TEXTRON INC, 10-Q filed on 4/29/2015
Quarterly Report
Document and Entity Information
3 Months Ended
Apr. 4, 2015
Apr. 17, 2015
Document and Entity Information
 
 
Entity Registrant Name
TEXTRON INC 
 
Entity Central Index Key
0000217346 
 
Document Type
10-Q 
 
Document Period End Date
Apr. 04, 2015 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--01-02 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
277,644,419 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q1 
 
Consolidated Statements of Operations (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Apr. 4, 2015
Mar. 29, 2014
Revenues
 
 
Manufacturing revenues
$ 3,051 
$ 2,818 
Finance revenues
22 
29 
Total revenues
3,073 
2,847 
Costs and expenses
 
 
Cost of sales
2,509 
2,357 
Selling and administrative expense
337 
302 
Interest expense
43 
47 
Acquisition and restructuring costs
 
16 
Total costs and expenses
2,889 
2,722 
Income from continuing operations before income taxes
184 
125 
Income tax expense
56 
38 
Income from continuing operations
128 
87 
Loss from discontinued operations, net of income taxes
 
(2)
Net income
$ 128 
$ 85 
Basic earnings per share
 
 
Continuing operations (in dollars per share)
$ 0.46 
$ 0.31 
Discontinued operations (in dollars per share)
 
$ (0.01)
Basic earnings per share (in dollars per share)
$ 0.46 
$ 0.30 
Diluted earnings per share
 
 
Continuing operations (in dollars per share)
$ 0.46 
$ 0.31 
Discontinued operations (in dollars per share)
 
$ (0.01)
Diluted earnings per share (in dollars per share)
$ 0.46 
$ 0.30 
Dividends per share
 
 
Common stock (in dollars per share)
$ 0.02 
$ 0.02 
Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended
Apr. 4, 2015
Mar. 29, 2014
Consolidated Statements of Comprehensive Income
 
 
Net income
$ 128 
$ 85 
Other comprehensive (loss) income, net of tax:
 
 
Pension and postretirement benefits adjustments, net of reclassifications
24 
18 
Deferred gains/losses on hedge contracts, net of reclassifications
(12)
(7)
Foreign currency translation adjustments
(56)
(6)
Other comprehensive (loss) income
(44)
Comprehensive income
$ 84 
$ 90 
Consolidated Balance Sheets (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
Apr. 4, 2015
Jan. 3, 2015
Assets
 
 
Cash and equivalents
$ 708 
$ 822 
Inventories
4,236 
3,928 
Finance receivables, net
1,203 
1,238 
Total assets
14,738 
14,605 
Liabilities
 
 
Total liabilities
10,348 
10,333 
Shareholders' equity
 
 
Common stock
36 
36 
Capital surplus
1,499 
1,459 
Treasury stock
(340)
(340)
Retained earnings
4,745 
4,623 
Accumulated other comprehensive loss
(1,550)
(1,506)
Total shareholders' equity
4,390 
4,272 
Total liabilities and shareholders' equity
14,738 
14,605 
Common shares outstanding
277,497 
276,582 
Manufacturing group
 
 
Assets
 
 
Cash and equivalents
561 
731 
Accounts receivable, net
1,133 
1,035 
Inventories
4,236 
3,928 
Other current assets
563 
579 
Total current assets
6,493 
6,273 
Property, plant and equipment, less accumulated depreciation and amortization of $3,720 and $3,685
2,460 
2,497 
Goodwill
2,013 
2,027 
Other assets
2,268 
2,279 
Total assets
13,234 
13,076 
Liabilities
 
 
Short-term debt and current portion of long-term debt
34 
Accounts payable
1,130 
1,014 
Accrued liabilities
2,570 
2,616 
Total current liabilities
3,734 
3,638 
Other liabilities
2,548 
2,587 
Long-term debt
2,790 
2,803 
Total liabilities
9,072 
9,028 
Finance group
 
 
Assets
 
 
Cash and equivalents
147 
91 
Finance receivables, net
1,203 
1,238 
Other assets
154 
200 
Total assets
1,504 
1,529 
Liabilities
 
 
Other liabilities
255 
242 
Debt
1,021 
1,063 
Total liabilities
$ 1,276 
$ 1,305 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, unless otherwise specified
Apr. 4, 2015
Jan. 3, 2015
Consolidated Balance Sheets
 
 
Accumulated depreciation and amortization
$ 3,720 
$ 3,685 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Apr. 4, 2015
Mar. 29, 2014
Cash flows from operating activities
 
 
Net income
$ 128 
$ 85 
Less: Loss from discontinued operations
 
(2)
Income from continuing operations
128 
87 
Non-cash items:
 
 
Depreciation and amortization
110 
98 
Deferred income taxes
(7)
(8)
Other, net
32 
31 
Changes in assets and liabilities:
 
 
Accounts receivable, net
(115)
(49)
Inventories
(327)
(180)
Other assets
(45)
(11)
Accounts payable
127 
(99)
Accrued and other liabilities
(63)
25 
Income taxes, net
95 
31 
Pension, net
17 
13 
Captive finance receivables, net
31 
34 
Other operating activities, net
(2)
Net cash provided by (used in) operating activities of continuing operations
(19)
(26)
Net cash used in operating activities of discontinued operations
(2)
(1)
Net cash provided by (used in) operating activities
(21)
(27)
Cash flows from investing activities
 
 
Capital expenditures
(79)
(66)
Net cash used in acquisitions
(32)
(1,489)
Finance receivables repaid
31 
33 
Other investing activities, net
23 
Net cash provided by (used in) investing activities
(57)
(1,520)
Cash flows from financing activities
 
 
Principal payments on long-term debt and nonrecourse debt
(70)
(62)
Increase in short-term debt
25 
184 
Proceeds from long-term debt
1,131 
Purchases of Textron common stock
 
(150)
Dividends paid
(6)
(6)
Other financing activities, net
11 
19 
Net cash provided by (used in) financing activities
(31)
1,116 
Effect of exchange rate changes on cash and equivalents
(5)
 
Net increase (decrease) in cash and equivalents
(114)
(431)
Cash and equivalents at beginning of period
822 
1,211 
Cash and equivalents at end of period
708 
780 
Manufacturing group
 
