Item 1. Financial Statements

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Item 1. Financial Statements

TEXTRON INC.

Consolidated Statements of Operations (Unaudited)

Three Months EndedSix Months Ended
(In millions, except per share amounts)July 4, 2026June 28, 2025July 4, 2026June 28, 2025
Revenues
Manufacturing product revenues$3,321$3,197$6,478$5,968
Manufacturing service revenues4925041,0141,023
Finance revenues14153031
Total revenues3,8273,7167,5227,022
Costs, expenses and other
Cost of products sold2,7592,6305,3834,907
Cost of services sold374377773772
Research and development costs116137236269
Selling and administrative expense311303632601
Interest expense, net33316760
Special charges—4—4
Non-service components of pension and postretirement income, net(70)(67)(140)(133)
Total costs, expenses and other3,5233,4156,9516,480
Income before income taxes304301571542
Income tax expense565610390
Net income$248$245$468$452
Earnings per share
Basic$1.43$1.36$2.69$2.49
Diluted$1.42$1.35$2.67$2.48

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Statements of Comprehensive Income (Unaudited)

Three Months EndedSix Months Ended
(In millions)July 4, 2026June 28, 2025July 4, 2026June 28, 2025
Net income$248$245$468$452
Other comprehensive income (loss), net of tax
Pension and postretirement benefits adjustments, net of reclassifications1—2—
Foreign currency translation adjustments, net of reclassifications(15)91(30)131
Deferred gains (losses) on hedge contracts, net of reclassifications(2)5(6)4
Total other comprehensive income (loss), net of tax(16)96(34)135
Comprehensive income$232$341$434$587

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Balance Sheets (Unaudited)

(Dollars in millions)July 4, 2026January 3, 2026
Assets
Manufacturing group
Cash and equivalents$1,436$1,940
Accounts receivable, net916823
Inventories4,7204,278
Other current assets909872
Total current assets7,9817,913
Property, plant and equipment, less accumulated depreciation and amortization of $5,890 and $5,784, respectively2,5702,590
Goodwill2,3122,321
Other assets4,5724,628
Total Manufacturing group assets17,43517,452
Finance group
Cash and equivalents17085
Finance receivables, net524574
Other assets518
Total Finance group assets699677
Total assets$18,134$18,129
Liabilities and shareholders’ equity
Liabilities
Manufacturing group
Current portion of long-term debt$355$5
Accounts payable1,2151,185
Other current liabilities3,0923,163
Total current liabilities4,6624,353
Other liabilities1,9181,980
Long-term debt3,1113,534
Total Manufacturing group liabilities9,6919,867
Finance group
Other liabilities5048
Debt339339
Total Finance group liabilities389387
Total liabilities10,08010,254
Shareholders’ equity
Common stock2222
Capital surplus2,1261,995
Treasury stock(434)(55)
Retained earnings6,2455,784
Accumulated other comprehensive income95129
Total shareholders’ equity8,0547,875
Total liabilities and shareholders’ equity$18,134$18,129
Common shares outstanding (in thousands)171,937174,310

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited)

For the Six Months Ended July 4, 2026 and June 28, 2025, respectively

Consolidated
(In millions)20262025
Cash flows from operating activities
Net income$468$452
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash items:
Depreciation and amortization190192
Deferred income taxes82(22)
Gain on business disposition—(4)
Other, net6973
Changes in assets and liabilities:
Accounts receivable, net(96)54
Inventories(446)(284)
Other assets(29)(70)
Accounts payable93163
Other liabilities(88)(200)
Income taxes, net2046
Pension, net(121)(117)
Captive finance receivables, net46(26)
Other operating activities, net(1)7
Net cash provided by operating activities of continuing operations187264
Net cash used in operating activities of discontinued operations—(1)
Net cash provided by operating activities187263
Cash flows from investing activities
Capital expenditures(228)(134)
Net proceeds from corporate-owned life insurance policies357
Net proceeds from business disposition—16
Proceeds from sale of property, plant and equipment69
Finance receivables repaid1317
Finance receivables originated(15)(21)
Proceeds from the disposition of non-captive assets2459
Other investing activities, net414
Net cash provided by (used in) investing activities(193)17
Cash flows from financing activities
Net proceeds from long-term debt—495
Principal payments on long-term debt and nonrecourse debt(75)(364)
Purchases of Textron common stock(377)(429)
Proceeds from stock options exercised6110
Dividends paid(7)(7)
Other financing activities, net(11)(15)
Net cash used in financing activities(409)(310)
Effect of exchange rate changes on cash and equivalents(4)23
Net decrease in cash and equivalents(419)(7)
Cash and equivalents at beginning of period2,0251,441
Cash and equivalents at end of period$1,606$1,434

See Notes to the Consolidated Financial Statements.

TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited) (Continued)

For the Six Months Ended July 4, 2026 and June 28, 2025, respectively

Manufacturing GroupFinance Group
(In millions)2026202520262025
Cash flows from operating activities
Net income$450$435$18$17
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash items:
Depreciation and amortization190192——
Deferred income taxes88(3)(6)(19)
Gain on business disposition—(4)——
Other, net7673(7)—
Changes in assets and liabilities:
Accounts receivable, net(96)54——
Inventories(446)(284)——
Other assets(29)(69)—(1)
Accounts payable93163——
Other liabilities(85)(195)(3)(5)
Income taxes, net9291117
Pension, net(121)(117)——
Other operating activities, net(1)7——
Net cash provided by operating activities of continuing operations128281139
Net cash used in operating activities of discontinued operations—(1)——
Net cash provided by operating activities128280139
Cash flows from investing activities
Capital expenditures(228)(134)——
Net proceeds from corporate-owned life insurance policies357——
Net proceeds from business disposition—16——
Proceeds from sale of property, plant and equipment69——
Finance receivables repaid——11581
Finance receivables originated——(71)(111)
Proceeds from the disposition of non-captive assets——2459
Other investing activities, net—144—
Net cash provided by (used in) investing activities(219)(38)7229
Cash flows from financing activities
Net proceeds from long-term debt—495——
Principal payments on long-term debt and nonrecourse debt(75)(353)—(11)
Purchases of Textron common stock(377)(429)——
Proceeds from stock options exercised6110——
Dividends paid(7)(7)——
Other financing activities, net(11)(15)——
Net cash used in financing activities(409)(299)—(11)
Effect of exchange rate changes on cash and equivalents(4)23——
Net increase (decrease) in cash and equivalents(504)(34)8527
Cash and equivalents at beginning of period1,9401,3868555
Cash and equivalents at end of period$1,436$1,352$170$82

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 3, 2026. 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. 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.

Our cumulative catch-up adjustments had no impact on segment profit and net income in the second quarter of 2026. In the second quarter of 2025, our cumulative catch-up adjustments increased segment profit by $8 million and net income by $6 million ($0.03 per diluted share). In the first half of 2026 and 2025, our cumulative catch-up adjustments increased segment profit by $10 million and $25 million, respectively, and net income by $8 million and $19 million, respectively ($0.04 and $0.10 per diluted share, respectively).

Note 2. Accounts Receivable and Finance Receivables

Accounts Receivable

Accounts receivable is composed of the following:

(In millions)July 4, 2026January 3, 2026
Commercial$762$690
U.S. Government contracts166149
928839
Allowance for credit losses(12)(16)
Total accounts receivable, net$916$823

Finance Receivables

Finance receivables are presented in the following table:

(In millions)July 4, 2026January 3, 2026
Finance receivables$542$593
Allowance for credit losses(18)(19)
Total finance receivables, net$524$574

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 4, 2026January 3, 2026
Performing$512$578
Watchlist2513
Nonaccrual52
Nonaccrual as a percentage of finance receivables0.92%0.34%
Current and less than 31 days past due$520$584
31-60 days past due159
61-90 days past due7—
Over 90 days past due——
60+ days contractual delinquency as a percentage of finance receivables1.29%—%

At July 4, 2026, 58% of our performing finance receivables were originated since the beginning of 2024 and 21% were originated from 2021 to 2023 with the remainder prior to 2021. For finance receivables categorized as watchlist, 39% were originated since the beginning of 2024 and 43% from 2021 to 2023 with the remainder prior to 2021. For finance receivables categorized as nonaccrual, 100% were originated from 2025 to 2026.

