Item 1. Financial Statements

TEXTRON INC.

Consolidated Statements of Operations (Unaudited)

			Three Months Ended						Six Months Ended
(In millions, except per share amounts)			July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021
Revenues
Manufacturing product revenues			$	2,689		$	2,666		$	5,137		$	5,069
Manufacturing service revenues			451			513			988			974
Finance revenues			14			12			30			27
Total revenues			3,154			3,191			6,155			6,070
Costs, expenses and other
Cost of products sold			2,304			2,271			4,373			4,332
Cost of services sold			337			389			760			728
Selling and administrative expense			278			314			583			612
Interest expense			32			36			65			76
Non-service components of pension and postretirement income, net			(60)			(39)			(121)			(79)
Special charges			—			4			—			10
Gain on business disposition			—			(2)			—			(17)
Total costs, expenses and other			2,891			2,973			5,660			5,662
Income from continuing operations before income taxes			263			218			495			408
Income tax expense			45			34			84			53
Income from continuing operations			218			184			411			355
Loss from discontinued operations			(1)			(1)			(1)			(1)
Net income			$	217		$	183		$	410		$	354
Basic Earnings per share
Continuing operations			$	1.01		$	0.82		$	1.90		$	1.57
Discontinued operations			—			(0.01)			—			(0.01)
Basic Earnings per share			$	1.01		$	0.81		$	1.90		$	1.56
Diluted Earnings per share
Continuing operations			$	1.00		$	0.81		$	1.88		$	1.56
Discontinued operations			—			(0.01)			—			(0.01)
Diluted Earnings per share			$	1.00		$	0.80		$	1.88		$	1.55

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Statements of Comprehensive Income (Unaudited)

			Three Months Ended						Six Months Ended
(In millions)			July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021
Net income			$	217		$	183		$	410		$	354
Other comprehensive income (loss), net of tax
Pension and postretirement benefits adjustments, net of reclassifications			17			30			34			60
Foreign currency translation adjustments, net of reclassifications			(90)			15			(104)			(3)
Deferred gains (losses) on hedge contracts, net of reclassifications			(3)			2			4			6
Other comprehensive income (loss)			(76)			47			(66)			63
Comprehensive income			$	141		$	230		$	344		$	417

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Balance Sheets (Unaudited)

(Dollars in millions)			July 2, 2022			January 1, 2022
Assets
Manufacturing group
Cash and equivalents			$	1,764		$	1,922
Accounts receivable, net			876			838
Inventories			3,739			3,468
Other current assets			972			1,018
Total current assets			7,351			7,246
Property, plant and equipment, less accumulated depreciation and amortization of $4,945 and $4,888, respectively			2,469			2,538
Goodwill			2,278			2,149
Other assets			3,113			3,027
Total Manufacturing group assets			15,211			14,960
Finance group
Cash and equivalents			77			195
Finance receivables, net			561			605
Other assets			30			67
Total Finance group assets			668			867
Total assets			$	15,879		$	15,827
Liabilities and shareholders’ equity
Liabilities
Manufacturing group
Current portion of long-term debt			$	7		$	6
Accounts payable			807			786
Other current liabilities			2,660			2,344
Total current liabilities			3,474			3,136
Other liabilities			1,956			2,005
Long-term debt			3,177			3,179
Total Manufacturing group liabilities			8,607			8,320
Finance group
Other liabilities			89			110
Debt			382			582
Total Finance group liabilities			471			692
Total liabilities			9,078			9,012
Shareholders’ equity
Common stock			28			28
Capital surplus			1,953			1,863
Treasury stock			(596)			(157)
Retained earnings			6,271			5,870
Accumulated other comprehensive loss			(855)			(789)
Total shareholders’ equity			6,801			6,815
Total liabilities and shareholders’ equity			$	15,879		$	15,827
Common shares outstanding (in thousands)			211,825			216,935

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited)

