Textron (TXT) 10-K risk factor changes: FY2018 vs FY2017

During [removed: 2017,] [added: 2018,] we derived approximately [removed: 22%] [added: 24%] of our revenues from sales to a variety of U.S. Government entities.

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

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

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

Such an event could also have an adverse effect on our ability to compete for future [removed: contracts and orders.]

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 [added: and equipment supplied to perform under these contracts.]

Any such event could [removed: result in] [added: have] a material adverse effect on our cash flows, results of operations and financial condition.

We operate in a highly regulated environment and are routinely audited and reviewed by the U.S. Government and its agencies such as [added: the] DCAA and DCMA.

If an audit uncovers improper or illegal [removed: activities] [added: activities,] we may be subject to civil and criminal penalties and administrative sanctions that may include the termination of our contracts, forfeiture of profits, suspension of payments, fines, and, under certain circumstances, suspension or debarment from future contracts for a period of time.

Additionally, fixed-price contracts may require progress payments rather than [removed: performance based] [added: performance-based] payments which can delay our ability to recover a significant amount of costs incurred on a contract and thus affect the timing of our cash flows.

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

Reduced demand for our aircraft products or delays or cancellations of orders could [removed: result in] [added: have] a material adverse effect on our cash flows, results of operations and financial condition.

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

[removed: we] [added: We also] outsource certain support functions, including certain global IT infrastructure services, to third-party service [removed: providers.][added: providers, and any disruption of such outsourced processes or functions could have a material adverse effect on our operations.]

In addition, as a U.S. defense contractor, we face certain security threats, including threats to our IT [removed: infrastructure,] [added: infrastructure and] unlawful attempts to gain access to our information [added: via phishing / malware campaigns] and [added: other cyberattack methods, as well as] threats to the physical security of our facilities and employees, as do our customers, suppliers, subcontractors and joint venture partners.

[removed: Cybersecurity threats, such as malicious software, attempts] [added: Attempts] to gain unauthorized access to our confidential, classified or otherwise proprietary information or that of our employees or customers, as well as other security breaches, are persistent, continue to evolve and require highly skilled IT resources.

Due to the evolving nature of [removed: these] security threats, the possibility of future material incidents cannot be completely [removed: mitigated.][added: mitigated and we may not be successful in detecting, reporting or responding to cyber incidents in a timely manner.]

Future attacks or [removed: breach] [added: breaches] of data security, whether of our systems or the systems of our service providers or other third parties who may have access to our data for business purposes, could disrupt our operations, cause the loss of business information or compromise confidential information, exposing us to liability or regulatory action.

Such an incident also could require significant management attention and resources, increase [removed: costs, which] [added: costs that] may not be covered by insurance, and result in reputational damage, potentially adversely affecting our competitiveness and our results of operations.

Delays or cost overruns in the development and acceptance of new products, or certification of new aircraft and other products, could [added: adversely] affect our results of operations.

During [removed: 2017,] [added: 2018,] we derived approximately 38% of our revenues from international business, including U.S. [removed: exports, and we expect international revenues to continue to increase.][added: exports.]

Risks related to international operations include import, export and other trade restrictions; changing U.S. and foreign procurement policies and practices; [added: changes in international trade policies, including higher tariffs on imported goods and materials and renegotiation of free trade agreements; impacts related to the pending voluntary exit of the United Kingdom from the European Union (“Brexit”);] restrictions on technology transfer; difficulties in protecting intellectual property; increasing complexity of employment and environmental, health and safety regulations; foreign investment laws; exchange controls; repatriation of earnings or cash settlement challenges, competition from foreign and multinational firms with home country advantages; economic and government instability, acts of terrorism and related safety concerns.

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

Although we maintain policies and procedures designed to facilitate compliance with these laws, a violation of such laws by any of our international representatives, [added: consultants, joint ventures, business partners, subcontractors or suppliers, even if prohibited by our policies, could have an adverse effect on our business and reputation.]

[removed: Our increased focus on international] [added: International] sales and global operations [removed: requires] [added: require] importing and exporting goods and technology, some of which have military applications subjecting them to more stringent import-export controls across international borders on a regular basis.

Additionally, our intellectual property could be at risk due to [removed: various] cybersecurity threats.

As a distributor of consumer products in the U.S., certain of our products [removed: also] are subject to the Consumer Product Safety Act, which empowers the U.S. Consumer Product Safety Commission (CPSC) to exclude from the market products that are found to be unsafe or hazardous.

[removed: expenses are] [added: The obligation for our defined benefit pension plans is] driven by, among other things, our assumptions of the expected long-term rate of return on plan [removed: assets,] [added: assets and] the discount rate used for future payment [removed: obligations and the rates of future cost growth.][added: obligations.]

Approximately 7,200, or [removed: 27%,] [added: 28%,] of our U.S. employees are unionized, and many of our non-U.S. employees are represented by organized councils.

In particular, the carrying value of deferred tax assets is dependent on our ability to generate [removed: future taxable income, as well as changes to applicable statutory tax rates.]

The Tax Cuts and Jobs Act [removed: (the “Act”)] was enacted on December 22, 2017 and significantly changed U.S. income tax law.

[removed: The effect of such guidance, as well as any] [added: Any] additional tax [removed: reform] legislation in the United States or elsewhere, could adversely affect our effective tax rate, have a material impact on the value of our deferred tax assets or increase our future U.S. tax expense.

For example, if the U.S. government is shut down for an extended period of time or the debt ceiling is not raised, our customer may not pay us on a timely basis.

contracts and orders.

Under each type of contract, if we are unable to control

We maintain Information Systems Incident Management Standards applicable to all our businesses to ensure information security events and weaknesses associated with information systems are communicated and acted on in a timely manner.

Our enterprise risk management program includes cyber risk/network protection mitigation plans, and our disclosure controls and procedures address cybersecurity and include processes intended to ensure that security breaches are analyzed for potential disclosure.

Additionally, we conduct periodic training for our employees regarding the protection of sensitive information which includes training intended to prevent the success of cyberattacks.

Further, our insider trading compliance program addresses restrictions against trading while in possession of material, nonpublic information in connection with a cybersecurity incident.

Products and services that we provide to our customers may themselves be subject to cyberthreats which may not be detected or effectively mitigated, resulting in potential losses that could adversely affect us and our customers.

In addition, our customers, including the U.S. Government, are increasingly requiring cybersecurity protections and mandating cybersecurity standards in our products, and we may incur additional costs to comply with such demands.

Our results of operations and cash flows may be adversely impacted by increasing costs and funding requirements related to our employee benefit plans.

Fluctuations in foreign currency rates may contribute to variations in revenue and costs in impacted jurisdictions which could adversely affect our profitability.

future taxable income, as well as changes to applicable statutory tax rates.

Under the Budget Control Act of 2011, the U.S. Government committed to significantly reduce the federal deficit over ten years.

As a result, long-term funding for various programs in which we participate, as well as future purchasing decisions by our U.S. Government customers, could be reduced, delayed or cancelled.

In addition, these cuts could adversely affect the viability of the suppliers and subcontractors under our programs.

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

Such circumstances may also result in an impairment of our goodwill and intangible assets.

and equipment supplied to perform under these contracts.

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

In addition,

Any disruption of such outsourced processes or functions also could have a material adverse impact on our operations.

We also have entered into, and expect to continue to enter into, joint venture arrangements in emerging market countries, some of which may require capital investment, guaranties or other commitments.

consultants, joint ventures, business partners, subcontractors or suppliers, even if prohibited by our policies, could have an adverse effect on our business and reputation.

Our earnings and cash flow may be adversely impacted by the amount of income or expense we expend or record for employee benefit plans.

This is particularly true for our defined benefit pension plans, where required contributions to those plans and related

Currency variations also contribute to variations in sales of products and services in impacted jurisdictions.

Accordingly, fluctuations in foreign currency rates could adversely affect our profitability in future periods.

We have made provisional estimates of the impact of the Act on the remeasurement of our net deferred tax assets and the one-time transition tax in 2017.

However, the financial reporting effects of the Act are complex and are subject to change as guidance interpreting the Act is issued.

· Returned [removed: $603 million] [added: $1.8 billion] to our shareholders through share repurchases and dividend payments.

[removed: A] [added: An analysis of our consolidated operating results is set forth below, and a] more detailed analysis of our segments’ operating results is provided in the Segment Analysis section on pages 21 [removed: to 28.][added: through 27.]

| _(Dollars in millions)_ | | [added: 2018 | |] 2017 | | 2016 | | [removed: 2015] [added: 2018] | | 2017 | [removed: | 2016 |]

| Revenues | $ | [removed: 14,198] [added: 13,972] | $ | [removed: 13,788] [added: 14,198] | $ | [removed: 13,423] [added: 13,788] | | [removed: 3%] [added: (2)%] | | 3% |

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

· Higher Industrial revenues of $492 million, primarily due to the impact from the acquisition of Arctic [removed: Cat described in the Segment Analysis section below.][added: Cat.]

· Higher Industrial revenues of [removed: $250] [added: $5] million, primarily due to higher volume of [removed: $168] [added: $149] million, largely [removed: in] [added: related to] the [removed: Fuel Systems and Functional Components] [added: Textron Specialized Vehicles] product line, [added: a favorable impact of $57 million from foreign exchange] and the impact from [removed: acquired businesses] [added: the Arctic Cat acquisition] of [removed: $121] [added: $49] million.

· [removed: Higher] [added: Lower] Textron Systems revenues of [removed: $236] [added: $376] million, primarily [removed: due to higher] [added: reflecting lower] volume of [removed: $106] [added: $159] million in the Marine and Land Systems product [removed: line and $77 million in] [added: line, along with a decrease due to] the [removed: Unmanned Systems] [added: discontinuance of our sensor-fuzed weapon] product [removed: line.][added: in 2017.]

· Lower Bell revenues of [removed: $215] [added: $137] million, primarily due to [removed: a decrease in] [added: lower] commercial revenues of [removed: $269] [added: $91] million, largely reflecting [removed: lower commercial] [added: the mix of] aircraft [removed: deliveries.][added: sold in the year, and lower military revenues of $46 million.]

| Gross margin as a percentage of Manufacturing revenues | | [removed: 16.5%] [added: 16.6%] | | [removed: 17.5%] [added: 16.3%] | | [removed: 17.7%] [added: 17.3%] | | | | |

| Selling and administrative expense | $ | [removed: 1,337] [added: 1,275] | $ | [removed: 1,304] [added: 1,334] | $ | [removed: 1,304] [added: 1,317] | | [removed: 3%] [added: (4)%] | | [removed: —] [added: 1%] |

[removed: In 2017, cost] [added: Cost] of sales increased [removed: $484] [added: $490] million, 4%, and selling and administrative expense increased [removed: $33] [added: $17] million, [removed: 3%,] [added: 1%, in 2017,] compared with 2016, primarily due to an increase from acquired businesses, largely Arctic Cat.

| Interest expense | $ | [removed: 174] [added: 166] | $ | 174 | $ | [removed: 169] [added: 174] | | [removed: —] [added: (5)%] | | [removed: 3%] [added: —] |

Consolidated interest expense [removed: increased $5] [added: decreased $8] million in [removed: 2016,] [added: 2018,] compared with [removed: 2015,] [added: 2017,] primarily due to [removed: higher] [added: lower] average debt outstanding.

