-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qqX5YW7R1ucAqHIADUjokNmn9qzafOMvAAXm01iPpF6dE4aMcs46PI0QF7/rnTmu rGqyvKwPqejB9Lf7a1oIuQ== 0000217346-94-000022.txt : 19941116 0000217346-94-000022.hdr.sgml : 19941116 ACCESSION NUMBER: 0000217346-94-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19941001 FILED AS OF DATE: 19941114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEXTRON INC CENTRAL INDEX KEY: 0000217346 STANDARD INDUSTRIAL CLASSIFICATION: 3720 IRS NUMBER: 050315468 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05480 FILM NUMBER: 94559800 BUSINESS ADDRESS: STREET 1: 40 WESTMINSTER ST CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 4014212800 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN TEXTRON INC DATE OF NAME CHANGE: 19710510 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended October 1, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Commission file number 1-5480 TEXTRON INC. (Exact name of registrant as specified in its charter) Delaware 05-315468 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 40 Westminster Street, Providence, RI 02903 401-421-2800 (Address and telephone number of principal executive offices) 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 X No Common stock outstanding at October 29, 1994 - 88,056,000 shares PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS TEXTRON INC. Consolidated Statement of Income (unaudited) (Dollars in millions except per share amounts)
Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, 1994 1993 1994 1993 Revenues Sales $ 1,621 $ 1,520 $ 5,084 $ 4,564 Interest, discount and service 332 313 981 942 charges Insurance premiums 315 287 908 842 Investment income (including net realized investment gains) 113 113 333 303 Total revenues 2,381 2,233 7,306 6,651 Costs and expenses Cost of sales 1,338 1,267 4,249 3,802 Selling and administrative 368 350 1,107 1,045 Interest expense 168 167 489 503 Provision for losses on collection of finance receivables, less 37 36 117 112 recoveries Insurance benefits and increase in policy liabilities 256 218 724 631 Amortization of insurance policy acquisition costs 29 37 81 112 Total costs and expenses 2,196 2,075 6,767 6,205 Income before income taxes 185 158 539 446 Income taxes (71) (58) (207) (169) Elimination of minority interest in net income of Paul Revere (3) - (11) - Net income $ 111 $ 100 $ 321 $ 277 Net income per common share $ 1.23 $ 1.10 $ 3.54 $ 3.07 Average shares outstanding* 90,577,000 90,303,000 90,567,000 89,952,000 Dividends per share: $2.08 Preferred stock, Series A $.52 $.52 $ 1.56 $ 1.56 $1.40 Preferred stock, Series B $.35 $.35 $ 1.05 $ 1.05 Common stock $.35 $.31 $ 1.05 $ .93 * Average shares outstanding assume full conversion of preferred stock and exercise of options. See notes to consolidated financial statements.
Item 1. FINANCIAL STATEMENTS (Continued) TEXTRON INC. Consolidated Balance Sheet (unaudited) (In millions)
October 1, January 1, 1994 1994 Assets Cash $ 87 $ 26 Investments 5,133 4,764 Receivables - net: Finance 8,048 7,562 Commercial and U.S. Government 824 678 8,872 8,240 Inventories 1,455 1,488 Property, plant and equipment, less accumulated depreciation of $1,635 and $1,528 1,290 1,269 Unamortized insurance policy acquisition costs 867 784 Goodwill, less accumulated amortization of $387 and 1,578 1,437 $343 Other assets (including net prepaid income taxes) 1,455 1,650 Total assets $ 20,737 $ 19,658
Liabilities and shareholders' equity Liabilities Accounts payable $ 622 $ 614 Accrued postretirement benefits other than pensions 1,042 1,033 Other accrued liabilities (including income taxes) 2,464 2,268 Insurance reserves and claims 4,511 4,091 Debt: Textron Parent Company Borrowing Group 1,851 2,025 Finance and insurance subsidiaries 7,252 6,847 9,103 8,872 Total liabilities 17,742 16,878 Shareholders' equity Capital stock: Preferred stock 16 16 Common stock* 12 12 Capital surplus 700 687 Retained earnings 2,437 2,209 Other (78) (52) 3,087 2,872 Less cost of treasury shares 92 92 Total shareholders' equity 2,995 2,780 Total liabilities and shareholders' equity $ 20,737 $ 19,658 *Common shares outstanding 88,803,000 88,413,000 See notes to consolidated financial statements.