For the Six Months Ended July 2, 2022 and July 3, 2021, respectively

			Consolidated
(In millions)			2022			2021
Cash flows from operating activities
Income from continuing operations			$	411		$	355
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Non-cash items:
Depreciation and amortization			191			188
Deferred income taxes			(118)			16
Gain on business disposition			—			(17)
Other, net			55			64
Changes in assets and liabilities:
Accounts receivable, net			(48)			(38)
Inventories			(246)			(162)
Other assets			85			22
Accounts payable			24			188
Other liabilities			269			103
Income taxes, net			32			8
Pension, net			(83)			(42)
Captive finance receivables, net			35			89
Other operating activities, net			8			(1)
Net cash provided by operating activities of continuing operations			615			773
Net cash used in operating activities of discontinued operations			(2)			(1)
Net cash provided by operating activities			613			772
Cash flows from investing activities
Capital expenditures			(114)			(128)
Net cash used in business acquisitions			(198)			—
Net proceeds from corporate-owned life insurance policies			25			—
Proceeds from sale of property, plant and equipment			18			—
Net proceeds from business disposition			—			38
Finance receivables repaid			21			19
Other investing activities, net			44			6
Net cash used in investing activities			(204)			(65)
Cash flows from financing activities
Decrease in short-term debt			(15)			—
Principal payments on long-term debt and nonrecourse debt			(223)			(553)
Purchases of Textron common stock			(439)			(287)
Dividends paid			(9)			(9)
Proceeds from options exercised			32			77
Other financing activities, net			(4)			(2)
Net cash used in financing activities			(658)			(774)
Effect of exchange rate changes on cash and equivalents			(27)			1
Net decrease in cash and equivalents			(276)			(66)
Cash and equivalents at beginning of period			2,117			2,254
Cash and equivalents at end of period			$	1,841		$	2,188

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited) (Continued)

For the Six Months Ended July 2, 2022 and July 3, 2021, respectively

			Manufacturing Group						Finance Group
(In millions)			2022			2021			2022			2021
Cash flows from operating activities
Income (loss) from continuing operations			$	395		$	358		$	16		$	(3)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities:
Non-cash items:
Depreciation and amortization			191			183			—			5
Deferred income taxes			(106)			18			(12)			(2)
Gain on business disposition			—			(17)			—			—
Other, net			62			66			(7)			(2)
Changes in assets and liabilities:
Accounts receivable, net			(48)			(38)			—			—
Inventories			(246)			(162)			—			—
Other assets			85			23			—			(1)
Accounts payable			24			188			—			—
Other liabilities			279			103			(10)			—
Income taxes, net			28			—			4			8
Pension, net			(83)			(42)			—			—
Other operating activities, net			8			(1)			—			—
Net cash provided by (used in) operating activities of continuing operations			589			679			(9)			5
Net cash used in operating activities of discontinued operations			(2)			(1)			—			—
Net cash provided by (used in) operating activities			587			678			(9)			5
Cash flows from investing activities
Capital expenditures			(114)			(128)			—			—
Net cash used in business acquisitions			(198)			—			—			—
Net proceeds from corporate-owned life insurance policies			25			—			—			—
Proceeds from sale of property, plant and equipment			18			—			—			—
Net proceeds from business disposition			—			38			—			—
Finance receivables repaid			—			—			79			137
Finance receivables originated			—			—			(23)			(29)
Other investing activities, net			—			—			44			6
Net cash provided by (used in) investing activities			(269)			(90)			100			114
Cash flows from financing activities
Decrease in short-term debt			(15)			—			—			—
Principal payments on long-term debt and nonrecourse debt			(14)			(519)			(209)			(34)
Purchases of Textron common stock			(439)			(287)			—			—
Dividends paid			(9)			(9)			—			—
Proceeds from options exercised			32			77			—			—
Other financing activities, net			(4)			(2)			—			—
Net cash used in financing activities			(449)			(740)			(209)			(34)
Effect of exchange rate changes on cash and equivalents			(27)			1			—			—
Net increase (decrease) in cash and equivalents			(158)			(151)			(118)			85
Cash and equivalents at beginning of period			1,922			2,146			195			108
Cash and equivalents at end of period			$	1,764		$	1,995		$	77		$	193

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Notes to the Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

