Accountant Fees and [removed: Services](#Item14_PrincipalAccountantFeesan_112147)] [added: Services](#Item14_PrincipalAccountantFeesan_013615)] | [removed: 72] [added: 73] |

| [PART [removed: IV](#PARTIV_112203] [added: IV](#PARTIV_013618] "Click to goto ") | | |

| [Item [removed: 15.](#Item15_ExhibitsandFinancialState_112206)] [added: 15.](#Item15_ExhibitsandFinancialState_013617)] | [Exhibits and Financial Statement [removed: Schedules](#Item15_ExhibitsandFinancialState_112206)] [added: Schedules](#Item15_ExhibitsandFinancialState_013617)] | [removed: 72] [added: 74] |

| [removed: [SIGNATURES](#Signatures_071120] [added: [Signatures](#Signatures_013945] "Click to goto ") | | [removed: 77] [added: 79] |

10-K 1 a17-1034_110k.htm 10-K

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

For the Fiscal Year Ended December 31, 2016

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

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

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

| | incorporation or organization) | | Identification No.) | |

On [removed: January 2,] [added: December 31,] 2016, we operated a total of [removed: 59] [added: 63] plants located throughout the U.S. and [removed: 52] [added: 53] plants outside the U.S. We own [removed: 57] [added: 58] plants and lease the remainder for a total manufacturing space of approximately 24.3 million square feet.

The principal market on which our common stock is traded is the New York Stock Exchange under the symbol “TXT.” At [removed: January 2,] [added: December 31,] 2016, there were approximately [removed: 10,000] [added: 9,400] record holders of Textron common stock.

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

| First quarter | [removed: |] $ | [removed: 45.61 |] [added: 41.74] | $ | [removed: 40.95 |] [added: 30.69] | $ | 0.02 | [removed: | |] $ | [removed: 40.18 |] [added: 45.61] | $ | [removed: 34.28 |] [added: 40.95] | $ | 0.02 | [removed: |]

| Second quarter | | [removed: 46.93 | |] [added: 40.61] | [removed: 42.97] | [added: 34.00] | | 0.02 | | [removed: | | 40.93 | |] [added: 46.93] | [removed: 36.96] | [added: 42.97] | | 0.02 | [removed: | |]

| Third quarter | | [removed: 44.98 | |] [added: 41.33] | [removed: 32.20] | [added: 35.06] | | 0.02 | | [removed: | | 39.03 | |] [added: 44.98] | [removed: 35.54] | [added: 32.20] | | 0.02 | [removed: | |]

| Fourth quarter | | [removed: 43.93 | |] [added: 49.82] | [removed: 38.18] | [added: 37.19] | | 0.02 | | [removed: | | 44.23 | |] [added: 43.93] | [removed: 32.28] | [added: 38.18] | | 0.02 | [removed: | |]

The following provides information about our fourth quarter [removed: 2015] [added: 2016] 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] [added: Total Number of Shares] Purchased [removed: (1) |] [added: *] | Average Price Paid per Share (excluding commissions) | | [removed: |] Total Number [removed: of Shares] [added: of Shares] Purchased as part of Publicly Announced Plan [removed: (1) |] [added: *] | [removed: Maximum Number] [added: Maximum Number] of Shares that may yet be Purchased [removed: under the] [added: under the] Plan | [removed: |]

| [removed: December 6, 2015 – January 2, 2016] | [added: 2016] | [removed: —] | | [removed: —] | | | [removed: —] [added: 2015] | | [removed: 10,882] | | [added: | |]

[removed: _(1)] [added: _*] These shares were purchased pursuant to a plan authorizing the repurchase of up to 25 million shares of Textron common stock that had been announced on January 23, [removed: 2013.][added: 2013, which had no expiration date._]

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: 2010] [added: 2011] 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: 2010 | | |] 2011 | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | [added: 2016 | |]

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

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

| October 2, 2016 – November 5, 2016 | 200 | $ | 39.92 | 200 | 4,434 |

| November 6, 2016 – December 3, 2016 | 450 | | 39.87 | 450 | 3,984 |

| December 4, 2016 – December 31, 2016 | — | | — | — | 3,984 |

| Total | 650 | $ | 39.88 | 650 | |

On January 25, 2017, we announced the adoption of a new plan authorizing the repurchase of up to 25 million shares of Textron common stock.

This new plan has no expiration date and replaced the existing plan adopted in 2013 that had 4.0 million remaining shares available for repurchase.

