# TEXTRON INC (TXT) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from TEXTRON INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/217346/000021734625000017/txt-20241228.htm
Accession: 0000217346-25-000017
Filing date: 2025-02-06
Report date: 2024-12-28
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TXT/
All MD&A years: /company/TXT/mda/
Previous year: /company/TXT/mda/fy2023/ (FY 2023)
Next year: /company/TXT/mda/fy2026/ (FY 2026)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

In 2024, our operating results were adversely impacted by a strike at the Textron Aviation segment. On September 21, 2024, the International Association of Machinists and Aerospace Workers (IAM) District 70, Local Lodge 774 called a strike against Textron Aviation. On October 20, 2024, an agreement was reached on a new five-year labor contract. As a result, our revenues and profit were unfavorably impacted in the second half of 2024 due to delayed aircraft deliveries and manufacturing inefficiencies associated with the labor disruption and the recovery of operating activities. At the Industrial segment, we experienced lower revenues and profit in 2024, largely resulting from a decline in demand in our end markets for Textron Specialized Vehicles products. We are in the process of conducting a strategic review of our powersports product line, as discussed in Note 15 to the Consolidated Financial Statements on page 62.

At our Bell segment, the ramp up of the FLRAA program contributed to a 14% growth in its revenues for the year. In August, the U.S. Army announced approval of Milestone B for the FLRAA program, establishing it as a program of record and transitioning it to the Engineering and Manufacturing Development phase. In the second half of the year, Bell was awarded contracts totaling approximately $3.0 billion for this phase of the program that contributed to a total company backlog increase of $4.0 billion, 29%, to $17.9 billion at the end of 2024. This backlog increase included growth of $676 million at the Textron Aviation segment, reflecting steady customer demand supported by new products, and $644 million at the Textron Systems segment, which included new contract awards for the Ship-to-Shore Connector program.

Financial highlights for 2024 also include:

•Generated $1.0 billion of net cash from operating activities from our manufacturing businesses.

•Invested $491 million in research and development projects and $364 million in capital expenditures.

•Returned $1.1 billion to our shareholders through the repurchase of 12.9 million shares of our common stock.

For an overview of our business segments, including a discussion of our major products and services, refer to Item 1. Business. A discussion of our financial condition and operating results for 2024 compared with 2023 is provided below, while a discussion of 2023 compared with 2022 can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 30, 2023.

In November 2023, the Financial Accounting Standards Board issued Accounting Standard Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose, on an annual and interim basis, significant segment expenses and other segment items that are regularly provided to the Chief Operating Decision Maker. The new standard is effective for fiscal years beginning after December 15, 2023. We adopted ASU 2023-07 in the fourth quarter of 2024 and have recast management’s discussion and analysis of the results of operations of our company to include a discussion of the additional expense categories. In connection with the adoption of this standard, research and development costs previously included within Cost of products sold are now reported on a separate line in our Consolidated Statements of Operations. Prior period amounts have been recast to conform to the new presentation.

The following discussion should be read in conjunction with our Consolidated Financial Statements and related Notes included in Item 8. Financial Statements and Supplementary Data.

Consolidated Results of Operations

[[GREPCENT_TABLE]]
[["","","","","% Change"],["(Dollars in millions)","2024","2023","2022","2024","2023"],["Revenues","$","13,702","$","13,683","$","12,869","\u2014%","6%"],["Cost of sales","11,200","10,835","10,199","3%","6%"],["Gross margin as a percentage of Manufacturing revenues","18.0%","20.5%","20.4%"],["Research and development costs","491","570","601","(14)%","(5)%"],["Selling and administrative expense","1,156","1,225","1,186","(6)%","3%"],["Interest expense, net","97","77","107","26%","(28)%"],["Special charges","78","126","\u2014","(38)%","100%"],["Non-service components of pension and postretirement income, net","263","237","240","11%","(1)%"]]
[[/GREPCENT_TABLE]]

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Revenues

Revenues increased $19 million in 2024, compared with 2023, largely due to the following factors:

•Higher Bell revenues of $432 million, largely reflecting higher military aircraft and support revenues of $347 million, primarily due to higher volume on the FLRAA program, partially offset by lower volume on the V-22 program.