 
Cash flows from operating activities
 
 
Net income
124 
82 
Less: Loss from discontinued operations
 
(2)
Income from continuing operations
124 
84 
Non-cash items:
 
 
Depreciation and amortization
108 
95 
Deferred income taxes
(3)
(4)
Other, net
28 
27 
Changes in assets and liabilities:
 
 
Accounts receivable, net
(115)
(49)
Inventories
(327)
(180)
Other assets
(51)
(11)
Accounts payable
127 
(99)
Accrued and other liabilities
(54)
34 
Income taxes, net
81 
26 
Pension, net
17 
13 
Other operating activities, net
(2)
 
Net cash provided by (used in) operating activities of continuing operations
(67)
(64)
Net cash used in operating activities of discontinued operations
(2)
(1)
Net cash provided by (used in) operating activities
(69)
(65)
Cash flows from investing activities
 
 
Capital expenditures
(79)
(66)
Net cash used in acquisitions
(32)
(1,489)
Other investing activities, net
(6)
(1)
Net cash provided by (used in) investing activities
(117)
(1,556)
Cash flows from financing activities
 
 
Increase in short-term debt
25 
184 
Proceeds from long-term debt
 
1,093 
Purchases of Textron common stock
 
(150)
Dividends paid
(6)
(6)
Other financing activities, net
19 
Net cash provided by (used in) financing activities
21 
1,140 
Effect of exchange rate changes on cash and equivalents
(5)
 
Net increase (decrease) in cash and equivalents
(170)
(481)
Cash and equivalents at beginning of period
731 
1,163 
Cash and equivalents at end of period
561 
682 
Finance group
 
 
Cash flows from operating activities
 
 
Net income
Income from continuing operations
Non-cash items:
 
 
Depreciation and amortization
Deferred income taxes
(4)
(4)
Other, net
Changes in assets and liabilities:
 
 
Other assets
 
Accrued and other liabilities
(9)
(9)
Income taxes, net
14 
Other operating activities, net
 
Net cash provided by (used in) operating activities of continuing operations
17 
Net cash provided by (used in) operating activities
17 
Cash flows from investing activities
 
 
Finance receivables repaid
112 
108 
Finance receivables originated
(50)
(41)
Other investing activities, net
29 
Net cash provided by (used in) investing activities
91 
70 
Cash flows from financing activities
 
 
Principal payments on long-term debt and nonrecourse debt
(70)
(62)
Proceeds from long-term debt
38 
Other financing activities, net
 
Net cash provided by (used in) financing activities
(52)
(24)
Net increase (decrease) in cash and equivalents
56 
50 
Cash and equivalents at beginning of period
91 
48 
Cash and equivalents at end of period
$ 147 
$ 98 
Basis of Presentation
Basis of Presentation

 

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, 2015.  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 and wholesale 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.

 

During 2015 and 2014, we changed our estimates of revenues and costs on certain long-term contracts that are accounted for under the percentage-of-completion method of accounting.  These changes in estimates increased income from continuing operations before income taxes in the first quarter of 2015 and 2014 by $18 million and $21 million, respectively, ($11 million and $13 million after tax, or $0.04 and $0.05 per diluted share, respectively).  For the first quarter of 2015 and 2014, the gross favorable program profit adjustments totaled $33 million and $24 million, respectively, and the gross unfavorable program profit adjustments totaled $15 million and $3 million, respectively.

 

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers,” that outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption. This ASU is effective for our company at the beginning of fiscal 2017; early adoption is not permitted. We are currently evaluating the new guidance to determine the impact it is expected to have on our consolidated financial statements, along with the transition method we expect to utilize.

 

Business Acquisitions
Business Acquisitions

 

Note 2.  Business Acquisitions

 

2014 Beechcraft Acquisition

On March 14, 2014, we completed the acquisition of all of the outstanding equity interests in Beech Holdings, LLC, which included Beechcraft Corporation and other subsidiaries, (collectively “Beechcraft”), for an aggregate cash payment of $1.5 billion. The consideration paid for this business was allocated to the assets acquired and liabilities assumed based on their fair values at the acquisition date.  We finalized the purchase accounting for Beechcraft in the first quarter of 2015 and there were no adjustments to the purchase price allocation disclosed in Note 2 of our 2014 Annual Report on Form 10-K. The operating results of Beechcraft have been included in the Consolidated Statements of Operations since March 14, 2014. Beechcraft’s revenues totaled $101 million for the first quarter of 2014 and its earnings for this period were not significant.

 

In connection with the integration of Beechcraft, we initiated a restructuring program in our Textron Aviation segment in the first quarter of 2014 to align the Cessna and Beechcraft businesses, reduce operating redundancies and maximize efficiencies. This restructuring program was substantially completed at the end of 2014.  During the first quarter of 2014, we recorded charges of $5 million related to these restructuring activities that were included in the Acquisition and restructuring costs line on the Consolidated Statements of Operations, along with $11 million of transaction costs.

 

Pro-forma Results from 2014 Acquisitions

During 2014, we made seven acquisitions in addition to the Beechcraft acquisition. The pro-forma results presented in the table below include consolidated information as if all of these 2014 acquisitions had been completed as of the beginning of the year prior to acquisition.

 

 

 

Three Months Ended

(In millions, except per share amounts)

 

April 4,
2015

March 29,
2014

Revenues

 

   $

3,073 

   $

3,202 

Income from continuing operations, net of income taxes

 

131 
112 

Diluted earnings per share from continuing operations

 

   $

0.47 

   $

0.40 

 

Certain pro-forma adjustments were made to reflect the purchase price allocated to the acquired net assets of each business, including depreciation and intangible amortization expense resulting from the valuation of tangible and intangible assets, the amortization of inventory fair value step-up adjustments and the related tax effects.  In addition, the pro-forma results for the first quarter of 2014 exclude $16 million of Acquisition and restructuring costs related to the Beechcraft acquisition. The pro-forma data should not be considered indicative of the results that would have occurred if the acquisitions and related financing had been consummated at the beginning of the year prior to acquisition.

