-----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, A4q52P3++KimlsImfJmsx5wuVb0W3tLUY+QYzK8eDG9cZvZ0BQy/9If4+yx7XHu3 +P4aRDECx+gw1jO4Zez9RA== 0000217346-95-000006.txt : 19950814 0000217346-95-000006.hdr.sgml : 19950814 ACCESSION NUMBER: 0000217346-95-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950701 FILED AS OF DATE: 19950811 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEXTRON INC CENTRAL INDEX KEY: 0000217346 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT & PARTS [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: 95561836 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 July 1, 1995 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 05-0315468 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 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 July 29, 1995 - 84,619,000 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 Six months ended July 1, July 2, July 1, July 2, 1995 1994 1995 1994 Revenues Sales $ 1,651 $ 1,775 $ 3,205 $ 3,463 Interest, discount and service charges 389 325 768 649 Insurance premiums 344 303 679 593 Investment income (including net realized investment gains) 118 114 237 220 Total revenues 2,502 2,517 4,889 4,925 Costs and expenses Cost of sales 1,351 1,485 2,629 2,911 Selling and administrative 380 378 753 739 Interest 209 163 411 321 Provision for losses on collection of finance receivables, less recoveries 39 37 78 80 Insurance benefits and increase in policy liabilities 285 243 561 468 Amortization of insurance policy acquisition costs 33 26 67 52 Total costs and expenses 2,297 2,332 4,499 4,571 Income before income taxes 205 185 390 354 Income taxes (81) (71) (154) (136) Elimination of minority interest in net income of Paul Revere (3) (4) (6) (8) Net income $ 121 $ 110 $ 230 $ 210 Net income per common share $ 1.40 $ 1.22 $ 2.65 $ 2.32 Average shares outstanding* 86,679,000 90,533,000 86,862,000 90,556,000 Dividends per share: $2.08 Preferred stock, Series A $ .52 $ .52 $1.04 $1.04 $1.40 Preferred stock, Series B $ .35 $ .35 $ .70 $ .70 Common stock $ .39 $ .35 $ .78 $ .70 * 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)
July 1, December 31, 1995 1994 Assets Cash $ 120 $ 49 Investments 5,915 5,294 Receivables - net: Finance 9,200 8,583 Commercial and U.S. Government 764 702 9,964 9,285 Inventories 1,259 1,211 Property, plant and equipment, less accumulated depreciation of $1,598 and $1,450 1,281 1,253 Insurance policy acquisition costs 964 911 Goodwill, less accumulated amortization of $410 and $381 1,494 1,512 Other assets (including net prepaid income taxes) 1,333 1,410 Total assets $ 22,330 $ 20,925 Liabilities and shareholders' equity Liabilities Accounts payable $ 630 $ 619 Accrued postretirement benefits other than pensions 952 951 Other accrued liabilities (including income taxes) 2,344 2,424 Insurance reserves and claims 5,059 4,685 Debt: Textron Parent Company Borrowing Group 1,870 1,582 Finance and insurance subsidiaries 8,379 7,782 10,249 9,364 Total liabilities 19,234 18,043 Shareholders' equity Capital stock: Preferred stock 15 16 Common stock* 12 12 Capital surplus 722 702 Retained earnings 2,682 2,518 Other 17 (108) 3,448 3,140 Less cost of treasury shares 352 258 Total shareholders' equity 3,096 2,882 Total liabilities and shareholders' equity $ 22,330 $ 20,925 *Common shares outstanding 84,399,000 85,497,000 See notes to consolidated financial statements.
Item 1. FINANCIAL STATEMENTS (Continued) TEXTRON INC. Consolidated Statement of Cash Flows (unaudited) (In millions) Six Months Ended July 1, July 2, 1995 1994 Cash flows from operating activities: Net income $ 230 $ 210 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 204 198 Provision for losses on receivables 98 97 Increase in insurance policy liabilities 270 195 Deferred income taxes 32 27 Changes in assets and liabilities excluding those related to the acquisition of a business: Increase in commercial and U.S. Government receivables (65) (141) Increase in inventories (48) (11) Additions to insurance policy acquisition costs (130) (105) Increase in other assets (19) (13) Increase in accounts payable 12 14 Increase (decrease) in accrued liabilities (141) 73 Other - net 25 10 Net cash provided by operating activities 468 554 Cash flows from investing activities: Purchases of investments (751) (1,233) Proceeds from disposition of securities: Sales of: Securities available for sale 279 524 Securities held to maturity - 10 Maturities and calls 96 386 Proceeds from disposition of other investments 24 44 Finance receivables: Originated or purchased (3,072) (2,713) Repaid or sold 2,810 2,422 Cash used in acquisition of a business (40) - Capital expenditures (133) (131) Other investing activities - net (10) 41 Net cash used by investing activities (797) (650) Cash flows from financing activities: Increase (decrease) in short-term debt 54 (64) Proceeds from issuance of long-term debt 1,719 1,126 Principal payments on long-term debt (1,311) (936) Interest-sensitive insurance products: Receipts 163 128 Return of account balances (84) (60) Proceeds from exercise of stock options 18 9 Purchases of Textron common stock (93) - Dividends paid (67) (63) Net cash provided by financing activities 399 140 Effect of foreign exchange rate changes on cash 1 1 Net increase in cash 71 45 Cash at beginning of period 49 26 Cash at end of period $ 120 $ 71 See notes to consolidated financial statements.