Item 1. FINANCIAL STATEMENTS (Continued) TEXTRON INC. Consolidated Statement of Cash Flows (unaudited) (In millions)
Nine Months Ended October 1, October 2, 1994 1993 Cash flows from operating activities: Net income $ 321 $ 277 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 222 206 Provision for losses on receivables 144 142 Deferred income taxes 39 20 Increase in insurance policy liabilities 305 234 Amortization of insurance policy acquisition costs 81 112 Changes in assets and liabilities excluding those related to acquisitions and divestitures: Increase in commercial and U.S. Government (173) (48) receivables Decrease in inventories 27 27 Additions to insurance policy acquisition costs (166) (175) Increase in other assets (43) (113) Increase in accounts payable 12 128 Increase in accrued liabilities 95 25 Other - net 25 (12) Net cash provided by operating activities 889 823 Cash flows from investing activities: Purchases of investments (1,696) (1,289) Proceeds from sales of debt and marketable equity securities available for sale 737 308 Proceeds from sales of debt securities held to maturity 10 78 Proceeds from maturities and calls of debt and 490 563 marketable equity securities Proceeds from dispositions of other investments 53 38 Finance receivables originated or purchased (4,246) (3,578) Finance receivables repaid or sold 3,635 3,158 Cash used in acquisitions of businesses (net of cash - (139) acquired) Net proceeds from sale of business 118 - Capital expenditures (198) (163) Other investing activities - net 43 20 Net cash used by investing activities (1,054) (1,004) Cash flows from financing activities: Increase (decrease) in short-term debt (33) 203 Proceeds from issuance of long-term debt 1,854 1,310 Principal payments on long-term debt (1,619) (1,318) Receipts from interest-sensitive insurance products 198 147 Return of account balances on interest-sensitive (92) (73) insurance products Proceeds from exercise of stock options 11 15 Dividends paid (94) (83) Net cash provided by financing activities 225 201 Effect of foreign exchange rate changes on cash 1 (1) Net increase in cash 61 19 Cash at beginning of period 26 31 Cash at end of period $ 87 $ 50 See notes to consolidated financial statements.
TEXTRON INC. Notes to Consolidated Financial Statements (unaudited) Note 1: Summary of significant accounting policies The financial statements should be read in conjunction with the financial statements included in Textron's Form 10-K for the year ended January 1, 1994. The financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of Textron's consolidated financial position at October 1, 1994 and January 1, 1994, and its consolidated results of operations for each of the respective three and nine month periods ended October 1, 1994 and October 2, 1993 and consolidated cash flows for each of the nine month periods ended October 1, 1994 and October 2, 1993. The results of operations for the nine months ended October 1, 1994 are not necessarily indicative of results for the full year. Note 2: Acquisitions Avdel plc In early 1989, Textron acquired Avdel plc, a fastening systems manufacturing business based in England, the total cost of which approximated $254 million. Due to a challenge of the acquisition under the antitrust laws by the U.S. Federal Trade Commission (FTC) in February 1989, Textron did not acquire control of Avdel plc until May 1994 after complying with a settlement reached with the FTC. Textron has accounted for the acquisition of Avdel as a purchase and, accordingly, Avdel's results of operations are included in Textron's financial statements beginning in the second quarter of 1994. Textron Acustar Plastics In May 1993, Textron acquired the plastics operations of the Acustar division of Chrysler Corporation at a cost of $139 million. Note 3: Dispositions On August 29, 1994, Textron sold its Homelite Division and on October 28, 1994 it sold its Lycoming Turbine Engine Division for an aggregate of $495 million in cash plus the assumption of certain liabilities. The aftertax loss on the sales of these divisions (which was due to the nontax deductibility of goodwill) was immaterial. Note 4: Investments October 1, January 1, 1994 1994 (In millions) Debt and marketable equity securities available for sale (October 1, 1994 amortized cost: $2,493) $ 2,435 $ 648 Debt securities held to maturity (October 1, 1994 estimated fair 2,397 3,778 value: $2,236) Other 301 338 $ 5,133 $ 4,764 Effective at the beginning of 1994, Textron adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115). In accordance with FAS 115, prior period financial statements have not been restated to reflect the change in accounting principles. FAS 115 established new, more restrictive criteria to be used in determining which debt securities shall be carried in the financial statements at amortized cost. Beginning in 1994, securities carried at amortized cost and classified in Textron's held to maturity category are those as to which Textron has both the ability and positive intent to hold to maturity. Securities classified in the available for sale category are carried at estimated fair value and consist