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

| Textron Inc. | $ | 100.00 | | $ | 134.50 | | $ | 199.98 | | $ | 229.56 | | $ | 229.44 | | $ | 265.75 | |

| S&P 500 | | 100.00 | | | 116.00 | | | 153.57 | | | 174.60 | | | 177.01 | | | 198.18 | |

| S&P 500 A&D | | 100.00 | | | 114.56 | | | 177.48 | | | 197.77 | | | 208.52 | | | 247.93 | |

| S&P 500 Industrials | | 100.00 | | | 114.76 | | | 151.06 | | | 169.73 | | | 174.65 | | | 192.32 | |

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

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

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

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

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

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

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

This plan has no expiration date._

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

| 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 | | |

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

| (_Dollars in millions, except per share amounts_) | | [removed: 2015] [added: 2016] | | [added: 2015] | | 2014 | | [removed: |] 2013 | | [removed: |] 2012 | [removed: | | 2011 | | |]

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

| Textron Aviation | [removed: |] $ | [removed: 4,822] [added: 4,921] | [added: $] | [added: 4,822] | $ | 4,568 | [removed: |] $ | 2,784 | [removed: |] $ | 3,111 | [removed: | $ | 2,990 | |]

| Bell | | [removed: 3,454] [added: 3,239] | | [added: 3,454] | | 4,245 | | [removed: |] 4,511 | | [removed: |] 4,274 | [removed: | | 3,525 | | |]

| Textron Systems | | [removed: 1,520] [added: 1,756] | | [added: 1,520] | | 1,624 | | [removed: |] 1,665 | | [removed: |] 1,737 | [removed: | | 1,872 | | |]

| Industrial | | [removed: 3,544] [added: 3,794] | | [added: 3,544] | | 3,338 | | [removed: |] 3,012 | | [removed: |] 2,900 | [removed: | | 2,785 | | |]

| Finance | | [removed: 83] [added: 78] | | [added: 83] | | 103 | | [removed: |] 132 | | [removed: |] 215 | [removed: | | 103 | | |]

| Total revenues | [removed: |] $ | [removed: 13,423] [added: 13,788] | [added: $] | [added: 13,423] | $ | 13,878 | [removed: |] $ | 12,104 | [removed: |] $ | 12,237 | [removed: | $ | 11,275 | |]

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

| Textron Aviation (a) | [removed: |] $ | [removed: 400] [added: 389] | [added: $] | [added: 400] | $ | 234 | [removed: |] $ | [removed: (48 | )] [added: (48)] | $ | 82 | [removed: | $ | 60 | |]

| Bell | | [removed: 400] [added: 386] | | [added: 400] | | 529 | | [removed: |] 573 | | [removed: |] 639 | [removed: | | 521 | | |]

| Textron Systems | | [removed: 129] [added: 186] | | [added: 129] | | 150 | | [removed: |] 147 | | [removed: |] 132 | [removed: | | 141 | | |]

| Industrial | | [removed: 302] [added: 329] | | [added: 302] | | 280 | | [removed: |] 242 | | [removed: |] 215 | [removed: | | 202 | | |]

| Finance [removed: (b)] | | [removed: 24] [added: 19] | | [added: 24] | | 21 | | [removed: |] 49 | | [removed: |] 64 | [removed: | | (333 | | ) |]

| Total segment profit | | [removed: 1,255] [added: 1,309] | | [added: 1,255] | | 1,214 | | [removed: |] 963 | | [removed: |] 1,132 | [removed: | | 591 | | |]

| Corporate expenses and other, net | | [removed: (154 | | ) | | (161 | | ) | (166] [added: (172)] | | [removed: )] [added: (154)] | [removed: (148] | [added: (161)] | [removed: )] | [removed: (114] [added: (166)] | | [removed: )] [added: (148)] |

| Interest expense, net for Manufacturing group | | [removed: (130 | | ) | | (148 | | ) | (123] [added: (138)] | | [removed: )] [added: (130)] | [removed: (143] | [added: (148)] | [removed: )] | [removed: (140] [added: (123)] | | [removed: )] [added: (143)] |

| Income tax expense [removed: | | (273 | | ) | | (248 |] [added: (c)] | [removed: )] | [removed: (176] [added: (33)] | | [removed: )] [added: (273)] | [removed: (260] | [added: (248)] | [removed: )] | [removed: (95] [added: (176)] | | [removed: )] [added: (260)] |

