Textron 10-Q 2023-07-01

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

For the quarterly period ended July 1, 2023

OR

For the transition period from ______ to ______.

Commission File Number 1-5480

Textron Inc.

(Exact name of registrant as specified in its charter)

(401) 421-2800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of July 14, 2023, there were 198,070,588 shares of common stock outstanding.

TEXTRON INC.

Index to Form 10-Q

For the Quarterly Period Ended July 1, 2023

PART I. FINANCIAL INFORMATION

TEXTRON INC.

Consolidated Statements of Operations (Unaudited)

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Statements of Comprehensive Income (Unaudited)

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Balance Sheets (Unaudited)

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited)

For the Six Months Ended July 1, 2023 and July 2, 2022, respectively

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Consolidated Results of Operations

An analysis of our consolidated operating results is set forth below. A more detailed analysis of our segments’ operating results is provided in the Segment Analysis section on pages 20 to 25.

Revenues

Revenues increased $270 million, 9%, in the second quarter of 2023, compared with the second quarter of 2022. The revenue increase primarily included the following factors:

• Higher Industrial revenues of $155 million, largely due to higher volume and mix of $121 million at both product lines and a $37 million favorable impact from pricing.

• Higher Textron Aviation revenues of $78 million, reflecting higher pricing of $95 million, partially offset by lower volume and mix of $17 million.

• Higher Bell revenues of $14 million, largely due to higher pricing of $21 million.

• Higher Textron Systems revenues of $13 million, largely reflecting higher volume.

Revenues increased $293 million, 5%, in the first half of 2023, compared with the first half of 2022. The revenue increase primarily included the following factors:

• Higher Industrial revenues of $249 million, reflecting higher volume and mix of $209 million at both product lines and a $61 million favorable impact from pricing, partially offset by an unfavorable impact of $21 million from foreign exchange rate fluctuations.

• Higher Textron Aviation revenues of $187 million, reflecting higher pricing of $153 million and higher volume and mix of $34 million.

• Higher Textron Systems revenues of $46 million, largely reflecting higher volume.

• Lower Bell revenues of $199 million, largely due to lower military spares and support and H-1 production volume.

Cost of Sales and Selling and Administrative Expense

Cost of sales increased $205 million, 8%, in the second quarter of 2023, compared with the second quarter of 2022, largely due to higher net volume and mix described above and $90 million of inflation and LIFO inventory provision. Cost of sales increased $244 million, 5%, in the first half of 2023, compared with the first half of 2022, largely due to $167 million of inflation and LIFO inventory provision and the impact of higher net volume and mix described above.

Selling and administrative expense increased $10 million, 4%, and $10 million, 2%, in the second quarter and first half of 2023, respectively, compared with the corresponding periods in 2022, primarily reflecting higher share-based compensation expense.

Interest Expense, Net

Interest expense, net includes interest expense for both the Finance and Manufacturing borrowing groups, with interest on intercompany borrowings eliminated, and interest income earned on cash and equivalents. In the second quarter and first half of 2023, interest expense, net decreased $12 million, 39%, and $24 million, 38%, respectively, compared with the corresponding periods in 2022, largely due to an increase in interest income of $11 million and $22 million, respectively.

Income Taxes

Our effective tax rate for the second quarter and first half of 2023 was 20.1% and 18.3%, respectively. In the first half of 2023, 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 and tax deductions for foreign-derived intangible income, partially offset by $7 million in withholding taxes due to the repatriation of cash related to a non-US jurisdiction.

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.

Backlog

Our backlog is summarized below:

Backlog at Bell increased $786 million, 16%, largely due to contracts under the Future Long Range Assault Aircraft (FLRAA) program discussed on page 22. Textron Aviation's backlog increased $451 million, 7%, in the first half of 2023, reflecting orders in excess of deliveries.

Segment Analysis

We operate in, and report financial information for, the following six business segments: Textron Aviation, Bell, Textron Systems, Industrial, Textron eAviation and Finance. Segment profit is an important measure used for evaluating performance and for decision-making purposes. Beginning in 2023, we changed how we measure our manufacturing segment operating results to exclude the non-service components of pension and postretirement income, net; LIFO inventory provision; and intangible asset amortization. This measure also continues to exclude interest expense, net for Manufacturing group; certain corporate expenses; gains/losses on major business dispositions; and special charges. The prior period has been recast to conform to this presentation. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense. Operating expenses for the Manufacturing segments include cost of sales and selling and administrative expense, while excluding certain corporate expenses, LIFO inventory provision, intangible asset amortization and special charges.