Item 1. FINANCIAL STATEMENTS (Continued) 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 December 31, 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 July 1, 1995 and December 31, 1994 and its consolidated results of operations for each of the respective three and six month periods ended July 1, 1995 and July 2, 1994 and consolidated cash flows for each of the six month periods ended July 1, 1995 and July 2, 1994. The results of operations for the six months ended July 1, 1995 are not necessarily indicative of results for the full year. Note 2: Investments
July 1, December 31, 1995 1994 (In millions) Debt and marketable equity securities available for sale, at estimated fair value (amortized cost: $2,857 and $2,610) $2,976 $2,511 Debt securities to be held to maturity, at amortized cost (estimated fair value: $2,731 and $2,294) 2,605 2,470 Other 334 313 $5,915 $5,294
Note 3: Finance receivables - net
July 1, December 31, 1995 1994 (In millions) Finance receivables $9,690 $9,084 Less allowance for credit losses 261 250 Less finance-related insurance reserves and claims 229 251 $9,200 $8,583
Note 4: Inventories
July 1, December 31, 1995 1994 (In millions) Finished goods $ 353 $ 288 Work in process 966 948 Raw materials 175 212 1,494 1,448 Less progress and advance payments 235 237 $1,259 $1,211
Note 5: Insurance reserves and claims July 1, December 31, 1995 1994 (In millions) Paul Revere: Future policy benefits $1,258 $1,193 Unpaid claims and claim expenses 1,719 1,576 Other policyholder funds 1,843 1,714 Other 239 202 $5,059 $4,685
Note 6: 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. Note 7: Financial information by borrowing group Textron consists of two borrowing groups - the Textron Parent Company Borrowing Group and its 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 7: Financial information by borrowing group (continued) TEXTRON PARENT COMPANY BORROWING GROUP (unaudited) (In millions)
Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, Statement of Income 1995 1994 1995 1994 Revenues $1,651 $1,776 $3,205 $3,464 Costs and expenses Cost of sales 1,351 1,485 2,629 2,911 Selling and administrative 158 171 315 331 Interest 52 55 102 108 Total costs and expenses 1,561 1,711 3,046 3,350 90 65 159 114 Pretax income of finance and insurance subsidiaries 115 120 231 240 Income before income taxes 205 185 390 354 Income taxes (81) (71) (154) (136) Elimination of minority interest in net income of Paul Revere (3) (4) (6) (8) Net income $ 121 $ 110 $ 230 $ 210
July 1, December 31, Balance Sheet 1995 1994 Assets Cash $ 89 $ 20 Receivables - net 764 702 Inventories 1,259 1,211 Investments in finance and insurance subsidiaries 2,435 2,246 Property, plant and equipment - net 1,173 1,146 Goodwill, less accumulated amortization of $213 and $194 1,216 1,231 Other assets (including net prepaid income taxes) 1,236 1,262 Total assets $8,172 $7,818 Liabilities and shareholders' equity Accounts payable and accrued liabilities (including income taxes) $3,206 $3,354 Debt 1,870 1,582 Shareholders' equity 3,096 2,882 Total liabilities and shareholders' equity $8,172 $7,818
Item 1. FINANCIAL STATEMENTS (Continued) Note 7: Financial information by borrowing group (continued) TEXTRON PARENT COMPANY BORROWING GROUP (continued) (unaudited) (In millions)
Six Months Ended July 1, July 2, Statement of Cash Flows 1995 1994 Cash flows from operating activities: Net income $230 $210 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of finance and insurance subsidiaries (73) (83) Depreciation and amortization 109 120 Changes in assets and liabilities: Increase in receivables (65) (125) Increase in inventories (48) (11) Decrease (increase) in other assets 5 (34) Increase (decrease) in accounts payable and accrued (118) 119 liabilities Other - net 59 29 Net cash provided by operating activities 99 225 Cash flows from investing activities: Capital expenditures (121) (117) Other investing activities - net (33) 41 Net cash used by investing activities (154) (76) Cash flows from financing activities: Increase (decrease) in short-term debt 5 (20) Proceeds from issuance of long-term debt 630 462 Principal payments on long-term debt (347) (467) Proceeds from exercise of stock options 18 9 Purchases of Textron common stock (93) - Purchases of Textron common stock from Paul Revere (22) (25) Dividends paid (67) (63) Net cash provided (used) by financing activities 124 (104) Net increase in cash 69 45 Cash at beginning of period 20 12 Cash at end of period $ 89 $ 57