| Income from continuing operations | [removed: |] $ | [removed: 698] [added: 843] | [added: $] | [added: 698] | $ | 605 | [removed: |] $ | 498 | [removed: |] $ | 581 | [removed: | $ | 242 | |]

| [removed: Per share of common stock | | | | | | |] [added: Earnings per share] | | | | | | | | | | |

| [removed: Income from] [added: Basic earnings per share —] continuing operations [removed: — basic] | [removed: |] $ | [removed: 2.52] [added: 3.11] | [added: $] | [added: 2.52] | $ | 2.17 | [removed: |] $ | 1.78 | [removed: |] $ | 2.07 | [removed: | $ | 0.87 | |]

| [removed: Income from] [added: Diluted earnings per share —] continuing operations [removed: — diluted] | [removed: |] $ | [removed: 2.50] [added: 3.09] | [added: $] | [added: 2.50] | $ | 2.15 | [removed: |] $ | 1.75 | [removed: |] $ | 1.97 | [removed: | $ | 0.79 | |]

| Dividends declared [removed: |] [added: per share] | $ | 0.08 | [removed: | |] $ | 0.08 | [removed: |] $ | 0.08 | [removed: |] $ | 0.08 | [removed: |] $ | 0.08 | [removed: |]

| Book value at year-end | [removed: |] $ | [removed: 18.10] [added: 20.62] | [added: $] | [added: 18.10] | $ | 15.45 | [removed: |] $ | 15.54 | [removed: |] $ | 11.03 | [removed: | $ | 9.84 | |]

| [removed: Year-end |] [added: Price at year-end] | $ | [removed: 42.01] [added: 48.56] | [added: $] | [added: 42.01] | $ | 42.17 | [removed: |] $ | 36.61 | [removed: |] $ | 24.12 | [removed: | $ | 18.49 | |]

| Basic average [added: shares outstanding (_in thousands)_] | | [removed: 276,682] [added: 270,774] | | [added: 276,682] | | 279,409 | | [removed: |] 279,299 | | [removed: |] 280,182 | [removed: | | 277,684 | | |]

| Diluted average [added: shares outstanding (_in thousands)_] | | [removed: 278,727] [added: 272,365] | | [added: 278,727] | | 281,790 | | [removed: |] 284,428 | | [removed: |] 294,663 | [removed: | | 307,255 | | |]

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

| Total assets | [removed: |] $ | [removed: 14,708] [added: 15,358] | [added: $] | [added: 14,708] | $ | 14,605 | [removed: |] $ | 12,944 | [removed: |] $ | 13,033 | [removed: | $ | 13,615 | |]

| Manufacturing group debt | [removed: |] $ | [removed: 2,697] [added: 2,777] | [added: $] | [added: 2,697] | $ | 2,811 | [removed: |] $ | 1,931 | [removed: |] $ | 2,301 | [removed: | $ | 2,459 | |]

| Finance group debt | [removed: |] $ | [removed: 913] [added: 903] | [added: $] | [added: 913] | $ | 1,063 | [removed: |] $ | 1,256 | [removed: |] $ | 1,686 | [removed: | $ | 1,974 | |]

| Shareholders’ equity | [removed: |] $ | [removed: 4,964] [added: 5,574] | [added: $] | [added: 4,964] | $ | 4,272 | [removed: |] $ | 4,384 | [removed: |] $ | 2,991 | [removed: | $ | 2,745 | |]

| Manufacturing group debt-to-capital (net of cash) | | [removed: 26 | | % | | 33 | | % | 15] [added: 23%] | | [removed: %] [added: 26%] | [removed: 24] | [added: 33%] | [removed: %] | [removed: 37] [added: 15%] | | [removed: %] [added: 24%] |

| Manufacturing group debt-to-capital | | [removed: 35 | | % | | 40 | | % | 31] [added: 33%] | | [removed: %] [added: 35%] | [removed: 44] | [added: 40%] | [removed: %] | [removed: 47] [added: 31%] | | [removed: %] [added: 44%] |

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

| Capital expenditures | [removed: |] $ | [removed: 420] [added: 446] | [added: $] | [added: 420] | $ | 429 | [removed: |] $ | 444 | [removed: |] $ | 480 | [removed: | $ | 423 | |]

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

| Special charges (b) | | (123) | | — | | (52) | | — | | — |

| Common stock information | | | | | | | | | | |

| Manufacturing group depreciation | $ | 368 | $ | 383 | $ | 379 | $ | 335 | $ | 315 |

_(b)_ _In 2016, we initiated a plan to restructure and realign our businesses by implementing headcount reductions, facility consolidations and other actions in order to improve overall operating efficiency across Textron.