In [added: 2017 and] 2016, we [removed: initiated] [added: recorded special charges of $90 million and $123 million, respectively, related to] a plan [added: that was initiated in 2016] to restructure and realign our businesses by implementing headcount reductions, facility consolidations and other actions in order to improve overall operating efficiency across Textron.

[removed: We recorded total special] [added: Special] charges [removed: of $213 million since the inception of the 2016 plan, which] [added: related to this plan] included $97 million of severance costs, $84 million of asset impairments and $32 million in contract terminations and other costs.

The total headcount reduction under this plan [removed: is expected to be] [added: was] approximately 2,100 positions, representing 5% of our workforce.

[removed: Under] [added: In connection with] the [added: acquisition of] Arctic [removed: Cat plan,] [added: Cat,] we [added: initiated a restructuring plan in the first quarter of 2017 and] recorded restructuring charges of $28 million in 2017, which included $19 million of severance costs, largely related to change-of-control provisions, and $9 million of contract termination and other costs.

[removed: Special] [added: For 2017 and 2016, special] charges recorded [removed: for these plans] [added: by segment and type of cost] are as follows:

| [removed: Total] | $ | 46 | $ | 46 | $ | 26 | $ | 12 | $ | 130 |

| [removed: Total] | $ | 70 | $ | 38 | $ | 15 | $ | — | $ | 123 |

| | | | | [removed: 2017] [added: 2018] | | [removed: 2016] [added: 2017] | | [removed: 2015] [added: 2016] |

| Effective tax rate | | | | [removed: 59.8%] [added: 11.7%] | | [removed: 3.8%] [added: 59.8%] | | [removed: 28.1%] [added: 3.8%] |

[removed: In 2017, our] [added: Our] effective tax rate [added: for 2017] was [removed: significantly] higher than the U.S. federal statutory tax rate of 35%, largely due to the impact from the Tax [removed: Cuts and Jobs Act (the “Act”).][added: Act.]

In the fourth quarter of 2017, we recorded a provisional estimate of $266 million for one-time adjustments resulting from the [added: Tax] Act.

Approximately $154 million of this provisional estimate [removed: represents] [added: represented] a charge resulting from the remeasurement of our U.S. federal deferred tax assets and liabilities, and the remainder [removed: represents] [added: represented] a provision for the transition tax on post-1986 earnings and profits previously deferred from U.S. income taxes.

In 2016, our effective tax rate was [removed: 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 a full reconciliation of our effective tax rate to the U.S. federal statutory tax [removed: rate of 35%] [added: rate,] see Note [removed: 13 to the Consolidated Financial Statements.][added: 16.]

Segment profit for the manufacturing segments excludes interest expense, certain corporate [removed: expenses] [added: expenses, gains/losses on major business dispositions] and special charges.

In our discussion of comparative results for the Manufacturing group, changes in revenues and segment profit typically are expressed for our commercial business in terms of volume, pricing, foreign [removed: exchange] [added: exchange, acquisitions] and [removed: acquisitions.][added: dispositions, while changes in segment profit may be expressed in terms of mix, inflation and cost performance.]

Volume changes in revenues [added: for our commercial business] represent [removed: increases/decreases] [added: increases or decreases] in the number of units delivered or services provided.

Revenues generated by acquired businesses are reflected in Acquisitions for a twelve-month [removed: period.][added: period, while reductions in revenues from the sale of businesses are reflected as Dispositions.]

Inflation represents higher material, wages, benefits, pension [added: service cost] or other costs.

Performance reflects an increase or decrease in research and development, depreciation, selling and administrative costs, warranty, product liability, quality/scrap, labor efficiency, overhead, [added: non-service pension cost/(credit),] product line profitability, start-up, ramp up and cost-reduction initiatives or other manufacturing inputs.

Approximately [removed: 22%] [added: 24%] of our [removed: 2017] [added: 2018] revenues were derived from contracts with the U.S. [removed: Government.][added: Government, including those under the U.S. Government-sponsored foreign military sales program.]

For our segments that [removed: have significant contracts] [added: contract] with the U.S. Government, [removed: we typically express] changes in [removed: segment profit] [added: revenue] related to [removed: the government business] [added: these contracts are expressed] in terms of [removed: volume, changes in program performance or changes in contract mix.][added: volume.]

| [removed: Revenues] [added: Total revenues] | [removed: $] | [added: 4,971 | |] 4,686 | [removed: $] | 4,921 | [removed: $] | [removed: 4,822] [added: 6%] | | (5)% | [removed: | 2% |]

| Operating expenses | | [added: 4,526 | |] 4,383 | | 4,532 | | [removed: 4,422] [added: 3%] | | (3)% | [removed: | 2% |]

| Segment profit | | [added: 445 | |] 303 | | 389 | | [removed: 400] [added: 47%] | | (22)% | [removed: | (3)% |]

| Profit margin | | [removed: 6.5%] [added: 9.0%] | | [removed: 7.9%] [added: 6.5%] | | [removed: 8.3%] [added: 7.9%] | | | | |

For an overview of our business segments, including a discussion of our major products and services, refer to Item 1.

Business on pages 3 through 9.

The following discussion should be read in conjunction with our Consolidated Financial Statements and related Notes included in Item 8.

Financial Statements and Supplementary Data.

At the beginning of 2018, we adopted Accounting Standards Update No. 2014-09, _Revenue from Contracts with Customers (ASC 606)_ using the modified retrospective transition method applied to contracts that were not substantially complete at the end of 2017.

We recorded a $90 million adjustment to increase retained earnings to reflect the cumulative impact of adopting this standard at the beginning of 2018, primarily related to certain long-term contracts our Bell segment has with the U.S. Government that converted to the cost-to-cost method for revenue recognition.

Revenues in 2018 for our U.S. Government contracts are primarily recognized as costs are incurred, while revenues for 2017 were primarily recognized as units were delivered.

The comparative information has not been restated and is reported under the accounting standards in effect for those periods.

A reconciliation of the financial statement line items impacted for 2018 under ASC 606 to the prior accounting standards is provided in Note 12.

2018 Financial Highlights

· Segment profit increased by 8% to $1.3 billion.

· Generated $1.1 billion of net cash from operating activities of continuing operations for our manufacturing businesses.

· Completed the sale of the Tools and Test Equipment product line within our Industrial segment and received $0.8 billion in net cash proceeds.

· Invested $643 million in research and development activities and $369 million in capital expenditures.

· Backlog increased 27% to $9.1 billion.

Our backlog includes the award of our third multi-year V-22 contract at Bell for $2.4 billion and increased orders for our commercial aircraft at the Textron Aviation and Bell segments.

Revenues decreased $226 million, 2%, in 2018, compared with 2017, largely driven by the disposition of the Tools and Test Equipment product line within the Industrial segment.

· Higher Textron Aviation revenues of $285 million, due to higher volume and mix of $185 million and favorable pricing of $100 million.

These increases were largely offset by $246 million in lower revenues due to the disposition of the Tools and Test Equipment product line.

| Cost of sales | $ | 11,594 | $ | 11,827 | $ | 11,337 | | (2)% | | 4% |

In 2018, cost of sales decreased $233 million, 2%, compared with 2017, largely resulting from the disposition of the Tools and Test Equipment product line and lower net volume as described above.

Selling and administrative expense decreased $59 million, 4%, in 2018, compared with 2017, primarily reflecting the impact from the disposition of the Tools and Test Equipment product line.

Gain on Business Disposition

On July 2, 2018, we completed the sale of the businesses that manufacture and sell the products in our Tools and Test Equipment product line within our Industrial segment.

We received net cash proceeds of $807 million in connection with this disposition and recorded an after-tax gain of $419 million.

In the fourth quarter of 2018, we recorded $73 million in special charges in connection with a plan to restructure the Textron Specialized Vehicles businesses within our Industrial segment.

These businesses have undergone significant changes since the acquisition of Arctic Cat as we have expanded the product portfolio and integrated manufacturing operations and retail distribution.

In the third quarter of 2018, the operating results for these businesses were significantly below our expectations as dealer sell-through lagged despite the introduction of new products into our dealer network.

Based on our review and assessment of the acquired dealer network and go-to-market strategy for the Textron Off Road and Arctic Cat brands in the fourth quarter of 2018, along with a review of the other businesses within the product line, we initiated a restructuring plan.

This plan included product rationalization, closure of several factory-direct turf-care branch locations and a manufacturing facility and headcount reductions.

Under this plan, we recorded asset impairment charges of $47 million, primarily intangible assets related to product rationalization, contract termination and other costs of $18 million and severance costs of $8 million.

Headcount reductions totaled approximately 400 positions,

representing 10% of Textron Specialized Vehicles’ workforce.

The actions taken under this plan were substantially completed at the end of 2018.

The 2016 plan was completed in 2017.

In 2018, our effective tax rate was lower than the U.S. federal statutory tax rate of 21%, primarily due to the disposition of the Tools and Test equipment product line which resulted in a gain taxable primarily in non-U.S. jurisdictions that partially exempt such gains from tax.

The effective tax rate for 2018 also reflects a $25 million benefit recognized upon the reassessment of our reserve for uncertain tax positions based on new information, including interactions with the tax authorities and recent audit settlements.

In addition, we finalized the 2017 impacts of the Tax Cut and Jobs Act (the “Tax Act”) and recognized a $14 million benefit in the fourth quarter of 2018.

Operating expenses for the Manufacturing segments include cost of sales, selling and administrative expense and other non-service components of net periodic benefit cost/(credit), and exclude certain corporate expenses and special charges.

Revenues in 2018 for our U.S. Government contracts are primarily recognized as costs are incurred, while revenues for 2017 and 2016 were primarily recognized as units were delivered.

During 2017, we maintained focus on investing in our businesses through continued development of new products and services.

We also completed the strategic acquisition of Arctic Cat, a platform to expand and grow our Textron Specialized Vehicles business.

In addition, we continued to take cost reduction actions through the execution of our restructuring plans and integration activities in order to realign our businesses, improve overall operating efficiency and better position our businesses for the future.

All of these activities support our overall strategy of long-term growth and expansion of our product portfolio and the creation of long-term shareholder value.

Financial highlights of 2017 include the following:

· Generated $947 million in cash from operating activities of our manufacturing businesses, net of a $300 million discretionary contribution to fund a U.S. pension plan.

· Invested $634 million in research and development activities, $423 million in capital expenditures and $316 million for the acquisition of Arctic Cat.