of those securities which Textron intends to hold for an indefinite period of time but not necessarily to maturity. Unrealized gains and losses related to securities available for sale, net of applicable income taxes, are reported as a separate component of shareholders' equity. To comply with FAS 115, Textron transferred certain debt securities from the held to maturity category to the available for sale category of its investment portfolio. The adoption of FAS 115 had no effect on Textron's net income. During the nine months ended October 1, 1994, an investment in the held to maturity category, with an amortized cost of $10 million, was sold due to a significant deterioration in the issuer's creditworthiness. Note 5: Finance receivables - net October 1, January 1, 1994 1994 (In millions) Finance receivables $ 8,538 $ 8,019 Less allowance for credit losses 246 225 Less finance-related insurance reserves and claims 244 232 $ 8,048 $ 7,562 Note 6: Inventories October 1, January 1, 1994 1994 (In millions) Finished goods $ 379 $ 395 Work in process 1,099 1,120 Raw materials 218 241 1,696 1,756 Less progress and advance payments 241 268 $ 1,455 $ 1,488 Note 7: Insurance reserves and claims October 1, January 1, 1994 1994 (In millions) Paul Revere: Future policy benefits $ 1,167 $ 1,090 Unpaid claims and claim expenses 1,523 1,358 Other policyholder funds 1,630 1,462 Other 191 181 $ 4,511 $ 4,091 Note 8: Contingencies There are pending or threatened against Textron and its subsidiaries lawsuits and other proceedings, some of which allege violations of federal government procurement regulations, involve environmental matters, or are or purport to be class actions. Among these suits and proceedings are some which seek compensatory, treble or punitive damages in substantial amounts; fines, penalties or restitution; the cleanup of allegedly hazardous wastes; or, under federal government procurement regulations, could result in suspension or debarment of Textron or its subsidiaries from U.S. Government contracting for a period of time. These suits and proceedings are being defended or contested on behalf of Textron and its subsidiaries. On the basis of information presently available, Textron believes that any such liability or the impact of the application of relevant government regulations would not have a material effect on Textron's net income or financial condition. See Part II, Item 1., LEGAL PROCEEDINGS. Note 9: Financial information by borrowing group Textron consists of two borrowing groups - the Textron Parent Company Borrowing Group and the finance and insurance subsidiaries. The Textron Parent Company Borrowing Group is comprised of all entities of Textron other than its finance and insurance subsidiaries. The financial statements of this group as set forth below reflect Textron's investments in its finance and insurance subsidiaries on the equity basis. Its sources of cash flow include dividends paid by the finance and insurance subsidiaries, as well as cash generated by other operating units. The finance and insurance subsidiaries finance their respective operations by borrowing from their own group of external creditors. Item 1. FINANCIAL STATEMENTS (Continued) Note 9: Financial information by borrowing group (continued) TEXTRON PARENT COMPANY BORROWING GROUP (unaudited) (In millions)
Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, Statement of Income 1994 1993 1994 1993 Revenues $ 1,622 $ 1,521 $ 5,086 $ 4,567 Costs and expenses Cost of sales 1,338 1,267 4,249 3,802 Selling and administrative 161 151 492 460 Interest expense 52 59 160 179 Total costs and expenses 1,551 1,477 4,901 4,441 71 44 185 126 Pretax income of finance and insurance subsidiaries 114 114 354 320 Income before income taxes 185 158 539 446 Income taxes (71) (58) (207) (169) Elimination of minority interest in net income of Paul Revere (3) - (11) - Net income $ 111 $ 100 $ 321 $ 277
October 1, January 1, Balance Sheet 1994 1994 Assets Cash $ 63 $ 12 Receivables - net 824 695 Inventories 1,455 1,488 Investments in finance and insurance subsidiaries 2,237 2,161 Property, plant and equipment - net 1,172 1,150 Goodwill, less accumulated amortization of $203 and $173 1,293 1,138 Other assets (including net prepaid income taxes) 1,274 1,433 Total assets $ 8,318 $ 8,077
Liabilities and shareholders' equity Accounts payable and accrued liabilities (including income $ 3,472 $ 3,272 taxes) Debt 1,851 2,025 Shareholders' equity 2,995 2,780 Total liabilities and shareholders' equity $ 8,318 $ 8,077
Item 1. FINANCIAL STATEMENTS (Continued) Note 9: Financial information by borrowing group (continued) TEXTRON PARENT COMPANY BORROWING GROUP (continued) (unaudited) (In millions)