Special charges for 2016 include restructuring charges for this plan, which primarily consists of severance costs of $70 million and asset impairments of $38 million.

For 2014, special charges include acquisition and restructuring costs related to the acquisition of Beechcraft._

_(c)_ _In 2016, we recognized an income tax benefit of $319 million, inclusive of interest, of which $206 million is attributable to continuing operations and $113 million is attributable to discontinued operations.

This benefit was a result of the final settlement with the Internal Revenue Service Office of Appeals for our 1998 to 2008 tax years._

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

| Acquisition and restructuring costs (c) | | — | | | | (52 | | ) | — | | | — | | | — | | |

| Common stock price: High | | $ | 46.93 | | | $ | 44.23 | | $ | 37.43 | | $ | 29.18 | | $ | 28.87 | |

| Low | | $ | 32.20 | | | $ | 32.28 | | $ | 23.94 | | $ | 18.37 | | $ | 14.66 | |

| Common shares outstanding _(In thousands)_ | | | | | | | | | | | | | | | | | |

| Year-end | | 274,228 | | | | 276,582 | | | 282,059 | | | 271,263 | | | 278,873 | | |

| Depreciation | | $ | 391 | | | $ | 389 | | $ | 349 | | $ | 336 | | $ | 343 | |

_(b)_ _For 2011, segment profit includes a $186 million initial mark-to-market adjustment for finance receivables in the Golf Mortgage portfolio that were transferred to the held for sale classification._

_(c)_ _Acquisition and restructuring costs are related to the acquisition of Beech Holdings, LLC, the parent of Beechcraft Corporation, which was completed on March 14, 2014._

| [Consolidated Statements of Operations for each of the years in the three-year period ended [removed: January 2, 2016](#ConsolidatedStatementsofOperatio_050616] [added: December 31, 2016](#ConsolidatedStatementsofOperatio_010810] "Click to goto ") | [removed: 36] [added: 37] |

| [Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended [removed: January 2, 2016](#ConsolidatedStatementsofComprehe_050617] [added: December 31, 2016](#ConsolidatedStatementsofComprehe_010813] "Click to goto ") | [removed: 37] [added: 38] |

| [Consolidated Balance Sheets as of [removed: January 2,] [added: December 31,] 2016 and January [removed: 3, 2015](#ConsolidatedBalanceSheets_050621] [added: 2, 2016](#ConsolidatedBalanceSheets_012741] "Click to goto ") | [removed: 38] [added: 39] |

| [Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended [removed: January 2, 2016](#ConsolidatedStatementsofSharehol_050656] [added: December 31, 2016](#ConsolidatedStatementsofSharehol_013559] "Click to goto ") | [removed: 39] [added: 40] |

| [Consolidated Statements of Cash Flows for each of the years in the three-year period ended [removed: January 2, 2016](#ConsolidatedStatementsofCashFlow_050659] [added: December 31, 2016](#ConsolidatedStatementsofCashFlow_013604] "Click to goto ") | [removed: 40] [added: 41] |

| [Notes to the Consolidated Financial [removed: Statements](#NotestotheConsolidatedFinancialS_050740] [added: Statements](#NotestotheConsolidatedFinancialS_014459] "Click to goto ") | |

| [Note 1. Summary of Significant Accounting [removed: Policies](#Note1_SummaryofSignificantAccoun_050743] [added: Policies](#Note1_SummaryofSignificantAccoun_015208] "Click to goto ") | [removed: 42] [added: 43] |

| [Note 2. Business Acquisitions, Goodwill and Intangible [removed: Assets](#Note2_BusinessAcquisitionsGoodwi_050749] [added: Assets](#Note2_BusinessAcquisitionsGoodwi_015220] "Click to goto ") | [removed: 46] [added: 48] |

| [Note 3. Accounts Receivable and Finance [removed: Receivables](#Note3_AccountsReceivableandFinan_050819] [added: Receivables](#Note3_AccountsReceivableandFinan_032546] "Click to goto ") | [removed: 48] [added: 49] |