Our Consolidated Financial Statements include the accounts of Textron Inc. (Textron) and its majority-owned subsidiaries. We have prepared these unaudited consolidated financial statements in accordance with accounting principles generally accepted in the U.S. for interim financial information. Accordingly, these interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. The consolidated interim financial statements included in this quarterly report should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 1, 2022. In the opinion of management, the interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair presentation of our consolidated financial position, results of operations and cash flows for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems and Industrial segments, and our new reporting segment, Textron eAviation, formed in the second quarter of 2022. Textron eAviation includes the operating results of Pipistrel, a manufacturer of electrically powered aircraft acquired on April 15, 2022, as discussed in Note 2, along with other research and development initiatives related to sustainable aviation solutions. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance. To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements. All significant intercompany transactions are eliminated from the Consolidated Financial Statements, including retail financing activities for inventory sold by our Manufacturing group and financed by our Finance group.

Use of Estimates

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

Contract Estimates

For contracts where revenue is recognized over time, we recognize changes in estimated contract revenues, costs and profits using the cumulative catch-up method of accounting. This method recognizes the cumulative effect of changes on current and prior periods with the impact of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.

In the second quarter of 2022, our cumulative catch-up adjustments decreased segment profit by $4 million and net income by $3 million, $0.01 per diluted share. In the second quarter of 2021, our cumulative catch-up adjustments increased segment profit by $15 million and net income by $11 million, $0.05 per diluted share. Gross favorable profit adjustments totaled $25 million and $40 million in the second quarter of 2022 and 2021, respectively, and gross unfavorable profit adjustments totaled $29 million and $25 million, respectively. We reduced revenues by $21 million and recognized revenues of $20 million in the second quarter of 2022 and 2021, respectively, from performance obligations satisfied in prior periods that related to changes in profit booking rates.

In the first half of 2022, our cumulative catch-up adjustments decreased segment profit by $21 million and net income by $16 million, $0.07 per diluted share. In the first half of 2021, our cumulative catch-up adjustments increased segment profit by $29 million and net income by $22 million, $0.10 per diluted share. Gross favorable profit adjustments totaled $41 million and $76 million in the first half of 2022 and 2021, respectively, and gross unfavorable profit adjustments totaled $62 million and $47 million, respectively. We reduced revenues by $33 million and recognized revenues of $38 million in the first half of 2022 and 2021, respectively, from performance obligations satisfied in prior periods that related to changes in profit booking rates.

Note 2. Business Acquisition

On April 15, 2022, we acquired Pipistrel, a manufacturer of electrically powered aircraft, for a cash purchase price of $240 million, which included the assumption of $35 million of debt and other contractual obligations under the agreement and a final fixed payment of $21 million due in 2024. Beginning in the second quarter of 2022, this business is included in a new reporting segment, Textron eAviation, which combines the operating results of Pipistrel along with other research and development initiatives related to sustainable aviation solutions.

We allocated the purchase price for this business on a preliminary basis to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. We expect to finalize the purchase accounting as soon as reasonably possible during the one-year measurement period. Based on the preliminary allocation, $142 million has been allocated to goodwill, related to expected synergies and the value of the assembled workforce, and $76 million to intangible assets, primarily including developed technologies. The intangible assets were primarily valued using the relief-from-royalty method. This method utilizes significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy and requires us to make estimates and assumptions about sales, growth rates, royalty rates and discount rates based on marketplace data.

Note 3. Accounts Receivable and Finance Receivables

Accounts Receivable

Accounts receivable is composed of the following:

(In millions)			July 2, 2022			January 1, 2022
Commercial			$	767		$	704
U.S. Government contracts			133			158
			900			862
Allowance for credit losses			(24)			(24)
Total accounts receivable, net			$	876		$	838

Finance Receivables

Finance receivables are presented in the following table:

(In millions)			July 2, 2022			January 1, 2022
Finance receivables			$	586		$	630
Allowance for credit losses			(25)			(25)
Total finance receivables, net			$	561		$	605

Finance Receivable Portfolio Quality

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

We classify finance receivables as nonaccrual if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three months unless collection of principal and interest is not doubtful. Accounts are classified as watchlist when credit quality indicators have deteriorated as compared with typical underwriting criteria, and we believe collection of full principal and interest is probable but not certain. All other finance receivables that do not meet the watchlist or nonaccrual categories are classified as performing.