Nine Months Ended October 1, October 2, Statement of Cash Flows 1994 1993 Cash flows from operating activities: Net income $ 321 $ 277 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of finance and insurance (121) (123) subsidiaries Depreciation and amortization 182 166 Interest accretion 27 27 Changes in assets and liabilities excluding those related to acquisitions and divestitures: Increase in receivables (156) (79) Decrease in inventories 27 27 Increase in other assets (82) (46) Increase in accounts payable and accrued 123 47 liabilities Other - net 11 3 Net cash provided by operating activities 332 299 Cash flows from investing activities: Cash used in acquisitions of businesses (net of cash - (139) acquired) Net proceeds from sale of business 118 - Capital expenditures (176) (145) Other investing activities - net 43 15 Net cash used by investing activities (15) (269) Cash flows from financing activities: Increase (decrease) in short-term debt (31) 8 Proceeds from issuance of long-term debt 560 316 Principal payments on long-term debt (714) (272) Proceeds from exercise of stock options 11 15 Dividends paid (94) (83) Net cash used by financing activities (268) (16) Effect of foreign exchange rate changes on cash 2 - Net increase in cash 51 14 Cash at beginning of period 12 28 Cash at end of period $ 63 $ 42
Item 1. FINANCIAL STATEMENTS (Continued) Note 9: Financial information by borrowing group (continued) FINANCE AND INSURANCE SUBSIDIARIES (unaudited) (In millions)
Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, Statement of Income 1994 1993 1994 1993 Revenues Interest, discount and service charges $ 332 $ 313 $ 981 $ 942 Credit life, credit disability and casualty insurance premiums 75 75 208 226 Non-cancellable disability income, life and group insurance premiums 240 212 700 616 Investment income (including net realized investment gains) 112 112 331 300 Total revenues 759 712 2,220 2,084 Costs and expenses Selling and administrative 207 199 615 585 Interest expense 116 108 329 324 Provision for losses on collection of finance receivables, less recoveries 37 36 117 112 Credit life, credit disability and casualty insurance losses and adjustment expenses, less recoveries 33 33 95 100 Death and other insurance benefits 114 98 332 289 Increase in insurance policy 109 87 297 242 liabilities Amortization of insurance policy acquisition costs 29 37 81 112 Total costs and expenses 645 598 1,866 1,764 Income before income taxes 114 114 354 320 Income taxes (44) (51) (138) (130) Net income 70 63 216 190 Elimination of minority interest in net income of Paul Revere (3) - (11) - Textron's equity in net income $ 67 $ 63 $ 205 $ 190
Item 1. FINANCIAL STATEMENTS (Continued) Note 9: Financial information by borrowing group (continued) FINANCE AND INSURANCE SUBSIDIARIES (unaudited) (In millions)
September 30, December 31, Balance Sheet 1994 1993 Assets Cash $ 24 $ 14 Investments 5,127 4,760 Finance receivables - net 8,103 7,605 Property, plant and equipment - net 104 99 Unamortized insurance policy acquisition costs 867 784 Goodwill, less accumulated amortization of $184 285 299 and $170 Other assets 625 660 Total assets $ 15,135 $ 14,221
Liabilities and equity Accounts payable and accrued liabilities (including income taxes) $ 951 $ 939 Insurance reserves and claims 4,511 4,091 Debt 7,252 6,847 Equity: Textron 2,237 2,161 Minority interest 184 183 Total liabilities and equity $ 15,135 $ 14,221
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TEXTRON INC. Revenues and Income by Business Segment (In millions)
Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, 1994 1993 1994 1993 REVENUES MANUFACTURING: Aircraft $ 549 $ 494 $ 1,589 $ 1,382 Automotive 331 272 1,121 824 Industrial 349 301 1,109 971 Systems and Components 392 453 1,265 1,387 1,621 1,520 5,084 4,564 FINANCIAL SERVICES: Finance 421 403 1,227 1,205 Paul Revere 338 309 993 879 759 712 2,220 2,084 Total revenues* $ 2,380 $ 2,232 $ 7,304 $ 6,648 INCOME MANUFACTURING: Aircraft $ 56 $ 64 $ 131 $ 114 Automotive 21 11 97 61 Industrial 39 21 117 82 Systems and Components 30 21 56 96 146 117 401 353 FINANCIAL SERVICES: Finance 86 74 247 215 Paul Revere 28 40 107 105 114 114 354 320 Segment operating income 260 231 755 673 Corporate expenses and other - (24)** (15) (58)** (51) net Interest expense - net (51) (58) (158) (176) Income before income taxes $ 185 $ 158 $ 539 $ 446 * Revenues by business segment exclude interest income of the Textron Parent Company Borrowing Group of $1 million and $2 million for the respective three and nine month periods ended October 1, 1994 and $1 million and $3 million for the respective three and nine month periods ended October 2, 1993. ** Includes a pretax charge of $9 million related to the early redemption of debt.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Financial Condition Textron Parent Company Borrowing Group: During the nine months ended October 1, 1994, the Textron Parent Company Borrowing Group's operating activities provided cash of $332 million up from $299 million during the corresponding period of 1993. The improvement was due to (a) increased income, (b) higher payables due primarily to the timing of dividend payments in 1994 and (c) increased customer deposits, partially offset by higher receivables, due primarily to changed payment terms with certain customers. The Group's debt decreased by $174 million principally as a result of cash provided by operations and the proceeds from the sale of Homelite. Its ratio of debt to total capital was 38% at October 1, 1994, down from 42% at January 1, 1994. During the nine months ended