· Continued execution of our 2016 restructuring plan and the restructuring and integration of the Arctic Cat acquisition, resulting in special charges of $130 million.

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

Revenues increased $365 million, 3%, in 2016, compared with 2015, largely driven by increases in the Industrial, Textron Systems and Textron Aviation segments, partially offset by lower revenues at the Bell segment.

· 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 commercial turboprop volume.

| Cost of sales | $ | 11,795 | $ | 11,311 | $ | 10,979 | | 4% | | 3% |

Cost of sales increased $332 million, 3%, in 2016, 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.

Under this plan, Textron Systems discontinued production of its sensor-fuzed weapon product within its Weapons and Sensors operating unit, we combined our Jacobsen business with the Textron Specialized Vehicles business by consolidating facilities and general and administrative functions, and we reduced headcount at Textron Aviation, as well as other businesses and corporate functions.

In December 2017, we decided to take additional restructuring actions to further consolidate operating facilities and streamline product lines, primarily within the Bell, Textron Systems and Industrial segments, which resulted in additional special charges of $45 million in the fourth quarter of 2017.

In connection with the acquisition of Arctic Cat, as discussed in Note 2 to the Consolidated Financial Statements, we initiated a restructuring plan in the first quarter of 2017 to integrate this business into our Textron Specialized Vehicles business within the Industrial segment and reduce operating redundancies and maximize efficiencies.

In addition, the Act reduces the U.S. federal corporate tax rate from 35% to 21%, which is expected to lower our effective tax rate for 2018 and future years.

Additionally, changes in segment profit may be expressed in terms of mix, inflation and cost performance.

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

Changes in program performance typically relate to profit recognition associated with revisions to total estimated costs at completion that reflect improved or deteriorated operating performance or award fee rates.

Changes in contract mix refers to changes in operating margin due to a change in the relative volume of contracts with higher or lower fee rates such that the overall average margin rate for the segment changes.

The portion of the segment’s revenues derived from aftermarket sales and services represented 34% of its total revenues in 2017, compared with 31% in 2016.

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

| Acquisitions | | | | | | | $ | 66 |

Textron Aviation’s revenues increased $99 million, 2%, in 2016, compared with 2015, primarily due to the impact from an acquisition of a repair and overhaul business in the first quarter of 2016, and higher volume and mix of $42 million.

The increase in volume and mix was largely due to higher Citation jet volume of $165 million, partially offset by lower commercial turboprop volume.

We delivered 178 Citation jets and 106 King Air turboprops in 2016, compared with 166 Citation jets and 117 King Air turboprops in 2015.

The portion of the segment’s revenues derived from aftermarket sales and services represented 31% of its total revenues in 2016, compared with 29% in 2015, largely resulting from the acquisition.

These increases were partially offset by improved cost performance of $64 million, largely attributable to lower research and development costs and lower compensation expense.

Segment profit at Textron Aviation decreased $11 million, 3%, in 2016, compared with 2015, primarily as a result of the mix of products sold and the unfavorable impact from inflation and pricing of $27 million.

These decreases were partially offset by favorable performance and other of $65 million, largely attributable to lower research and development costs and lower compensation expense.

| V-22 Program | $ | 1,129 | $ | 1,151 | $ | 1,194 | | (2)% | | (4)% |

| Other Military | | 947 | | 936 | | 839 | | 1% | | 12% |

| Commercial | | 1,241 | | 1,152 | | 1,421 | | 8% | | (19)% |

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

Bell’s revenues decreased $215 million, 6%, in 2016, compared with 2015, primarily due to the following factors:

· $269 million decrease in commercial revenues, primarily due to lower aircraft deliveries, as we delivered 114 commercial aircraft in 2016, compared with 175 aircraft in 2015.

· $43 million decrease in V-22 program revenues, primarily due to lower aircraft deliveries, as we delivered 22 V-22 aircraft in 2016, compared with 24 V-22 aircraft in 2015.

· $97 million increase in other military revenues, primarily reflecting higher H-1 program revenues, as we delivered 35 H-1 aircraft in 2016, compared with 24 H-1 aircraft in 2015.

Foreign Currency Exchange [removed: Risks][added: Risk]

The notional amount of outstanding foreign currency exchange contracts was [removed: approximately $426] [added: $379] million and [removed: $665] [added: $426] million at December [removed: 30, 2017] [added: 29, 2018] and December [removed: 31, 2016,] [added: 30, 2017,] respectively.

The impact of foreign currency exchange rate changes on our Consolidated [removed: Financial] Statements [added: of Operations] are as follows:

| _(In millions)_ | | | | [removed: 2017] [added: 2018] | | [removed: 2016] [added: 2017] | | [removed: 2015] [added: 2016] |

| Increase (decrease) in revenues | | | $ | [removed: 27] [added: 57] | $ | [removed: (36)] [added: 27] | $ | [removed: (244)] [added: (36)] |

| [removed: Decrease] [added: Increase (decrease)] in segment profit | | | | [removed: (1)] [added: 1] | | [removed: (12)] [added: (1)] | | [removed: (20)] [added: (12)] |

Interest Rate [removed: Risks][added: Risk]

For our Finance group, we [added: generally] limit our risk to changes in interest rates with a strategy of matching floating-rate assets with floating-rate liabilities.

| | December [removed: 30, 2017] [added: 29, 2018] | | | | | | December [removed: 31, 2016] [added: 30, 2017] | | | | | |

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

| Debt | $ | [removed: (212)] [added: (197)] | $ | [removed: (232)] [added: (208)] | $ | [removed: (23)] [added: (21)] | $ | [removed: (187)] [added: (212)] | $ | [removed: (211)] [added: (232)] | $ | [removed: (21)] [added: (23)] |

| Foreign currency exchange contracts | | [removed: 11] [added: (8)] | | [removed: 11] [added: (8)] | | [removed: 26] [added: 50] | | [removed: (3)] [added: 11] | | [removed: (3)] [added: 11] | | [removed: 29] [added: 26] |

| Debt | $ | [removed: (3,007)] [added: (2,996)] | $ | [removed: (3,136)] [added: (2,971)] | $ | [removed: (33)] [added: (30)] | $ | [removed: (2,690)] [added: (3,007)] | $ | [removed: (2,809)] [added: (3,136)] | $ | [removed: (22)] [added: (33)] |

| Finance receivables | $ | [removed: 643] [added: 582] | $ | [removed: 675] [added: 584] | $ | 14 | $ | [removed: 759] [added: 643] | $ | [removed: 788] [added: 675] | $ | [removed: 15] [added: 14] |

| Debt | | [removed: (824)] [added: (718)] | | [removed: (799)] [added: (640)] | | [removed: 2] [added: 1] | | [removed: (903)] [added: (824)] | | [removed: (831)] [added: (799)] | | [removed: 20] [added: 2] |

| | $ | (205) | $ | (216) | $ | 29 | $ | (201) | $ | (221) | $ | 3 |

| | $ | (201) | $ | (221) | $ | 3 | $ | (190) | $ | (214) | $ | 8 |

We have approximately [removed: 37,000] [added: 35,000] employees worldwide.

Our [removed: business] segments include operations that are unincorporated divisions of Textron Inc. and others that are separately incorporated subsidiaries.

[removed: Financial] [added: Additional] information [removed: by business segment and geographic area appears] [added: regarding environmental matters is contained] in Note [removed: 16] [added: 17] to the Consolidated Financial Statements on [removed: pages 67 through 68] [added: page 72] of this Annual Report on Form 10-K.

The following description of our business should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages [removed: 19] [added: 18] through 34 of this Annual Report on Form 10-K.

The segment has two principal product lines: aircraft and [removed: aftermarket.][added: aftermarket parts and services.]

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

Revenues in the Textron Aviation segment accounted for [removed: 33%, 36%] [added: 36%, 33%] and 36% of our total revenues in [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015,] [added: 2016,] respectively.

The family of jets currently [removed: produced] [added: offered] by Textron Aviation includes the Citation M2, Citation CJ3+, Citation CJ4, Citation XLS+, Citation Latitude, Citation Sovereign+, and the Citation X+, the fastest civilian jet in the world.

The Cessna Denali, a high-performance single engine turboprop aircraft, is expected to achieve its first flight in [removed: 2018.][added: 2019.]

In addition, Textron Aviation [removed: recently announced] [added: is developing] the Cessna Skycourier, a twin-engine, high-wing, large-utility turboprop aircraft, which is targeted for first flight in 2019.

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

[removed: This aircraft is] [added: Both the AT-6 and the Scorpion are] not yet in production, pending customer orders.

Textron Aviation also provides its customers with around-the-clock parts support and offers a mobile support program with over [removed: 60] [added: 70] mobile service units and several dedicated support aircraft.

Revenues for Bell accounted for 23%, 23% and [removed: 26%] [added: 23%] of our total revenues in [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015,] [added: 2016,] respectively.

The helicopters currently offered by Bell for commercial applications include the 407GXP, [added: 407GXi,] 412EP, 412EPI, 429, 429WLG, 505 Jet Ranger X and Huey II.

In addition, the 525 Relentless, Bell’s first super medium commercial helicopter, [removed: is expected to achieve] [added: continues flight test activities with] certification [added: targeted] in [added: late] 2019.

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: five Bell-operated] [added: six Company-operated] service centers, four global parts distribution centers and over 100 independent service centers located in 35 countries.

Textron Systems’ product lines consist of [removed: unmanned systems, marine] [added: Unmanned Systems, Marine] and [removed: land] [added: Land] systems, and [removed: simulation, training and other defense and aviation mission support products] [added: Simulation, Training] and [removed: services.][added: Other.]

Textron Systems is a supplier to the defense, aerospace and general aviation markets, and represents [removed: 13%,] [added: 10%,] 13% and [removed: 11%] [added: 13%] of our total revenues in [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015,] [added: 2016,] respectively.

This segment sells [removed: its] products to U.S. Government customers and to customers outside the U.S. through foreign military sales sponsored by the U.S. Government and directly through commercial sales channels.

Our Unmanned Systems product line includes [removed: the offerings of the Unmanned Systems] [added: unmanned aircraft systems, unmanned surface systems, mission command hardware] and [removed: Support Solutions businesses.][added: solutions, and worldwide customer support and logistics.]

[removed: This business’s products include] [added: Unmanned aircraft systems includes] the [added: Shadow, the] U.S. Army’s premier tactical unmanned aircraft system, [removed: the Shadow,] which has surpassed one million flight hours since its introduction, and the Aerosonde Small Unmanned Aircraft System, a multi-mission capable unmanned aircraft system that has amassed more than [removed: 200,000] [added: 300,000] flight hours in commercial and military operations around the world.

Our Simulation, Training and Other product line includes products and services [removed: from five] [added: provided by the following] businesses: TRU Simulation + Training, Textron Airborne Solutions, Electronic Systems, Lycoming, and Weapons and [removed: Sensors.][added: Sensors Systems.]

