Fellow Shareholders,

EXECUTING ON OUR STRATEGY FOR GROWTH

In 2016, our businesses kept their focus on our key drivers for growth and execution. Demonstrating its robust product pipeline, Textron Aviation made progress with its new Citation family of business jets: the Citation Latitude had its first full year of sales, receiving a strong customer response; the Citation Longitude, in addition to making its first flight, had a second aircraft enter into the test program less than a month later; and the Citation Hemisphere continued making progress in its development phase.

At Bell Helicopter, the challenging commercial helicopter market resulted in fewer helicopter deliveries than the previous year, but the business remained focused on the long term with new product development. The Bell 505 Jet Ranger X received type certification in December from Transport Canada Civil Aviation, a critical step for deliveries of this highly anticipated short, light, single-engine helicopter set to begin in early 2017. On the military side, the Bell V-280 Valor tiltrotor progressed toward its scheduled first flight in 2017, and there were new orders for Bell UH-1Y Venom utility and AH-1Z Viper attack helicopters.

Even as our U.S. military customers faced budgetary constraints, Textron Systems realized successes on both the domestic and international fronts. Our Marine & Land Systems business received a foreign military sales contract from Iraq and Colombia for 60 COMMANDO Select vehicles and an order for five additional Ship to Shore Connectors; our Unmanned Systems business received a contract for an additional 24 Shadow V2 Tactical Unmanned Aircraft Systems (TUAS) upgrades; our Support Solutions business won a $206 million contract from the U.S. Army to sustain the Shadow TUAS; and our Electronic Systems business won several contracts for testing equipment and testing stations. Marine & Land Systems also began deliveries of the Tactical Armoured Patrol Vehicle to the Canadian Army.

Our Industrial segment launched new products and won business both in the U.S. and abroad. Textron Specialized Vehicles expanded its ground support equipment business with two acquisitions and added several new off-road powersports vehicles to its product lineup. Kautex secured new automotive fuel systems business with Ford, Toyota and BMW.

WINNING NEW BUSINESS AND DELIVERING FOR CUSTOMERS

With its entry into service in September 2015 and a full year of deliveries in 2016, the Citation Latitude demonstrated the importance of new products to our company. Customers around the world embraced the reliability, efficiency and total ownership value of this mid-size business jet. NetJets, a longtime Textron Aviation customer, announced in June that it was adding up to 50 units to its initial Latitude order, bringing its total order and options to up to 200 aircraft based on customer reception to this exciting new aircraft.

TRU Simulation + Training demonstrated its global reach, securing contracts with Air Arabia, Avianca, China Express, Qingdao Airlines, Finnair Flight Academy, and the Flight Simulation Technique Centre in India. Working with Bell Helicopter, TRU developed and installed its first Bell 429 full flight simulator at the Bell Helicopter Training Academy in Valencia, Spain. TRU continued to grow its relationship with Boeing, winning the contract to develop the full flight simulator for the Boeing 777X, its newest twin-aisle airplane. TRU also delivered the first of its Boeing 737 MAX full flight training suites to Boeing’s flight training operations.

Demonstrating its confidence in deploying our aircraft to hotspots around the world, the U.S. Marine Corps entered into a $461 million contract to purchase 12 UH-1Y Venom utility helicopters and 16 AH-1Z Viper attack helicopters from Bell Helicopter. On the commercial side, Bell Helicopter continued to make progress in China with the first Bell 407GXP sold to an aviation firm for use as corporate transport and for helicopter tours. Meanwhile, customer interest in the Bell 525 Relentless, which is under development, is continuing to grow with one customer announcing at Heli-Expo its intent to purchase 10 aircraft.

With 34 facilities in 16 countries and innovative automotive products like its Selective Catalytic Reduction (SCR) system, Kautex continued to win new business around the world. Ford selected Kautex’s SCR system for its Mondeo, Kuga and Focus models in Europe, while BMW announced it will use Kautex fuel tanks for its 1 Series vehicles globally beginning in 2019. With these contracts, Kautex is now the supplier for all of Ford’s Gen 3 SCR tank and filler business in Europe and, from 2019 onward, for all vehicles on BMW’s UKL platform, which encompasses its 1 and 2 Series as well as its X1, X2 and Mini series of vehicles.

MILESTONES FOR NEW PRODUCTS AND CUSTOMER SERVICE

Knowing that new products drive customer interest and sales, we made progress on several new product development programs in 2016. In addition to flying two Citation Longitudes in the flight test program, we announced at the 2016 National Business Aviation Association (NBAA) show an improved range of 3,500 nautical miles and an improved fuel payload of 1,600 pounds.