•Lower Industrial revenues of $326 million, due to lower revenues of $263 million at Textron Specialized Vehicles, principally in the powersports and personal transportation vehicles product lines due to reduced demand in their end markets, and lower revenues of $63 million at Kautex.

•Lower Textron Aviation revenues of $89 million, reflecting lower volume and mix of $270 million, principally a result of the strike discussed in the Segment Analysis section below, partially offset by higher pricing of $181 million in both the aircraft and aftermarket parts and services product lines.

Cost of Sales

Cost of sales includes cost of products and services sold for the Manufacturing group. In 2024, cost of sales increased $365 million, 3%, compared with 2023. The increase in cost was largely due to a $299 million impact from inflation and higher LIFO inventory provision and a $38 million inventory valuation charge to write down inventory to its net realizable value at Textron Specialized Vehicles as discussed in Note 15 to the Consolidated Financial Statements on page 62.

Consolidated gross margin as a percentage of Manufacturing revenues decreased 250 basis points in 2024, compared with 2023, primarily due to lower gross margin at the Bell segment, largely due to the mix of contracts discussed above, and at the Textron Aviation segment, reflecting the mix of aircraft sold and manufacturing inefficiencies, largely due to the strike. In addition, higher LIFO inventory provision and the inventory valuation charge noted above accounted for 80 basis points of the decrease.

Research and Development Costs

Research and development costs decreased $79 million, 14%, in 2024, compared with 2023, largely reflecting the winddown of the Future Attack Reconnaissance Aircraft Program at the Bell segment, partially offset by a $17 million increase at the Textron eAviation segment, largely due to development efforts on hybrid and electric propulsion aircraft.

Selling and Administrative Expense

Selling and administrative expense decreased $69 million, 6%, in 2024, compared with 2023, primarily reflecting lower compensation expense, which included lower shared-based and incentive compensation and savings from restructuring activities.

Interest Expense, Net

Interest expense, net includes interest expense for both the Finance and Manufacturing borrowing groups, with interest on intercompany borrowings eliminated, and interest income earned on cash and equivalents for the Manufacturing borrowing group. In 2024, interest expense, net increased $20 million, 26%, compared with 2023, primarily due to an increase in the weighted-average interest rate of our debt and $7 million in lower interest income. For 2024, 2023 and 2022, gross interest expense totaled $146 million, $133 million and $129 million, respectively.

Special Charges

Special charges of $78 million and $126 million in 2024 and 2023, respectively, include restructuring activities and asset impairment charges as described in Note 15 to the Consolidated Financial Statements on page 62.

Non-service Components of Pension and Postretirement Income, Net

Non-service components of pension and postretirement income, net increased by $26 million, 11%, in 2024, compared with 2023. The increase is based on our annual valuation at the end of 2023 and is primarily driven by the impact of actual pension asset returns that exceeded our expected return on plan assets.

Income Taxes

[[GREPCENT_TABLE]]
[["","2024","2023","2022"],["Effective tax rate","12.5%","15.2%","15.2%"]]
[[/GREPCENT_TABLE]]

In 2024, the effective tax rate of 12.5% was lower than the U.S. federal statutory tax rate of 21%, largely due to the favorable impact of research and development credits and the effective settlement of certain tax positions in the fourth quarter of 2024, which is discussed in Note 16 to the Consolidated Financial Statements on page 63. In 2023, the effective tax rate of 15.2% was lower than the U.S. federal statutory tax rate of 21%, largely due to the favorable impact of research and development credits and tax deductions for foreign-derived intangible income.

For a full reconciliation of our effective tax rate to the U.S. federal statutory tax rate, see Note 16 to the Consolidated Financial Statements on page 63.

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Segment Analysis

We operate in, and report financial information for, the following six operating segments: Textron Aviation, Bell, Textron Systems, Industrial, Textron eAviation and Finance. Segment profit is an important measure used for evaluating performance and for decision-making purposes. 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; special charges and the inventory valuation charge to write down production-related powersports inventory. The operating costs used to derive segment profit for our manufacturing segments includes cost of sales, research and development costs and selling and administrative expense. The cost of sales discussed in this Segment Analysis section excludes the LIFO inventory provision, intangible asset amortization and the inventory valuation charge discussed above that are reported within Cost of products sold or Cost of services sold on the Consolidated Statement of Operations. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense.