Weapons and Sensors [added: Systems] offers advanced precision guided weapons systems, airborne and ground-based sensors and surveillance systems, and protection systems for the defense and aerospace industries.

Our Industrial segment designs and manufactures a variety of products within [removed: three principal] [added: the Fuel Systems and Functional Components and Specialized Vehicles] product lines.

Industrial segment [removed: revenues, which] [added: revenues] represented [removed: 30%, 28%] [added: 31%, 30%] and [removed: 26%] [added: 28%] of our total revenues in [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015, respectively, were as follows:][added: 2016, respectively.]

Kautex is a leading developer and manufacturer of blow-molded plastic fuel systems [added: and advanced fuel systems, including pressurized fuel tanks] for [added: hybrid applications, for] cars, light trucks and all-terrain vehicles.

Kautex also develops and manufactures clear-vision systems for [removed: automobiles and] [added: automobiles,] selective catalytic reduction systems used to reduce emissions from diesel engines, [added: and other fuel system components,] as well as plastic bottles and containers for medical, household, agricultural, laboratory and industrial uses.

Our Specialized Vehicles product line includes products sold by the Textron Specialized Vehicles businesses under the E-Z-GO, [removed: Textron Off Road,] Arctic Cat, TUG Technologies, Douglas Equipment, Premier, Safeaero, Ransomes, Jacobsen, Cushman and Dixie Chopper brands.

In [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015,] [added: 2016,] our Finance group paid our Manufacturing group [removed: $174] [added: $177] million, [removed: $173] [added: $174] million and [removed: $194] [added: $173] million, respectively, related to the sale of Textron-manufactured products to third parties that were financed by the Finance group.

See “Finance Portfolio Quality” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page [removed: 28] [added: 27] for information about the Finance segment’s credit performance.

Our backlog at the end of [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] is summarized below:

| _(In millions)_ | | | | | | December [removed: 30, 2017] [added: 29, 2018] | | December [removed: 31, 2016] [added: 30, 2017] |

| Bell | | | | | $ | [removed: 4,598] [added: 5,837] | $ | [removed: 5,360] [added: 4,598] |

| Textron Systems | | | | | | [removed: 1,406] [added: 1,469] | | [removed: 1,841] [added: 1,406] |

| Textron Aviation | | | | | | [removed: 1,180] [added: 1,791] | | [removed: 1,041] [added: 1,180] |

| Total backlog | | | | | $ | [removed: 7,184] [added: 9,097] | $ | [removed: 8,242] [added: 7,184] |

In [removed: 2017,] [added: 2018,] approximately [removed: 22%] [added: 24%] of our consolidated revenues were generated by or resulted from contracts with the U.S. Government, [removed: excluding] [added: including] those contracts under the U.S. Government-sponsored foreign military sales program.

[added: Some of these trademarks, trade names and service marks are used in this Annual Report on Form 10-K and other reports, including: A-2PATS; Able Aerospace Services; Able Preferred; Aeronautical Accessories; Aerosonde; Alterra; AH-1Z; Arctic Cat; AT-6;] AVCOAT; Baron; [removed: BattleHawk;] Bearcat; Beechcraft; Beechcraft T-6; Bell; Bell Helicopter; [removed: Bell 505; BENDWORKS;] BlackWorks McCauley; Bonanza; Cadillac Gage; CAP; Caravan; [removed: Caravan Amphibian; Caravan 675;] Cessna; Cessna [removed: 350; Cessna 400; Cessna] SkyCourier; [removed: Cessna Turbo Skylane JT-A; Cessna Turbo Skyhawk JT-A;] Citation; [removed: CITATION ALPINE EDITION;] Citation [removed: Encore+; Citation] Latitude; Citation Longitude; Citation M2; Citation Sovereign; Citation [removed: X; Citation] X+; Citation XLS+; CJ1+; CJ2+; CJ3; CJ3+; CJ4; Clairity; CLAW; [removed: CLEARTEST;] Commando; Cushman; Customer Advantage Plans; CUSV; [removed: DataScout;] Denali; Dixie Chopper; [removed: Dixie Chopper Stryker; Double Vision; Duct Dawg;] Eclipse; El Tigre; [removed: ENFORCER;] E-Z-GO; E-Z-GO EXPRESS; FAST-N-LATCH; [removed: FASTRAP;] Firecat; [removed: Firefly;] FOREVER WARRANTY; [added: Freedom;] Fury; [removed: G3 Tugger; GatorEye; Gator Grips;] GLOBAL MISSION SUPPORT; [removed: Gorilla;] Grand Caravan; [removed: Greenlee;] H-1; HAULER; [removed: HDE;] Hawker; Hemisphere; Huey; Huey II; [removed: iCommand; iPress;] IE2; [removed: Instinct;] Integrated Command Suite; INTELLIBRAKE; [removed: INTELLI-CRIMP;] Jacobsen; [removed: Jacobsen HoverKing;] Jet Ranger X; Kautex; King Air; King Air C90GTx; King Air 250; King Air 350; Kiowa Warrior; [removed: Klauke;] LF; [removed: LOOKOUT;] Lycoming; Lynx; M1117 ASV; [removed: MADE FOR THE TRADE;] McCauley; [removed: Mechtronix; MicroObserver; Millenworks;] Mission Critical Support (MCS); MISSIONLINK; Motorfist; MudPro; Mustang; Next Generation Carbon Canister; Next Generation Fuel System; NGCC; NGFS; NightWarden; Odyssey; [removed: ONSLAUGHT; Overwatch;] Pantera; [removed: PDCue;] Power Advantage; Premier; Pro-Fit; ProFlight; ProParts; ProPropeller; Prowler; Ransomes; REALCue; REALFeel; [removed: Recoil;] Relentless; [removed: ROCONNECT;] [added: RIPSAW;] RT2; RXV; [removed: SABER;] Safeaero; [removed: Safe-Zone;] Scorpion; Shadow; Shadow Knight; Shadow Master; [removed: Sherman+Reilly;] Skyhawk; Skyhawk SP; Skylane; SkyPLUS; Sno Pro; SnoCross; Sovereign; [removed: Speed Punch;] Speedrack; [removed: Spider;] Stampede; Stationair; [removed: ST 4X4;] Super Cargomaster; Super Medium; SuperCobra; [removed: SYMTX;] Synturian; [removed: TDCue;] Team Arctic; Textron; Textron Airborne Solutions; Textron Aviation; Textron [removed: Defense Systems; Textron] Financial Corporation; Textron GSE; Textron [removed: Marine & Land] Systems; [removed: Textron Off Road; Textron Systems;] Thundercat; [removed: TI-Metal;] TRUESET; TRU Simulation + Training; TRUCKSTER; TTx; TUG; Turbo Skylane; Turbo Stationair; TRV; [added: TXT;] UH-1Y; [removed: Under Dawg; V-Watch;] VALOR; Value-Driven MRO Solutions; V-22 Osprey; V-247; V-280; [removed: Watchman;] Wildcat; Wolverine; ZR; 2FIVE; 206; [added: 206L4;] 407; [removed: 407GT; 407GX;] [added: 407GXi;] 412; [added: 412EPI;] 429; [added: 429WLG;] 505; 525 and 525 Relentless.

Compliance with these laws and expenditures for environmental [removed: control facilities] [added: controls] has not had a material effect on our capital expenditures, earnings or competitive position.

The Citation Longitude, a super-midsize jet, achieved provisional type certification in December 2018, which allows operators to begin flight training in preparation for deliveries in early 2019.

In 2018, the Bell Boeing V-22 program was awarded a third multi-year contract for the production and delivery of an additional 63 units along with related supplies and services through 2024.

The V-280 achieved its first flight in December 2017 and its first cruise mode flight in May 2018, and continues to perform ongoing flight testing.

Unmanned Systems also provides complete systems solutions to its government and commercial customers through comprehensive program management, operational and maintenance training, technical assistance and logistics support, and end-to-end turnkey mission support.

In October 2018, TRU Simulation + Training entered into a letter of intent to form a joint venture with FlightSafety International to provide training solutions for Textron Aviation’s business and general aviation aircraft.

This transaction is subject to a final agreement and regulatory approvals.

On July 2, 2018, we sold our Tools and Test Equipment businesses that were previously included in this segment as discussed in Note 2 to the Consolidated Financial Statements on page 50 of this Annual Report on Form 10-K.

Backlog excludes unexercised contract options and potential orders under ordering-type contracts, such as Indefinite Delivery, Indefinite Quantity contracts.

With the adoption of ASC 606 at the beginning of 2018, as discussed in Note 1 to the Consolidated Financial Statements on page 43 of this Annual Report on Form 10-K, backlog now includes amounts under contracts with the U.S. Government and certain other agreements when contract criteria have been met.

Prior to the adoption, our backlog excluded firm orders with the U.S. Government for which funding had not been appropriated.

Upon adoption, Bell’s backlog decreased $760 million, largely resulting from the acceleration of revenues upon conversion to the cost-to-cost method of revenue recognition, and Textron Aviation’s backlog increased $170 million.

At December 29, 2018, Bell’s backlog included $2.4 billion for its portion of the third multi-year V-22 contract received in 2018 for the production and delivery of 63 units along with related supplies and services through 2024.

· The impact of changes in tax legislation.

Revenues for Textron Aviation’s principal lines of business were as follows:

| _(In millions)_ | | | | 2017 | | 2016 | | 2015 |

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

| Aircraft | | | $ | 3,112 | $ | 3,412 | $ | 3,404 |

| Aftermarket | | | | 1,574 | | 1,509 | | 1,418 |

| Total revenues | | | $ | 4,686 | $ | 4,921 | $ | 4,822 |

In addition, the new Citation Longitude, a super-midsize jet which achieved first flight in October 2016, is expected to enter into service in early 2018.

Revenues by Bell’s principal lines of business were as follows:

| Military: | | | | | | | | |

| V-22 Program | | | $ | 1,129 | $ | 1,151 | $ | 1,194 |

| Other Military | | | | 947 | | 936 | | 839 |

| Commercial | | | | 1,241 | | 1,152 | | 1,421 |

| Total revenues | | | $ | 3,317 | $ | 3,239 | $ | 3,454 |

The V-280 achieved its first flight in December 2017.

Revenues by Textron Systems’ product lines were as follows:

| Unmanned Systems | | | $ | 714 | $ | 763 | $ | 686 |

| Marine and Land Systems | | | | 470 | | 294 | | 188 |

| Simulation, Training and Other | | | | 656 | | 699 | | 646 |

| Total revenues | | | $ | 1,840 | $ | 1,756 | $ | 1,520 |

The Unmanned Systems business has designed, manufactured and fielded combat-proven unmanned aircraft systems for more than 25 years.

In addition, its unmanned aircraft and interoperable command and control technologies provide critical situational awareness and actionable intelligence for users worldwide.