| [Note 4. [removed: Inventories](#Note4_Inventories_050823] [added: Inventories](#Note4_Inventories_032556] "Click to goto ") | [removed: 50] [added: 51] |

| [Note 5. Property, Plant and Equipment, [removed: Net](#Note5_PropertyPlantandEquipmentN_050825] [added: Net](#Note5_PropertyPlantandEquipmentN_032559] "Click to goto ") | 51 |

| [Note 6. Accrued [removed: Liabilities](#Note6_AccruedLiabilities_050827] [added: Liabilities](#Note6_AccruedLiabilities_032606] "Click to goto ") | [removed: 51] [added: 52] |

| [Note 7. Debt and Credit [removed: Facilities](#Note7_DebtandCreditFacilities_050859] [added: Facilities](#Note7_DebtandCreditFacilities_032609] "Click to goto ") | 52 |

| [Note 8. Derivative Instruments and Fair Value [removed: Measurements](#Note8_DerivativeInstrumentsandFa_050908] [added: Measurements](#Note8_DerivativeInstrumentsandFa_032440] "Click to goto ") | 53 |

| [Note 9. Shareholders’ [removed: Equity](#Note9_ShareholdersEquity_050910] [added: Equity](#Note9_ShareholdersEquity_032448] "Click to goto ") | 54 |

| [Note 10. Share-Based [removed: Compensation](#Note10_ShareBasedCompensation_050933] [added: Compensation](#Note10_ShareBasedCompensation_032822] "Click to goto ") | 56 |

| [Note 11. Retirement [removed: Plans](#Note11_RetirementPlans_050936] [added: Plans](#Note11_RetirementPlans_035219] "Click to goto ") | 58 |

| [Note [removed: 12.] [added: 13.] Income [removed: Taxes](#Note12_IncomeTaxes_060804] [added: Taxes](#Note13_IncomeTaxes_024441] "Click to goto ") | [removed: 62] [added: 63] |

| [Note [removed: 13.] [added: 14.] Commitments and [removed: Contingencies](#Note13_CommitmentsandContingenci_051049] [added: Contingencies](#Note14_CommitmentsandContingenci_024446] "Click to goto ") | 65 |

| [Note [removed: 14.] [added: 15.] Supplemental Cash Flow [removed: Information](#Note14_SupplementalCashFlowInfor_051051] [added: Information](#Note15_SupplementalCashFlowInfor_031715] "Click to goto ") | [removed: 65] [added: 66] |

| [Note [removed: 15.] [added: 16.] Segment and Geographic [removed: Data](#Note15_SegmentandGeographicData_051053] [added: Data](#Note16_SegmentandGeographicData_013850] "Click to goto ") | 66 |

| [Report of Independent Registered Public Accounting [removed: Firm](#ReportofIndependentRegisteredPub_051143] [added: Firm](#ReportofIndependentRegisteredPub_013900] "Click to goto ") | [removed: 68] [added: 69] |

| [Quarterly Data for [removed: 2015] [added: 2016] and [removed: 2014 (Unaudited)](#QuarterlyData_051201] [added: 2015 (Unaudited)](#QuarterlyData_060505] "Click to goto ") | [removed: 69] [added: 70] |

| [Schedule II – Valuation and Qualifying [removed: Accounts](#ScheduleIIValuationandQualifying_051206] [added: Accounts](#ScheduleIIValuationandQualifying_060440] "Click to goto ") | [removed: 70] [added: 71] |

For each of the years in the three-year period ended [removed: January 2,] [added: December 31,] 2016

| _(In millions, except per share data)_ | | | [removed: 2015] | [removed: | | | 2014 |] [added: 2016] | | [removed: 2013] [added: 2015] | | [added: 2014] |

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

| Manufacturing revenues | | | $ | [removed: 13,340 | |] [added: 13,710] | $ | [removed: 13,775 |] [added: 13,340] | $ | [removed: 11,972 |] [added: 13,775] |

| Finance revenues | | | [removed: 83] | [removed: | | | 103 |] [added: 78] | | [removed: 132] [added: 83] | | [added: 103] |

| Total revenues | | | [removed: 13,423] | [removed: | | | 13,878 |] [added: 13,788] | | [removed: 12,104] [added: 13,423] | | [added: 13,878] |

| [removed: Costs] [added: Costs, expenses] and [removed: expenses | | | |] [added: other] | | | | | | | | |

| Cost of sales | | | [removed: 10,979] | [removed: | | | 11,421 |] [added: 11,311] | | [removed: 10,131] [added: 10,979] | | [added: 11,421] |