October 2, 1993, the Group's operating activities provided cash of $299 million versus $71 million during the corresponding period of 1992, with the improvement in 1993 due primarily to (a) higher trade payables and other liabilities due primarily to the timing of certain payments in 1993, (b) significant payments on trade payables and other liabilities in 1992, (c) higher income and (d) improvements in inventory management and increased deliveries. The Group's debt increased in 1993 by $38 million as a result of financing the $139 million acquisition of Textron Acustar Plastics. The Textron Parent Company Borrowing Group's credit facilities not used or reserved as support for outstanding commercial paper or bank borrowings at October 1, 1994 were $915 million. Textron had $236 million available at October 1, 1994 for unsecured debt securities under its shelf registration statement filed with the Securities and Exchange Commission. In 1993, Textron's Board of Directors approved Textron's purchase of all of the shares of Textron common stock owned by Paul Revere in four annual installments of 424,125 shares each at a share price to be equal to the average closing price of Textron's stock over the fiscal quarter preceding each such purchase. The first of the four purchases (for $25 million) was made in April 1994. In May 1994, Textron reactivated its share repurchase program to purchase up to five million shares of its common stock from time to time in the open market as conditions warrant. As of October 31, 1994, 776,700 shares had been purchased under the program (all in October) at an aggregate cost of $39 million. On August 29, 1994, Textron sold its Homelite Division and on October 28, 1994 it sold its Lycoming Turbine Engine Division for an aggregate of $495 million. The proceeds from these sales are being used for general corporate purposes including debt reduction and the repurchase of common shares. See Note 3 to the consolidated financial statements for additional information. On September 30, 1994, Textron redeemed an aggregate principal amount of $109 million of its 9-1/4% Debentures, due 2016 and 2017, with the proceeds from the sale of Homelite. Management believes that the Textron Parent Company Borrowing Group will continue to have adequate access to credit markets and that its credit facilities and cash flow from operations --including dividends received from Textron's finance and insurance operations-- will continue to be more than sufficient to meet its operating needs and to finance growth. Finance and insurance subsidiaries: The finance and insurance subsidiaries paid dividends of $84 million and $67 million to the Textron Parent Company Borrowing Group during the nine month periods ended October 1, 1994 and October 2, 1993, respectively. During the nine months ended September 30, 1994, Avco Financial Services (AFS) issued $946 million of unsecured debt securities, including $873 million under its shelf registration statements. AFS had $847 million and $84 million available at September 30, 1994 for unsecured debt securities under its shelf registration statements with the Securities and Exchange Commission and Canadian provincial security exchanges, respectively. In June 1994, Textron Financial Corporation (TFC) established a medium-term note facility for $500 million under Rule 144A of the Securities Act of 1933, as amended, which was fully available at September 30, 1994. During the nine months ended September 30, 1994, the finance subsidiaries had $422 million of interest rate exchange agreements go into effect. Of these, $150 million expire in 1995 and had the effect of exchanging the indices used to determine interest expense under certain variable rate borrowings at September 30, 1994 for the purpose of better matching the rate of interest incurred on the finance subsidiaries' financing with the rate of interest earned on certain of the finance subsidiaries' variable rate finance receivables. The remainder of the agreements, which have a weighted average original term of 3.8 years and expire through 1999, had the effect of fixing the rate of interest at approximately 7.0% on $272 million of variable rate borrowings at September 30, 1994. Results of Operations - Three months ended October 1, 1994 vs. Three months ended October 2, 1993 Textron reported third quarter net income of $111 million ($1.23 per share), up 11% from 1993 net income of $100 million ($1.10 per share). Revenues increased 7% to $2.4 billion in 1994 from $2.2 billion in 1993. Earnings per share for 1994 reflect an increased number of average shares outstanding. The Aircraft segment's revenues increased $55 million (11%), while income decreased $8 million (13%), due to an $18 million gain in 1993 at Cessna from an insurance settlement. Bell's revenues and income increased, primarily as a result of higher revenues under the Bell-Boeing V-22 engineering and manufacturing development contract (EMD) and higher sales of military aircraft. Excluding the $18 million insurance gain in 1993, Cessna's income increased slightly from the corresponding 1993 level as lower bid and proposal expenses related to the Joint