In our discussion of comparative results for the Manufacturing group, material changes in revenues and segment profit for our commercial businesses typically are expressed in terms of product line revenues, including volume and mix and pricing; foreign exchange; acquisitions and dispositions; inflation; manufacturing efficiency; and changes in research and development costs and selling and administrative expense. For revenues, volume and mix represents changes in revenues from increases or decreases in the number of units delivered or services provided and the composition of products and/or services sold. For segment profit, volume and mix represents a change due to the number of units delivered or services provided and the composition of products and/or services sold at different profit margins. Pricing represents changes in unit pricing. Foreign exchange is the change resulting from translating foreign-denominated amounts into U.S. dollars at exchange rates that are different from the prior period. Revenues generated by acquired businesses are reflected in Acquisitions for a twelve-month period, while reductions in revenues and segment profit from the sale of businesses are reflected as Dispositions. Inflation represents higher material, wages, benefits, pension service cost or other costs. Manufacturing efficiency includes changes in material, labor and overhead variances to standards, typically due to scrap rates, labor efficiency or inefficiencies, facility usage and other manufacturing productivity inputs.

Approximately 25% of our 2024 revenues were derived from contracts with the U.S. Government, including those under the U.S. Government-sponsored foreign military sales program. For our segments that contract with the U.S. Government, material changes in revenues related to these contracts are expressed in terms of volume. Changes in segment profit for these contracts are typically expressed in terms of volume and mix and contract performance, which includes cumulative catch-up adjustments associated with a) revisions to the transaction price that may reflect contract modifications or changes in assumptions related to award fees and other variable consideration or b) changes in the total estimated costs at completion due to improved or deteriorated operating performance.

Textron Aviation

[[GREPCENT_TABLE]]
[["","","","","% Change"],["(Dollars in millions)","2024","2023","2022","2024","2023"],["Revenues:"],["Aircraft","$","3,374","$","3,577","$","3,387","(6)%","6%"],["Aftermarket parts and services","1,910","1,796","1,686","6%","7%"],["Total revenues","5,284","5,373","5,073","(2)%","6%"],["Cost of sales","4,102","4,116","3,905","\u2014%","5%"],["Research and development costs","208","199","191","5%","4%"],["Selling and administrative expense","408","409","417","\u2014%","(2)%"],["Segment profit","$","566","$","649","$","560","(13)%","16%"],["Profit margin","10.7%","12.1%","11.0%"],["Backlog","$","7,845","$","7,169","$","6,387","9%","12%"]]
[[/GREPCENT_TABLE]]

Textron Aviation’s revenues decreased $89 million, 2%, in 2024, compared with 2023, reflecting lower volume and mix of $270 million, which was principally a result of the strike discussed below, partially offset by higher pricing of $181 million. Aircraft revenues decreased $203 million, 6%, due to lower volume and mix, largely from Citation jet and commercial turboprop deliveries, partially offset by higher pricing. We delivered 151 Citation jets and 127 commercial turboprops in 2024, compared with 168 Citation jets and 153 commercial turboprops in 2023. Aftermarket parts and services revenues increased $114 million, 6%, due to higher pricing and volume.

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On September 21, 2024, the IAM District 70, Local Lodge 774 called a strike against Textron Aviation. The strike impacted approximately 5,000 of Textron Aviation’s employees at the manufacturing, parts and distribution and service center facilities in Wichita. On October 20, 2024, Textron Aviation and the IAM reached an agreement on a new five-year labor contract. The strike had a significant adverse impact on Textron Aviation’s ability to meet its production and delivery schedules in the third quarter and continuing into the fourth quarter of 2024. As a result, our revenues and profit were unfavorably impacted in the second half of 2024 by delayed aircraft deliveries and manufacturing inefficiencies associated with the labor disruption and the recovery of operating activities.

