TEXTRON INC

Note 1. Basis of Presentation

Our Consolidated Financial Statements include the accounts of Textron Inc. (Textron) and its majority-owned subsidiaries. We have prepared these unaudited consolidated financial statements in accordance with accounting principles generally accepted in the U.S. for interim financial information. Accordingly, these interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. The consolidated interim financial statements included in this quarterly report should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 3, 2026. In the opinion of management, the interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair presentation of our consolidated financial position, results of operations and cash flows for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

Our financings are conducted throughtwo 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 third quarter of 2026 and 2025, our cumulative catch-up adjustments increased segment profit by $19 million and $18 million, respectively, and net income by $15 million and $14 million, respectively, ($0.09 and $0.08 per diluted share). In the first nine months of 2026 and 2025, our cumulative catch-up adjustments increased segment profit by $29 million and $43 million, respectively, and net income by $23 million and $33 million, respectively ($0.13 and $0.18 per diluted share, respectively).

Note 2. Accounts Receivable and Finance Receivables

Accounts Receivable

Accounts receivable is composed of the following:

Finance Receivables

Finance receivables are presented in the following table:

Finance Receivable Portfolio Quality

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

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

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

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

At October 3, 2026,67% of our performing finance receivables were originated since the beginning of 2024 and 17% were originated from 2021 to 2023 with the remainder prior to 2021. For finance receivables categorized as watchlist,45% were originated since the beginning of 2024 and 35% from 2021 to 2023 with the remainder prior to 2021. For finance receivables categorized as nonaccrual,100% were originated since the beginning of 2022.

On a quarterly basis, we evaluate individual larger balance accounts for impairment. A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators described above. Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified. If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification. Our impaired finance receivables were not significant at October 3, 2026 and January 3, 2026.

Note 3. Inventories

Inventories are composed of the following:

Note 4. Accounts Payable and Warranty Liability

Accounts Payable

Supplier Financing Arrangement

We have a financing arrangement with one of our suppliers for a maximum amount of $200 million that extends payment terms for up to 190 days from the receipt of goods and provides for the supplier to be paid by a financial institution earlier than maturity. This financing arrangement expires in April 2027. At October 3, 2026 and January 3, 2026, the amount due under the supplier financing arrangement was $136 million and $108 million, respectively.

Warranty Liability

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

• Other includes business dispositions and currency translation adjustments.

Note 5. Leases

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

Operating lease cost totaled $19 million and $18 million in the third quarter of 2026 and 2025, respectively, and $58 million and $54 million in the first nine months of 2026 and 2025, respectively. Cash paid for operating leases approximated the lease cost and is classified in cash flows from operating activities. Noncash transactions related to operating leases totaled $52 million and $77 million in the first nine months of 2026 and 2025, respectively, reflecting new or modified leases and changes from the reassessment of lease options. Finance lease, variable and short-term lease costs were not significant.

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

At October 3, 2026, maturities of our operating lease liabilities on an undiscounted basis totaled $19 million for the remainder of 2026, $70 million for 2027, $64 million for 2028, $58 million for 2029, $49 million for 2030 and $270 million thereafter. In the first quarter of 2026, we paid $72 million in connection with the termination of a finance lease resulting from our election to exercise an option to purchase the related manufacturing facility for the MV-75 program.

Note 6. Derivative Instruments and Fair Value Measurements

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

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

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

Our foreign currency exchange contracts are measured at fair value using the market method valuation technique. The inputs to this technique utilize current foreign currency exchange forward market rates published by third-party leading financial news and data providers. These are observable data that represent the rates that the financial institution uses for contracts entered into at that date; however, they are not based on actual transactions, so they are classified as Level 2. At October 3, 2026 and January 3, 2026, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $559 million and $477 million, respectively. At October 3, 2026, the fair value amounts of our foreign currency exchange contracts were a $1 million asset and a $14 million liability. At January 3, 2026, the fair value amounts of our foreign currency exchange contracts were a $6 million asset and a $10 million liability.

Our Finance group enters into interest rate swap agreements to mitigate certain exposures to fluctuations in interest rates. By using these contracts, we are able to convert floating-rate cash flows to fixed-rate cash flows. These agreements are designated as cash flow hedges. The fair value of our interest rate swap agreements is determined using values published by third-party leading financial news and data providers. These values are observable data that represent the value that financial institutions use for contracts entered into at that date, but are not based on actual transactions, so they are classified as Level 2. The fair value of our outstanding interest rate swap agreements was a $7 million and a $1 million asset at October 3, 2026 and January 3, 2026, respectively.

At October 3, 2026 and January 3, 2026, our Finance group had interest rate swap agreements related to our Floating Rate Junior Subordinated Notes for an aggregate notional amount of $209 million and $264 million, respectively, that effectively converts the variable-rate interest for these Notes to a weighted-average fixed rate of 5.15% and 5.16%, respectively. At October 3, 2026, these agreements have maturities ranging from August 2027 to August 2030.

Assets and Liabilities Not Recorded at Fair Value

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

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

Note 7. Shareholders’ Equity

A reconciliation of Shareholders’ equity is presented below:

• Includes amounts accrued for excise tax imposed on common share repurchases that totaled $2 million and $4 million for the third quarter and first nine months of 2026, respectively, and $2 million and $5 million for the third quarter and first nine months of 2025, respectively.

