Company Quick10K Filing
Quick10K
Textron
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$44.59 233 $10,379
10-Q 2019-06-29 Quarter: 2019-06-29
10-Q 2019-03-30 Quarter: 2019-03-30
10-K 2018-12-29 Annual: 2018-12-29
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-30 Annual: 2017-12-30
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-K 2016-01-02 Annual: 2016-01-02
10-Q 2015-10-03 Quarter: 2015-10-03
10-Q 2015-07-04 Quarter: 2015-07-04
10-Q 2015-04-04 Quarter: 2015-04-04
10-K 2015-01-03 Annual: 2015-01-03
10-Q 2014-09-27 Quarter: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-K 2013-12-28 Annual: 2013-12-28
8-K 2019-08-05 Regulation FD, Exhibits
8-K 2019-07-17 Earnings, Exhibits
8-K 2019-05-07 Other Events, Exhibits
8-K 2019-04-17 Earnings, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2018-12-04 Exit Costs, Impairments
8-K 2018-10-18 Earnings, Exhibits
8-K 2018-07-18 Earnings, Exhibits
8-K 2018-04-16 Earnings, Other Events, Exhibits
8-K 2018-01-31 Earnings, Exhibits
8-K 2017-12-30 Exit Costs, Impairments, Other Events
BA Boeing 204,089
UTX United Technologies 111,675
ASR Southeast Airport Group 42,690
TGI Triumph Group 1,033
TATT TAT Technologies 72
SIF Sifco Industries 32
UAVS Ageagle Aerial Systems 4
PAC Pacific Airport Group 0
ERJ Embraer Brazilian Aviation 0
OMAB Central North Airport Group 0
TXT 2019-06-29
Part I. Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation
Note 2. Summary of Significant Accounting Policies Update
Note 3. Accounts Receivable and Finance Receivables
Note 4. Inventories
Note 5. Other Assets
Note 6. Warranty Liability
Note 7. Leases
Note 8. Debt
Note 9. Derivative Instruments and Fair Value Measurements
Note 10. Shareholders' Equity
Note 11. Segment Information
Note 12. Revenues
Note 13. Retirement Plans
Note 14. Income Taxes
Note 15. Commitments and Contingencies
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 txt-20190629ex311dcda2b.htm
EX-31.2 txt-20190629ex312ceb9e0.htm
EX-32.1 txt-20190629ex3213bb8bf.htm
EX-32.2 txt-20190629ex322e4fcc9.htm

Textron Earnings 2019-06-29

TXT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______.

Commission File Number 1-5480

Textron Inc.

(Exact name of registrant as specified in its charter)

Delaware

    

05-0315468

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

40 Westminster Street, Providence, RI

02903

(Address of principal executive offices)

(Zip code)

(401) 421-2800

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol (s)

Name of each exchange on which registered

Common stock, $0.125 par value

TXT

New York Stock Exchange (NYSE)

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

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

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

Large accelerated filer  

Accelerated filer  

Non-accelerated filer

Smaller reporting company  

Emerging growth company  

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

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

As of  July 12, 2019, there were 230,123,580 shares of common stock outstanding.

Table of Contents

TEXTRON INC.

Index to Form 10-Q

For the Quarterly Period Ended June 29, 2019

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Statements of Operations (Unaudited)

3

Consolidated Statements of Comprehensive Income (Unaudited)

4

Consolidated Balance Sheets (Unaudited)

5

Consolidated Statements of Cash Flows (Unaudited)

6

Notes to the Consolidated Financial Statements (Unaudited)

Note 1.    Basis of Presentation

8

Note 2.    Summary of Significant Accounting Policies Update

8

Note 3.    Accounts Receivable and Finance Receivables

9

Note 4.    Inventories

10

Note 5.    Other Assets

11

Note 6.    Warranty Liability

11

Note 7.    Leases

11

Note 8.    Debt

12

Note 9.    Derivative Instruments and Fair Value Measurements

12

Note 10.  Shareholders’ Equity

14

Note 11.  Segment Information

16

Note 12.  Revenues

16

Note 13.  Retirement Plans

18

Note 14.  Income Taxes

18

Note 15.  Commitments and Contingencies

18

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

29

Item 4.