In our discussion of comparative results for the Manufacturing group, changes in revenues and segment profit for our commercial businesses typically are expressed in terms of volume and mix, pricing, foreign exchange, acquisitions and dispositions, inflation and performance. For revenues, volume and mix represents changes in revenues from increases or decreases in the number of units delivered or services provided and the composition of products and/or services sold. For segment profit, volume and mix represents a change due to the number of units delivered or services provided and the composition of products and/or services sold at different profit margins. Pricing represents changes in unit pricing. Foreign exchange is the change resulting from translating foreign-denominated amounts into U.S. dollars at exchange rates that are different from the prior period. Revenues generated by acquired businesses are reflected in Acquisitions for a twelve-month period, while reductions in revenues and segment profit from the sale of businesses are reflected as Dispositions. Inflation represents higher material, wages, benefits, pension 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, product line profitability, start-up, ramp up and cost-reduction initiatives or other manufacturing inputs.

Approximately 22% of our 2022 revenues were derived from contracts with the U.S. Government, including those under the U.S. Government-sponsored foreign military sales program. For our segments that contract with the U.S. Government, changes in revenues related to these contracts are expressed in terms of volume. Changes in segment profit for these contracts are typically expressed in terms of volume and mix and performance; these include cumulative catch-up adjustments associated with a) revisions to the transaction price that may reflect contract modifications or changes in assumptions related to award fees and other variable consideration or b) changes in the total estimated costs at completion due to improved or deteriorated operating performance.

Textron Aviation

Textron Aviation Revenues and Operating Expenses

The following factors contributed to the change in Textron Aviation’s revenues for the periods:

Textron Aviation’s revenues increased $78 million, 6%, in the second quarter of 2023, compared with the second quarter of 2022, reflecting higher pricing of $95 million, partially offset by lower volume and mix of $17 million. The decrease in volume and mix includes lower Citation jet volume, partially offset by higher defense volume. We delivered 44 Citation jets and 37 commercial turboprops in the second quarter of 2023, compared with 48 Citation jets and 35 commercial turboprops in the second quarter of 2022.

Textron Aviation’s revenues increased $187 million, 8%, in the first half of 2023, compared with the first half of 2022, reflecting higher pricing of $153 million and higher volume and mix of $34 million. The increase in volume and mix includes higher defense volume, partially offset by lower Citation jet volume. We delivered 79 Citation jets and 71 commercial turboprops in the first half of 2023, compared with 87 Citation jets and 66 commercial turboprops in the first half of 2022.

Textron Aviation’s operating expenses increased $56 million, 5%, and $150 million, 7%, in the second quarter and first half of 2023, respectively, compared with the corresponding periods of 2022, largely reflecting inflation of $43 million and $84 million, respectively.

Textron Aviation Segment Profit

The following factors contributed to the change in Textron Aviation’s segment profit for the periods:

Segment profit at Textron Aviation increased $22 million, 15%, in the second quarter of 2023, compared with the second quarter of 2022, largely due to favorable pricing, net of inflation of $52 million, partially offset by an unfavorable impact from performance of $23 million. Performance included unfavorable manufacturing performance, largely related to supply chain and labor inefficiencies.

Segment profit at Textron Aviation increased $37 million, 14%, in the first half of 2023, compared with the first half of 2022, largely due to favorable pricing, net of inflation of $69 million, partially offset by an unfavorable impact from performance of $40 million. Performance included unfavorable manufacturing performance, largely related to supply chain and labor inefficiencies.

Bell

A significant portion of Bell’s military aircraft and support program revenues is from the U.S. Government for the V-22 tiltrotor aircraft and the H-1 helicopter platforms, which are transitioning from production to the support stage over the next few years. Under the current contracts, production is expected to end in 2023 for the H-1 helicopter and 2025 for the V-22 tiltrotor. In December 2022, Bell was awarded the development contract for the U.S. Army's FLRAA program. The award was protested by a competitor, but, on April 6, 2023, the Government Accountability Office denied the protest. The U.S. Army has cancelled the stop-work order, and work on the contract is proceeding.

Bell Revenues and Operating Expenses

The following factors contributed to the change in Bell’s revenues for the periods:

Bell’s revenues increased $14 million, 2%, in the second quarter of 2023, compared with the second quarter of 2022, due to higher pricing of $21 million, partially offset by lower military volume of $7 million. We delivered 35 commercial helicopters in the second quarter of 2023, compared with 34 commercial helicopters in the second quarter of 2022.

Bell’s revenues decreased $199 million, 13%, in the first half of 2023, compared with the first half of 2022, largely due to lower military spares and support and H-1 production volume. We delivered 57 commercial helicopters in the first half of 2023, compared with 59 commercial helicopters in the first half of 2022.