Primary Aircraft Training System (JPATS) competition for a new military jet trainer and lower product development expenses principally related to the Citation X aircraft were partially offset by the effect of lower aircraft sales. The Automotive segment's revenues and income increased by $59 million (22%) and $10 million (91%), respectively, due primarily to higher automotive production in 1994 and a $5 million provision in 1993 for the consolidation of certain manufacturing operations. The Industrial segment's revenues increased $48 million (16%), due primarily to higher fasteners sales, including the addition of Avdel's operating results in 1994, partially offset by lower sales in outdoor products, due to the sale of the Homelite division in August 1994. Income increased $18 million (86%), due primarily to (a) the gain on the sale of the Homelite division, (b) a $6 million provision in 1993 for the consolidation of certain manufacturing operations and (c) the higher fasteners sales, partially offset by the effect of the lower sales at Homelite. The Systems and Components segment's revenues decreased $61 million (13%) while its income increased $9 million (43%), due primarily to provisions aggregating $22 million in 1993 for the consolidation of certain manufacturing operations and legal matters, partially offset by lower income at Textron Lycoming Turbine Engine. Excluding the effect of those provisions and the lower results at Textron Lycoming Turbine Engine, the aggregate income at the other divisions in this segment was slightly higher than the corresponding 1993 level despite slightly lower revenues. The Systems and Components income from operations for the full year 1994 is expected to be significantly below such income for 1993, principally as a result of lower sales and certain valuation adjustments at Textron's Lycoming Turbine Engine division. The sale of that division (see Note 3 to the consolidated financial statements) will further reduce this segment's income from operations. The Finance segment's revenues increased $18 million (4%) while income increased $12 million (16%). AFS' revenues increased slightly, due primarily to a higher level of finance receivables outstanding, partially offset by a decrease in yields on finance receivables to meet market conditions. Its income increased, due to (a) the higher level of finance receivables outstanding and (b) a decrease in the cost of borrowed funds, partially offset by (c) an increase in loan loss provisions associated with growth in finance receivables outstanding and (d) the decrease in yields on finance receivables. Revenues at TFC increased, due to a higher level of finance receivables outstanding and an increase in yields on finance receivables. Its income increased due to those factors and a decrease in loan loss provisions, reflecting a stabilization of nonperforming real estate loans, partially offset by an increase in the cost of borrowed funds. Paul Revere's revenues increased $29 million (9%), due to continued growth in its individual disability income line of business and higher net investment income. Its income decreased $12 million (30%), however, primarily as a result of a higher individual disability income benefit ratio, partially offset by increased premium and net investment income and improved group disability results. The higher benefit ratio in the individual disability income business was the result of continuing adverse experience on the block of policies issued between 1985 and 1989, especially physicians in Florida and California. Ongoing morbidity studies being conducted by Paul Revere indicate that the higher benefit ratio will not improve in the fourth quarter of 1994, so that the operating income for that quarter will be lower than the operating income for the corresponding quarter of 1993. Group disability results improved as a result of an improved benefit ratio, increased sales of more profitable products and increased persistency on higher-priced renewals. Paul Revere's net investment income increased as a result of a higher level of invested assets, offset in part by lower overall portfolio yields and lower net realized investment gains ($6 million in 1994 vs. $10 million in 1993). Corporate expenses and other - net for the three months ended October 1, 1994 were higher than the corresponding level in 1993 as a result of a $9 million pretax charge related to the early redemption of high coupon debt. Lower interest expense of the Textron Parent Company Borrowing Group reflected a lower level of average borrowing, partially offset by an increased average cost of borrowing. The quarter's results reflected a higher effective income tax rate than the corresponding prior year rate, principally as a result of new tax legislation passed in the third quarter of 1993, retroactive to the beginning of 1993. The resulting effect of the one-time benefit in 1993 was partially offset by the cumulative catch-up effect of the increase in the federal statutory tax rate from 34% to 35% on the first half income in 1993 and lower foreign and state income taxes in 1994, resulting from a change in mix of income among taxing