Textron Aviation’s cost of sales decreased $14 million in 2024, compared with 2023. The impact of lower volume and mix on our cost of sales was offset by $127 million of inflation and $43 million in manufacturing inefficiencies, largely reflecting idle facilities costs resulting from the strike discussed above.

Textron Aviation’s segment profit decreased $83 million, 13%, in 2024, compared with 2023, primarily due to lower volume and mix and the manufacturing inefficiencies discussed above, partially offset by higher pricing, net of inflation.

Textron Aviation’s backlog increased $676 million, 9%, in 2024, reflecting orders in excess of deliveries. 

Bell

[[GREPCENT_TABLE]]
[["","","","","% Change"],["(Dollars in millions)","2024","2023","2022","2024","2023"],["Revenues:"],["Military aircraft and support programs","$","2,048","$","1,701","$","1,740","20%","(2)%"],["Commercial helicopters, parts and services","1,531","1,446","1,351","6%","7%"],["Total revenues","3,579","3,147","3,091","14%","2%"],["Cost of sales","2,899","2,392","2,316","21%","3%"],["Research and development costs","97","192","266","(49)%","(28)%"],["Selling and administrative expense","213","243","227","(12)%","7%"],["Segment profit","$","370","$","320","$","282","16%","13%"],["Profit margin","10.3%","10.2%","9.1%"],["Backlog","$","7,469","$","4,780","$","4,781","56%","\u2014%"]]
[[/GREPCENT_TABLE]]

Bell’s military aircraft and support programs include a development contract for the U.S. Army's FLRAA program, as well as production, upgrade, and support contracts for the V-22 tiltrotor aircraft and H-1 helicopters. The FLRAA program represents an increasing portion of Bell’s revenues as development activities have ramped. In August 2024, the U.S. Army announced approval of Milestone B for the FLRAA program, establishing it as a program of record and transitioning it to the Engineering and Manufacturing Development phase. In the second half of 2024, Bell was awarded contracts totaling approximately $3.0 billion for this phase of the program.

Bell’s military and support programs revenues increased $347 million, 20%, in 2024, compared with 2023, primarily due to higher volume on the FLRAA program, partially offset by lower volume on the V-22 program. Commercial helicopters, parts and services increased $85 million, 6%. We delivered 172 commercial helicopters in 2024, compared with 171 commercial helicopters in 2023.

Bell's cost of sales increased $507 million, 21%, in 2024, compared with 2023, primarily due to the higher volume and mix discussed above.

Bell's research and development costs decreased $95 million, 49%, in 2024, compared with 2023, largely due to the winddown of the Future Attack Reconnaissance Aircraft Program.

Selling and administrative expense decreased at Bell by $30 million, 12%, in 2024, compared with 2023, primarily due to a gain on a legal settlement recorded in the first quarter of 2024 and lower bid and proposal costs.

Bell’s segment profit increased $50 million, 16%, in 2024, compared with 2023, primarily due to lower research and development costs, as described above, partially offset by an unfavorable impact from mix as volume increased on lower margin FLRAA development activities while volume decreased on higher margin V-22 program revenues.

Backlog increased $2.7 billion, 56%, at Bell due to orders in excess of revenues recognized and deliveries, largely related to the FLRAA program discussed above.

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Textron Systems

[[GREPCENT_TABLE]]
[["","","","","% Change"],["(Dollars in millions)","2024","2023","2022","2024","2023"],["Revenues","$","1,241","$","1,235","$","1,172","\u2014%","5%"],["Cost of sales","929","925","878","\u2014%","5%"],["Research and development costs","51","53","53","(4)%","\u2014%"],["Selling and administrative expense","107","110","109","(3)%","1%"],["Segment profit","$","154","$","147","$","132","5%","11%"],["Profit margin","12.4%","11.9%","11.3%"],["Backlog","$","2,594","$","1,950","$","2,098","33%","(7)%"]]
[[/GREPCENT_TABLE]]

Textron Systems revenues and segment profit increased $6 million and $7 million, respectively, in 2024, compared with 2023. The impact on volume related to the cancellation of the Shadow program in the first quarter of 2024 was largely offset by higher volume on the Ship-to-Shore Connector program.