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

Finance receivables categorized based on the credit quality indicators and by the delinquency aging category are summarized as follows:

(Dollars in millions)			July 2, 2022			January 1, 2022
Performing			$	518		$	536
Nonaccrual			68			94
Nonaccrual as a percentage of finance receivables			11.60%			14.92%
Current and less than 31 days past due			$	577		$	624
31-60 days past due			4			5
61-90 days past due			5			—
Over 90 days past due			—			1
60+ days contractual delinquency as a percentage of finance receivables			0.85%			0.16%

At July 2, 2022, 39% of our performing finance receivables were originated since the beginning of 2020 and 27% were originated from 2017 to 2019. For finance receivables categorized as nonaccrual, 7% were originated since the beginning of 2020 and 70% were originated from 2017 to 2019.

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

A summary of finance receivables and the allowance for credit losses, based on the results of our impairment evaluation, is provided below. The finance receivables included in this table specifically exclude leveraged leases in accordance with U.S. generally accepted accounting principles.

(In millions)			July 2, 2022			January 1, 2022
Finance receivables evaluated collectively			$	428		$	441
Finance receivables evaluated individually			68			94
Allowance for credit losses based on collective evaluation			21			21
Allowance for credit losses based on individual evaluation			4			4
Impaired finance receivables with specific allowance for credit losses			$	25		$	33
Impaired finance receivables with no specific allowance for credit losses			43			61
Unpaid principal balance of impaired finance receivables			82			109
Allowance for credit losses on impaired finance receivables			4			4
Average recorded investment of impaired finance receivables			80			117

Note 4. Inventories

Inventories are composed of the following:

(In millions)			July 2, 2022			January 1, 2022
Finished goods			$	1,110		$	1,071
Work in process			1,705			1,548
Raw materials and components			924			849
Total inventories			$	3,739		$	3,468

Note 5. Warranty Liability

Changes in our warranty liability are as follows:

			Six Months Ended
(In millions)			July 2, 2022			July 3, 2021
Beginning of period			$	127		$	119
Provision			34			31
Settlements			(34)			(35)
Adjustments*			10			1
End of period			$	137		$	116

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

Note 6. Leases

We primarily lease certain manufacturing plants, offices, warehouses, training and service centers at various locations worldwide through operating leases. Our operating leases have remaining lease terms up to 27 years, which include options to extend the lease term for periods up to 25 years when it is reasonably certain the option will be exercised. Operating lease cost totaled $17 million and $16 million in the second quarter of 2022 and 2021, respectively, and $34 million and $32 million in the first half of 2022 and 2021, respectively. Variable and short-term lease costs were not significant. Cash paid for operating leases totaled $35 million and $33 million in the first half of 2022 and 2021, respectively, and is classified in cash flows from operating activities. Noncash transactions totaled $17 million and $63 million in the first half of 2022 and 2021, respectively, reflecting the recognition of operating lease assets and liabilities for new or extended leases.

Balance sheet and other information related to our operating leases is as follows:

(Dollars in millions)			July 2, 2022			January 1, 2022
Other assets			$	359		$	374
Other current liabilities			56			56
Other liabilities			310			325
Weighted-average remaining lease term (in years)			10.1			10.5
Weighted-average discount rate			3.22%			3.19%

At July 2, 2022, maturities of our operating lease liabilities on an undiscounted basis totaled $35 million for the remainder of 2022, $65 million for 2023, $55 million for 2024, $47 million for 2025, $35 million for 2026 and $217 million thereafter.

Note 7. Derivative Instruments and Fair Value Measurements

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

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

We manufacture and sell our products in a number of countries throughout the world, and, therefore, we are exposed to movements in foreign currency exchange rates. We primarily utilize foreign currency exchange contracts with maturities of no more than three years to manage this volatility. These contracts qualify as cash flow hedges and are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and overhead expenses. Net gains and losses recognized in earnings and Accumulated other comprehensive loss on cash flow hedges, including gains and losses related to hedge ineffectiveness, were not significant in the periods presented.