 

Retirement Plans
Retirement Plans

 

Note 3.  Retirement Plans

 

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

 

 

 

Pension Benefits

Postretirement Benefits
Other Than Pensions

(In millions)

 

April 4,
2015

March 29,
2014

April 4,
2015

March 29,
2014

Three Months Ended

 

 

 

 

 

Service cost

 

   $

30 

   $

27 

   $

   $

Interest cost

 

81 
79 

Expected return on plan assets

 

(121)
(111)

Amortization of prior service cost (credit)

 

(6)
(6)

Amortization of net actuarial loss

 

39 
28 

Net periodic benefit cost (credit)

 

   $

33 

   $

27 

   $

(1)

   $

 

Share-Based Compensation
Share-Based Compensation

 

Note 4.  Share-Based Compensation

 

Our share-based compensation plans provide stock options, restricted stock, restricted stock units, stock appreciation rights, performance stock awards and other awards.  Compensation expense included in net income for these plans is as follows:

 

 

 

Three Months Ended

(In millions)

 

April 4,
2015

March 29,
2014

Compensation expense

 

   $

31 

   $

34 

Income tax benefit

 

(11)
(12)

Total net compensation expense included in net income

 

   $

20 

   $

22 

 

Stock Options

Options to purchase our shares have a maximum term of ten years and generally vest ratably over a three-year period. The stock option compensation cost calculated under the fair value approach is recognized over the vesting period of the stock options.  We estimate the fair value of options granted on the date of grant using the Black-Scholes option-pricing model.  Expected volatilities are based on implied volatilities from traded options on our common stock, historical volatilities and other factors.  The expected term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior.

 

The weighted-average fair value of options granted during the respective periods and the assumptions used in our option-pricing model for such grants are as follows:

 

 

 

Three Months Ended

 

 

April 4,
2015

March 29,
2014

Fair value of options at grant date

 

   $

14.03 

   $

12.72 

Dividend yield

 

0.2% 
0.2% 

Expected volatility

 

34.9% 
34.5% 

Risk-free interest rate

 

1.5% 
1.5% 

Expected term (in years)

 

4.8 
5.0 

 

The stock option activity during the first quarter of 2015 is provided below:

 

(Options in thousands)

 

Number of
Options

Weighted-
Average
Exercise
Price

Outstanding at beginning of period

 

8,637 

   $

29.99 

Granted

 

1,492 
44.31 

Exercised

 

(452)
(27.20)

Forfeited or expired

 

(137)
(45.95)

Outstanding at end of period

 

9,540 

   $

32.13 

Exercisable at end of period

 

6,213 

   $

28.16 

 

At April 4, 2015, our outstanding options had an aggregate intrinsic value of $123 million and a weighted-average remaining contractual life of seven years.  Our exercisable options had an aggregate intrinsic value of $105 million and a weighted-average remaining contractual life of six years at April 4, 2015.  The total intrinsic value of options exercised was $8 million in both the first quarter of 2015 and 2014.

 

Restricted Stock Units

The activity for restricted stock units payable in both stock and cash during the first quarter of 2015 is provided below:

 

 

 

Units Payable in Stock

 

Units Payable in Cash

(Shares/Units in thousands)

 

Number of
Shares

Weighted-
Average Grant
Date Fair Value

 

Number of
Units

Weighted-
Average Grant
Date Fair Value

Outstanding at beginning of year, nonvested

 

906 

   $

30.59 

 

1,666 

   $

29.84 

Granted

 

167 
44.31 

 

364 
44.31 

Vested

 

(139)
(27.02)

 

(405)
(24.42)

Forfeited

 

 

(21)
(32.27)

Outstanding at end of period, nonvested

 

934 

   $

33.53 

 

1,604 

   $

34.47 

 

The fair value of the restricted stock awards that vested and/or amounts paid under these awards during the respective periods is as follows:

 

 

 

Three Months Ended

(In millions)

 

April 4,
2015

March 29,
2014

Fair value of awards vested

 

   $

22 

   $

20 

Cash paid

 

18 
19 

 

Performance Share Units

The activity for our performance share units during the first quarter of 2015 is provided below:

 

(Units in thousands)

 

Number of
Units

Weighted-
Average Grant
Date Fair Value

Outstanding at beginning of year, nonvested

 

677 

   $

33.38 

Granted

 

257 
44.31 

Outstanding at end of period, nonvested

 

934 

   $

36.39 

 

Cash paid under these awards totaled $17 million and $12 million during the first quarter of 2015 and 2014, respectively.

 

Earnings Per Share
Earnings Per Share

 

Note 5.  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.  In addition, diluted EPS for the three months ended March 29, 2014 includes the impact of the initial delivery of shares under an Accelerated Share Repurchase agreement (ASR), which was settled in December 2014 as disclosed in Note 9 of our 2014 Annual Report on Form 10-K.

 

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

 

 

 

Three Months Ended

(In thousands)

 

April 4,
2015

March 29,
2014

Basic weighted-average shares outstanding

 

277,902 
281,094 

Dilutive effect of:

 

 

 

Stock options

 

2,175 
2,049 

ASR

 

184 

Diluted weighted-average shares outstanding

 

280,077 
283,327 

 

Stock options to purchase 1 million shares of common stock outstanding are excluded from our calculation of diluted weighted average shares outstanding for both the first quarter of 2015 and 2014, as their effect would have been anti-dilutive.

 

Accounts Receivable and Finance Receivables
Accounts Receivable and Finance Receivables

 

Note 6.  Accounts Receivable and Finance Receivables

 

Accounts Receivable

Accounts receivable is composed of the following:

 

(In millions)

 

April 4,
2015

January 3,
2015

Commercial

 

   $

861 

   $

765 

U.S. Government contracts

 

303 
300 

 

 

1,164 
1,065 

Allowance for doubtful accounts

 

(31)
(30)

Total

 

   $

1,133 

   $

1,035 

 

We have unbillable receivables, primarily on U.S. Government contracts, that arise when the revenues we have appropriately recognized based on performance cannot be billed yet under terms of the contract.  Unbillable receivables within accounts receivable totaled $147 million at April 4, 2015 and $151 million at January 3, 2015.

 

Finance Receivables

Finance receivables are presented in the following table:

 

(In millions)

 

April 4,
2015

January 3,
2015

Finance receivables *

 

   $

1,256 

   $

1,289 

Allowance for losses

 

(53)
(51)

Total finance receivables, net

 

   $

1,203 

   $

1,238 

* Includes finance receivables held for sale of $35 million for both periods.