Controls and Procedures

29

PART II.

OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 6.

Exhibits

29

Signatures

30

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TEXTRON INC.

Consolidated Statements of Operations (Unaudited)

Three Months Ended

Six Months Ended

June 29,

June 30,

June 29,

June 30,

(In millions, except per share amounts)

2019

2018

2019

2018

Revenues

Manufacturing revenues

  $

3,211

  $

3,709

  $

6,303

  $

6,989

Finance revenues

 

16

 

17

 

33

 

33

Total revenues

 

3,227

 

3,726

 

6,336

 

7,022

Costs, expenses and other

Cost of sales

 

2,641

 

3,073

 

5,218

 

5,802

Selling and administrative expense

 

292

 

370

 

599

 

697

Interest expense

 

43

 

42

 

85

 

83

Non-service components of pension and post-retirement income, net

(28)

(19)

(57)

(38)

Total costs, expenses and other

 

2,948

 

3,466

 

5,845

 

6,544

Income before income taxes

 

279

 

260

 

491

 

478

Income tax expense

 

62

 

36

 

95

 

65

Net income

  $

217

  $

224

  $

396

  $

413

Earnings per share

Basic

  $

0.94

  $

0.88

  $

1.70

  $

1.61

Diluted

  $

0.93

  $

0.87

  $

1.69

  $

1.59

See Notes to the Consolidated Financial Statements.

3

Table of Contents

TEXTRON INC.

Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended

Six Months Ended

June 29,

June 30,

June 29,

June 30,

(In millions)

2019

2018

2019

2018

Net income

  $

217

  $

224

  $

396

  $

413

Other comprehensive income (loss), net of taxes:

Pension and postretirement benefits adjustments, net of reclassifications

 

20

 

31

41

62

Foreign currency translation adjustments

 

1

 

(69)

4

(27)

Deferred gains (losses) on hedge contracts, net of reclassifications

 

 

(4)

2

(3)

Other comprehensive income (loss)

 

21

 

(42)

47

32

Comprehensive income

 $

238

  $

182

  $

443

  $

445

See Notes to the Consolidated Financial Statements.

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TEXTRON INC.

Consolidated Balance Sheets (Unaudited)

June 29,

December 29,

(Dollars in millions)

2019

2018

Assets

Manufacturing group

Cash and equivalents

  $

775

  $

987

Accounts receivable, net

989

 

1,024

Inventories

4,311

 

3,818

Other current assets

839

 

785

Total current assets

6,914

 

6,614

Property, plant and equipment, less accumulated depreciation

    and amortization of $4,317 and $4,203, respectively

2,517

 

2,615

Goodwill

2,147

 

2,218

Other assets

2,255

 

1,800

Total Manufacturing group assets

13,833

 

13,247

Finance group

Cash and equivalents

82

 

120

Finance receivables, net

776

 

760

Other assets

105

 

137

Total Finance group assets

963

 

1,017

Total assets

  $

14,796

  $

14,264

Liabilities and shareholders’ equity

Liabilities

Manufacturing group

Short-term debt and current portion of long-term debt

  $

457

  $

258

Accounts payable

1,231

 

1,099

Other current liabilities

1,891

 

2,149

Total current liabilities

3,579

 

3,506

Other liabilities

2,157

 

1,932

Long-term debt

2,910

 

2,808

Total Manufacturing group liabilities

8,646

 

8,246

Finance group

Other liabilities

111

 

108

Debt

703

 

718

Total Finance group liabilities

814

 

826

Total liabilities

9,460

 

9,072

Shareholders’ equity

Common stock

30

 

30

Capital surplus

1,717

 

1,646

Treasury stock

(490)

 

(129)

Retained earnings

5,794

 

5,407

Accumulated other comprehensive loss

(1,715)

 

(1,762)

Total shareholders’ equity

5,336

 

5,192

Total liabilities and shareholders’ equity

  $

14,796

  $

14,264

Common shares outstanding (in thousands)

230,058

 

235,621

See Notes to the Consolidated Financial Statements.