Our foreign currency exchange contracts are measured at fair value using the market method valuation technique. The inputs to this technique utilize current foreign currency exchange forward market rates published by third-party leading financial news and data providers. These are observable data that represent the rates that the financial institution uses for contracts entered into at that date; however, they are not based on actual transactions, so they are classified as Level 2. At July 2, 2022 and January 1, 2022, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $264 million and $272 million, respectively. At July 2, 2022, the fair value amounts of our foreign currency exchange contracts were a $3 million asset and a $4 million liability. At January 1, 2022, the fair value amounts of our foreign currency exchange contracts were a $4 million asset and a $3 million liability.

Our Finance group enters into interest rate swap agreements to mitigate certain exposures to fluctuations in interest rates. By using these contracts, we are able to convert floating-rate cash flows to fixed-rate cash flows. These agreements are designated as cash flow hedges. At July 2, 2022, we had a swap agreement for a notional amount of $272 million with a maturity of August 2023, and a swap agreement for a notional amount of $25 million, maturing in June 2025, with a combined fair value of a $7 million asset. At January 1, 2022, we had a swap agreement for a notional amount of $289 million with a maturity of August 2023 and an insignificant fair value. The fair value of these swap agreements is determined using values published by third-party leading financial news and data providers. These values are observable data that represent the value that financial institutions use for contracts entered into at that date, but are not based on actual transactions, so they are classified as Level 2.

Assets and Liabilities Not Recorded at Fair Value

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

			July 2, 2022						January 1, 2022
			Carrying			Estimated			Carrying			Estimated
(In millions)			Value			Fair Value			Value			Fair Value
Manufacturing group
Debt, excluding leases			$	(3,178)		$	(2,974)		$	(3,181)		$	(3,346)
Finance group
Finance receivables, excluding leases			381			351			413			444
Debt			(382)			(310)			(582)			(546)

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

Note 8. Shareholders’ Equity

A reconciliation of Shareholders’ equity is presented below:

(In millions)			Common Stock			Capital Surplus			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
Three months ended July 2, 2022
Beginning of period			$	28		$	1,924		$	(314)		$	6,058		$	(779)		$	6,917
Net income			—			—			—			217			—			217
Other comprehensive loss			—			—			—			—			(76)			(76)
Share-based compensation activity			—			29			—			—			—			29
Dividends declared			—			—			—			(4)			—			(4)
Purchases of common stock			—			—			(282)			—			—			(282)
End of period			$	28		$	1,953		$	(596)		$	6,271		$	(855)		$	6,801
Three months ended July 3, 2021
Beginning of period			$	29		$	1,845		$	(294)		$	6,139		$	(1,723)		$	5,996
Net income			—			—			—			183			—			183
Other comprehensive income			—			—			—			—			47			47
Share-based compensation activity			—			75			—			—			—			75
Dividends declared			—			—			—			(4)			—			(4)
Purchases of common stock			—			—			(196)			—			—			(196)
End of period			$	29		$	1,920		$	(490)		$	6,318		$	(1,676)		$	6,101
Six months ended July 2, 2022
Beginning of period			$	28		$	1,863		$	(157)		$	5,870		$	(789)		$	6,815
Net income			—			—			—			410			—			410
Other comprehensive loss			—			—			—			—			(66)			(66)
Share-based compensation activity			—			90			—			—			—			90
Dividends declared			—			—			—			(9)			—			(9)
Purchases of common stock			—			—			(439)			—			—			(439)
End of period			$	28		$	1,953		$	(596)		$	6,271		$	(855)		$	6,801
Six months ended July 3, 2021
Beginning of period			$	29		$	1,785		$	(203)		$	5,973		$	(1,739)		$	5,845
Net income			—			—			—			354			—			354
Other comprehensive income			—			—			—			—			63			63
Share-based compensation activity			—			135			—			—			—			135
Dividends declared			—			—			—			(9)			—			(9)
Purchases of common stock			—			—			(287)			—			—			(287)
End of period			$	29		$	1,920		$	(490)		$	6,318		$	(1,676)		$	6,101

Dividends per share of common stock were $0.02 for both the second quarter of 2022 and 2021 and $0.04 for both the first half of 2022 and 2021.