Bell’s operating expenses increased $3 million in the second quarter of 2023, and decreased $179 million, 13% in the first half of 2023, compared with the corresponding periods of 2022. The decrease in the first half of 2023 was primarily due to lower volume and mix described above.

Bell Segment Profit

The following factors contributed to the change in Bell’s segment profit for the periods:

Bell’s segment profit increased $11 million, 20%, in the second quarter of 2023, compared with the second quarter of 2022, due to a favorable impact from performance of $13 million, which includes $14 million of lower research and development costs; and a favorable impact from pricing, net of inflation of $9 million; partially offset by lower volume and mix.

Bell’s segment profit decreased $20 million, 14%, in the first half of 2023, compared with the first half of 2022, largely due to lower volume and mix described above, partially offset by a favorable impact from performance of $42 million, which includes $32 million of lower research and development costs.

Textron Systems

Textron Systems Revenues and Operating Expenses

The following factors contributed to the change in Textron Systems’ revenues for the periods:

Textron Systems' revenues increased $13 million, 4%, and $46 million, 8%, in the second quarter and first half of 2023, respectively, compared with the corresponding periods in 2022, largely reflecting higher volume.

Textron Systems’ operating expenses increased $14 million, 5%, and $41 million, 8%, in the second quarter and first half of 2023, respectively, compared with the corresponding periods in 2022, largely related to higher volume.

Textron Systems Segment Profit

The following factors contributed to the change in Textron Systems’ segment profit for the periods:

Textron Systems’ segment profit decreased $1 million, 3%, and increased $5 million, 8% in the second quarter and first half of 2023, respectively, compared with the corresponding periods of 2022. The increase in profit in the first half of 2023, was primarily due to a favorable impact from performance of $9 million, partially offset by an unfavorable impact from the mix of products and services sold.

Industrial

Industrial Revenues and Operating Expenses

The following factors contributed to the change in Industrial’s revenues for the periods:

Industrial segment revenues increased $155 million, 18%, in the second quarter of 2023, compared with the second quarter of 2022, largely due to higher volume and mix of $121 million at both product lines and a $37 million favorable impact from pricing.

Industrial segment revenues increased $249 million, 15%, in the first half of 2023, compared with the first half of 2022, reflecting higher volume and mix of $209 million at both product lines, and a $61 million favorable impact from pricing, partially offset by an unfavorable impact of $21 million from foreign exchange rate fluctuations, primarily related to the Chinese Yuan.

Industrial's operating expenses increased $113 million, 14%, and $205 million, 13%, in the second quarter and first half of 2023, respectively, compared with the corresponding periods in 2022, principally reflecting the impact of higher volume and mix described above.

Industrial Segment Profit

The following factors contributed to the change in Industrial’s segment profit for the periods:

Segment profit for the Industrial segment increased $42 million, 114%, in the second quarter of 2023, compared with the second quarter of 2022, largely due to higher volume and mix of $32 million as described above and a favorable impact from pricing, net of inflation of $17 million, principally in the Fuel systems and functional components product line, partially offset by an unfavorable impact of $10 million from performance.

Segment profit for the Industrial segment increased $44 million, 58%, in the first half of 2023, compared with the first half of 2022, largely due to higher volume and mix of $40 million as described above and a favorable impact from pricing, net of inflation of $25 million, partially offset by an unfavorable impact of $22 million from performance.

Textron eAviation

Textron eAviation Revenues and Operating Expenses

The following factors contributed to the change in Textron eAviation’s revenues for the periods:

Textron eAviation segment revenues increased $6 million and $10 million in the second quarter and first half of 2023, respectively, compared with the corresponding periods in 2022, primarily reflecting higher volume and mix.

Textron eAviation's operating expenses increased $11 million and $24 million in the second quarter and first half of 2023, respectively, compared with the corresponding periods in 2022, largely related to higher research and development costs.

Textron eAviation Segment Loss

The following factors contributed to the change in Textron eAviation’s segment loss for the periods:

Textron eAviation's segment loss increased $5 million and $14 million in the second quarter and first half of 2023, respectively, compared with the corresponding periods in 2022, primarily due to an unfavorable impact from performance and other, reflecting higher research and development costs.

Finance

Finance segment revenues increased $4 million in the second quarter of 2023, and were unchanged in the first half of 2023, compared with the corresponding periods in 2022. Segment profit increased $2 million and $1 million, in the second quarter and the first half of 2023, respectively, compared with the corresponding periods in 2022. The following table reflects information about the Finance segment’s credit performance related to finance receivables.