Textron Systems’ backlog increased $644 million, 33%, in 2024, compared with 2023, reflecting orders in excess of revenues recognized and deliveries, which included new contract awards for the Ship-to-Shore Connector program.

Industrial

[[GREPCENT_TABLE]]
[["","","","","% Change"],["(Dollars in millions)","2024","2023","2022","2024","2023"],["Revenues:"],["Kautex","$","1,891","$","1,954","$","1,771","(3)%","10%"],["Textron Specialized Vehicles","1,624","1,887","1,694","(14)%","11%"],["Total revenues","3,515","3,841","3,465","(8)%","11%"],["Cost of sales","2,993","3,221","2,959","(7)%","9%"],["Research and development costs","72","80","71","(10)%","13%"],["Selling and administrative expense","299","312","280","(4)%","11%"],["Segment profit","$","151","$","228","$","155","(34)%","47%"],["Profit margin","4.3%","5.9%","4.5%"]]
[[/GREPCENT_TABLE]]

Industrial segment revenues decreased $326 million, 8%, in 2024, compared with 2023, largely due to lower volume and mix. Textron Specialized Vehicles' revenues decreased $263 million, 14%, reflecting lower volume, principally in the powersports and personal transportation vehicles products due to reduced demand in their end markets. Kautex revenues decreased $63 million, 3%, largely due to lower volume.

Industrial's cost of sales decreased $228 million, 7%, in 2024 compared with 2023, primarily reflecting the impact of lower volume and mix.

Segment profit for the Industrial segment decreased $77 million, 34%, in 2024, compared with 2023, largely due to a $105 million impact from lower volume and mix, partially offset by $22 million in manufacturing efficiencies and $21 million in lower selling and administrative expense and research and development costs, largely due to cost reduction activities.

Textron eAviation

[[GREPCENT_TABLE]]
[["","","","","% Change"],["(Dollars in millions)","2024","2023","2022","2024","2023"],["Revenues","$","33","","$","32","","$","16","","3%","100%"],["Cost of sales","29","","35","","18","","(17)%","94%"],["Research and development costs","63","","46","","20","","37%","130%"],["Selling and administrative expense","17","","14","","2","","21%","600%"],["Segment loss","$","(76)","$","(63)","$","(24)","21%","163%"]]
[[/GREPCENT_TABLE]]

Textron eAviation segment revenues increased $1 million, 3%, in 2024, compared with 2023. Research and development costs increased $17 million, 37%, largely due to the ramp up of development efforts on hybrid and electric propulsion aircraft. Segment loss increased $13 million in 2024, compared with 2023, primarily reflecting the higher research and development costs.

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Finance

[[GREPCENT_TABLE]]
[["(In millions)","2024","2023","2022"],["Revenues","$","50","","$","55","","$","52"],["Selling and administrative expense","(4)","","(6)","","8"],["Interest expense, net","19","","15","","13"],["Segment profit","$","35","","$","46","","$","31"]]
[[/GREPCENT_TABLE]]

Finance segment revenues decreased $5 million and segment profit decreased $11 million in 2024, compared with 2023. Selling and administrative expense included recoveries of $10 million and $18 million in 2024 and 2023, respectively. The decrease in segment profit was primarily due to $8 million in lower recoveries of credit losses.

Liquidity and Capital Resources

Our financings are conducted through two separate borrowing groups.  The Manufacturing group consists of Textron consolidated with its majority-owned subsidiaries that operate in the Textron Aviation, Bell, Textron Systems, Industrial and Textron eAviation segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation and its consolidated subsidiaries. We designed this framework to enhance our borrowing power by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible products 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.

Assessment of Liquidity and Significant Future Cash Requirements

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

[[GREPCENT_TABLE]]
[["(Dollars in millions)","December 28, 2024","December 30, 2023"],["Manufacturing group"],["Cash and equivalents","$","1,386","$","2,121"],["Debt","3,247","3,526"],["Shareholders\u2019 equity","7,204","6,987"],["Capital (debt plus shareholders\u2019 equity)","10,451","10,513"],["Net debt (net of cash and equivalents) to capital","21%","17%"],["Debt to capital","31%","34%"],["Finance group"],["Cash and equivalents","$","55","$","60"],["Debt","341","348"]]
[[/GREPCENT_TABLE]]

We believe that our calculations of debt to capital and net debt to capital are useful measures as they provide a summary indication of the level of debt financing (i.e., leverage) that is in place to support our capital structure, as well as to provide an indication of our capacity to add further leverage.