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. Our impaired finance receivables were not significant at July 4, 2026 and January 3, 2026.

Note 3. Inventories

Inventories are composed of the following:

(In millions)July 4, 2026January 3, 2026
Finished goods$1,272$1,104
Work in process2,2692,065
Raw materials and components1,1791,109
Total inventories$4,720$4,278

Note 4. Accounts Payable and Warranty Liability

Accounts Payable

Supplier Financing Arrangement

We have a financing arrangement with one of our suppliers for a maximum amount of $200 million that extends payment terms for up to 190 days from the receipt of goods and provides for the supplier to be paid by a financial institution earlier than maturity. This financing arrangement expires in April 2027. At July 4, 2026 and January 3, 2026, the amount due under the supplier financing arrangement was $119 million and $108 million, respectively.

Warranty Liability

Changes in our current and non-current warranty liability are as follows:

Six Months Ended
(In millions)July 4, 2026June 28, 2025
Beginning of period$183$173
Provision4038
Changes to estimates1824
Settlements(49)(45)
Other*1(9)
End of period$193$181

** Other includes business dispositions and currency translation adjustments.*

Note 5. Leases

We primarily lease certain manufacturing plants, offices, warehouses, training and service centers at various locations worldwide that are classified as either operating or finance leases. Our leases have remaining lease terms up to 25 years, which include options to extend the lease term for periods up to 20 years when it is reasonably certain the option will be exercised.

Operating lease cost totaled $20 million and $18 million in the second quarter of 2026 and 2025, respectively, and $39 million and $36 million in the first half of 2026 and 2025, respectively. Cash paid for operating leases approximated the lease cost and is classified in cash flows from operating activities. Noncash transactions related to operating leases totaled $35 million and $3 million in the first half of 2026 and 2025, respectively, reflecting new or modified leases and changes from the reassessment of lease options. Finance lease, variable and short-term lease costs were not significant.

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

(Dollars in millions)July 4, 2026January 3, 2026
Operating leases:
Other assets$394$390
Other current liabilities5658
Other liabilities350346
Weighted-average remaining lease term (in years)9.69.5
Weighted-average discount rate5.02%4.97%
Finance leases:
Property, plant and equipment, less accumulated amortization of $10 million and $14 million, respectively$24$95
Long-term debt, including current portion27100
Weighted-average remaining lease term (in years)15.75.9
Weighted-average discount rate6.44%6.63%

At July 4, 2026, maturities of our operating lease liabilities on an undiscounted basis totaled $37 million for the remainder of 2026, $69 million for 2027, $64 million for 2028, $59 million for 2029, $50 million for 2030 and $242 million thereafter. In the first quarter of 2026, we paid $72 million in connection with the termination of a finance lease resulting from our election to exercise an option to purchase the related manufacturing facility for the MV-75 program.

Note 6. 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 4, 2026 and January 3, 2026, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $574 million and $477 million, respectively. At July 4, 2026, the fair value amounts of our foreign currency exchange contracts were a $1 million asset and a $15 million liability. At January 3, 2026, the fair value amounts of our foreign currency exchange contracts were a $6 million asset and a $10 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. The fair value of our interest rate 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. The fair value of our outstanding interest rate swap agreements was a $4 million and a $1 million asset at July 4, 2026 and January 3, 2026, respectively.

At July 4, 2026 and January 3, 2026, our Finance group had interest rate swap agreements related to our Floating Rate Junior Subordinated Notes for an aggregate notional amount of $264 million that effectively converts the variable-rate interest for these Notes to a weighted-average fixed rate of 5.16%. These agreements have maturities ranging from August 2026 to August 2030.