Also at the NBAA show, a cabin mockup of the Citation Hemisphere, our large-cabin jet targeted for first flight in 2019, was on display, representing our ongoing commitment to a continuous pipeline of new products. Textron Aviation also unveiled the Cessna Denali as the name of its new, clean sheet, single-engine turboprop aircraft, targeted for first flight in 2018, which will have the widest and most comfortable cabin in its class and offer best-in-class operating costs.

Textron AirLand achieved two significant milestones with the Scorpion jet, a tactical aircraft designed to excel in multi-mission roles from intelligence, surveillance and reconnaissance to close air support and armed reconnaissance. In October, the Scorpion completed a successful test deploying three widely-used weapons systems and, in December, the first production conforming Scorpion jet successfully completed its maiden flight. This latest version of the Scorpion incorporates a number of improvements based on customer feedback and an extensive flight test program. The business has also entered into a Cooperative Research and Development Agreement with the U.S. Air Force to conduct the airworthiness assessment of this novel new aircraft.

We are also addressing the evolving needs of the military for next-generation and unmanned aircraft. Bell made progress on the V-280 Valor tiltrotor program, mating the wing and fuselage of this aircraft in support of first flight scheduled in 2017. In October, Bell Helicopter announced the V-247 Vigilant, an unmanned tiltrotor, further displaying our leadership in tiltrotor technology and our commitment to meeting the needs of our military customers.

Textron Systems continued to invest in the research and development of exciting next-generation products to meet our customers’ needs. In 2016, Textron Systems Unmanned Systems introduced a line of command and control products that can be integrated with a range of platforms, including its unmanned aircraft systems, to gather and disseminate information that can provide operators with greater situational awareness on missions.

Textron Specialized Vehicles (TSV) unveiled its highly-anticipated Textron Off Road Stampede, a 4x4 off-road vehicle with a high-performance motor and suspension developed specifically for the side-by-side off-road powersports segment of the market. The Stampede is part of a family of vehicles designed to expand TSV’s reach into this segment. Jacobsen released its new HR series of wide-area rotary mowers that deliver exceptional efficiency, productivity and comfort to operators.

Enhancing our service and support network for customers represents a competitive advantage for our businesses. In 2016, Bell introduced its Customer Advantage Plans to provide customers with comprehensive coverage solutions for their daily operations. For the 22nd consecutive year, Bell Helicopter’s customer service was ranked first by readers of Professional Pilot and first in Vertical’s Original Equipment Manufacturing survey in several leading industry sectors. To expand its coverage through its authorized service centers and mobile service units, Textron Aviation launched 1Call, a single point of contact for Beechcraft, Cessna and Hawker customers when there are unscheduled maintenance events.

STRATEGIC ACQUISITIONS COMPLEMENT OUR PRODUCT AND SERVICE OFFERINGS

Our acquisitions during the year complemented our businesses, enabling us to reach new customers and expand our portfolio of products to serve adjacent markets. Acquiring Able Engineering & Component Services Inc. and Able Aerospace Inc. in January aligned with our strategy to enhance maintenance and repair capabilities for both commercial rotorcraft and fixed-wing customers around the world so they can quickly get their aircraft back in service.

In April, we acquired Airborne Tactical Advantage Company (ATAC), a Newport News, Virginia-based company that provides tactical training and adversary aggressor services for U.S. Navy, Marine and Air Force pilots in the U.S. and Japan. With the goal of providing a full spectrum of military pilot training support solutions in the U.S. and internationally, we formed Textron Airborne Solutions, a new business unit that includes ATAC.

TSV acquired two highly-regarded deicing businesses—Premier Engineering & Manufacturing in Wisconsin and Safeaero in Sweden­—strengthening our ground support equipment business and expanding our product offerings for our aviation industry customers.

PUTTING THE PIECES IN PLACE FOR GROWTH

We can take pride in what we accomplished in 2016. Not only did we mark the year with product and service milestones, we improved our manufacturing processes and realized productivity gains across our operations. These achievements, along with our investments in new product development and strategic acquisitions, are what drives profitable growth and creates long-term value for our shareholders. With the support of our employees, customers and investors, we look forward to achieving major milestones in 2017, poised for growth and more competitive than ever.

Scott C. Donnelly
Chairman and Chief Executive Officer