jurisdictions, and higher research and development credits in 1994. Results of Operations - Nine months ended October 1, 1994 vs. Nine months ended October 2, 1993 Net income for the nine months ended October 1, 1994 was $321 million ($3.54 per share), up 16% from 1993 net income of $277 million ($3.07 per share). Revenues increased 10% to $7.3 billion in 1994 from $6.7 billion in 1993. Earnings per share for 1994 reflect an increased number of average shares outstanding. The Aircraft segment's revenues increased $207 million (15%), while income increased $17 million (15%). Bell's revenues and income increased, primarily as a result of higher revenues under the V-22 EMD contract, higher sales of military aircraft and higher international sales, partially offset by lower sales of both military and commercial spare parts. Cessna's revenues increased slightly, while its income decreased, due to an $18 million gain in 1993 from an insurance settlement. Excluding the $18 million insurance gain in 1993, Cessna's income increased slightly as the benefit of higher aircraft sales and lower product development expenses related to the Citation X aircraft were partially offset by higher product support costs. The Automotive segment's revenues and income increased $297 million (36%) and $36 million (59%), respectively, due primarily to (a) the inclusion of the operating results of Textron Acustar Plastics (acquired in May 1993) for all nine months in 1994 compared to five months in 1993, (b) higher automotive production and (c) an $8 million provision in 1993 for the consolidation of certain manufacturing operations, partially offset by (d) higher costs related to the start-up of new plants at Textron Automotive Interiors. The Industrial segment's revenues increased $138 million (14%), due primarily to higher fasteners sales, including the addition of Avdel's operating results for six months in 1994. Income increased $35 million (43%), due primarily to (a) higher sales and improved productivity in the fasteners business, (b) a gain on the sale of the Homelite division and (c) a $9 million provision in 1993 for the consolidation of certain manufacturing operations. The Systems and Components segment's revenues decreased $122 million (9%). Income decreased $40 million (42%), due primarily to (a) lower sales at Textron Lycoming Turbine Engine and certain adjustments at that division. Lower income at other divisions, principally Textron Marine and Land Systems, Textron Specialty Materials and Textron Defense Systems was offset by the benefit of lower provisions in 1994 than in 1993 ($13 million vs. $22 million) for the consolidation of certain manufacturing operations and legal matters and higher income at Textron Lycoming Reciprocating Engine. Income decreased at Textron Marine and Land Systems as a result of a cumulative unfavorable profit adjustment on certain combat vehicle and turret contracts. Textron Specialty Materials' income decreased primarily as a result of lower sales related to market contraction in its fire protection materials business. At Textron Defense Systems, income decreased on substantially lower revenues, due primarily to the wind down of a military communications satellite contract and a cumulative favorable profit adjustment in 1993 on a missile contract, partially offset by increased revenues in 1994 under the sensor-fuzed weapon program and the effect of a loss in 1993 on a mobile microwave landing system contract. Textron Lycoming Reciprocating Engine's income increased as a result of higher sales related to a special overhaul engine program. The Finance segment's revenues increased $22 million (2%), while income increased $32 million (15%). AFS' revenues increased slightly, due primarily to a higher level of finance receivables outstanding and an increase in investment income due to improving yields, largely offset by a decrease in yields on finance receivables to meet market conditions and a decrease in premiums earned in its nonfinance-related insurance business. Its income increased, due to (a) the higher level of finance receivables outstanding, (b) a decrease in the cost of borrowed funds, (c) a decrease in insurance losses and (d) an increase in investment income, due to improving yields, partially offset by (e) an increase in loan loss provisions associated with growth in finance receivables outstanding and (f) a decrease in yields on finance receivables. Revenues at TFC increased, due to a higher level of finance receivables outstanding and higher leveraged lease income primarily related to the sales of residual appreciation rights, partially offset by a decrease in yields on finance receivables. Its income increased due to those factors and a decrease in loan loss provisions, reflecting a stabilization of nonperforming real estate loans and an improvement in equipment portfolios. Paul Revere's revenues increased $114 million (13%), due to continued growth in its individual disability income, increased premium volume in group insurance and higher net investment income. Its income increased $2 million (2%), primarily as a result of increased premium and net investment