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TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited)

For the Six Months Ended June 29, 2019 and June 30, 2018, respectively

Consolidated

(In millions)

2019

2018

Cash flows from operating activities

Net income

  $

396

  $

413

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Non-cash items:

Depreciation and amortization

202

 

216

Deferred income taxes

32

 

12

Other, net

40

 

61

Changes in assets and liabilities:

Accounts receivable, net

36

 

(42)

Inventories

(505)

 

(78)

Other assets

(19)

 

(38)

Accounts payable

132

 

(22)

Other liabilities

(338)

 

(165)

Income taxes, net

14

 

17

Pension, net

(29)

(5)

Captive finance receivables, net

(19)

 

26

Other operating activities, net

(2)

 

3

Net cash provided by (used in) operating activities of continuing operations

(60)

398

Net cash used in operating activities of discontinued operations

(1)

 

(1)

Net cash provided by (used in) operating activities

(61)

397

Cash flows from investing activities

Capital expenditures

(135)

 

(159)

Net proceeds from corporate-owned life insurance policies

4

98

Finance receivables repaid

20

 

25

Other investing activities, net

7

 

30

Net cash used in investing activities

(104)

 

(6)

Cash flows from financing activities

Proceeds from long-term debt

297

Principal payments on long-term debt and nonrecourse debt

(35)

(34)

Purchases of Textron common stock

(361)

 

(915)

Dividends paid

(9)

 

(10)

Other financing activities, net

19

 

43

Net cash used in financing activities

(89)

 

(916)

Effect of exchange rate changes on cash and equivalents

4

 

(6)

Net decrease in cash and equivalents

(250)

 

(531)

Cash and equivalents at beginning of period

1,107

 

1,262

Cash and equivalents at end of period

  $

857

  $

731

See Notes to the Consolidated Financial Statements.

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TEXTRON INC.

Consolidated Statements of Cash Flows (Unaudited) (Continued)

For the Six Months Ended June 29, 2019 and June 30, 2018, respectively

Manufacturing Group

Finance Group

(In millions)

2019

2018

2019

2018

Cash flows from operating activities

Net income

  $

387

  $

398

  $

9

  $

15

Adjustments to reconcile net to net cash provided by (used in)
operating activities:

Non-cash items:

Depreciation and amortization

199

 

212

3

 

4

Deferred income taxes

33

 

14

(1)

 

(2)

Other, net

39

 

60

1

 

1

Changes in assets and liabilities:

Accounts receivable, net

36

 

(42)

 

Inventories

(532)

 

(80)

 

Other assets

(17)

 

(39)

(2)

 

1

Accounts payable

132

 

(22)

 

Other liabilities

(339)

 

(162)

1

 

(3)

Income taxes, net

10

 

28

4

 

(11)

Pension, net

(29)

(5)

Dividends received from Finance group

50

50

Other operating activities, net

(2)

 

3

 

Net cash provided by (used in) operating activities of continuing operations

(33)

 

415

15

 

5

Net cash used in operating activities of discontinued operations

(1)

(1)

Net cash provided by (used in) operating activities

(34)

414

15

5

Cash flows from investing activities

Capital expenditures

(135)

 

(159)

 

Net proceeds from corporate-owned life insurance policies

4

98

Finance receivables repaid

 

91

 

112

Finance receivables originated

 

(90)

 

(61)

Other investing activities, net

4

 

10

30

 

22

Net cash provided by (used in) investing activities

(127)

 

(51)

31

 

73

Cash flows from financing activities

Proceeds from long-term debt

297

 

 

Principal payments on long-term debt and nonrecourse debt

(1)

(34)

(34)

Purchases of Textron common stock

(361)

 

(915)

 

Dividends paid

(9)

 

(10)

(50)

 

(50)

Other financing activities, net

19

 

43

 

Net cash used in financing activities

(55)

 

(882)

(84)

 

(84)

Effect of exchange rate changes on cash and equivalents

4

 

(6)

 

Net decrease in cash and equivalents

(212)

 

(525)

(38)

 

(6)

Cash and equivalents at beginning of period

987

 

1,079

120

 

183

Cash and equivalents at end of period

  $

775

  $

554

  $

82

  $

177

See Notes to the Consolidated Financial Statements.