We expect to have sufficient cash to meet our needs based on our existing cash balances, the cash we expect to generate from our manufacturing operations and the availability of our existing credit facility. In addition to our manufacturing operating cash requirements, future material cash outlays include our contractual combined debt and interest payments for the Manufacturing group of $473 million in 2025, $457 million in 2026, $444 million in 2027 and $2.5 billion thereafter, and for the Finance group of $46 million in 2025, $20 million in 2026, $69 million in 2027 and $507 million thereafter.

For the Manufacturing group, we also have purchase obligations that require material future cash outlays totaling $2.7 billion in 2025, $501 million in 2026 and $355 million thereafter. Purchase obligations include undiscounted amounts committed under contracts or purchase orders for goods and services with defined terms as to price, quantity and delivery dates, as well as property, plant and equipment. Approximately 28% of our purchase obligations represent purchase orders issued for goods and services to be delivered under firm contracts with the U.S. Government for which we have full recourse under customary contract termination clauses.

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Credit Facilities and Other Sources of Capital

Textron has a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 billion, of which $100 million is available for the issuance of letters of credit. We may elect to increase the aggregate amount of commitments under the facility to up to $1.3 billion by designating an additional lender or by an existing lender agreeing to increase its commitment. The facility expires in October 2027 and provides for two one-year extensions at our option with the consent of lenders representing a majority of the commitments under the facility. At December 28, 2024 and December 30, 2023, there were no amounts borrowed against the facility and there were $9 million of outstanding letters of credit issued under the facility.

We also maintain an effective shelf registration statement filed with the Securities and Exchange Commission that allows us to issue an unlimited amount of public debt and other securities. On March 1, 2024, we repaid our $350 million 4.30% Notes due March 2024.

Manufacturing Group Cash Flows

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

[[GREPCENT_TABLE]]
[["(In millions)","2024","2023","2022"],["Operating activities","$","1,008","","$","1,270","","$","1,461"],["Investing activities","(288)","","(345)","","(511)"],["Financing activities","(1,438)","","(776)","","(875)"]]
[[/GREPCENT_TABLE]]

Cash flows from operating activities were $1.0 billion in 2024, compared with $1.3 billion in 2023. The $262 million decrease in cash flows was largely due to changes in working capital and lower earnings, partially offset by $157 million in lower net tax payments. Net income tax payments were $181 million and $338 million in 2024 and 2023, respectively. Pension contributions were $44 million and $45 million in 2024 and 2023, respectively. 

In 2024 and 2023, investing cash flows included capital expenditures of $364 million and $402 million, respectively, partially offset by net proceeds from corporate-owned life insurance policies of $85 million and $40 million, respectively.

Cash flows used by financing activities in 2024 included $1.1 billion of cash paid to repurchase an aggregate of 12.9 million shares of our common stock under the 2023 share repurchase plan described below and payments on long-term debt of $361 million. In 2023, cash flows used by financing activities included $1.2 billion of cash paid to repurchase an aggregate of 16.2 million shares of our common stock, partially offset by $348 million of net proceeds from the issuance of long-term debt.

In July 2023, Textron's Board of Directors approved a program for the repurchase of up to 35 million shares of our common stock. This share repurchase program allows us to continue our practice of repurchasing shares to offset the impact of dilution from stock-based compensation and benefit plans and for opportunistic capital management purposes. The repurchase program has no expiration date and there were 15.6 million shares remaining under the program at December 28, 2024.

Dividend payments to shareholders totaled $12 million and $16 million in 2024 and 2023, respectively. Due to the timing of our fiscal year-end, we made three dividend payments in 2024, compared with four dividend payments in 2023.