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

| Interest expense | | | [removed: 169] | [removed: | | | 191 |] [added: 174] | | [removed: 173] [added: 169] | | [added: 191] |

| Total [removed: costs and] [added: costs,] expenses [removed: | | | 12,452 |] [added: and other] | | | [removed: 13,025] | [added: 12,912] | | [removed: 11,430] [added: 12,452] | | [added: 13,025] |

| Income from continuing operations before income taxes | | | [removed: 971] | [removed: | | | 853 |] [added: 876] | | [removed: 674] [added: 971] | | [added: 853] |

| Income tax expense | | | [removed: 273] | [removed: | | | 248 |] [added: 33] | | [removed: 176] [added: 273] | | [added: 248] |

| Income from continuing operations | | | [removed: 698] | [removed: | | | 605 |] [added: 843] | | [removed: 498] [added: 698] | | [added: 605] |

| [removed: Loss] [added: Income (loss)] from discontinued operations, net of income [removed: taxes | | | (1 |] [added: taxes*] | [removed: )] | | [removed: (5] | [added: 119] | [removed: )] | [removed: —] [added: (1)] | | [added: (5)] |

| Net income | | | $ | [removed: 697 | |] [added: 962] | $ | [removed: 600 |] [added: 697] | $ | [removed: 498 |] [added: 600] |

| [Note 12. Special Charges](#Note12_SpecialCharges_024427 "Click to goto ") | 62 |

| [Note 17. Subsequent Event](#Note17_SubsequentEvent_013858 "Click to goto ") | 68 |

| Special charges | | | | 123 | | — | | 52 |

| Discontinued operations | | | | 0.44 | | — | | (0.02) |

_*Income from discontinued operations, net of income taxes for the year ended December 31, 2016 primarily includes the settlement of a U.S. federal income tax audit.

See Note 13 to the Consolidated Financial Statements for additional information._

For each of the years in the three-year period ended December 31, 2016

See Notes to the Consolidated Financial Statements.

See Notes to the Consolidated Financial Statements.

| Dividends declared ($0.08 per share) | | | | | | | | (22) | | | | (22) |

| Net income | | | | | | | | 962 | | | | 962 |

| Dividends declared ($0.08 per share) | | | | | | | | (22) | | | | (22) |

| Purchases of common stock | | | | | | (241) | | | | | | (241) |

| Retirement of treasury stock | | (3) | | (105) | | 800 | | (692) | | | | — |

| Balance at December 31, 2016 | $ | 34 | $ | 1,599 | $ | — | $ | 5,546 | $ | (1,605) | $ | 5,574 |

See Notes to the Consolidated Financial Statements.

For each of the years in the three-year period ended December 31, 2016

| Asset impairments | | 40 | | 7 | | — |

See Notes to the Consolidated Financial Statements.

For each of the years in the three-year period ended December 31, 2016

| Asset impairments | | 40 | | 7 | | — | | — | | — | | — |

See Notes to the Consolidated Financial Statements.

We also consider any performance, cancellation, termination or refund-type provisions.

Accordingly, these advances and payments are reflected as an offset against the related inventory balances with any remaining amounts recorded as a liability in customer deposits.

For our year-end measurement, our defined benefit plan assets and obligations are measured as of the month-end date closest to our fiscal year-end.

The provision for income tax expense is calculated on reported Income from continuing operations before income taxes based on current tax law and includes, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities.

Tax laws may require items to be included in the determination of taxable income at different times from when the items are reflected in the financial statements.

Deferred tax assets represent tax benefits for tax deductions or credits available in future years and require certain estimates and assumptions to determine whether it is more likely than not that all or a portion of the benefit will not be realized.

Should a change in facts or circumstances lead to a change in judgment about the ultimate recoverability of a deferred tax asset, we record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in income tax expense.

To be recognized in the financial statements, the tax position must meet the more-likely-than-not threshold that the position will be sustained upon examination by the tax authority based on technical merits assuming the tax authority has full knowledge of all relevant information.

For positions meeting this recognition threshold, the benefit is measured as the largest amount of benefit that meets the more-likely-than-not threshold to be sustained.

We periodically evaluate these tax positions based on the latest available information.

The standard may be adopted either retrospectively or on a modified retrospective basis.