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 4, 2026January 3, 2026
CarryingEstimatedCarryingEstimated
(In millions)ValueFair ValueValueFair Value
Manufacturing group
Debt, excluding leases$(3,457)$(3,365)$(3,459)$(3,406)
Finance group
Finance receivables, excluding leases468494493528
Debt(339)(316)(339)(312)

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 7. Shareholders’ Equity

A reconciliation of Shareholders’ equity is presented below:

(In millions)Common StockCapital SurplusTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Shareholders' Equity
Three months ended July 4, 2026
Beginning of period$22$2,091$(223)$6,001$111$8,002
Net income———248—248
Other comprehensive loss————(16)(16)
Share-based compensation activity—35———35
Dividends declared———(4)—(4)
Purchases of common stock, including excise tax*——(211)——(211)
End of period$22$2,126$(434)$6,245$95$8,054
Three months ended June 28, 2025
Beginning of period$23$2,005$(299)$5,811$(265)$7,275
Net income———245—245
Other comprehensive income————9696
Share-based compensation activity—36———36
Dividends declared———(4)—(4)
Purchases of common stock, including excise tax*——(215)——(215)
End of period$23$2,041$(514)$6,052$(169)$7,433
Six months ended July 4, 2026
Beginning of period$22$1,995$(55)$5,784$129$7,875
Net income———468—468
Other comprehensive loss————(34)(34)
Share-based compensation activity—131———131
Dividends declared———(7)—(7)
Purchases of common stock, including excise tax*——(379)——(379)
End of period$22$2,126$(434)$6,245$95$8,054
Six months ended June 28, 2025
Beginning of period$23$1,960$(82)$5,607$(304)$7,204
Net income———452—452
Other comprehensive income————135135
Share-based compensation activity—81———81
Dividends declared———(7)—(7)
Purchases of common stock, including excise tax*——(432)——(432)
End of period$23$2,041$(514)$6,052$(169)$7,433

** Includes amounts accrued for excise tax imposed on common share repurchases that totaled $2 million for both the second quarter and first half of 2026 and $1 million and $3 million for the second quarter and first half of 2025, respectively.*

Dividends per share of common stock were $0.02 for both the second quarter of 2026 and 2025 and $0.04 for both the first half of 2026 and 2025.

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 EndedSix Months Ended
(In thousands)July 4, 2026June 28, 2025July 4, 2026June 28, 2025
Basic weighted-average shares outstanding173,500179,958174,031181,168
Dilutive effect of stock options1,5061,1331,5601,211
Diluted weighted-average shares outstanding175,006181,091175,591182,379

In both the second quarter and first half of 2026, stock options to purchase 0.9 million shares of common stock were excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive. Stock options to purchase 2.9 million and 2.5 million shares of common stock were excluded from the calculation of diluted weighted-average shares outstanding for the second quarter and first half of 2025, respectively, as their effect would have been anti-dilutive.

Accumulated Other Comprehensive Income (Loss) and Other Comprehensive Income (Loss)

The components of Accumulated other comprehensive income (loss) are presented below:

(In millions)Pension and Postretirement Benefits AdjustmentsForeign Currency Translation AdjustmentsDeferred Gains (Losses) on Hedge ContractsAccumulated Other Comprehensive Income (Loss)
Balance at January 3, 2026$119$12$(2)$129
Other comprehensive loss before reclassifications—(30)(7)(37)
Reclassified from Accumulated other comprehensive income2—13
Balance at July 4, 2026$121$(18)$(8)$95
Balance at December 28, 2024$(179)$(120)$(5)$(304)
Other comprehensive income before reclassifications—1333136
Reclassified from Accumulated other comprehensive loss—(2)1(1)
Balance at June 28, 2025$(179)$11$(1)$(169)

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

July 4, 2026June 28, 2025
(In millions)Pre-Tax AmountTax (Expense) BenefitAfter-tax AmountPre-Tax AmountTax (Expense) BenefitAfter-tax Amount
Three Months Ended
Pension and postretirement benefits adjustments:
Amortization of net actuarial gain*$(2)$1$(1)$(2)$1$(1)
Amortization of prior service cost*3(1)22(1)1
Pension and postretirement benefits adjustments, net1—1———
Foreign currency translation adjustments:
Foreign currency translation adjustments(15)—(15)93—93
Business disposition———(2)—(2)
Foreign currency translation adjustments, net(15)—(15)91—91
Deferred gains (losses) on hedge contracts:
Current deferrals(2)1(1)8(3)5
Reclassification adjustments2(3)(1)———
Deferred gains (losses) on hedge contracts, net—(2)(2)8(3)5
Total$(14)$(2)$(16)$99$(3)$96
Six Months Ended
Pension and postretirement benefits adjustments:
Amortization of net actuarial gain*$(5)$2$(3)$(4)$1$(3)
Amortization of prior service cost*6(1)54(1)3
Pension and postretirement benefits adjustments, net112———
Foreign currency translation adjustments:
Foreign currency translation adjustments(30)—(30)133—133
Business disposition———(2)—(2)
Foreign currency translation adjustments, net(30)—(30)131—131
Deferred gains (losses) on hedge contracts:
Current deferrals(9)2(7)5(2)3
Reclassification adjustments5(4)12(1)1
Deferred gains (losses) on hedge contracts, net(4)(2)(6)7(3)4
Total$(33)$(1)$(34)$138$(3)$135