 

Credit Quality Indicators and Nonaccrual Finance Receivables

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.  Recognition of interest income is suspended for these accounts and all cash collections are used to reduce the net investment balance.  We resume the accrual of interest when the loan becomes contractually current through payment according to the original terms of the loan or, if a loan has been modified, following a period of performance under the terms of the modification, provided we conclude that collection of all principal and interest is no longer doubtful.  Previously suspended interest income is recognized at that time.  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.

 

Finance receivables categorized based on the credit quality indicators discussed above are summarized as follows:

 

(In millions)

 

April 4,
2015

January 3,
2015

Performing

 

   $

1,037 

   $

1,062 

Watchlist

 

92 
111 

Nonaccrual

 

92 
81 

Total

 

   $

1,221 

   $

1,254 

Nonaccrual as a percentage of finance receivables

 

7.53% 
6.46% 

 

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 by delinquency aging category are summarized in the table below:

 

(In millions)

 

April 4,
2015

January 3,
2015

Less than 31 days past due

 

   $

1,075 

   $

1,080 

31-60 days past due

 

63 
117 

61-90 days past due

 

43 
28 

Over 90 days past due

 

40 
29 

Total

 

   $

1,221 

   $

1,254 

60 + days contractual delinquency as a percentage of finance receivables

 

6.80% 
4.55% 

 

Impaired Loans

On a quarterly basis, we evaluate individual finance receivables for impairment in non-homogeneous portfolios and larger balance accounts in homogeneous loan portfolios. 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 discussed 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. Interest income recognized on impaired loans was not significant in the first quarter of 2015 or 2014.

 

A summary of impaired finance receivables, excluding leveraged leases, and the average recorded investment is provided below:

 

(In millions)

 

April 4,
2015

January 3,
2015

Recorded investment:

 

 

 

 

 

Impaired loans with related allowance for losses

 

   $

74 

   $

68 

Impaired loans with no related allowance for losses

 

 

22 

 

42 

Total

 

   $

96 

   $

110 

Unpaid principal balance

 

   $

101 

   $

115 

Allowance for losses on impaired loans

 

22 
20 

Average recorded investment

 

103 
115 

 

A summary of the allowance for losses on finance receivables that are evaluated on an individual basis and on a collective basis is provided below. The finance receivables included in the table below specifically exclude leveraged leases in accordance with generally accepted accounting principles.

 

(In millions)

 

April 4,
2015

January 3,
2015

Allowance based on collective evaluation

 

   $

31 

   $

31 

Allowance based on individual evaluation

 

22 
20 

Finance receivables evaluated collectively

 

   $

1,006 

   $

1,023 

Finance receivables evaluated individually

 

96 
110 

 

Allowance for Losses

We maintain an allowance for losses on finance receivables at a level considered adequate to cover inherent losses in the portfolio based on management’s evaluation.  For larger balance accounts specifically identified as impaired, a reserve is established based on comparing the expected future cash flows, discounted at the finance receivable’s effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying amount. The expected future cash flows consider collateral value; financial performance and liquidity of our borrower; existence and financial strength of guarantors; estimated recovery costs, including legal expenses; and costs associated with the repossession and eventual disposal of collateral.  When there is a range of potential outcomes, we perform multiple discounted cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence.  The evaluation of our portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results.  While our analysis is specific to each individual account, critical factors included in this analysis include industry valuation guides, age and physical condition of the collateral, payment history and existence and financial strength of guarantors.

 

We also establish an allowance for losses to cover probable but specifically unknown losses existing in the portfolio. This allowance is established as a percentage of non-recourse finance receivables, which have not been identified as requiring specific reserves. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values and both general economic and specific industry trends. Finance receivables are charged off at the earlier of the date the collateral is repossessed or when no payment has been received for six months, unless management deems the receivable collectible.

 

A rollforward of the allowance for losses on finance receivables is provided below:

 

 

 

Three Months Ended

(In millions)

 

April 4,
2015

March 29,
2014

Balance at the beginning of period

 

   $

51 

   $

55 

Provision for losses

 

Charge-offs

 

(6)

Recoveries

 

Balance at the end of period

 

   $

53 

   $

54 

 

Inventories
Inventories

 

Note 7.  Inventories

 

Inventories are composed of the following:

 

(In millions)

 

April 4,
2015

January 3,
2015

Finished goods

 

   $

1,826 

   $

1,582 

Work in process

 

2,728 
2,683 

Raw materials and components

 

553 
546 

 

 

5,107 
4,811 

Progress/milestone payments

 

(871)
(883)

Total

 

   $

4,236 

   $

3,928 

 

Accrued Liabilities
Accrued Liabilities

 

Note 8.  Accrued Liabilities

 

We provide limited warranty and product maintenance programs, including parts and labor, for certain products for periods ranging from one to five years.  Changes in our warranty and product maintenance contract liability are as follows:

 

 

 

Three Months Ended

(In millions)

 

April 4,
2015

March 29,
2014

Accrual at the beginning of period

 

   $

281 

   $

223 

Provision

 

74 
70 

Settlements

 

(82)
(69)

Acquisitions

 

56 

Adjustments*

 

(4)

Accrual at the end of period

 

   $

277 

   $

276 

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

 

Derivative Instruments and Fair Value Measurements
Derivative Instruments and Fair Value Measurements

 

Note 9.  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 utilize foreign currency exchange contracts to manage this volatility.  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 April 4, 2015 and January 3, 2015, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $558 million and $696 million, respectively.  At April 4, 2015, the fair value amounts of our foreign currency exchange contracts were a $25 million asset and a $48 million liability.  At January 3, 2015, the fair value amounts of our foreign currency exchange contracts were a $16 million asset and a $26 million liability.

 

We primarily utilize forward exchange contracts which have maturities of no more than three years.  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.  At April 4, 2015, we had a net deferred loss of $25 million in Accumulated other comprehensive loss related to these cash flow hedges.  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.

 

We hedge our net investment position in major currencies and generate foreign currency interest payments that offset other transactional exposures in these currencies. To accomplish this, we borrow directly in foreign currency and designate a portion of foreign currency debt as a hedge of a net investment. We record changes in the fair value of these contracts in other comprehensive income to the extent they are effective as cash flow hedges.  Currency effects on the effective portion of these hedges, which are reflected in the foreign currency translation adjustments within Accumulated other comprehensive loss, were not significant in the periods presented.