We will adopt the standard in 2018 and expect to apply it on a modified retrospective basis, with a cumulative catch-up adjustment recognized at the beginning of 2018.

The standard will primarily impact our businesses under long-term production contracts with the U.S. Government as these contracts currently use the units-of-delivery accounting method; under the new standard, these contracts will transition to a model that recognizes revenue over time, principally as costs are incurred, resulting in earlier revenue recognition.

In 2016, approximately 25% of our revenues were from contracts with the U.S. Government.

Given the complexity of our contracts, we are continuing to assess the potential effect that the standard is expected to have on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, _Leases_, that requires lessees to recognize all leases with a term greater than 12 months on the balance sheet as right-to-use assets and lease liabilities, while lease expenses would continue to be recognized in the statement of operations in a manner similar to current accounting guidance.

Under the current accounting guidance, we are not required to recognize assets and liabilities arising from operating leases on the balance sheet.

The new standard is effective for our company at the beginning of 2019 and early adoption is permitted.

| Acquisition and restructuring costs | | | — | | | | 52 | | | — | | |

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

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

| Balance at December 29, 2012 | | $ | 35 | | $ | 1,177 | | $ | (275 | ) | $ | 3,824 | | $ | (1,770 | ) | $ | 2,991 | |

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

| Settlement of capped call | | | | | 75 | | | | | | | | | | | | 75 | | |

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

| Proceeds from sales of receivables and other finance assets | | | 38 | | | | 43 | | | 178 | | |

| Settlement of convertible notes | | | — | | | | — | | | (215 | | ) |

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

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

| Proceeds from sales of receivables and other finance assets | | — | | | | — | | | — | | | | 38 | | | | 43 | | | 178 | | |

| Settlement of convertible notes | | — | | | | — | | | (215 | | ) | | — | | | | — | | | — | | |

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

| Intergroup financing | | — | | | | — | | | 57 | | | | — | | | | — | | | (57 | | ) |

For 2015, 2014 and 2013, the gross unfavorable program profit adjustments totaled $33 million, $37 million and $22 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.

Such advances and payments are reflected

as an offset against the related inventory balances.

All other customer deposits are recorded in accrued liabilities.

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.

For our product maintenance contracts,

Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years.

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.

2014 Beechcraft Acquisition

The consideration paid for this business was allocated to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date as presented below.

| _(In millions)_ | | | | |

| Accounts receivable | | $ | 129 | |

| Inventories | | 775 | | |

| Intangible assets | | 581 | | |

| Goodwill | | 228 | | |

| Accounts payable | | (143 | | ) |

| Accrued liabilities | | (294 | | ) |

| 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.

We performed an evaluation of the effectiveness of our disclosure controls and procedures as of [removed: January 2,] [added: December 31,] 2016.

Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were operating and effective as of [removed: January 2,] [added: December 31,] 2016.

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 [removed: January 2,] [added: December 31,] 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 [removed: January 2,] [added: December 31,] 2016, as stated in its report, which is included herein.

We have audited Textron Inc.’s internal control over financial reporting as of [removed: January 2,] [added: December 31,] 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).

In our opinion, Textron Inc. maintained, in all material respects, effective internal control over financial reporting as of [removed: January 2,] [added: December 31,] 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 [removed: January 2,] [added: December 31,] 2016 and January [removed: 3, 2015,] [added: 2, 2016,] and the related Consolidated Statements of Operations, Comprehensive Income, Shareholders’ Equity and Cash Flows for each of the three years in the period ended [removed: January 2,] [added: December 31,] 2016 of Textron Inc. and our report dated February [removed: 24, 2016] [added: 22, 2017] expressed an unqualified opinion thereon.

February 22, 2017

February 24, 2016

The information appearing under “ELECTION OF DIRECTORS— Nominees for Director,” “CORPORATE GOVERNANCE—Corporate Governance Guidelines and Policies,” “— Code of Ethics,” [removed: “—Board] [added: “–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: 27, 2016] [added: 26, 2017] is incorporated by reference into this Annual Report on Form 10-K.

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: 27, 2016] [added: 26, 2017] is incorporated by reference into this Annual Report on Form 10-K.

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: 27, 2016] [added: 26, 2017] is incorporated by reference into this Annual Report on Form 10-K.

The information appearing under “CORPORATE [removed: GOVERNANCE—Director] [added: 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: 27, 2016] [added: 26, 2017] 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: 27, 2016] [added: 26, 2017] is incorporated by reference into this Annual Report on Form 10-K.