Finance Group Cash Flows

The cash flows from continuing operations for the Finance group as presented in our Consolidated Statements of Cash Flows are summarized below:

[[GREPCENT_TABLE]]
[["(In millions)","2024","2023","2022"],["Operating activities","$","8","","$","14","","$","(7)"],["Investing activities","3","","11","","100"],["Financing activities","(16)","","(37)","","(216)"]]
[[/GREPCENT_TABLE]]

The Finance group’s cash flows from investing activities primarily included collections on finance receivables totaling $133 million and $169 million in 2024 and 2023, respectively, partially offset by finance receivable originations of $130 million and $160 million, respectively. Cash flows used in financing activities included payments on long-term and nonrecourse debt of $16 million and $37 million in 2024 and 2023, respectively.  

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Consolidated Cash Flows

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

[[GREPCENT_TABLE]]
[["(In millions)","2024","2023","2022"],["Operating activities","$","1,015","","$","1,267","","$","1,490"],["Investing activities","(284)","","(317)","","(447)"],["Financing activities","(1,454)","","(813)","","(1,091)"]]
[[/GREPCENT_TABLE]]

Consolidated cash flows from operating activities were $1.0 billion in 2024, compared with $1.3 billion in 2023. The decrease of $252 million in cash flows was largely due to changes in working capital and lower earnings, partially offset by $161 million in lower net tax payments. Net income tax payments were $191 million and $352 million in 2024 and 2023, respectively. Pension contributions were $44 million and $45 million in 2024 and 2023, respectively.

In 2024 and 2023, investing cash flows included capital expenditures of $364 million and $402 million, respectively, partially offset by net proceeds from corporate-owned life insurance policies of $85 million and $40 million, respectively.

Cash flows used by financing activities in 2024 included $1.1 billion of share repurchases and payments on long-term debt of $377 million. In 2023, cash flows used by financing activities included $1.2 billion of share repurchases, partially offset by $348 million of net proceeds from the issuance of long-term debt.

Captive Financing and Other Intercompany Transactions

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

Reclassification adjustments included in the Consolidated Statements of Cash Flows on page 36 are summarized below:

[[GREPCENT_TABLE]]
[["(In millions)","2024","2023","2022"],["Reclassification adjustments from investing activities to operating activities:"],["Finance receivable originations for Manufacturing group inventory sales","$","(109)","","$","(160)","","$","(92)"],["Cash received from customers","108","","143","","127"],["Other","\u2014","","\u2014","","1"],["Total reclassification adjustments from investing activities to operating activities","$","(1)","","$","(17)","","$","36"]]
[[/GREPCENT_TABLE]]

Under a Support Agreement between Textron and TFC, Textron is required to maintain a controlling interest in TFC. The agreement, as amended in December 2015, also requires Textron to ensure that TFC maintains fixed charge coverage of no less than 125% and consolidated shareholders' equity of no less than $125 million. There were no cash contributions required to be paid to TFC in 2024 and 2023 to maintain compliance with the support agreement.

Critical Accounting Estimates

To prepare our Consolidated Financial Statements to be in conformity with generally accepted accounting principles, we must make complex and subjective judgments in the selection and application of accounting policies. The accounting policies that we believe are most critical to the portrayal of our financial condition and results of operations are listed below. We believe these policies require our most difficult, subjective and complex judgments in estimating the effect of inherent uncertainties. This section should be read in conjunction with Note 1 to the Consolidated Financial Statements on page 38, which includes other significant accounting policies.

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Revenue Recognition

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

Due to the number of years it may take to complete these contracts and the scope and nature of the work required to be performed on the contracts, the estimation of total transaction price and costs at completion is complicated and subject to many variables and, accordingly, is subject to change. In estimating total costs at completion, we are required to make numerous assumptions related to the complexity of design and related development work to be performed; engineering requirements; product performance; subcontractor performance; availability and cost of materials; labor productivity, availability and cost; overhead and capital costs; manufacturing efficiencies; the length of time to complete the contract (to estimate increases in wages and prices for materials); and costs of satisfying offset obligations, among other variables. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our cost projections quarterly or more frequently when circumstances significantly change. When our estimate of the total costs to be incurred on a contract exceeds the estimated total transaction price, a provision for the entire loss is recorded in the period in which the loss is determined.