We believe our allowance for credit losses adequately covers our exposure on these loans as our estimated collateral values largely exceed the outstanding loan amounts. Key portfolio quality indicators are discussed in Note 2 to the Consolidated Financial Statements.

Liquidity and Capital Resources

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, Industrial and Textron eAviation segments. 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.

Key information that is utilized in assessing our liquidity is summarized below:

We believe that our calculations of debt to capital and net debt to capital are useful measures as they provide a summary indication of the level of debt financing (i.e., leverage) that is in place to support our capital structure, as well as to provide an indication of the capacity to add further leverage. We expect to have sufficient cash to meet our needs based on our existing cash balances, the cash we expect to generate from our manufacturing operations and the availability of our existing credit facility.

Credit Facilities and Other Sources of Capital

Textron has a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 billion, of which $100 million is available for the issuance of letters of credit. We may elect to increase the aggregate amount of commitments under the facility to up to $1.3 billion by designating an additional lender or by an existing lender agreeing to increase its commitment. The facility expires in October 2027 and provides for two one-year extensions at our option with the consent of lenders representing a majority of the commitments under the facility. At July 1, 2023 and December 31, 2022, there were no amounts borrowed against the facility and there were $9 million of outstanding letters of credit issued under the facility.

We also maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to issue an unlimited amount of public debt and other securities.

Manufacturing Group Cash Flows

Cash flows for the Manufacturing group as presented in our Consolidated Statements of Cash Flows are summarized below:

In the first half of 2023, cash flows from operating activities decreased $122 million to $467 million, compared with $589 million in the first half of 2022, largely due to changes in working capital.

Cash flows used in investing activities in the first half of 2023 included $145 million of capital expenditures, partially offset by $38 million of net proceeds from corporate-owned life insurance policies. Investing activities in the first half of 2022 included $198 million of net cash paid for business acquisitions, largely related to the Pipistrel acquisition and $114 million of capital expenditures.

Cash flows used in financing activities in the first half of 2023 included $650 million of cash paid to repurchase an aggregate of 9.4 million shares of our common stock. In the first half of 2022, cash flows used in financing activities included $439 million of cash paid to repurchase an aggregate of 6.6 million shares of our common stock.

On July 24, 2023, Textron's Board of Directors approved a new authorization for the repurchase of up to 35 million shares of our common stock. This share repurchase program allows us to continue our practice of repurchasing shares to offset the impact of dilution from stock-based compensation and benefit plans and for opportunistic capital management purposes. The new program has no expiration date and replaced the prior share repurchase authorization.

Finance Group Cash Flows

Cash flows for the Finance group as presented in our Consolidated Statements of Cash Flows are summarized below:

The Finance group’s cash flows from investing activities included collections on finance receivables totaling $67 million and $79 million in the first half of 2023 and 2022, respectively, partially offset by finance receivable originations of $63 million and $23 million, respectively. Cash flows provided by investing activities in the first half of 2022 also included $44 million of other investing activities, largely related to proceeds from the sale of operating lease assets. In the first half of 2023 and 2022, financing activities included payments on long-term and nonrecourse debt of $31 million and $209 million, respectively.

Consolidated Cash Flows

The consolidated cash flows after elimination of activity between the borrowing groups, are summarized below:

In the first half of 2023, cash flows from operating activities decreased $155 million to $460 million, compared with $615 million in the first half of 2022, largely due to changes in working capital and a net cash outflow from captive finance receivables of $50 million.

Cash flows used in investing activities in the first half of 2023 included $145 million of capital expenditures, partially offset by $38 million of net proceeds from corporate-owned life insurance policies. Investing activities in the first half of 2022 included $198 million of net cash paid for business acquisitions, largely related to the Pipistrel acquisition and $114 million of capital expenditures, partially offset by $44 million of other investing activities, largely related to proceeds from the sale of operating lease assets.

Cash flows used in financing activities in the first half of 2023 included $650 million of cash paid to repurchase shares of our outstanding common stock. In the first half of 2022, cash flows used in financing activities included $439 million of cash paid to repurchase shares of our outstanding common stock and $223 million of payments on long-term debt.

Captive Financing and Other Intercompany Transactions

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

Reclassification adjustments included in the Consolidated Statements of Cash Flows are summarized below:

Critical Accounting Estimates Update

Our Consolidated Financial Statements are prepared in conformity with U.S. generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements. The accounting estimates that we believe are most critical to the portrayal of our financial condition and results of operations are reported in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022. The following section provides an update of the year-end disclosure.