Financial Statements and Schedules — See Index on Page [removed: 35.][added: 36.]

| 3.1A | | Restated Certificate of Incorporation of Textron as filed with the Secretary of State of Delaware on April 29, 2010. Incorporated by reference to Exhibit 3.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2010. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 3.1B | | Certificate of Amendment of Restated Certificate of Incorporation of Textron Inc., filed with the Secretary of State of Delaware on April 27, 2011. Incorporated by reference to Exhibit 3.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2011. [added: (SEC File No. 1-5480)] |

| 3.2 | | Amended and Restated By-Laws of Textron Inc., effective April 28, 2010 and further amended April 27, 2011, July 23, [removed: 2013 and] [added: 2013,] February 25, [removed: 2015.] [added: 2015 and December 6, 2016.] Incorporated by reference to Exhibit 3.2 to Textron’s [removed: Annual] [added: Current] Report on Form [removed: 10-K for the fiscal year ended January 3, 2015.] [added: 8-K filed on December 8, 2016.] |

| 4.1A | | Support Agreement dated as of May 25, 1994, between Textron Inc. and Textron Financial Corporation. Incorporated by reference to Exhibit 4.1 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. [added: (SEC File No. 1-5480)] |

| 4.1B | | Amendment to Support Agreement, dated as of December 23, 2015, by and between Textron Inc. and Textron Financial Corporation. [added: Incorporated by reference to Exhibit 4.1B to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016.] |

| 10.1B | | Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 10.1C | | Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 10.1D | | Form of Restricted Stock Unit Grant Agreement. Incorporated by reference to Exhibit 10.4 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 10.1E | | Form of Restricted Stock Unit Grant Agreement with Dividend Equivalents. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2008. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 10.1F | | Form of Cash-Settled Restricted Stock Unit Grant Agreement with Dividend Equivalents. Incorporated by reference to Exhibit 10.1G to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 10.1G | | Form of Performance Share Unit Grant Agreement. Incorporated by reference to Exhibit 10.1H to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 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. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| [removed: 10.3] [added: 10.3A] | | Textron Inc. 2015 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 2015. |

| 10.5A | | Textron Spillover Pension Plan, As Amended and Restated Effective January 3, 2010, including Appendix A (as amended and restated effective January 3, 2010), Defined Benefit Provisions of the Supplemental Benefits Plan for Textron Key Executives (As in effect before January 1, 2007). Incorporated by reference to Exhibit 10.4 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2010. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 10.5B | | Amendments to the Textron Spillover Pension Plan, dated October 12, 2011. Incorporated by reference to Exhibit 10.5B to Textron’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. [added: (SEC File No. 1-5480)] |

| 10.6 | | Deferred Income Plan for Textron Executives, Effective October 5, 2015. [added: Incorporated by reference to Exhibit 10.6 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016.] |

| 10.7A | | Deferred Income Plan for Non-Employee Directors, As Amended and Restated Effective January 1, 2009, including Appendix A, Prior Plan Provisions (As in effect before January 1, 2008). Incorporated by reference to Exhibit 10.9 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 10.8A | | Severance Plan for Textron Key Executives, As Amended and Restated Effective January 1, 2010. Incorporated by reference to Exhibit 10.10 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 2010. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 10.8B | | First Amendment to the Severance Plan for Textron Key Executives, dated October 26, 2010. Incorporated by reference to Exhibit 10.10B to Textron’s Annual Report on Form 10-K for the fiscal year ended January 1, 2011. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 10.9 | | Form of Indemnity Agreement between Textron and its executive officers. Incorporated by reference to Exhibit A to Textron’s Proxy Statement for its Annual Meeting of Shareholders on April 29, 1987. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 10.10 | | Form of Indemnity Agreement between Textron and its non-employee directors (approved by the Nominating and Corporate Governance Committee of the Board of Directors on July 21, 2009 and entered into with all non-employee directors, effective as of August 1, 2009). Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2009. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 10.11A | | Letter Agreement between Textron and Scott C. Donnelly, dated June 26, 2008. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2008. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |

| 10.11B | | Amendment to Letter Agreement between Textron and Scott C. Donnelly, dated December 16, 2008, together with Addendum No.1 thereto, dated December 23, 2008. Incorporated by reference to Exhibit 10.15B to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. (SEC File No. [removed: 001-05480)] [added: 1-5480)] |