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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 December 29, 2018.  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.  

In the second quarter of 2019 and 2018, our cumulative catch-up adjustments increased revenue and segment profit by $27 million and $64 million, respectively, and net income by $21 million and $49 million, respectively ($0.09 and $0.19 per diluted share, respectively). In the second quarter of 2019 and 2018, gross favorable adjustments totaled $46 million and $70 million, respectively, and the gross unfavorable adjustments totaled $19 million and $6 million, respectively.

In the first half of 2019 and 2018, our cumulative catch-up adjustments increased revenue and segment profit by $58 million and $104 million, respectively, and net income by $44 million and $79 million, respectively ($0.19 and $0.30 per diluted share, respectively).  In the first half of 2019 and 2018, gross favorable adjustments totaled $99 million and $126 million, respectively, and the gross unfavorable adjustments totaled $41 million and $22 million, respectively.

Note 2.  Summary of Significant Accounting Policies Update  

At the beginning of 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (ASC 842), which requires lessees to recognize all leases with a term greater than 12 months on the balance sheet as right-of-use assets and lease liabilities. Upon adoption, the most significant impact was the recognition of $307 million in right-of-use assets and lease liabilities for operating leases, while our accounting for finance leases remained unchanged.  We applied the provisions of this standard to our existing leases at the adoption date using a retrospective transition method and have not adjusted comparative periods. The cumulative transition adjustment to retained earnings was not significant and the adoption had no impact on our earnings or cash flows.  We elected the practical expedients permitted under the transition guidance, which allowed us to carryforward the historical lease classification and to apply hindsight when evaluating options within a contract, resulting in the extension of the lease term for certain of our existing leases.

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Our significant accounting policies are included in Note 1 of our Annual Report on Form 10-K for the year ended December 29, 2018.  Significant changes to our policies resulting from the adoption of ASC 842 are provided below.

Leases

We identify leases by evaluating our contracts to determine if the contract conveys the right to use an identified asset for a stated period of time in exchange for consideration. Specifically, we consider whether we can control the underlying asset and have the right to obtain substantially all of the economic benefits or outputs from the asset.  For our contracts that contain both lease components  (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common-area maintenance costs, other goods/services), we allocate the consideration in the contract to each component based on its standalone price.  Leases with terms greater than 12 months are classified as either operating or finance leases at the commencement date.  For these leases, we capitalize the lesser of a) the present value of the minimum lease payments over the lease term, or b) the fair value of the asset, as a right-of-use asset with an offsetting lease liability. The discount rate used to calculate the present value of the minimum lease payments is typically our incremental borrowing rate, as the rate implicit in the lease is generally not known or determinable. The lease term includes any noncancelable period for which we have the right to use the asset and may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.  Operating leases are recognized as a single lease cost on a straight-line basis over the lease term, while finance lease cost is recognized separately as amortization and interest expense.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses. For most financial assets, such as trade and other receivables, loans and other instruments, this standard changes the current incurred loss model to a forward-looking expected credit loss model, which generally will result in the earlier recognition of allowances for losses.  The new standard is effective for our company at the beginning of 2020.  Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of the effective date.  We are currently evaluating the impact of the standard on our consolidated financial statements.

Note 3.  Accounts Receivable and Finance Receivables

Accounts Receivable

Accounts receivable is composed of the following:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

June 29,

December 29,

(In millions)

2019

2018

Commercial

  $

874

  $

885

U.S. Government contracts

142

 

166

1,016

 

1,051

Allowance for doubtful accounts

(27)

 

(27)

Total accounts receivable, net

  $

989

  $

1,024

Finance Receivables

Finance receivables are presented in the following table:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

June 29,

December 29,

(In millions)

2019

2018

Finance receivables

  $

802

  $

789

Allowance for losses

(26)

 

(29)

Total finance receivables, net

  $

776

  $

760

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.