*These components of other comprehensive income (loss) are included in the computation of net periodic pension cost (income). See Note 14 of our 2025 Annual Report on Form 10-K for additional information.

Note 8. Segment Financial Information

We operate in, and report financial information for, the following five operating segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. Effective January 4, 2026, the beginning of our 2026 fiscal year, the business activities of the Textron eAviation segment were realigned within Textron's other operating segments resulting in the elimination of the Textron eAviation segment as a separate reporting segment. Under the segment realignment, a significant part of Textron eAviation, including Pipistrel, became part of the Textron Aviation segment to enable the business to more effectively leverage the development, manufacturing and sales expertise at Textron Aviation. In addition, Textron eAviation’s manned and unmanned products for military applications and related research and development activities are included in the results of the Textron Systems segment, which is best suited to provide more direct access to the targeted customer base for these products. Lastly, certain Textron eAviation research and development activities encompassing digital flight control and air vehicle management systems, which we expect will benefit several of our segments, are reported within corporate expenses. The prior period has been recast to reflect the segment realignment.

On April 30, 2026, Textron announced its intent to separate its Industrial segment from the Company. The Company intends to explore multiple paths to effect the planned separation of its Industrial segment, including but not limited to a sale of the Industrial businesses or a tax-free separation into a standalone, publicly traded company. The Company is targeting completion of the separation within 12 to 18 months from the original announcement, subject to the satisfaction of certain conditions customary for such a proposed separation, including receipt of any required regulatory approvals and final approval of the Company’s Board of Directors. There can be no assurance regarding the ultimate timing or structure of the proposed separation or that a transaction will be completed.

Segment profit for the manufacturing segments excludes the non-service components of pension and postretirement income, net; LIFO inventory provision; intangible asset amortization; interest expense, net for Manufacturing group; 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 and expenses by segment are provided below:

(In millions)Textron AviationBellTextron SystemsIndustrialFinanceTotal
Three months ended July 4, 2026
Revenues$1,544$1,074$347$848$14$3,827
Costs and expenses:
Cost of sales1,204917267697—3,085
Research and development costs58271019—114
Selling and administrative expense117552673—271
Interest expense, net————44
Segment profit$165$75$44$59$10$353
Three months ended June 28, 2025
Revenues$1,522$1,016$324$839$15$3,716
Costs and expenses:
Cost of sales1,178841244698—2,961
Research and development costs59381620—133
Selling and administrative expense1155724672265
Interest expense, net————55
Segment profit$170$80$40$54$8$352
Six months ended July 4, 2026
Revenues$3,029$2,144$685$1,634$30$7,522
Costs and expenses:
Cost of sales2,3571,8215251,358—6,061
Research and development costs114641935—232
Selling and administrative expense23911255142(1)547
Interest expense, net————99
Segment profit$319$147$86$99$22$673
Six months ended June 28, 2025
Revenues$2,738$1,999$623$1,631$31$7,022
Costs and expenses:
Cost of sales2,1111,6444651,376—5,596
Research and development costs119772634—256
Selling and administrative expense216108541374519
Interest expense, net————99
Segment profit$292$170$78$84$18$642

A reconciliation of segment profit to income before income taxes is presented below:

Three Months EndedSix Months Ended
(In millions)July 4, 2026June 28, 2025July 4, 2026June 28, 2025
Segment profit$353$352$673$642
Unallocated amounts:
Corporate expenses and other, net(42)(42)(89)(95)
Interest expense, net for Manufacturing group(29)(26)(58)(51)
LIFO inventory provision(41)(38)(80)(67)
Intangible asset amortization(7)(8)(15)(16)
Special charges—(4)—(4)
Non-service components of pension and postretirement income, net7067140133
Income before income taxes$304$301$571$542