Our Support Solutions business provides logistical support for various unmanned systems as well as training and supply chain services to government and commercial customers worldwide.

| Fuel Systems and Functional Components | | | $ | 2,330 | $ | 2,273 | $ | 2,078 |

| Specialized Vehicles | | | | 1,486 | | 1,080 | | 1,021 |

| Tools and Test Equipment | | | | 470 | | 441 | | 445 |

| Total revenues | | | $ | 4,286 | $ | 3,794 | $ | 3,544 |

See Note 2 to the Consolidated Financial Statements for additional information regarding the acquisition of Arctic Cat that we completed on March 6, 2017.

_Tools and Test Equipment_

The Tools and Test Equipment product line includes products sold by businesses that design and manufacture powered equipment, electrical test and measurement instruments, mechanical and hydraulic tools, cable connectors, fiber optic assemblies, underground and aerial transmission and distribution products and power utility products.

This product line encompasses the Greenlee, Greenlee Communications, Greenlee Utility, HD Electric, Klauke, Sherman+Reilly and Endura businesses and brands.

Their products are used principally in the construction, maintenance, telecommunications, data communications, electrical, utility and plumbing industries, and are distributed through a global network of sales representatives and distributors, as well as through direct sales to home improvement retailers and OEMs.

The businesses have plant operations in five countries with almost half of their combined revenues coming from outside the United States.

These businesses face competition from numerous manufacturers based primarily on price, delivery lead time, product quality and reliability.

Approximately 38% of our total backlog at December 30, 2017 represents orders that are not expected to be filled in 2018.

Backlog with the U.S. Government represented 58% of our total backlog at December 30, 2017 and excluded amounts where funding has not been formally appropriated.

At December 30, 2017 and December 31, 2016, Bell’s backlog included $1.6 billion and $1.7 billion, respectively, related to a multi-year contract with the U.S. Government for the purchase of V-22 tiltrotor aircraft.

For information regarding the impact of the new revenue recognition accounting standard on backlog, see Note 1 to the Consolidated Financial Statements on page 48 of this Annual Report on Form 10-K.

Research and Development

Information regarding our research and development expenditures is contained in Note 1 to the Consolidated Financial Statements on page 47 of this Annual Report on Form 10-K.

Some of these trademarks, trade names and service marks are used in this Annual Report on Form 10-K and other reports, including: A-2PATS; Able Aerospace Services; Able Preferred; Aeronautical Accessories; AAI; acAlert; Aerosonde; AirScout; Alterra; AH-1Z; Ambush; Arctic Cat; Ascent;

On September 27, 2018, after reconsidering the remanded claims which were based upon civil conspiracy and intentional fraudulent transfer, the trial court granted partial summary judgment in favor of Textron, dismissing the Trustee’s civil conspiracy claim, as well as a portion of the Trustee’s claim for intentional fraudulent transfer, leaving only a portion of the intentional fraudulent transfer claim to be adjudicated.

We intend to continue to vigorously defend this lawsuit.

We are vigorously defending this lawsuit.

For the fiscal year ended December [removed: 30, 2017][added: 29, 2018]

The aggregate market value of the registrant’s Common Stock held by non-affiliates at [removed: July 1, 2017] [added: June 30, 2018] was approximately [removed: $12.5] [added: $16.4] billion based on the New York Stock Exchange closing price for such shares on that date.

At February [removed: 3, 2018, 261,771,970] [added: 2, 2019, 234,679,051] 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: 25, 2018.][added: 24, 2019.]

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| [Item [removed: 1A.](#Item1A_RiskFactors_033304)] [added: 1A.](#Item1A_RiskFactors_102256)] | [Risk [removed: Factors](#Item1A_RiskFactors_033304)] [added: Factors](#Item1A_RiskFactors_102256)] | [removed: 10] [added: 9] |

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| [Item [removed: 7A.](#Item7A_QuantitativeandQualitativ_051324)] [added: 7A.](#Item7A_QuantitativeandQualitativ_015056)] | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#Item7A_QuantitativeandQualitativ_051324)] [added: Risk](#Item7A_QuantitativeandQualitativ_015056)] | [removed: 34] [added: 35] |

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| [Item [removed: 15.](#Item15_ExhibitsandFinancialState_094512)] [added: 15.](#Item15_ExhibitsandFinancialState_053946)] | [Exhibits and Financial Statement [removed: Schedules](#Item15_ExhibitsandFinancialState_094512)] [added: Schedules](#Item15_ExhibitsandFinancialState_053946)] | [removed: 74] [added: 78] |

| [Item [removed: 16.](#Item16_Form10KSummary_112736)] [added: 16.](#Item16_Form10KSummary_055330)] | [Form 10-K [removed: Summary](#Item16_Form10KSummary_112736)] [added: Summary](#Item16_Form10KSummary_055330)] | [removed: 77] [added: 81] |

| [removed: [Signatures](#Signature_100959] [added: [Signatures](#Signatures_060414] "Click to goto ") | | [removed: 78] [added: 82] |

10-K 1 a19-30052_110k.htm 10-K

For the Fiscal Year Ended December 29, 2018

10-K 1 a18-1018_110k.htm 10-K

| (do not check if smaller reporting company) | | | |

On December [removed: 30, 2017,] [added: 29, 2018,] we operated a total of [removed: 63] [added: 55] plants located throughout the U.S. and [removed: 52] [added: 50] plants outside the U.S. We own [removed: 61] [added: 55] plants and lease the remainder for a total manufacturing space of approximately [removed: 24.6] [added: 23.8] million square feet.

The principal market on which our common stock is traded is the New York Stock Exchange under the symbol “TXT.” At December [removed: 30, 2017,] [added: 29, 2018,] there were approximately [removed: 8,800] [added: 8,300] record holders of Textron common stock.

The following provides information about our fourth quarter [removed: 2017] [added: 2018] repurchases of equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:

_* These shares were purchased pursuant to a plan authorizing the repurchase of up to [removed: 25] [added: 40] million shares of Textron common stock that [removed: had been] [added: was] announced on [removed: January 25, 2017.][added: April 16, 2018.]

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: 2012] [added: 2013] 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: 2012 | | |] 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | [added: | 2018 | |]

| September 30, 2018 – November 3, 2018 | 2,905 | $ | 54.65 | 2,905 | 21,812 |

| November 4, 2018 – December 1, 2018 | 1,910 | | 55.76 | 1,910 | 19,902 |

| December 2, 2018 – December 29, 2018 | 2,710 | | 49.64 | 2,710 | 17,192 |

| Total | 7,525 | $ | 53.13 | 7,525 | |

| Textron Inc. | $ | 100.00 | | $ | 115.83 | | $ | 115.77 | | $ | 134.09 | | $ | 156.51 | | $ | 126.42 | |

| S&P 500 | | 100.00 | | | 114.15 | | | 115.73 | | | 129.57 | | | 157.85 | | | 149.64 | |

| S&P 500 A&D | | 100.00 | | | 112.09 | | | 118.18 | | | 140.52 | | | 198.66 | | | 180.24 | |

| S&P 500 Industrials | | 100.00 | | | 112.81 | | | 116.08 | | | 127.82 | | | 156.67 | | | 150.54 | |

The high and low sales prices per share of our common stock as reported on the New York Stock Exchange and the dividends paid per share are provided in the following table:

| | 2017 | | | | | | 2016 | | | | | |

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

| | | High | | Low | | Dividends per Share | | High | | Low | | Dividends per Share |

| First quarter | $ | 50.93 | $ | 43.66 | $ | 0.02 | $ | 41.74 | $ | 30.69 | $ | 0.02 |

| Second quarter | | 48.67 | | 45.00 | | 0.02 | | 40.61 | | 34.00 | | 0.02 |

| Third quarter | | 54.07 | | 47.00 | | 0.02 | | 41.33 | | 35.06 | | 0.02 |

| Fourth quarter | | 57.71 | | 51.07 | | 0.02 | | 49.82 | | 37.19 | | 0.02 |

| October 1, 2017 – November 4, 2017 | 740 | $ | 53.44 | 740 | 14,767 |

| November 5, 2017 – December 2, 2017 | 860 | | 53.52 | 860 | 13,907 |

| December 3, 2017 – December 30, 2017 | 825 | | 55.55 | 825 | 13,082 |

| Total | 2,425 | $ | 54.19 | 2,425 | |

| Textron Inc. | $ | 100.00 | | $ | 148.69 | | $ | 170.68 | | $ | 170.59 | | $ | 197.59 | | $ | 230.63 | |

| S&P 500 | | 100.00 | | | 132.39 | | | 150.51 | | | 152.59 | | | 170.84 | | | 208.14 | |

| S&P 500 A&D | | 100.00 | | | 154.92 | | | 172.63 | | | 182.01 | | | 216.42 | | | 305.97 | |

| S&P 500 Industrials | | 100.00 | | | 131.64 | | | 147.91 | | | 152.19 | | | 167.59 | | | 205.41 | |

| (_Dollars in millions, except per share amounts_) | | [added: 2018 | |] 2017 | | 2016 | | 2015 | | 2014 | [removed: | 2013 |]

| [removed: Revenues] [added: Revenues (a)] | | | | | | | | | | |

| Textron Aviation | $ | [added: 4,971 | $ |] 4,686 | $ | 4,921 | $ | 4,822 | $ | 4,568 | [removed: $ | 2,784 |]

| Bell | | [added: 3,180 | |] 3,317 | | 3,239 | | 3,454 | | 4,245 | [removed: | 4,511 |]

| Textron Systems | | [added: 1,464 | |] 1,840 | | 1,756 | | 1,520 | | 1,624 | [removed: | 1,665 |]

| Industrial | | [added: 4,291 | |] 4,286 | | 3,794 | | 3,544 | | 3,338 | [removed: | 3,012 |]

| Finance | | [added: 66 | |] 69 | | 78 | | 83 | | 103 | [removed: | 132 |]

| Total revenues | $ | [added: 13,972 | $ |] 14,198 | $ | 13,788 | $ | 13,423 | $ | 13,878 | [removed: $ | 12,104 |]

| Textron Aviation [removed: (a)] [added: (b)] | $ | [added: 445 | $ |] 303 | $ | 389 | $ | 400 | $ | 234 | [removed: $ | (48) |]

| Bell | | [added: 425 | |] 415 | | 386 | | 400 | | 529 | [removed: | 573 |]

| Textron Systems | | [added: 156 | |] 139 | | 186 | | 129 | | 150 | [removed: | 147 |]

| Industrial | | [added: 218 | |] 290 | | 329 | | 302 | | 280 | [removed: | 242 |]

| Finance | | [added: 23 | |] 22 | | 19 | | 24 | | 21 | [removed: | 49 |]

| Total segment profit | | [added: 1,267 | |] 1,169 | | 1,309 | | 1,255 | | 1,214 | [removed: | 963 |]

| Corporate expenses and other, net | | [added: (119) | |] (132) | | (172) | | (154) | | (161) | [removed: | (166) |]