 

Assets Recorded at Fair Value on a Nonrecurring Basis

During the periods ended April 4, 2015 and January 3, 2015, the Finance group’s impaired nonaccrual finance receivables of $52 million and $49 million, respectively, were measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). Impaired nonaccrual finance receivables represent assets recorded at fair value on a nonrecurring basis since the measurement of required reserves on our impaired finance receivables is significantly dependent on the fair value of the underlying collateral.  For impaired nonaccrual finance receivables secured by aviation assets, the fair values of collateral are determined primarily based on the use of industry pricing guides. Fair value measurements recorded on impaired finance receivables resulted in charges to provision for loan losses totaling $3 million and $5 million for the three months ended April 4, 2015 and March 29, 2014, respectively.

 

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:

 

 

 

April 4, 2015

January 3, 2015

(In millions)

 

Carrying
Value

Estimated
Fair Value

Carrying
Value

Estimated
Fair Value

Manufacturing group

 

 

 

 

 

Long-term debt, excluding leases

 

   $

(2,731)

   $

(2,959)

   $

(2,742)

   $

(2,944)

Finance group

 

 

 

 

 

Finance receivables, excluding leases

 

963 
988 
1,004 
1,021 

Debt

 

(1,021)
(1,013)
(1,063)
(1,051)

 

Fair value for the Manufacturing group debt is determined using market observable data for similar transactions (Level 2).  At April 4, 2015 and January 3, 2015, approximately 74% and 75%, respectively, of the fair value of term debt for the Finance group was determined based on discounted cash flow analyses using observable market inputs from debt with similar duration, subordination and credit default expectations (Level 2). The remaining Finance group debt was determined based on observable market transactions (Level 1). 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.

 

Accumulated Other Comprehensive Loss and Other Comprehensive Income
Accumulated Other Comprehensive Loss and Other Comprehensive Income

 

Note 10.  Accumulated Other Comprehensive Loss and Other Comprehensive Income

 

The components of Accumulated Other Comprehensive Loss are presented below:

 

(In millions)

 

Pension and
Postretirement
Benefit
Adjustments

Deferred
Gains/Losses
on Hedge
Contracts

Foreign
Currency
Translation
Adjustments

Accumulated
Other
Comprehensive
Loss

For the three months ended April 4, 2015

 

 

 

 

 

Beginning balance

 

   $

(1,511)

   $

(13)

   $

18 

   $

(1,506)

Other comprehensive loss before reclassifications

 

(16)
(56)
(72)

Reclassified from Accumulated other comprehensive loss

 

24 

28 

Other comprehensive income (loss)

 

24 
(12)
(56)
(44)

Ending balance

 

   $

(1,487)

   $

(25)

   $

(38)

   $

(1,550)

For the three months ended March 29, 2014

 

 

 

 

 

Beginning balance

 

   $

(1,110)

   $

(10)

   $

93 

   $

(1,027)

Other comprehensive loss before reclassifications

 

(9)
(6)
(15)

Reclassified from Accumulated other comprehensive loss

 

18 

20 

Other comprehensive income (loss)

 

18 
(7)
(6)

Ending balance

 

   $

(1,092)

   $

(17)

   $

87 

   $

(1,022)

 

The before and after-tax components of other comprehensive income are presented below:

 

(In millions)

 

 

Pre-Tax
Amount

Tax
(Expense)
Benefit

After-Tax
Amount

For the three months ended April 4, 2015

 

 

 

 

 

Pension and postretirement benefits adjustments:

 

 

 

 

 

Amortization of net actuarial loss*

 

 

   $

39 

   $

(14)

   $

25 

Amortization of prior service credit*

 

 

(2)
(1)

Pension and postretirement benefits adjustments, net

 

 

37 
(13)
24 

Deferred gains/losses on hedge contracts:

 

 

 

 

 

Current deferrals

 

 

(21)
(16)

Reclassification adjustments

 

 

(2)

Deferred gains/losses on hedge contracts, net

 

 

(15)
(12)

Foreign currency translation adjustments

 

 

(52)
(4)
(56)

Total

 

 

   $

(30)

   $

(14)

   $

(44)

For the three months ended March 29, 2014

 

 

 

 

 

Pension and postretirement benefits adjustments:

 

 

 

 

 

Amortization of net actuarial loss*

 

 

   $

29 

   $

(10)

   $

19 

Amortization of prior service credit*

 

 

(2)
(1)

Pension and postretirement benefits adjustments, net

 

 

27 
(9)
18 

Deferred gains/losses on hedge contracts:

 

 

 

 

 

Current deferrals

 

 

(11)
(9)

Reclassification adjustments

 

 

Deferred gains/losses on hedge contracts, net

 

 

(9)
(7)

Foreign currency translation adjustments

 

 

(7)
(6)

Total

 

 

   $

11 

   $

(6)

   $

*These components of other comprehensive income are included in the computation of net periodic pension cost.  See Note 11 of our 2014 Annual Report on Form 10-K for additional information.

 

Commitments and Contingencies
Commitments and Contingencies

 

Note 11.  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.

 

Segment Information
Segment Information

 

Note 12.  Segment Information

 

We operate in, and report financial information for, the following five business segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance.  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 and acquisition and restructuring costs related to the Beechcraft acquisition.  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 as follows:

 

 

 

Three Months Ended

(In millions)

 

April 4,
2015

March 29,
2014

Revenues

 

 

 

Textron Aviation

 

   $

1,051 

   $

785 

Bell

 

813 
873 

Textron Systems

 

315 
363 

Industrial

 

872 
797 

Finance

 

22 
29 

Total revenues

 

   $

3,073 

   $

2,847 

Segment Profit

 

 

 

Textron Aviation

 

   $

67 

   $

14 

Bell

 

76 
96 

Textron Systems

 

28 
39 

Industrial

 

82 
66 

Finance

 

Segment profit

 

259 
219 

Corporate expenses and other, net

 

(42)
(43)

Interest expense, net for Manufacturing group

 

(33)
(35)

Acquisition and restructuring costs

 

(16)

Income from continuing operations before income taxes

 

   $

184 

   $

125 

 

Basis of Presentation (Policies)

 

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.