Other information by segment is provided below:

Capital ExpendituresDepreciation and Amortization
Three Months EndedSix Months EndedThree Months EndedSix Months Ended
(In millions)July 4, 2026June 28, 2025July 4, 2026June 28, 2025July 4, 2026June 28, 2025July 4, 2026June 28, 2025
Textron Aviation$32$37$64$63$39$42$80$81
Bell30181023324284850
Textron Systems168221311122324
Industrial1615372518173534
Corporate1—3—2143
Total$95$78$228$134$94$100$190$192

Our assets by segment are summarized below:

(In millions)July 4, 2026January 3, 2026
Textron Aviation$5,214$5,103
Bell3,4453,132
Textron Systems2,2512,224
Industrial2,3862,305
Finance699677
Corporate4,1394,688
Total assets$18,134$18,129

Note 9. Revenues

Disaggregation of Revenues

Our revenues disaggregated by major product type are presented below:

Three Months EndedSix Months Ended
(In millions)July 4, 2026June 28, 2025July 4, 2026June 28, 2025
Aircraft$1,032$1,015$1,986$1,748
Aftermarket parts and services5125071,043990
Textron Aviation$1,544$1,522$3,029$2,738
Military aircraft and support programs6956481,4901,282
Commercial helicopters, parts and services379368654717
Bell$1,074$1,016$2,144$1,999
Textron Systems$347$324$685$623
Fuel systems and functional components500483986933
Specialized vehicles348356648698
Industrial$848$839$1,634$1,631
Finance$14$15$30$31
Total revenues$3,827$3,716$7,522$7,022

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

(In millions)Textron AviationBellTextron SystemsIndustrialFinanceTotal
Three months ended July 4, 2026
Customer type:
Commercial$1,461$372$81$848$14$2,776
U.S. Government83702266——1,051
Total revenues$1,544$1,074$347$848$14$3,827
Geographic location:
United States$1,136$815$306$427$3$2,687
Europe10529191801334
Other international3032302224110806
Total revenues$1,544$1,074$347$848$14$3,827
Three months ended June 28, 2025
Customer type:
Commercial$1,436$361$79$829$15$2,720
U.S. Government8665524510—996
Total revenues$1,522$1,016$324$839$15$3,716
Geographic location:
United States$1,083$820$293$454$5$2,655
Europe15412111661344
Other international285184202199717
Total revenues$1,522$1,016$324$839$15$3,716
Six months ended July 4, 2026
Customer type:
Commercial$2,852$647$158$1,629$30$5,316
U.S. Government1771,4975275—2,206
Total revenues$3,029$2,144$685$1,634$30$7,522
Geographic location:
United States$2,236$1,682$612$797$7$5,334
Europe25555333723718
Other international53840740465201,470
Total revenues$3,029$2,144$685$1,634$30$7,522
Six months ended June 28, 2025
Customer type:
Commercial$2,583$722$152$1,614$31$5,102
U.S. Government1551,27747117—1,920
Total revenues$2,738$1,999$623$1,631$31$7,022
Geographic location:
United States$1,995$1,502$565$862$9$4,933
Europe24368233301665
Other international50042935439211,424
Total revenues$2,738$1,999$623$1,631$31$7,022

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 4, 2026, we had $18.9 billion in remaining performance obligations of which we expect to recognize revenues of approximately 74% through 2027, an additional 20% through 2029, 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 4, 2026 and January 3, 2026, contract assets totaled $492 million and $451 million, respectively, and contract liabilities totaled $2.2 billion and $2.1 billion, respectively, reflecting timing differences between revenues recognized, billings and payments from customers. We recognized revenues of $373 million and $1.0 billion in the second quarter and first half of 2026, respectively, and $351 million and $691 million in the second quarter and first half of 2025, respectively, that were included in the contract liability balance at the beginning of each year.