| Interest expense, net for Manufacturing group | | [added: (135) | |] (145) | | (138) | | (130) | | (148) | [removed: | (123) |]

| Special charges [removed: (b)] [added: (c)] | | [added: (73) | |] (130) | | (123) | | — | | (52) | [removed: | — |]

| Income tax expense [removed: (c)] [added: (e)] | | [added: (162) | |] (456) | | (33) | | (273) | | (248) | [removed: | (176) |]

| Income from continuing operations | $ | [added: 1,222 | $ |] 306 | $ | 843 | $ | 698 | $ | 605 | [removed: $ | 498 |]

| Basic earnings per share — continuing operations | $ | [added: 4.88 | $ |] 1.15 | $ | 3.11 | $ | 2.52 | $ | 2.17 | [removed: $ | 1.78 |]

| Diluted earnings per share — continuing operations | $ | [added: 4.83 | $ |] 1.14 | $ | 3.09 | $ | 2.50 | $ | 2.15 | [removed: $ | 1.75 |]

| Basic average shares outstanding (_in thousands)_ | | [added: 250,196 | |] 266,380 | | 270,774 | | 276,682 | | 279,409 | [removed: | 279,299 |]

| Diluted average shares outstanding (_in thousands)_ | | [added: 253,237 | |] 268,750 | | 272,365 | | 278,727 | | 281,790 | [removed: | 284,428 |]

| Book value at year-end | $ | [added: 22.04 | $ |] 21.60 | $ | 20.62 | $ | 18.10 | $ | 15.45 | [removed: $ | 15.54 |]

| Price at year-end | $ | [added: 45.65 | $ |] 56.59 | $ | 48.56 | $ | 42.01 | $ | 42.17 | [removed: $ | 36.61 |]

| Total assets | $ | [added: 14,264 | $ |] 15,340 | $ | 15,358 | $ | 14,708 | $ | 14,605 | [removed: $ | 12,944 |]

| Manufacturing group debt | $ | [added: 3,066 | $ |] 3,088 | $ | 2,777 | $ | 2,697 | $ | 2,811 | [removed: $ | 1,931 |]

| Finance group debt | $ | [added: 718 | $ |] 824 | $ | 903 | $ | 913 | $ | 1,063 | [removed: $ | 1,256 |]

| Shareholders’ equity | $ | [added: 5,192 | $ |] 5,647 | $ | 5,574 | $ | 4,964 | $ | 4,272 | [removed: $ | 4,384 |]

| Manufacturing group debt-to-capital (net of cash) | | [added: 29% | |] 26% | | 23% | | 26% | | 33% | [removed: | 15% |]

| Manufacturing group debt-to-capital | | [added: 37% | |] 35% | | 33% | | 35% | | 40% | [removed: | 31% |]

| Capital expenditures | $ | [added: 369 | $ |] 423 | $ | 446 | $ | 420 | $ | 429 | [removed: $ | 444 |]

| Manufacturing group depreciation | $ | [added: 358 | $ |] 362 | $ | 368 | $ | 383 | $ | 379 | [removed: $ | 335 |]

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

[removed: _(b)_ _Special] [added: In 2017 and 2016, special] charges included $90 million and $123 [removed: million in 2017 and 2016,] [added: million,] respectively, related to our 2016 restructuring plan.

[removed: _(c)_] [added: _(e)_] _Income tax expense for 2017 included a $266 million charge to reflect our provisional estimate of the net impact of the Tax Cuts and Jobs [removed: Act, which was enacted on December 22, 2017.][added: Act.]

| Gain on business disposition (d) | | 444 | | — | | — | | — | | — |

_(a)_ _At the beginning of 2018, we adopted ASC 606 using a modified retrospective basis and as a result, the comparative information has not been restated and is reported under the accounting standards in effect for these years.

See Note 1 to the Consolidated Financial Statements for additional information._

_(c)_ _Special charges of $73 million were recorded in the fourth quarter of 2018 under a restructuring plan for the Textron Specialized Vehicles businesses within our Industrial segment.

_(d)_ _On July 2, 2018, Textron completed the sale of the Tools & Test Equipment product line which resulted in an after-tax gain of $419 million._

We completed our analysis of this legislation in the fourth quarter of 2018 and recorded a $14 million income tax benefit.

| [Consolidated Statements of Operations for each of the years in the three-year period ended December [removed: 30, 2017](#ConsolidatedStatementsofOperatio_050905] [added: 29, 2018](#ConsolidatedStatementsofOperatio_031158] "Click to goto ") | 37 |

| [Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December [removed: 30, 2017](#ConsolidatedStatementsofComprehe_050908] [added: 29, 2018](#ConsolidatedStatementsofComprehe_031216] "Click to goto ") | 38 |

| [Consolidated Balance Sheets as of December [removed: 30, 2017] [added: 29, 2018] and December [removed: 31, 2016](#ConsolidatedBalanceSheets_051305] [added: 30, 2017](#ConsolidatedBalanceSheets_031218] "Click to goto ") | 39 |

| [Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended December [removed: 30, 2017](#ConsolidatedStatementsofSharehol_052426] [added: 29, 2018](#ConsolidatedStatementsofSharehol_031221] "Click to goto ") | 40 |

| [Consolidated Statements of Cash Flows for each of the years in the three-year period ended December [removed: 30, 2017](#ConsolidatedStatementsofCashFlow_053406] [added: 29, 2018](#ConsolidatedStatementsofCashFlow_031223] "Click to goto ") | 41 |

| [removed: [Notes] [added: Notes] to the Consolidated Financial [removed: Statements](#NotestotheConsolidatedFinancialS_114420 "Click to goto ")] [added: Statements] | |

| [Note 1. Summary of Significant Accounting [removed: Policies](#Note1_SummaryofSignificantAccoun_063003] [added: Policies](#Note1_SummaryofSignificantAccoun_015430] "Click to goto ") | 43 |

| [Note 2. Business [removed: Acquisitions, Goodwill] [added: Disposition] and [removed: Intangible Assets](#Note2_BusinessAcquisitionsGoodwi_063012] [added: Acquisitions](#Note2_BusinessDispositionandAcqu_015726] "Click to goto ") | [removed: 48] [added: 50] |

| [Note [removed: 3.] [added: 4.] Accounts Receivable and Finance [removed: Receivables](#Note3_AccountsReceivableandFinan_062202] [added: Receivables](#Note4_AccountsReceivableandFinan_015637] "Click to goto ") | [removed: 50] [added: 51] |

| [Note [removed: 4. Inventories](#Note4_Inventories_062208] [added: 5. Inventories](#Note5_Inventories_015644] "Click to goto ") | [removed: 52] [added: 53] |

| [Note [removed: 5.] [added: 6.] Property, Plant and Equipment, [removed: Net](#Note5_PropertyPlantandEquipmentN_062211] [added: Net](#Note6_PropertyPlantandEquipmentN_015647] "Click to goto ") | [removed: 52] [added: 54] |

| [Note [removed: 7.] [added: 8.] Debt and Credit [removed: Facilities](#Note7_DebtandCreditFacilities_062216] [added: Facilities](#Note8_DebtandCreditFacilities_015652] "Click to goto ") | [removed: 53] [added: 55] |

| [Note [removed: 8.] [added: 9.] Derivative Instruments and Fair Value [removed: Measurements](#Note8_DerivativeInstrumentsandFa_070941] [added: Measurements](#Note9_DerivativeInstrumentsandFa_063026] "Click to goto ") | [removed: 54] [added: 56] |

| [Note [removed: 9.] [added: 10.] Shareholders’ [removed: Equity](#Note9_ShareholdersEquity_070945] [added: Equity](#Note10_ShareholdersEquity_063032] "Click to goto ") | [removed: 55] [added: 57] |

| [Note [removed: 10.] [added: 13.] Share-Based [removed: Compensation](#Note10_ShareBasedCompensation_070950] [added: Compensation](#Note13_ShareBasedCompensation_063315] "Click to goto ") | [removed: 56] [added: 62] |

| [Note [removed: 11.] [added: 14.] Retirement [removed: Plans](#Note11_RetirementPlans_072032] [added: Plans](#Note14_RetirementPlans_063319] "Click to goto ") | [removed: 58] [added: 64] |

| [Note [removed: 12.] [added: 15.] Special [removed: Charges](#Note12_SpecialCharges_062531] [added: Charges](#Note15_SpecialCharges_032510] "Click to goto ") | [removed: 62] [added: 68] |

| [Note [removed: 13.] [added: 16.] Income [removed: Taxes](#Note13_IncomeTaxes_064629] [added: Taxes](#Note16_IncomeTaxes_032641] "Click to goto ") | [removed: 63] [added: 69] |

| [Note [removed: 14.] [added: 17.] Commitments and [removed: Contingencies](#Note14_CommitmentsandContingenci_070508] [added: Contingencies](#Note17_CommitmentsandContingenci_063542] "Click to goto ") | [removed: 66] [added: 72] |

| [Note [removed: 15.] [added: 18.] Supplemental Cash Flow [removed: Information](#Note15_SupplementalCashFlowInfor_070520] [added: Information](#Note18_SupplementalCashFlowInfor_063546] "Click to goto ") | [removed: 67] [added: 72] |

| [Note [removed: 16.] [added: 11.] Segment and Geographic [removed: Data](#Note16_SegmentandGeographicData_070525] [added: Data](#Note11_SegmentandGeographicData_063034] "Click to goto ") | [removed: 67] [added: 58] |

| [Report of Independent Registered Public Accounting [removed: Firm](#ReportofIndependentRegisteredPub_082510] [added: Firm](#ReportofIndependentRegisteredPub_063400] "Click to goto ") | [removed: 69] [added: 73] |

| [Quarterly Data for [removed: 2017] [added: 2018] and [removed: 2016 (Unaudited)](#QuarterlyData_082531] [added: 2017 (Unaudited)](#QuarterlyData_063412] "Click to goto ") | [removed: 70] [added: 74] |

| [Schedule II – Valuation and Qualifying [removed: Accounts](#ScheduleIIValuationandQualifying_082537] [added: Accounts](#ScheduleIIValuationandQualifying_063417] "Click to goto ") | [removed: 71] [added: 75] |