 

During 2015 and 2014, we changed our estimates of revenues and costs on certain long-term contracts that are accounted for under the percentage-of-completion method of accounting.  These changes in estimates increased income from continuing operations before income taxes in the first quarter of 2015 and 2014 by $18 million and $21 million, respectively, ($11 million and $13 million after tax, or $0.04 and $0.05 per diluted share, respectively).  For the first quarter of 2015 and 2014, the gross favorable program profit adjustments totaled $33 million and $24 million, respectively, and the gross unfavorable program profit adjustments totaled $15 million and $3 million, respectively.

 

 

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers,” that outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption. This ASU is effective for our company at the beginning of fiscal 2017; early adoption is not permitted. We are currently evaluating the new guidance to determine the impact it is expected to have on our consolidated financial statements, along with the transition method we expect to utilize.

 

Business Acquisitions (Tables)
Business acquisition pro-forma information

 

 

 

Three Months Ended

(In millions, except per share amounts)

 

April 4,
2015

March 29,
2014

Revenues

 

   $

3,073 

   $

3,202 

Income from continuing operations, net of income taxes

 

131 
112 

Diluted earnings per share from continuing operations

 

   $

0.47 

   $

0.40 

 

Retirement Plans (Tables)
Components of net periodic benefit cost

 

 

 

Pension Benefits

Postretirement Benefits
Other Than Pensions

(In millions)

 

April 4,
2015

March 29,
2014

April 4,
2015

March 29,
2014

Three Months Ended

 

 

 

 

 

Service cost

 

   $

30 

   $

27 

   $

   $

Interest cost

 

81 
79 

Expected return on plan assets

 

(121)
(111)

Amortization of prior service cost (credit)

 

(6)
(6)

Amortization of net actuarial loss

 

39 
28 

Net periodic benefit cost (credit)

 

   $

33 

   $

27 

   $

(1)

   $

 

Share-Based Compensation (Tables)

 

 

 

Three Months Ended

(In millions)

 

April 4,
2015

March 29,
2014

Compensation expense

 

   $

31 

   $

34 

Income tax benefit

 

(11)
(12)

Total net compensation expense included in net income

 

   $

20 

   $

22 

 

 

 

 

Three Months Ended

 

 

April 4,
2015

March 29,
2014

Fair value of options at grant date

 

   $

14.03 

   $

12.72 

Dividend yield

 

0.2% 
0.2% 

Expected volatility

 

34.9% 
34.5% 

Risk-free interest rate

 

1.5% 
1.5% 

Expected term (in years)

 

4.8 
5.0 

 

 

The stock option activity during the first quarter of 2015 is provided below:

 

(Options in thousands)

 

Number of
Options

Weighted-
Average
Exercise
Price

Outstanding at beginning of period

 

8,637 

   $

29.99 

Granted

 

1,492 
44.31 

Exercised

 

(452)
(27.20)

Forfeited or expired

 

(137)
(45.95)

Outstanding at end of period

 

9,540 

   $

32.13 

Exercisable at end of period

 

6,213 

   $

28.16 

 

 

The activity for restricted stock units payable in both stock and cash during the first quarter of 2015 is provided below:

 

 

 

Units Payable in Stock

 

Units Payable in Cash

(Shares/Units in thousands)

 

Number of
Shares

Weighted-
Average Grant
Date Fair Value

 

Number of
Units

Weighted-
Average Grant
Date Fair Value

Outstanding at beginning of year, nonvested

 

906 

   $

30.59 

 

1,666 

   $

29.84 

Granted

 

167 
44.31 

 

364 
44.31 

Vested

 

(139)
(27.02)

 

(405)
(24.42)

Forfeited

 

 

(21)
(32.27)

Outstanding at end of period, nonvested

 

934 

   $

33.53 

 

1,604 

   $

34.47 

 

 

 

 

Three Months Ended

(In millions)

 

April 4,
2015

March 29,
2014

Fair value of awards vested

 

   $

22 

   $

20 

Cash paid

 

18 
19 

 

The activity for our performance share units during the first quarter of 2015 is provided below:

 

(Units in thousands)

 

Number of
Units

Weighted-
Average Grant
Date Fair Value

Outstanding at beginning of year, nonvested

 

677 

   $

33.38 

Granted

 

257 
44.31 

Outstanding at end of period, nonvested

 

934 

   $

36.39 

 

Earnings Per Share (Tables)
Weighted-average shares outstanding for basic and diluted EPS

 

 

 

Three Months Ended

(In thousands)

 

April 4,
2015

March 29,
2014

Basic weighted-average shares outstanding

 

277,902 
281,094 

Dilutive effect of:

 

 

 

Stock options

 

2,175 
2,049 

ASR

 

184 

Diluted weighted-average shares outstanding

 

280,077 
283,327 

 

 

Accounts Receivable and Finance Receivables (Tables)

 

(In millions)

 

April 4,
2015

January 3,
2015

Commercial

 

   $

861 

   $

765 

U.S. Government contracts

 

303 
300 

 

 

1,164 
1,065 

Allowance for doubtful accounts

 

(31)
(30)

Total

 

   $

1,133 

   $

1,035 

 

 

(In millions)

 

April 4,
2015

January 3,
2015

Finance receivables *

 

   $

1,256 

   $

1,289 

Allowance for losses

 

(53)
(51)

Total finance receivables, net

 

   $

1,203 

   $

1,238 

* Includes finance receivables held for sale of $35 million for both periods.

 

 

(In millions)

 

April 4,
2015

January 3,
2015

Performing

 

   $

1,037 

   $

1,062 

Watchlist

 

92 
111 

Nonaccrual

 

92 
81 

Total

 

   $

1,221 

   $

1,254 

Nonaccrual as a percentage of finance receivables

 

7.53% 
6.46% 

 

 

(In millions)

 

April 4,
2015

January 3,
2015

Less than 31 days past due

 

   $

1,075 

   $

1,080 

31-60 days past due

 

63 
117 

61-90 days past due

 

43 
28 

Over 90 days past due

 

40 
29 

Total

 

   $

1,221 

   $

1,254 

60 + days contractual delinquency as a percentage of finance receivables

 

6.80% 
4.55% 

 

 

(In millions)

 

April 4,
2015

January 3,
2015

Recorded investment:

 

 

 

 

 

Impaired loans with related allowance for losses

 

   $

74 

   $

68 

Impaired loans with no related allowance for losses

 

 

22 

 

42 

Total

 