Earnings Per Share

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

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

			Three Months Ended						Six Months Ended
(In thousands)			July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021
Basic weighted-average shares outstanding			214,587			225,963			215,799			226,486
Dilutive effect of stock options			2,071			2,483			2,334			1,810
Diluted weighted-average shares outstanding			216,658			228,446			218,133			228,296

For both the second quarter and first half of 2022, stock options to purchase 1.0 million shares of common stock were excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive. For the first half of 2021, stock options to purchase 2.1 million shares of common stock were excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive.

Accumulated Other Comprehensive Loss and Other Comprehensive Income

The components of Accumulated other comprehensive loss are presented below:

(In millions)			Pension and Postretirement Benefits Adjustments			Foreign Currency Translation Adjustments			Deferred Gains (Losses) on Hedge Contracts			Accumulated Other Comprehensive Loss
Balance at January 1, 2022			$	(799)		$	9		$	1		$	(789)
Other comprehensive loss before reclassifications			—			(104)			4			(100)
Reclassified from Accumulated other comprehensive loss			34			—			—			34
Balance at July 2, 2022			$	(765)		$	(95)		$	5		$	(855)
Balance at January 2, 2021			$	(1,780)		$	42		$	(1)		$	(1,739)
Other comprehensive loss before reclassifications			—			(17)			6			(11)
Reclassified from Accumulated other comprehensive loss			60			14			—			74
Balance at July 3, 2021			$	(1,720)		$	39		$	5		$	(1,676)

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

			July 2, 2022									July 3, 2021
(In millions)			Pre-Tax Amount			Tax (Expense) Benefit			After-tax Amount			Pre-Tax Amount			Tax (Expense) Benefit			After-tax Amount
Three Months Ended
Pension and postretirement benefits adjustments:
Amortization of net actuarial loss*			$	21		$	(6)		$	15		$	38		$	(9)		$	29
Amortization of prior service cost*			2			—			2			2			(1)			1
Pension and postretirement benefits adjustments, net			23			(6)			17			40			(10)			30
Foreign currency translation adjustments			(90)			—			(90)			15			—			15
Deferred gains (losses) on hedge contracts:
Current deferrals			(5)			2			(3)			2			—			2
Deferred gains (losses) on hedge contracts, net			(5)			2			(3)			2			—			2
Total			$	(72)		$	(4)		$	(76)		$	57		$	(10)		$	47
Six Months Ended
Pension and postretirement benefits adjustments:
Amortization of net actuarial loss*			$	42		$	(11)		$	31		$	76		$	(18)		$	58
Amortization of prior service cost*			4			(1)			3			4			(2)			2
Pension and postretirement benefits adjustments, net			46			(12)			34			80			(20)			60
Foreign currency translation adjustments:
Foreign currency translation adjustments			(104)			—			(104)			(17)			—			(17)
Business disposition			—			—			—			14			—			14
Foreign currency translation adjustments, net			(104)			—			(104)			(3)			—			(3)
Deferred gains on hedge contracts:
Current deferrals			5			(1)			4			7			(1)			6
Deferred gains on hedge contracts, net			5			(1)			4			7			(1)			6
Total			$	(53)		$	(13)		$	(66)		$	84		$	(21)		$	63

*These components of other comprehensive income (loss) are included in the computation of net periodic pension cost (income). See Note 15 of our 2021 Annual Report on Form 10-K for additional information.

Note 9. Segment Information

Through the first quarter of 2022, we operated in, and reported financial information for, the following five business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. Beginning in the second quarter of 2022, we formed a new reporting segment within the Manufacturing group, Textron eAviation, which includes the operating results of Pipistrel, a manufacturer of electrically powered aircraft that we acquired on April 15, 2022, as discussed in Note 2, along with other research and development initiatives related to sustainable aviation solutions. Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses, gains/losses on major business dispositions and special charges. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.