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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:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

June 29,

December 29,

(Dollars in millions)

2019

2018

Performing

  $

732

  $

704

Watchlist

39

 

45

Nonaccrual

31

 

40

Nonaccrual as a percentage of finance receivables

3.87

%

5.07

%

Less than 31 days past due

  $

726

  $

719

31-60 days past due

64

56

61-90 days past due

3

5

Over 90 days past due

9

9

60+ days contractual delinquency as a percentage of finance receivables

1.50

%

1.77

%

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

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

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

June 29,

December 29,

(In millions)

2019

2018

Finance receivables evaluated collectively

  $

669

  $

630

Finance receivables evaluated individually

 

31

 

58

Allowance for losses based on collective evaluation

24

24

Allowance for losses based on individual evaluation

 

2

 

5

Impaired finance receivables with no related allowance for losses

  $

23

  $

43

Impaired finance receivables with related allowance for losses

8

15

Unpaid principal balance of impaired finance receivables

41

67

Average recorded investment of impaired finance receivables

40

61

Note 4. Inventories

Inventories are composed of the following:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

June 29,

December 29,

(In millions)

2019

2018

Finished goods

  $

1,743

  $

1,662

Work in process

1,771

 

1,356

Raw materials and components

797

 

800

Total inventories

  $

4,311

  $

3,818

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Note 5. Other Assets

On April 1, 2019, TRU Simulation + Training Inc., a business within our Textron Systems segment, contributed assets associated with its training business into FlightSafety Textron Aviation Training LLC, a company formed by FlightSafety International Inc. and TRU to provide training solutions for Textron Aviation’s commercial business and general aviation aircraft. We have a 30% interest in this newly formed company and our investment is accounted for under the equity method of accounting. We contributed assets with a carrying value of $69 million to the company, which primarily included property, plant and equipment. In addition, $71 million of the Textron Systems segment's goodwill was allocated to this transaction. In the second quarter of 2019, based on the fair value of our share of the business, we recorded a pre-tax net gain of $18 million, subject to post-closing adjustments, to cost of sales in our Consolidated Statements of Operations.

Note 6. Warranty Liability

Changes in our warranty liability are as follows:

Six Months Ended

June 29,

June 30,

(In millions)

2019

2018

Beginning of period

  $

149

  $

164

Provision

 

30

 

34

Settlements

 

(38)

 

(39)

Adjustments*

 

(5)

 

7

End of period

  $

136

  $

166

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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

Note 7. 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 30 years, which include options to extend the lease term for periods up to 25 years when it is reasonably certain the option will be exercised. In the second quarter and first half of 2019, our operating lease cost totaled $16 million and $32 million, respectively. Our finance lease cost and our variable and short-term lease costs were not significant. In the first half of 2019, cash paid for operating lease liabilities totaled $32 million, which is classified in cash flows from operating activities.  Balance sheet and other information related to our leases is as follows:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

June 29,

(Dollars in millions)

2019

Operating leases:

  

Other assets

  $

298

Other current liabilities

 

53

Other liabilities

 

247

Finance leases:

 

  

Property, plant and equipment, less accumulated amortization of $51 million

  $

116

Short-term and current portion of long-term debt

 

6

Long-term debt

 

77

Weighted-average remaining lease term (in years)

 

  

Finance leases

 

14.1

Operating leases

 

10.3

Weighted-average discount rate

 

  

Finance leases

 

2.73

%

Operating leases

 

4.46

%

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Maturities of our lease liabilities at June 29, 2019 are as follows:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Operating

Finance

(In millions)

Leases

Leases

2019

  $

34

  $

5

2020

 

57

 

9

2021

 

43

 

9

2022

 

37

 

9

2023

 

31

 

9

Thereafter

 

179

 

69

Total lease payments

 

381

 

110

Less: interest

 

(81)

 

(27)

Total lease liabilities

  $

300

  $

83

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Note 8. Debt

Under our shelf registration statement, on May 7, 2019, we issued $