   $

96 

   $

110 

Unpaid principal balance

 

   $

101 

   $

115 

Allowance for losses on impaired loans

 

22 
20 

Average recorded investment

 

103 
115 

 

 

(In millions)

 

April 4,
2015

January 3,
2015

Allowance based on collective evaluation

 

   $

31 

   $

31 

Allowance based on individual evaluation

 

22 
20 

Finance receivables evaluated collectively

 

   $

1,006 

   $

1,023 

Finance receivables evaluated individually

 

96 
110 

 

 

 

 

Three Months Ended

(In millions)

 

April 4,
2015

March 29,
2014

Balance at the beginning of period

 

   $

51 

   $

55 

Provision for losses

 

Charge-offs

 

(6)

Recoveries

 

Balance at the end of period

 

   $

53 

   $

54 

 

Inventories (Tables)
Inventories

 

(In millions)

 

April 4,
2015

January 3,
2015

Finished goods

 

   $

1,826 

   $

1,582 

Work in process

 

2,728 
2,683 

Raw materials and components

 

553 
546 

 

 

5,107 
4,811 

Progress/milestone payments

 

(871)
(883)

Total

 

   $

4,236 

   $

3,928 

 

Accrued Liabilities (Tables)
Changes in warranty and product maintenance contract liability

 

 

 

Three Months Ended

(In millions)

 

April 4,
2015

March 29,
2014

Accrual at the beginning of period

 

   $

281 

   $

223 

Provision

 

74 
70 

Settlements

 

(82)
(69)

Acquisitions

 

56 

Adjustments*

 

(4)

Accrual at the end of period

 

   $

277 

   $

276 

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

 

Derivative Instruments and Fair Value Measurements (Tables)
Carrying value and estimated fair values of financial instruments

 

 

 

April 4, 2015

January 3, 2015

(In millions)

 

Carrying
Value

Estimated
Fair Value

Carrying
Value

Estimated
Fair Value

Manufacturing group

 

 

 

 

 

Long-term debt, excluding leases

 

   $

(2,731)

   $

(2,959)

   $

(2,742)

   $

(2,944)

Finance group

 

 

 

 

 

Finance receivables, excluding leases

 

963 
988 
1,004 
1,021 

Debt

 

(1,021)
(1,013)
(1,063)
(1,051)

 

Accumulated Other Comprehensive Loss and Other Comprehensive Income (Tables)

 

(In millions)

 

Pension and
Postretirement
Benefit
Adjustments

Deferred
Gains/Losses
on Hedge
Contracts

Foreign
Currency
Translation
Adjustments

Accumulated
Other
Comprehensive
Loss

For the three months ended April 4, 2015

 

 

 

 

 

Beginning balance

 

   $

(1,511)

   $

(13)

   $

18 

   $

(1,506)

Other comprehensive loss before reclassifications

 

(16)
(56)
(72)

Reclassified from Accumulated other comprehensive loss

 

24 

28 

Other comprehensive income (loss)

 

24 
(12)
(56)
(44)

Ending balance

 

   $

(1,487)

   $

(25)

   $

(38)

   $

(1,550)

For the three months ended March 29, 2014

 

 

 

 

 

Beginning balance

 

   $

(1,110)

   $

(10)

   $

93 

   $

(1,027)

Other comprehensive loss before reclassifications

 

(9)
(6)
(15)

Reclassified from Accumulated other comprehensive loss

 

18 

20 

Other comprehensive income (loss)

 

18 
(7)
(6)

Ending balance

 

   $

(1,092)

   $

(17)

   $

87 

   $

(1,022)

 

 

(In millions)

 

 

Pre-Tax
Amount

Tax
(Expense)
Benefit

After-Tax
Amount

For the three months ended April 4, 2015

 

 

 

 

 

Pension and postretirement benefits adjustments:

 

 

 

 

 

Amortization of net actuarial loss*

 

 

   $

39 

   $

(14)

   $

25 

Amortization of prior service credit*

 

 

(2)
(1)

Pension and postretirement benefits adjustments, net

 

 

37 
(13)
24 

Deferred gains/losses on hedge contracts:

 

 

 

 

 

Current deferrals

 

 

(21)
(16)

Reclassification adjustments

 

 

(2)

Deferred gains/losses on hedge contracts, net

 

 

(15)
(12)

Foreign currency translation adjustments

 

 

(52)
(4)
(56)

Total

 

 

   $

(30)

   $

(14)

   $

(44)

For the three months ended March 29, 2014

 

 

 

 

 

Pension and postretirement benefits adjustments:

 

 

 

 

 

Amortization of net actuarial loss*

 

 

   $

29 

   $

(10)

   $

19 

Amortization of prior service credit*

 

 

(2)
(1)

Pension and postretirement benefits adjustments, net

 

 

27 
(9)
18 

Deferred gains/losses on hedge contracts:

 

 

 

 

 

Current deferrals

 

 

(11)
(9)

Reclassification adjustments

 

 

Deferred gains/losses on hedge contracts, net

 

 

(9)
(7)

Foreign currency translation adjustments

 

 

(7)
(6)

Total

 

 

   $

11 

   $

(6)

   $

*These components of other comprehensive income are included in the computation of net periodic pension cost.  See Note 11 of our 2014 Annual Report on Form 10-K for additional information.

 

Segment Information (Tables)
Revenues by segment and reconciliation of segment profit to income from continuing operations before income taxes

 

 

 

Three Months Ended

(In millions)

 

April 4,
2015

March 29,
2014

Revenues

 

 

 

Textron Aviation

 

   $

1,051 

   $

785 

Bell

 

813 
873 

Textron Systems

 

315 
363 

Industrial

 

872 
797 

Finance

 

22 
29 

Total revenues

 

   $

3,073 

   $

2,847 

Segment Profit

 

 

 

Textron Aviation

 

   $

67 

   $

14 

Bell

 

76 
96 

Textron Systems

 

28 
39 

Industrial

 

82 
66 

Finance

 

Segment profit

 

259 
219 

Corporate expenses and other, net

 

(42)
(43)

Interest expense, net for Manufacturing group

 

(33)
(35)

Acquisition and restructuring costs

 

(16)

Income from continuing operations before income taxes

 

   $

184 

   $

125 

 

Basis of Presentation (Details)
3 Months Ended
Apr. 4, 2015
item
Basis of Presentation
 