Our revenues by segment, along with a reconciliation of segment profit to income from continuing operations before income taxes, are included in the table below:

			Three Months Ended						Six Months Ended
(In millions)			July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021
Revenues
Textron Aviation			$	1,284		$	1,161		$	2,324		$	2,026
Bell			687			891			1,521			1,737
Textron Systems			293			333			566			661
Industrial			871			794			1,709			1,619
Textron eAviation			5			—			5			—
Finance			14			12			30			27
Total revenues			$	3,154		$	3,191		$	6,155		$	6,070
Segment Profit
Textron Aviation			$	155		$	96		$	276		$	143
Bell			63			110			161			215
Textron Systems			42			48			75			99
Industrial			41			32			84			79
Textron eAviation			(8)			—			(8)			—
Finance			10			3			19			9
Segment profit			303			289			607			545
Corporate expenses and other, net			(12)			(37)			(56)			(77)
Interest expense, net for Manufacturing group			(28)			(32)			(56)			(67)
Special charges			—			(4)			—			(10)
Gain on business disposition			—			2			—			17
Income from continuing operations before income taxes			$	263		$	218		$	495		$	408

Note 10. Revenues

Disaggregation of Revenues

Our revenues disaggregated by major product type are presented below:

			Three Months Ended						Six Months Ended
(In millions)			July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021
Aircraft			$	856		$	797		$	1,502		$	1,332
Aftermarket parts and services			428			364			822			694
Textron Aviation			1,284			1,161			2,324			2,026
Military aircraft and support programs			402			572			999			1,149
Commercial helicopters, parts and services			285			319			522			588
Bell			687			891			1,521			1,737
Textron Systems			293			333			566			661
Fuel systems and functional components			435			440			899			937
Specialized vehicles			436			354			810			682
Industrial			871			794			1,709			1,619
Textron eAviation			5			—			5			—
Finance			14			12			30			27
Total revenues			$	3,154		$	3,191		$	6,155		$	6,070

Our revenues for our segments by customer type and geographic location are presented below:

(In millions)			Textron Aviation			Bell			Textron Systems			Industrial			Textron eAviation			Finance			Total
Three months ended July 2, 2022
Customer type:
Commercial			$	1,253		$	279		$	19		$	862		$	5		$	14		$	2,432
U.S. Government			31			408			274			9			—			—			722
Total revenues			$	1,284		$	687		$	293		$	871		$	5		$	14		$	3,154
Geographic location:
United States			$	776		$	504		$	268		$	466		$	1		$	5		$	2,020
Europe			239			43			10			185			3			—			480
Other international			269			140			15			220			1			9			654
Total revenues			$	1,284		$	687		$	293		$	871		$	5		$	14		$	3,154
Three months ended July 3, 2021
Customer type:
Commercial			$	1,127		$	350		$	67		$	787		$	—		$	12		$	2,343
U.S. Government			34			541			266			7			—			—			848
Total revenues			$	1,161		$	891		$	333		$	794		$	—		$	12		$	3,191
Geographic location:
United States			$	885		$	677		$	297		$	406		$	—		$	6		$	2,271
Europe			122			47			9			192			—			1			371
Other international			154			167			27			196			—			5			549
Total revenues			$	1,161		$	891		$	333		$	794		$	—		$	12		$	3,191
Six months ended July 2, 2022
Customer type:
Commercial			$	2,274		$	513		$	38		$	1,697		$	5		$	30		$	4,557
U.S. Government			50			1,008			528			12			—			—			1,598
Total revenues			$	2,324		$	1,521		$	566		$	1,709		$	5		$	30		$	6,155
Geographic location:
United States			$	1,508		$	1,174		$	514		$	892		$	1		$	10		$	4,099
Europe			358			71			18			375			3			1			826
Other international			458			276			34			442			1			19			1,230
Total revenues			$	2,324		$	1,521		$	566		$	1,709		$	5		$	30		$	6,155
Six months ended July 3, 2021
Customer type:
Commercial			$	1,973		$	616		$	125		$	1,607		$	—		$	27		$	4,348
U.S. Government			53			1,121			536			12			—			—			1,722
Total revenues			$	2,026		$	1,737		$	661		$	1,619		$	—		$	27		$	6,070
Geographic location:
United States			$	1,494		$	1,293		$	586		$	784		$	—		$	14		$	4,171
Europe			206			83			19			428			—			1			737
Other international			326			361			56			407			—			12			1,162
Total revenues			$	2,026		$	1,737		$	661		$	1,619		$	—		$	27		$	6,070