For each of the years in the three-year period ended December [removed: 30, 2017][added: 29, 2018]

| _(In millions, except per share data)_ | | | | [removed: 2017] [added: 2018] | | [removed: 2016] [added: 2017] | | [removed: 2015] [added: 2016] |

| Manufacturing revenues | | | $ | [removed: 14,129] [added: 13,906] | $ | [removed: 13,710] [added: 14,129] | $ | [removed: 13,340] [added: 13,710] |

| Finance revenues | | | | [removed: 69] [added: 66] | | [removed: 78] [added: 69] | | [removed: 83] [added: 78] |

| Total revenues | | | | [removed: 14,198] [added: 13,972] | | [removed: 13,788] [added: 14,198] | | [removed: 13,423] [added: 13,788] |

| Selling and administrative expense | | | | [removed: 1,337] [added: 1,275] | | [removed: 1,304] [added: 1,334] | | [removed: 1,304] [added: 1,317] |

| Interest expense | | | | [removed: 174] [added: 166] | | 174 | | [removed: 169] [added: 174] |

| Special charges | | | | [removed: 130] [added: 73] | | [removed: 123] [added: 130] | | [removed: —] [added: 123] |

| Total costs, expenses and other | | | | [removed: 13,436] [added: 12,588] | | [removed: 12,912] [added: 13,436] | | [removed: 12,452] [added: 12,912] |

| Income from continuing operations before income taxes | | | | [removed: 762] [added: 1,384] | | [removed: 876] [added: 762] | | [removed: 971] [added: 876] |

| Income tax expense | | | | [removed: 456] [added: 162] | | [removed: 33] [added: 456] | | [removed: 273] [added: 33] |

| Income from continuing operations | | | | [removed: 306] [added: 1,222] | | [removed: 843] [added: 306] | | [removed: 698] [added: 843] |

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

| Net income | | | $ | [removed: 307] [added: 1,222] | $ | [removed: 962] [added: 307] | $ | [removed: 697] [added: 962] |

| Continuing operations | | | $ | [removed: 1.15] [added: 4.88] | $ | [removed: 3.11] [added: 1.15] | $ | [removed: 2.52] [added: 3.11] |

| Discontinued operations | | | | — | | [removed: 0.44] [added: —] | | [removed: —] [added: 0.44] |

| [Note 3. Goodwill and Intangible Assets](#Note3_GoodwillandIntangibleAsset_015634 "Click to goto ") | 51 |

| [Note 7. Other Current Liabilities](#Note7_OtherCurrentLiabilities_015649 "Click to goto ") | 54 |

| [Note 12. Revenues](#Note12_Revenues_063037 "Click to goto ") | 60 |

| Cost of sales | | | | 11,594 | | 11,827 | | 11,337 |

| Gain on business disposition | | | | (444) | | — | | — |

| Non-service components of pension and post-retirement income, net | | | | (76) | | (29) | | (39) |

| Discontinued operations | | | | — | | — | | 0.44 |

_* For 2016, see Note 16 for additional information._

For each of the years in the three-year period ended December 29, 2018

| Foreign currency translation adjustments, net of reclassifications | | | | (43) | | 107 | | (49) |

| Other current liabilities | | | | | | 2,149 | | 2,441 |

| Adoption of ASC 606 | | — | | — | | — | | 90 | | — | | 90 |

| Net income | | — | | — | | — | | 1,222 | | — | | 1,222 |

| Reclassification of stranded tax effects | | — | | — | | — | | 257 | | (257) | | — |

| Retirement of treasury stock | | (3) | | (189) | | 1,702 | | (1,510) | | — | | — |

| Balance at December 29, 2018 | $ | 30 | $ | 1,646 | $ | (129) | $ | 5,407 | $ | (1,762) | $ | 5,192 |

For each of the years in the three-year period ended December 29, 2018

| Gain on business disposition | | | | (444) | | — | | — |

| Net cash provided by operating activities of continuing operations | | | | 1,109 | | 963 | | 927 |

| Net proceeds from business disposition | | | | 807 | | — | | — |

| Net proceeds from corporate-owned life insurance policies | | | | 110 | | 17 | | 87 |

For each of the years in the three-year period ended December 29, 2018

| Gain on business disposition | | (444) | | — | | — | | — | | — | | — |

| Net proceeds from business disposition | | 807 | | — | | — | | — | | — | | — |

| Net proceeds from corporate-owned life insurance policies | | 110 | | 17 | | 87 | | — | | — | | — |

At the beginning of 2018, we adopted Accounting Standards Update (ASU) No. 2014-09, _Revenue from Contracts with Customers (ASC Topic 606)_ and its related amendments, collectively referred to as ASC 606.

We adopted ASC 606 using the modified retrospective transition method applied to contracts that were not substantially complete at the end of 2017.

We recorded a $90 million adjustment to increase retained earnings to reflect the cumulative impact of adopting this standard at the beginning of 2018, primarily related to certain long-term contracts our Bell segment has with the U.S. Government that converted to the cost-to-cost method for revenue recognition.

The comparative information included in our financial statements and notes has not been restated and is reported under the accounting standards in effect for those periods based on the policies described in this note for the applicable year.

We also adopted ASU No. 2016-15, _Statement of Cash Flows_ - _Classification of Certain Cash Receipts and Cash Payment_ at the beginning of 2018_._ This standard provides guidance on the classification of certain cash flows and requires companies to classify cash proceeds received from the settlement of corporate-owned life insurance as cash inflows from investing activities.

The standard is required to be adopted on a retrospective basis.

Prior to adoption of this standard, we classified these proceeds as operating activities in the Consolidated Statements of Cash Flows.

Upon adoption, we reclassified $17 million and $87 million of net cash proceeds for 2017 and 2016, respectively, from operating activities to investing activities.

adoption of ASC 606.

With the adoption of ASC 606 at the beginning of 2018, revenue is recognized when control of the goods or services promised under the contract is transferred to the customer either at a point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract).

We account for a contract when it has approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract has commercial substance and collectability of consideration is probable.

Contracts are reviewed to determine whether there is one or multiple performance obligations.

A performance obligation is a promise to transfer a distinct good or service to a customer and represents the unit of accounting for revenue recognition.

For contracts with multiple performance obligations, the expected consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative standalone selling price of each performance obligation.

Revenue is then recognized for the transaction price allocated to the performance obligation when control of the promised goods or services underlying the performance obligation is transferred.

| [Note 6. Accrued Liabilities](#Note6_AccruedLiabilities_062214 "Click to goto ") | 52 |

| Cost of sales | | | | 11,795 | | 11,311 | | 10,979 |

| | | | | | | | | |

| Accrued liabilities | | | | | | 2,441 | | 2,257 |

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

| Balance at January 3, 2015 | $ | 36 | $ | 1,459 | $ | (340) | $ | 4,623 | $ | (1,506) | $ | 4,272 |

| Other comprehensive income | | | | | | | | | | 230 | | 230 |

These changes in estimates increased income from continuing operations before income taxes by $5 million, $83 million and $78 million in 2017, 2016 and 2015, respectively, ($3 million, $52 million and $49 million after tax, respectively, or $0.01, $0.19 and $0.18 per diluted share, respectively).

In 2017, this program experienced inefficiencies resulting from various production issues during the ramp up and subsequent production.

_Long-Term Contracts_

Revenues under long-term contracts are accounted for under the percentage-of-completion method of accounting.

Inventories include costs related to long-term contracts, which are stated at actual production costs, including allocable operating overhead, advances to suppliers, and, in the case of contracts with the U.S. Government, allocable research and development and general and administrative expenses.

Since our inventoried costs include amounts related to contracts with long production cycles, a portion of these costs is not expected to be realized within one year.

Pursuant to contract provisions, agencies of the U.S. Government have title to, or security interest in, inventories related to such contracts as a result of advances, performance-based payments and progress payments.

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.

Customer deposits are recorded against inventory only when the right of offset exists, while all other customer deposits are recorded in Accrued liabilities.

Otherwise, the amount of the impairment is determined by comparing the carrying amount of the reporting unit’s goodwill to the implied fair value of that goodwill.

The implied fair value of goodwill is determined by assigning a fair value to all of the reporting unit’s assets and liabilities as if the reporting unit had been acquired in a business combination.

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

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

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

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

_Revenue Recognition_

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, _Revenue from Contracts with Customers_, that outlines a five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.

Under this method, we will record the cumulative effect of adopting the new standard in the first quarter of 2018.

Based on review and analysis of our contracts, the standard primarily impacts our Bell and Textron Systems segments, which have long-term production contracts with the U.S. Government.

Prior to adoption of the new standard, revenue was generally recognized for these contracts as units were delivered, while under the new standard, revenue will be recognized over time, principally as costs are incurred.

This change will generally result in an acceleration of revenue for these contracts.

At the adoption date, the impact of recognizing these revenues under the new standard for historical periods ending prior to December 31, 2017 will result in a cumulative after-tax transition adjustment to increase retained earnings by approximately $90 million, largely related to the Bell segment.

In addition, the transition adjustment will establish contract assets of approximately $350 million, with corresponding decreases in inventory of approximately $200 million and in contract liabilities (deferred revenue and customer deposits) and accounts receivables, primarily reflecting the conversion of contracts to the cost-to-cost method.

This change is not expected to have a significant impact on our future operating results as the revenues that would have been recognized under the units-of-delivery method in future years, will essentially be replaced by the acceleration of revenue on other contracts into earlier periods using the

cost-to-cost method.

The new standard will have no impact on cash flows and does not affect the economics of our underlying customer contracts.

The standard does not have a significant impact on revenue recognition for our Textron Aviation and Industrial segments, which will continue to primarily recognize revenue at the point in time when the customer accepts delivery of the goods provided.

At the end of 2017, our backlog excluded amounts where funding from the U.S. Government had not been formally appropriated.

At adoption, the increase in our backlog for the unfunded amounts will be fully offset by the decrease due to the acceleration of revenues in the transition adjustment.

We expect backlog at the Bell segment to decrease by approximately 15% at the adoption date, which will partially be offset by an increase of approximately 7% at the Textron Systems segment.

_Other Standards_

The reclassification of the other components of net periodic benefit cost out of operating income must be applied retrospectively, while the change in the amount companies may capitalize into inventory can be applied prospectively.

We performed an evaluation of the effectiveness of our disclosure controls and procedures as of December [removed: 30, 2017.][added: 29, 2018.]

Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were operating and effective as of December [removed: 30, 2017.][added: 29, 2018.]

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 December [removed: 30, 2017.][added: 29, 2018.]

The independent registered public accounting firm, Ernst & Young LLP, has audited the Consolidated Financial Statements of Textron Inc. and has issued an attestation report on Textron’s internal controls over financial reporting as of December [removed: 30, 2017,] [added: 29, 2018,] as stated in its report, which is included herein.

We have audited Textron Inc.’s internal control over financial reporting as of December [removed: 30, 2017,] [added: 29, 2018,] based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), (the COSO criteria).

In our opinion, Textron, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December [removed: 30, 2017,] [added: 29, 2018,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Consolidated Balance Sheets of the Company as of December [removed: 30, 2017] [added: 29, 2018] and December [removed: 31, 2016,] [added: 30, 2017,] and the related Consolidated Statements of Operations, Comprehensive Income, Shareholder’s Equity and Cash Flows for each of the three years in the period ended December [removed: 30, 2017,] [added: 29, 2018,] and the related notes and financial statement schedule contained on page [removed: 71,] [added: 75,] of the Company and our report dated February [removed: 15, 2018] [added: 14, 2019] expressed an unqualified opinion thereon.