income, largely offset by higher individual and group disability income benefit ratios. The higher benefit ratio in the individual disability income business was the result of adverse experience on the block of policies issued between 1985 and 1989, especially physicians in Florida and California, and poor results in Paul Revere's excess risk reinsurance business. Group disability results, which improved in the third quarter of 1994 vs. 1993, were negatively impacted by claims in southern California on a specific product that had been sold to physicians and other professionals. Paul Revere's net investment income increased as a result of (a) a higher level of invested assets, offset in part by lower overall portfolio yields, and (b) higher net realized investment gains ($22 million in 1994 vs. $13 million in 1993). Corporate expenses and other - net for the nine months ended October 1, 1994 were higher than the corresponding 1993 level as a result of a $9 million pretax charge related to the early redemption of high coupon debt. Lower interest expense of the Textron Parent Company Borrowing Group primarily reflected a lower level of average borrowing. Results for the nine months ended October 1, 1994 reflected a slightly higher effective income tax rate than the corresponding prior year rate, as the effect of a one-time benefit in 1993 (new tax legislation passed in the third quarter of 1993) was largely offset by lower foreign and state income taxes in 1994, resulting from a change in mix of income among taxing jurisdictions, and higher research and development credits in 1994. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS There are pending or threatened against Textron and its subsidiaries lawsuits and other proceedings, some of which allege violations of federal government procurement regulations, involve environmental matters, or are or purport to be class actions. Among these suits and proceedings are some which seek compensatory, treble or punitive damages in substantial amounts; fines, penalties or restitution; the cleanup of allegedly hazardous wastes; or, under federal government procurement regulations, could result in suspension or debarment of Textron or its subsidiaries from U.S. Government contracting for a period of time. These suits and proceedings are being defended or contested on behalf of Textron and its subsidiaries. On the basis of information presently available, Textron believes that any such liability or the impact of the application of relevant government regulations would not have a material effect on Textron's net income or financial condition. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 12.1 Computation of ratio of income to fixed charges of the Textron Parent Company Borrowing Group. 12.2 Computation of ratio of income to fixed charges of Textron Inc. including all majority-owned subsidiaries. 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the third quarter ended October 1, 1994. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TEXTRON INC. Date: November 14, 1994 s/W. P. Janovitz W. P. Janovitz Vice President and Controller (principal accounting officer) LIST OF EXHIBITS The following exhibits are filed as part of this report on Form 10-Q: Name of Exhibit 12.1 Computation of ratio of income to fixed charges of the Textron Parent Company Borrowing Group 12.2 Computation of ratio of income to fixed charges of Textron Inc. including all majority-owned subsidiaries 27 Financial Data Schedule EX-12.1 2 EXHIBIT 12.1 TEXTRON PARENT COMPANY BORROWING GROUP COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES (unaudited) (In millions except ratio) Nine Months Ended October 1, 1994 Fixed charges: Interest expense (1) $ 160 Estimated interest portion of rents 16 Total fixed charges $ 176 Income: Income before income taxes $ 539 Fixed charges 176 Eliminate equity in undistributed pretax income of finance and insurance subsidiaries (271) Adjusted income $ 444 Ratio of income to fixed charges 2.52 (1) Includes interest unrelated to borrowings of $27 million (primarily interest accretion). EX-12.2 3 EXHIBIT 12.2 TEXTRON INC. INCLUDING ALL MAJORITY-OWNED SUBSIDIARIES COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES (unaudited) (In millions except ratio) Nine Months Ended October 1, 1994 Fixed charges: Interest expense (1) $ 489 Estimated interest portion of rents 32 Total fixed charges $ 521 Income: Income before income taxes $ 539 Elimination of minority interest in pretax income of (18) Paul Revere Fixed charges 521 Adjusted income $ 1,042 Ratio of income to fixed charges 2.00 (1) Includes interest unrelated to borrowings of $27 million (primarily interest accretion). EX-27 4
5 This schedule contains summary financial information extracted from Textron Inc.'s Consolidated Balance Sheet as of October 1, 1994 and Consolidated Statement of Income for the nine months ended October 1, 1994 and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-1994 OCT-1-1994 87 0 8,872 246 1,455 0 1,290 1,635 20,737 0 9,103 12 0 16 2,967 20,737 5,084 7,306 4,249 5,054 0 117 489 539 207 321 0 0 0 321 3.54 3.54
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