Revenue Recognition

A substantial portion of our revenues is related to long-term contracts with the U.S. Government, including those under the U.S. Government-sponsored foreign military sales program, for the design, development, manufacture or modification of aerospace and defense products as well as related services. We generally use the cost-to-cost method to measure progress for these contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts. Under this measure, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion of the performance obligation, and revenue is recorded proportionally as costs are incurred.

Changes in our estimate of the total expected cost or in the transaction price for a contract typically impact our profit booking rate. We utilize the cumulative catch-up method of accounting to recognize the impact of these changes on our profit booking rate for a contract. Under this method, the inception-to-date impact of a profit adjustment on a contract is recognized in the period the adjustment is identified. The impact of our cumulative catch-up adjustments on segment profit recognized in prior periods is presented below:

Forward-Looking Information

Certain statements in this Quarterly Report on Form 10-Q and other oral and written statements made by us from time to time are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which may describe strategies, goals, outlook or other non-historical matters, or project revenues, income, returns or other financial measures, often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “guidance,” “project,” “target,” “potential,” “will,” “should,” “could,” “likely” or “may” and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update or revise any forward-looking statements. In addition to those factors described in our 2022 Annual Report on Form 10-K under “Risk Factors,” among the factors that could cause actual results to differ materially from past and projected future results are the following:

• Interruptions in the U.S. Government’s ability to fund its activities and/or pay its obligations;

• Changing priorities or reductions in the U.S. Government defense budget, including those related to military operations in foreign countries;

• Our ability to perform as anticipated and to control costs under contracts with the U.S. Government;

• The U.S. Government’s ability to unilaterally modify or terminate its contracts with us for the U.S. Government’s convenience or for our failure to perform, to change applicable procurement and accounting policies, or, under certain circumstances, to withhold payment or suspend or debar us as a contractor eligible to receive future contract awards;

• Changes in foreign military funding priorities or budget constraints and determinations, or changes in government regulations or policies on the export and import of military and commercial products;

• Volatility in the global economy or changes in worldwide political conditions that adversely impact demand for our products;

• Volatility in interest rates or foreign exchange rates and inflationary pressures;

• Risks related to our international business, including establishing and maintaining facilities in locations around the world and relying on joint venture partners, subcontractors, suppliers, representatives, consultants and other business partners in connection with international business, including in emerging market countries;

• Our Finance segment’s ability to maintain portfolio credit quality or to realize full value of receivables;

• Performance issues with key suppliers or subcontractors;

• Legislative or regulatory actions, both domestic and foreign, impacting our operations or demand for our products;

• Our ability to control costs and successfully implement various cost-reduction activities;

• The efficacy of research and development investments to develop new products or unanticipated expenses in connection with the launching of significant new products or programs;

• The timing of our new product launches or certifications of our new aircraft products;

• Our ability to keep pace with our competitors in the introduction of new products and upgrades with features and technologies desired by our customers;

• Pension plan assumptions and future contributions;

• Demand softness or volatility in the markets in which we do business;

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

• Difficulty or unanticipated expenses in connection with integrating acquired businesses;

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

• The impact of changes in tax legislation;

• Risks and uncertainties related to the ongoing impact of the COVID-19 pandemic and the war between Russia and Ukraine on our business and operations; and

• The ability of our businesses to hire and retain the highly skilled personnel necessary for our businesses to succeed.

There has been no significant change in our exposure to market risk during the fiscal quarter ended July 1, 2023. For discussion of our exposure to market risk, refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk contained in Textron’s 2022 Annual Report on Form 10-K.

We performed an evaluation of the effectiveness of our disclosure controls and procedures as of July 1, 2023. The evaluation was performed with the participation of senior management of each business segment and key Corporate functions, under the supervision of our Chairman, President and Chief Executive Officer (CEO) and our Executive Vice President and Chief Financial Officer (CFO). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were operating and effective as of July 1, 2023.

There were no changes in our internal control over financial reporting during the fiscal quarter ended July 1, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following provides information about our second quarter of 2023 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 share repurchase program to repurchase up to 25 million shares of Textron common stock that was authorized on January 25,2022, which had no expiration date.*

On July 24, 2023, Textron's Board of Directors approved a new authorization for the repurchase of up to 35 million shares of our common stock. This share repurchase program has no expiration date and replaced the prior share repurchase authorization that had 2.3 million remaining shares available for repurchase.

Item 5. Other Information

(d) In light of the results of the vote at Textron Inc.’s Annual Meeting of Shareholders, held on April 26, 2023, on the frequency of future advisory votes on executive compensation, and consistent with the Board’s recommendation on this matter, the Company has determined to include an advisory vote on the compensation of its named executive officers annually until the next required vote on the frequency of future advisory votes on executive compensation.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.