February 14, 2019

February 15, 2018

The information appearing under “ELECTION OF DIRECTORS— Nominees for Director,” “CORPORATE GOVERNANCE—Corporate Governance Guidelines and Policies,” “— Code of Ethics,” “–Board Committees— _Audit Committee_,” and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April [removed: 25, 2018] [added: 24, 2019] 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: 25, 2018] [added: 24, 2019] is incorporated by reference into this Annual Report on Form 10-K.

The information appearing under “SECURITY OWNERSHIP” and “EXECUTIVE COMPENSATION – Equity Compensation Plan Information” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April [removed: 25, 2018] [added: 24, 2019] is incorporated by reference into this Annual Report on Form 10-K.

The information appearing under “CORPORATE GOVERNANCE--Director Independence” and “EXECUTIVE COMPENSATION — Transactions with Related Persons” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April [removed: 25, 2018] [added: 24, 2019] 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: 25, 2018] [added: 24, 2019] is incorporated by reference into this Annual Report on Form 10-K.

| 10.1G | | [Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, [removed: 2014.](http://www.sec.gov/Archives/edgar/data/217346/000110465914033439/a14-9291_1ex10d1.htm)] [added: 2014. (SEC File No. 1-5480)](http://www.sec.gov/Archives/edgar/data/217346/000110465914033439/a14-9291_1ex10d1.htm)] |

| 10.1H | | [Form of Stock-Settled 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, [removed: 2014.](http://www.sec.gov/Archives/edgar/data/217346/000110465914033439/a14-9291_1ex10d2.htm)] [added: 2014. (SEC File No. 1-5480)](http://www.sec.gov/Archives/edgar/data/217346/000110465914033439/a14-9291_1ex10d2.htm)] |

| 10.1I | | [Form of Performance Share Unit Grant Agreement. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, [removed: 2014.](http://www.sec.gov/Archives/edgar/data/217346/000110465914033439/a14-9291_1ex10d3.htm)] [added: 2014. (SEC File No. 1-5480)](http://www.sec.gov/Archives/edgar/data/217346/000110465914033439/a14-9291_1ex10d3.htm)] |

| 10.5C | | [Second Amendment to the Textron Spillover Pension Plan, dated October 7, 2013. Incorporated by reference to Exhibit 10.5C to Textron’s Annual Report on Form 10-K for the fiscal year ended December 28, [removed: 2013.](http://www.sec.gov/Archives/edgar/data/217346/000110465914009908/a13-26941_1ex10d5c.htm)] [added: 2013. (SEC File No. 1-5480)](http://www.sec.gov/Archives/edgar/data/217346/000110465914009908/a13-26941_1ex10d5c.htm)] |

| 10.8C | | [Second Amendment to the Severance Plan for Textron Key Executives, dated March 24, 2014. Incorporated by reference to Exhibit 10.5 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, [removed: 2014.](http://www.sec.gov/Archives/edgar/data/217346/000110465914033439/a14-9291_1ex10d5.htm)] [added: 2014. (SEC File No. 1-5480)](http://www.sec.gov/Archives/edgar/data/217346/000110465914033439/a14-9291_1ex10d5.htm)] |

| 10.9 | | [Form of Indemnity Agreement between Textron and its executive [removed: officers.](https://www.sec.gov/Archives/edgar/data/217346/000110465918009905/a18-1018_1ex10d9.htm#Exhibit10_9_100732)] [added: officers. Incorporated by reference to Exhibit 10.9 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017.](http://www.sec.gov/Archives/edgar/data/217346/000110465918009905/a18-1018_1ex10d9.htm)] |

| [removed: 10.11D] [added: 10.11C] | | [removed: [Hangar] [added: [Amended and Restated Hangar] License and Services [removed: Agreement] [added: Agreement,] made and entered into [removed: on April 25, 2011 to be effective] as of [removed: December 5, 2010,] [added: October 1, 2015,] between Textron Inc. and Mr. Donnelly’s limited liability company. Incorporated by reference to Exhibit [removed: 10.1] [added: 10.2] to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended [removed: April 2, 2011. (SEC File No. 1-5480)](http://www.sec.gov/Archives/edgar/data/217346/000021734611000048/sdhangeragreement.htm)] [added: October 3, 2015.](http://www.sec.gov/Archives/edgar/data/217346/000110465915073479/a15-17798_1ex10d2.htm)] |

| [removed: 10.11E] [added: 10.12B] | | [Amended and Restated Hangar License and Services Agreement, made and entered into [removed: as of October 1,] [added: on July 24,] 2015, between Textron Inc. and Mr. [removed: Donnelly’s] [added: Connor’s] limited liability company. Incorporated by reference to Exhibit [removed: 10.2] [added: 10.3] to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, [removed: 2015.](http://www.sec.gov/Archives/edgar/data/217346/000110465915073479/a15-17798_1ex10d2.htm)] [added: 2015.](http://www.sec.gov/Archives/edgar/data/217346/000110465915073479/a15-17798_1ex10d3.htm)] |

| 10.15 | | [Director [removed: Compensation.](https://www.sec.gov/Archives/edgar/data/217346/000110465918009905/a18-1018_1ex10d15.htm#Exhibit10_15_100835)] [added: Compensation. Incorporated by reference to Exhibit 10.15 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017.](http://www.sec.gov/Archives/edgar/data/217346/000110465918009905/a18-1018_1ex10d15.htm)] |

| 21 | | [Certain subsidiaries of Textron. Other subsidiaries, which considered in the aggregate do not constitute a significant subsidiary, are omitted from such [removed: list.](https://www.sec.gov/Archives/edgar/data/217346/000110465918009905/a18-1018_1ex21.htm#Exhibit21_100939] [added: list.](https://www.sec.gov/Archives/edgar/data/217346/000110465919008151/a19-30052_1ex21.htm#Exhibit21_012149] "Click to goto ") |

| 23 | | [Consent of Independent Registered Public Accounting [removed: Firm.](https://www.sec.gov/Archives/edgar/data/217346/000110465918009905/a18-1018_1ex23.htm#Exhibit23_105842] [added: Firm.](https://www.sec.gov/Archives/edgar/data/217346/000110465919008151/a19-30052_1ex23.htm#Exhibit23_012613] "Click to goto ") |

| 24 | | [Power of [removed: attorney.](https://www.sec.gov/Archives/edgar/data/217346/000110465918009905/a18-1018_1ex24.htm#Exhibit24_111432)] [added: attorney.](https://www.sec.gov/Archives/edgar/data/217346/000110465919008151/a19-30052_1ex24.htm#Exhibit24_013516 "Click to goto ")] |

| 31.1 | | [Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of [removed: 2002.](https://www.sec.gov/Archives/edgar/data/217346/000110465918009905/a18-1018_1ex31d1.htm#Exhibit31_1_111602)] [added: 2002.](https://www.sec.gov/Archives/edgar/data/217346/000110465919008151/a19-30052_1ex31d1.htm#Exhibit31_1_031102 "Click to goto ")] |

| 31.2 | | [Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of [removed: 2002.](https://www.sec.gov/Archives/edgar/data/217346/000110465918009905/a18-1018_1ex31d2.htm#Exhibit31_2_111423)] [added: 2002.](https://www.sec.gov/Archives/edgar/data/217346/000110465919008151/a19-30052_1ex31d2.htm#Exhibit31_2_014649 "Click to goto ")] |

| 32.1 | | [Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of [removed: 2002.](https://www.sec.gov/Archives/edgar/data/217346/000110465918009905/a18-1018_1ex32d1.htm#Exhibit32_1_111852)] [added: 2002.](https://www.sec.gov/Archives/edgar/data/217346/000110465919008151/a19-30052_1ex32d1.htm#Exhibit32_1_020821 "Click to goto ")] |

| 32.2 | | [Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of [removed: 2002.](https://www.sec.gov/Archives/edgar/data/217346/000110465918009905/a18-1018_1ex32d2.htm#Exhibit32_2_112052)] [added: 2002.](https://www.sec.gov/Archives/edgar/data/217346/000110465919008151/a19-30052_1ex32d2.htm#Exhibit32_2_020726 "Click to goto ")] |

| 101 | | The following materials from Textron Inc.’s Annual Report on Form 10-K for the year ended December [removed: 30, 2017,] [added: 29, 2018,] formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, (vi) the Notes to the Consolidated Financial Statements, and (vii) Schedule II – Valuation and Qualifying Accounts. |

| 10.11D | | [Aircraft Dry Lease Agreement, made and entered into as of December 18, 2018, between Mr. Donnelly’s limited liability company and Textron Inc.](https://www.sec.gov/Archives/edgar/data/217346/000110465919008151/a19-30052_1ex10d11d.htm#Exhibit10_11D_021046 "Click to goto ") |

| | | |

| NOTE: | | Instruments defining the rights of holders of certain issues of long-term debt of Textron have not been filed as exhibits because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of Textron and its subsidiaries on a consolidated basis. Textron agrees to furnish a copy of each such instrument to the Commission upon request. |

| NOTE: | | Exhibits 10.1 through 10.16 below are management contracts or compensatory plans, contracts or agreements. |

| 10.11C | | [Agreement between Textron and Scott C. Donnelly, dated May 1, 2009, related to Mr. Donnelly’s personal use of a portion of hangar space at T.F. Green Airport which is leased by Textron. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 2009. (SEC File No. 1-5480)](http://www.sec.gov/Archives/edgar/data/217346/000021734609000117/donnellyhangeragreement.htm) |

| 10.12B | | [Hangar License and Services Agreement made and entered into on April 25, 2011 to be effective as of December 5, 2010, between Textron Inc. and Mr. Connor’s limited liability company. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2011. (SEC File No. 1-5480)](http://www.sec.gov/Archives/edgar/data/217346/000021734611000048/fchangeragreement.htm) |

| 10.12C | | [Amended and Restated Hangar License and Services Agreement, made and entered into on July 24, 2015, between Textron Inc. and Mr. Connor’s limited liability company. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2015.](http://www.sec.gov/Archives/edgar/data/217346/000110465915073479/a15-17798_1ex10d3.htm) |

| 12.1 | | [Computation of ratio of income to fixed charges of Textron Inc.’s Manufacturing group.](https://www.sec.gov/Archives/edgar/data/217346/000110465918009905/a18-1018_1ex12d1.htm#EXHIBIT12_1_100854) |

| 12.2 | | [Computation of ratio of income to fixed charges of Textron Inc., including all majority-owned subsidiaries.](https://www.sec.gov/Archives/edgar/data/217346/000110465918009905/a18-1018_1ex12d2.htm#EXHIBIT12_2_100918) |

* Confidential Treatment has been requested for portions of this document.

[removed: Signatures][added: Signatures]

Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this [removed: 15th] [added: 14th] day of February [removed: 2018.][added: 2019.]

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below on this [removed: 15th] [added: 14th] day of February [removed: 2018] [added: 2019] by the following persons on behalf of the registrant and in the capacities indicated:

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| * | | | | |

| Ivor J. Evans | | | | Director |