At the outset of each contract, we estimate an initial profit booking rate considering the risks surrounding our ability to achieve the technical requirements (e.g., a newly developed product versus a mature product), schedule (e.g., the number and type of milestone events), and costs by contract requirements in the initial estimated costs at completion. Profit booking rates may increase during the performance of the contract if we successfully retire risks surrounding the technical, schedule and cost aspects of the contract. Conversely, the profit booking rate may decrease if we are not successful in retiring the risks; and, as a result, our estimated costs at completion increase. All estimates are subject to change during the performance of the contract and, therefore, may affect the profit booking rate.

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

[[GREPCENT_TABLE]]
[["(In millions)","2024","2023","2022"],["Gross favorable","$","122","","$","106","","$","101"],["Gross unfavorable","(91)","","(62)","","(117)"],["Net adjustments","$","31","","$","44","","$","(16)"]]
[[/GREPCENT_TABLE]]

Due to the significance of judgment in the estimation process described above, it is likely that materially different revenues and/or cost of sales amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Our earnings could be reduced by a material amount resulting in a charge to earnings if (a) total estimated contract costs are significantly higher than expected due to changes in customer specifications prior to contract amendment, (b) total estimated contract costs are significantly higher than previously estimated due to cost overruns or inflation, (c) there is a change in engineering efforts required during the development stage of the contract or (d) we are unable to meet contract milestones.

Goodwill

We evaluate the recoverability of goodwill annually in the fourth quarter or more frequently if events or changes in circumstances indicate a potential impairment of a reporting unit. We calculate the fair value of each reporting unit using discounted cash flows. These cash flows incorporate assumptions for revenue growth rates and operating margins that are based on our strategic plans and long-range planning forecasts, which include our best estimates of current and forecasted market conditions, cost structure and anticipated net cost reductions. The long-term revenue growth rate we use to determine the terminal value of the business is based on our assessment of its minimum expected terminal growth rate, as well as its past historical growth and broader economic considerations such as gross domestic product, inflation and the maturity of the markets we serve. The discount rates utilized in this analysis are based on each reporting unit’s weighted average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of the respective reporting unit. We believe this approach yields a discount rate that is consistent with an implied rate of return that an independent investor or market participant would require for an investment in a company having similar risks and business characteristics to the reporting unit being assessed.

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Based on our annual impairment review, the fair value calculated using the estimates discussed above exceeded the carrying value by an adequate amount for each reporting group. Accordingly, we do not believe that there is a reasonable possibility that any units might fail the impairment test in the foreseeable future.

Retirement Benefits

We sponsor funded and unfunded domestic and international pension plans for certain of our employees. Beginning on January 1, 2010, we initiated actions to commence the closure of the pension plans to new entrants. We provide employees hired subsequent to these closures with defined contribution benefits. Our pension benefit obligations are calculated based on actuarial valuations. Key assumptions used in determining these obligations and related expenses or benefits include the expected long-term rates of return on plan assets and discount rates. We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases. We evaluate and update these assumptions annually.

To determine the weighted-average expected long-term rate of return on plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class.  A lower expected rate of return on plan assets will decrease pension income.  For 2024 and 2023, the assumed expected long-term rate of return on plan assets used in calculating pension income was 7.16% and 7.14%, respectively. For 2024, the assumed rate of return for our domestic plans, which represent approximately 90% of our total pension assets, was 7.25%. Net periodic benefit income is sensitive to changes in the expected long-term rate of return on plan assets.

The discount rate enables us to state expected future benefit payments as a present value on the measurement date, reflecting the current rate at which the pension liabilities could be effectively settled. This rate should be in line with rates for high-quality fixed income investments available for the period to maturity of the pension benefits, which fluctuate as long-term interest rates change. A lower discount rate increases the present value of the benefit obligations and generally decreases pension income.  In 2024, the weighted-average discount rate used in calculating pension income was 5.19%, compared with 5.51% in 2023.  For our domestic plans, the assumed discount rate was 5.25% in 2024, compared with 5.55% in 2023. A change of 50 basis-points higher or lower, with all other assumptions held constant, in this weighted-average discount rate in 2024 would have changed our pension income for our domestic plans by approximately $10 million.

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