Note 10. Retirement Plans

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

Three Months EndedSix Months Ended
(In millions)July 4, 2026June 28, 2025July 4, 2026June 28, 2025
Pension Benefits
Service cost$16$15$32$31
Interest cost9494188188
Expected return on plan assets(166)(162)(332)(324)
Amortization of net actuarial gain——(1)—
Amortization of prior service cost3365
Net periodic benefit income*$(53)$(50)$(107)$(100)
Postretirement Benefits Other Than Pensions
Service cost$—$1$—$1
Interest cost1133
Amortization of net actuarial gain(2)(2)(4)(4)
Amortization of prior service credit—(1)—(1)
Net periodic benefit income$(1)$(1)$(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 $1 million and $5 million for the second quarter and first half of 2026, respectively, and $2 million and $5 million for the second quarter and first half of 2025, respectively.*

Note 11. Income Taxes

Our effective tax rate was 18.4% and 18.0% for the second quarter and first half of 2026, respectively. The effective tax rate was lower than the U.S. federal statutory rate of 21%, primarily due to the favorable impact of research and development credits and tax deductions for foreign-derived deduction eligible income, which replaced foreign-derived intangible income beginning in 2026.

Our effective tax rate for the second quarter and first half of 2025 was 18.6% and 16.6%, respectively. The effective tax rate was lower than the U.S. federal statutory rate of 21%, primarily due to the favorable impact of research and development credits and tax deductions for foreign-derived intangible income.

Note 12. Commitments and Contingencies

We are subject to actual and threatened 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; disputes with suppliers, production partners or other third parties; product liability; patent and trademark infringement; employment disputes; and environmental, health and safety 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.

MV-75 Program

Funding

As previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended April 4, 2026, on April 28, 2026, Bell received a letter from the U.S. Army Contracting Command (the Contracting Command) stating that the U.S. Government is pursuing an Above Threshold Reprogramming (ATR) request for $350 million in additional funds for the MV-75 program for the U.S. Government’s fiscal year ending September 30, 2026. The letter advised that, if Bell continues working after currently available funds are exhausted or if the additional funding is not approved, Bell could be required to stop work, and the U.S. Army will have no authority to pay for such work.

On May 8, 2026, Bell received a letter from the Contracting Command stating that the U.S. Government does not plan to issue a Stop-Work Order. The letter reiterated that the U.S. Government is pursuing the ATR request for additional funding, which is subject to Congressional approval and is not guaranteed. It advised that, if Bell exhausts the currently allotted funds before an ATR is approved and obligated pursuant to a contract modification, Bell should stop work in accordance with Federal Acquisition

Regulations. The letter stated that the U.S. Government is not obligated to reimburse Bell for any costs incurred beyond the current obligated funding allotted in the contract and that any performance beyond the allotted funds is at Bell’s own risk. Accordingly, to mitigate the impact of the funding limitation, Bell initiated various spending reduction actions during the second quarter, some of which continued into the third quarter, including headcount reductions, furloughs and reduced supplier spending. We have appropriately included all costs and assumptions within our program contract estimates for the second quarter of 2026.

Subsequent to the end of our second quarter, in mid-July 2026, Bell exhausted substantially all currently available fiscal 2026 MV-75 program funds and, since then, has continued working on the MV-75 program at its own risk. Therefore, if the ATR is not approved and obligated pursuant to a contract modification, Bell will continue to incur costs in excess of fiscal 2026 program funding for which it may not be reimbursed by the U.S. Government. In such event, we would recognize an unfavorable cumulative catch-up program adjustment of up to approximately $120 million, assuming $350 million in costs incurred in excess of available funding which would also negatively impact our cash flows by approximately $350 million.

We believe that MV-75 program costs incurred subsequent to September 30, 2026 will be funded as the Department of War’s current Future Years Defense Program, which projects forces, resources and programs to support the Department of War, indicates a total funding level for the MV-75 program of $2.3 billion for the U.S. Government’s fiscal year 2027 which begins October 1, 2026.

Low-Rate Initial Production Option

As the MV-75 program continues to progress, we expect that we will be awarded the long-lead Low-Rate Initial Production (LRIP) phase of the contract in late 2026 or early 2027. Upon award of the LRIP option, which is largely fixed price, we expect to record an unfavorable cumulative catch-up program adjustment, reflecting higher costs than originally anticipated from when the program was bid, in the range of $60 million to $110 million. We expect the overall MV-75 program to continue to generate a positive profit margin after the adjustment.

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