Number of borrowing groups
Basis of Presentation (Details 2) (Contracts accounted for under percentage of completion method, USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Apr. 4, 2015
Mar. 29, 2014
Contracts accounted for under percentage of completion method
 
 
Use of Estimates
 
 
Change in Accounting Estimate Financial Effect Increase in Income from Continuing Operations before Income Taxes
$ 18 
$ 21 
Change in Accounting Estimate Financial Effect Increase in Income from Continuing Operations after taxes
11 
13 
Change in Accounting Estimate Financial Effect Increase in Earnings Per Share Diluted
$ 0.04 
$ 0.05 
Gross Favorable Program Profit Adjustments
33 
24 
Gross Unfavorable Program Profit Adjustments
$ 15 
$ 3 
Business Acquisitions (Details) (USD $)
3 Months Ended 12 Months Ended 3 Months Ended 0 Months Ended 3 Months Ended
Mar. 29, 2014
Jan. 3, 2015
item
Apr. 4, 2015
Pro Forma
Mar. 29, 2014
Pro Forma
Mar. 14, 2014
2014 Beechcraft Acquisition
Mar. 29, 2014
2014 Beechcraft Acquisition
Mar. 29, 2014
2014 Beechcraft Acquisition
Pro Forma
Mar. 29, 2014
2014 Beechcraft Acquisition
Textron Aviation
Business Acquisitions
 
 
 
 
 
 
 
 
Aggregate cash payment
 
 
 
 
$ 1,500,000,000 
 
 
 
Revenues
 
 
 
 
 
101,000,000 
 
 
Charges related to restructuring activities
 
 
 
 
 
 
 
5,000,000 
Transaction costs
 
 
 
 
 
 
 
11,000,000 
Business Acquisition, Pro Forma Information
 
 
 
 
 
 
 
 
Number of Businesses acquired
 
 
 
 
 
 
 
Revenues
 
 
3,073,000,000 
3,202,000,000 
 
 
 
 
Income from continuing operations, net of income taxes
 
 
131,000,000 
112,000,000 
 
 
 
 
Diluted earnings per share from continuing operations (in dollars per share)
 
 
$ 0.47 
$ 0.40 
 
 
 
 
Acquisition and restructuring costs
$ 16,000,000 
 
 
 
 
 
$ 16,000,000 
 
Retirement Plans (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Apr. 4, 2015
Mar. 29, 2014
Pension Benefits
 
 
Net periodic benefit cost
 
 
Service cost
$ 30 
$ 27 
Interest cost
81 
79 
Expected return on plan assets
(121)
(111)
Amortization of prior service cost (credit)
Amortization of net actuarial loss
39 
28 
Net periodic benefit cost (credit)
33 
27 
Postretirement Benefits Other Than Pensions
 
 
Net periodic benefit cost
 
 
Service cost
Interest cost
Amortization of prior service cost (credit)
(6)
(6)
Amortization of net actuarial loss
 
Net periodic benefit cost (credit)
$ (1)
$ 1 
Share-Based Compensation (Details) (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
3 Months Ended
Apr. 4, 2015
Mar. 29, 2014
Compensation expense included in net income
 
 
Compensation expense
$ 31 
$ 34 
Income tax benefit
(11)
(12)
Total net compensation expense included in net income
20 
22 
Stock Options
 
 
Share-Based Compensation
 
 
Maximum term of options
10 years 
 
Vesting period
3 years 
 
Weighted-average assumptions used in Black-Scholes option-pricing model
 
 
Fair value of options at grant date
$ 14.03 
$ 12.72 
Dividend yield (as a percent)
0.20% 
0.20% 
Expected volatility (as a percent)
34.90% 
34.50% 
Risk-free interest rate (as a percent)
1.50% 
1.50% 
Expected term (in years)
4 years 9 months 18 days 
5 years 
Number of Options
 
 
Outstanding at beginning of period (in shares)
8,637 
 
Granted
1,492 
 
Exercised
(452)
 
Forfeited or expired
(137)
 
Outstanding at end of period (in shares)
9,540 
 
Exercisable at end of period (in shares)
6,213 
 
Weighted-Average Exercise Price
 
 
Outstanding at beginning of period (in dollars per share)
$ 29.99 
 
Granted
$ 44.31 
 
Exercised
$ (27.20)
 
Forfeited or expired
$ (45.95)
 
Outstanding at end of period (in dollars per share)
$ 32.13 
 
Exercisable at end of period (in dollars per share)
$ 28.16 
 
Additional information
 
 
Aggregate intrinsic value of outstanding options
123 
 
Weighted-average remaining contractual life of outstanding stock options
7 years 
 
Aggregate intrinsic value of exercisable options
105 
 
Weighted-average remaining contractual life of exercisable options
6 years 
 
Aggregate intrinsic value of options exercised
$ 8 
$ 8 
Share-Based Compensation (Details 2) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Apr. 4, 2015
Restricted Stock Units Payable in Stock
 
Number of Shares/Units
 
Outstanding at beginning of period, nonvested (in shares)
906 
Granted
167 
Vested
(139)
Outstanding at end of period, nonvested (in shares)
934 
Weighted-Average Grant Date Fair Value
 
Outstanding at beginning of period, nonvested (in dollars per share)
$ 30.59 
Granted
$ 44.31 
Vested
$ (27.02)
Outstanding at end of period, nonvested (in dollars per share)
$ 33.53 
Restricted Stock Units Payable in Cash
 
Number of Shares/Units
 
Outstanding at beginning of period, nonvested (in shares)
1,666 
Granted
364 
Vested
(405)
Forfeited
(21)
Outstanding at end of period, nonvested (in shares)
1,604 
Weighted-Average Grant Date Fair Value
 
Outstanding at beginning of period, nonvested (in dollars per share)
$ 29.84 
Granted
$ 44.31 
Vested
$ (24.42)
Forfeited
$ (32.27)
Outstanding at end of period, nonvested (in dollars per share)
$ 34.47 
Share-Based Compensation (Details 3) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Apr. 4, 2015
Mar. 29, 2014
Restricted Stock Units
 
 
Share-Based Compensation
 
 
Fair value of awards vested
$ 22 
$ 20 
Cash paid
18 
19 
Performance Share Units
 
 
Share-Based Compensation