Remaining Performance Obligations

Our remaining performance obligations, which is the equivalent of our backlog, represent the expected transaction price allocated to our contracts that we expect to recognize as revenues in future periods when we perform under the contracts. These remaining obligations exclude unexercised contract options and potential orders under ordering-type contracts such as Indefinite Delivery, Indefinite Quantity contracts. At July 2, 2022, we had $13.2 billion in remaining performance obligations of which we expect to recognize revenues of approximately 75% through 2023, an additional 21% through 2025, and the balance thereafter.

Contract Assets and Liabilities

Assets and liabilities related to our contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At July 2, 2022 and January 1, 2022, contract assets totaled $643 million and $717 million, respectively, and contract liabilities totaled $1.6 billion and $1.2 billion, respectively, reflecting timing differences between revenues recognized, billings and payments from customers. We recognized revenues of $293 million and $170 million in the second quarter of 2022 and 2021, respectively, and $499 million and $448 million in the first half of 2022 and 2021, respectively, that were included in the contract liability balance at the beginning of each year.

Note 11. Retirement Plans

We provide defined benefit pension plans and other postretirement benefits to eligible employees. The components of net periodic benefit (income) cost for these plans are as follows:

			Three Months Ended						Six Months Ended
(In millions)			July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021
Pension Benefits
Service cost			$	27		$	29		$	54		$	58
Interest cost			68			63			136			126
Expected return on plan assets			(153)			(144)			(306)			(288)
Amortization of net actuarial loss			22			38			44			77
Amortization of prior service cost			3			3			6			6
Net periodic benefit income*			$	(33)		$	(11)		$	(66)		$	(21)
Postretirement Benefits Other Than Pensions
Service cost			$	—		$	—		$	1		$	1
Interest cost			2			2			3			3
Amortization of net actuarial gain			(1)			—			(2)			(1)
Amortization of prior service credit			(1)			(1)			(2)			(2)
Net periodic benefit cost			$	—		$	1		$	—		$	1

** Excludes the cost associated with the defined contribution component, included in certain of our U.S.-based defined benefit pension plans, that totaled $3 million and $3 million in the second quarter of 2022 and 2021, respectively, and $7 million and $6 million for the first half of 2022 and 2021, respectively.*

Note 12. Special Charges

In the second quarter and first half of 2021, we recognized special charges of $4 million and $10 million, respectively, related to a restructuring plan initiated in 2020 in response to the economic challenges and uncertainty resulting from the COVID-19 pandemic. There were no special charges recorded in the second quarter and first half of 2022.

Our restructuring reserve activity is summarized below:

(In millions)			Severance Costs			Contract Terminations and Other			Total
Balance at January 1, 2022			$	19		$	9		$	28
Cash paid			(10)			(1)			(11)
Foreign currency translation			(1)			—			(1)
Balance at July 2, 2022			$	8		$	8		$	16

The majority of the remaining cash outlays of $16 million is expected to be paid in the next nine months.

Note 13. Income Taxes

Our effective tax rate for the second quarter and first half of 2022 was 17.1% and 17.0%, respectively. In the second quarter and first half of 2022, the effective tax rate was lower than the U.S. federal statutory rate of 21%, largely due to the favorable impact of research and development credits.

Our effective tax rate for the second quarter and first half of 2021 was 15.6% and 13.0%, respectively. In the second quarter and first half of 2021, the effective tax rate was lower than the U.S. federal statutory rate of 21%, largely due to the favorable impact of research and development credits. In the first half of 2021, the effective tax rate also included a $12 million benefit recognized for additional research and development credits related to prior years.

Note 14. Commitments and Contingencies

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