Item 1 FINANCIAL STATEMENTS (Continued) Note 7: Financial information by borrowing group (continued) FINANCE AND INSURANCE SUBSIDIARIES (unaudited) (In millions)
Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, Statement of Income 1995 1994 1995 1994 Revenues Interest, discount and service charges $ 389 $ 325 $ 768 $ 649 Credit life, credit disability and casualty insurance premiums 82 70 163 133 Non-cancellable disability income, life and group insurance premiums 262 233 516 460 Investment income (including net realized investment gains) 118 113 237 219 Total revenues 851 741 1,684 1,461 Costs and expenses Selling and administrative 222 207 438 408 Interest 157 108 309 213 Provision for losses on collection of finance receivables, less recoveries 39 37 78 80 Credit life, credit disability and casualty insurance losses and adjustment expenses, less recoveries 37 31 70 62 Death and other insurance benefits 124 111 243 218 Increase in insurance policy liabilities 124 101 248 188 Amortization of insurance policy acquisition costs 33 26 67 52 Total costs and expenses 736 621 1,453 1,221 Income before income taxes 115 120 231 240 Income taxes (44) (48) (90) (94) Net income 71 72 141 146 Minority interest in net income (3) (4) (6) (8) Textron's equity in net income $ 68 $ 68 $ 135 $ 138
Item 1. FINANCIAL STATEMENTS (Continued) Note 7: Financial information by borrowing group (continued) FINANCE AND INSURANCE SUBSIDIARIES (unaudited) (In millions)
June 30, December 31, Balance Sheet 1995 1994 Assets Cash $ 31 $ 29 Investments 5,880 5,265 Finance receivables - net 9,238 8,622 Property, plant and equipment - net 108 107 Insurance policy acquisition costs 964 911 Goodwill, less accumulated amortization of $197 and $187 278 281 Other assets 606 633 Total assets $17,105 $15,848 Liabilities and equity Accounts payable and accrued liabilities (including income taxes) $1,025 $ 953 Insurance reserves and claims 5,059 4,685 Debt 8,379 7,782 Equity: Textron 2,435 2,246 Minority interest in Paul Revere 207 182 Total liabilities and equity $17,105 $15,848
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 Six Months Ended July 1, July 2, July 1, July 2, 1995 1994 1995 1994 REVENUES MANUFACTURING: Aircraft $ 635 $ 532 $1,177 $1,040 Automotive 398 410 822 811 Industrial 353 405 702 739 Systems and Components 265 428 504 873 1,651 1,775 3,205 3,463 FINANCIAL SERVICES: Finance 487 406 962 806 Paul Revere 364 335 722 655 851 741 1,684 1,461 Total revenues $2,502 $2,516 $4,889 $4,924 INCOME MANUFACTURING: Aircraft $ 64 $ 39 $ 105 $ 75 Automotive 36 42 73 78 Industrial 41 41 84 76 Systems and Components 23 14 42 26 164 136 304 255 FINANCIAL SERVICES: Finance 88 83 176 161 Paul Revere 27 37 55 79 115 120 231 240 Segment operating income 279 256 535 495 Corporate expenses and other - net (22) (17) (43) (34) Interest expense - net (52) (54) (102) (107) Income before income taxes $ 205 $ 185 $ 390 $ 354
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Financial Condition Textron Parent Company Borrowing Group: During the six months ended July 1, 1995, the Textron Parent Company Borrowing Group's operating activities provided cash of $99 million versus $225 million during the corresponding period of 1994. The decrease in 1995 was principally due to increased tax payments in 1995 partially offset by increased income in 1995 and a larger increase in receivables in 1994, due primarily to changed payment terms with certain customers. The Group's debt increased by $288 million principally as a result of the excess of cash used for capital expenditures, purchases of Textron common stock and payments of dividends over the $99 million of cash provided by operations. Its ratio of debt to total capital was 38% at July 1, 1995, up from 35% at December 31, 1994. During the six months ended July 2, 1994, the Group's operating activities provided cash of $225 million versus $164 million during the corresponding period of 1993. The improvement in 1994 was due to increased income and customer deposits, partially offset by higher receivables, due primarily to changed payment terms with certain customers. The Group's ratio of debt to total capital was 41% at July 2, 1994, down from 42% at year end 1993. The Group's credit facilities not used or reserved as support for outstanding commercial paper or bank borrowings at July 1, 1995 were $685 million. Textron had $236 million available at July 1, 1995 for unsecured debt securities under its shelf registration statement filed with the Securities and Exchange Commission. In 1994, Textron reactivated its program to purchase up to five