Dividends per share of common stock were $0.02 for both the third quarter of 2026 and 2025 and $0.06 for both the first nine months of 2026 and 2025.

Earnings Per Share

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

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

In the third quarter and first nine months of 2026, stock options to purchase 1.7 million and 1.1 million shares of common stock, respectively, were excluded from the calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive. Stock options to purchase 2.0 million and 2.3 million shares of common stock were excluded from the calculation of diluted weighted-average shares outstanding for the third quarter and first nine months of 2025, respectively, as their effect would have been anti-dilutive.

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

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

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

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

Note 8. Segment Financial Information

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

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

Segment profit for the manufacturing segments excludes the non-service components of pension and postretirement income, net; LIFO inventory provision; intangible asset amortization; interest expense, net for Manufacturing group; certain corporate expenses; gains/losses on major business dispositions; and special charges. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.

Our revenues and expenses by segment are provided below:

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

Other information by segment is provided below:

Our assets by segment are summarized below:

Note 9. Revenues

Disaggregation of Revenues

Our revenues disaggregated by major product type are presented below:

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

Remaining Performance Obligations

Our remaining performance obligations, which is the equivalent of our backlog, represent the expected transaction price allocated to our contracts that we expect to recognize as revenues in future periods when we perform under the contracts. These remaining obligations exclude unexercised contract options and potential orders under ordering-type contracts such as Indefinite Delivery, Indefinite Quantity contracts. At October 3, 2026, we had $19.0 billion in remaining performance obligations of which we expect to recognize revenues of approximately 62% through 2027, an additional 31% through 2029, and the balance thereafter.

Contract Assets and Liabilities

Assets and liabilities related to our contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At October 3, 2026 and January 3, 2026, contract assets totaled $470 million and $451 million, respectively, and contract liabilities totaled $2.2 billion and $2.1 billion, respectively, reflecting timing differences between revenues recognized, billings and payments from customers. We recognized revenues of $234 million and $1.2 billion in the third quarter and first nine months of 2026, respectively, and $277 million and $968 million in the third quarter and first nine months of 2025, respectively, that were included in the contract liability balance at the beginning of each year.

Note 10. Retirement Plans

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

• Excludes the cost associated with the defined contribution component, included in certain of our U.S.-based defined benefit pension plans, that totaled $2 million and $7 million for the third quarter and first nine months of 2026, respectively, and $2 million and $7 million for the third quarter and first nine months of 2025, respectively.

Note 11. Income Taxes

Our effective tax rate was 16.1% and 17.4% for the third quarter and first nine months of 2026, respectively. The effective tax rate was lower than the U.S. federal statutory rate of 21%, primarily due to the favorable impact of research and development credits and tax deductions for foreign-derived deduction eligible income, which replaced foreign-derived intangible income beginning in 2026. These benefits were partially offset by an increase in tax provision due to the repatriation of cash related to non-U.S. jurisdictions in the third quarter of 2026.

Our effective tax rate for the third quarter and first nine months of 2025 was 25.6% and 19.9%, respectively. In the third quarter of 2025, the effective tax rate was higher than the U.S. federal statutory rate of 21%, largely reflecting the impact of certain provisions of the One Big Beautiful Bill Act, primarily those that affected tax deductions for foreign-derived intangible income and research and development credits. In the first nine months of 2025, our effective tax rate was lower than the U.S. federal statutory rate, primarily due to the favorable impact of research and development credits.

Note 12. Commitments and Contingencies

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

MV-75 Program

Funding

As previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended July 4, 2026, on April 28, 2026, Bell received a letter from the U.S. Army Contracting Command stating that the U.S. Government was pursuing an Above Threshold Reprogramming (ATR) request for $350 million in additional funds for the MV-75 program for the U.S. Government’s fiscal year ending September 30, 2026. In mid-July 2026, Bell exhausted substantially all available fiscal 2026 MV-75 program funds and continued working on the program at its own risk during the third quarter, while maintaining reduced spending levels on the program. Prior to the end of the Company's third quarter, the ATR request was approved and obligated pursuant to contract modifications for approximately $300 million in additional funds. As a result of the ATR approval, modifications and contract changes received, and reduced program spending levels, there was no related cumulative catch-up adjustment required during the third quarter.

Low-Rate Initial Production Option

As the MV-75 program progresses, we expect to be awarded the long-lead Low-Rate Initial Production (LRIP) phase of the contract. The award is dependent on the approval of the U.S. Government’s 2027 fiscal year budget, the timing and availability of funding for the MV-75 program in the approved budget, and resulting mutually agreed-upon program schedule. Upon award of the LRIP option, which is largely fixed price, we expect to record an unfavorable cumulative catch-up program adjustment, reflecting higher costs than originally anticipated from when the program was bid. If the LRIP option is awarded during 2027, we now expect to record an unfavorable cumulative catch-up program adjustment in the range of $110 million to $150 million, depending upon the timing of the award during the year, as well as the program schedule and the funding available on the program. Our previously disclosed range of $60 million to $110 million reflected an award in late 2026 or early 2027. We expect the overall MV-75 program to continue to generate a positive profit margin after the adjustment.