million shares of its common stock from time to time in the open market as conditions warrant. In February 1995, Textron announced that it may purchase up to an additional five million shares of its common stock under the program. In June 1995, Textron completed the purchase of the first five million shares under the program. None of the additional shares had been purchased as of July 29, 1995. Management believes that the Group will continue to have adequate access to credit markets and that its credit facilities and cash flows 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 $62 million and $55 million to the Textron Parent Company Borrowing Group during the six month periods ended July 1, 1995 and July 2, 1994, respectively. In June 1995, Avco Financial Services (AFS) filed a shelf registration statement with the Securities and Exchange Commission, increasing the amount of registered debt available for issuance by $1.5 billion. During the six months ended June 30, 1995, AFS issued $918 million of unsecured debt securities, including $640 million under its shelf registration statements. AFS had $1.7 billion and $465 million available at June 30, 1995 for unsecured debt securities under its shelf registration statements with the Securities and Exchange Commission and Canadian provincial security exchanges, respectively. During the six months ended June 30, 1995, Textron Financial Corporation (TFC) issued $133 million of medium-term notes under a $500 million medium-term note facility under Rule 144A of the Securities Act of 1933, as amended. TFC had $367 million available under this facility at June 30, 1995. During the first half of 1995, the finance subsidiaries had $606 million of interest rate exchange agreements go into effect. Of these, $250 million expire in 1996 and had the effect of exchanging the indices used to determine interest expense under certain variable rate borrowings at June 30, 1995 for the purpose of better matching the rate of interest incurred on financing with the rate of interest earned on certain of the finance subsidiaries' variable rate finance receivables. The balance of the agreements, which have a weighted average original term of 2.2 years and expire through 1999, had the effect of fixing the rate of interest at approximately 8.3% on $356 million of variable rate borrowings at June 30, 1995. Results of Operations - Three months ended July 1, 1995 vs. Three months ended July 2, 1994 Textron reported second quarter 1995 earnings per share of $1.40, up 15% from 1994 earnings per share of $1.22, reflecting higher net income and a decreased number of average shares outstanding. Net income in 1995 of $121 million was up from 1994 net income of $110 million. Revenues were unchanged at $2.5 billion, reflecting the impact of divestitures in 1994. Excluding the revenues of these divested businesses, revenues in the second quarter increased 7% over 1994. The Aircraft segment's revenues and income increased $103 million (19%) and $25 million (64%), respectively, due to improvements at both Bell Helicopter and Cessna Aircraft. Bell Helicopter's revenues and income increased primarily as a result of higher international aircraft sales and higher revenues under the V-22 engineering and manufacturing development contract. Cessna's income increased due to higher revenues and an improved operating margin. Its higher product development expenses, principally related to two new Citation aircraft models, were essentially offset by lower bid and proposal expenses for the JPATS competition for a new U.S. military trainer. An announcement was made in June 1995 that the JPATS contract would be awarded to a competitor. The award is the subject of pending protests filed by Textron and Rockwell International with the U.S. General Accounting Office. The Automotive segment's revenues and income decreased $12 million (3%) and $6 million (14%), respectively, due to lower automotive production and higher start-up costs related to the launch of new products and facilities. The Industrial segment's revenues decreased $52 million (13%) and income equaled last year's level, both reflecting the divestiture of the Homelite division in August 1994. Excluding the impact of Homelite, revenues increased 9% and income increased 19%, primarily due to higher sales in the fasteners and contractor tool businesses. The Systems and Components segment's revenues decreased $163 million (38%), while income increased $9 million (64%). The decrease in revenues was due primarily to the divestiture of the Textron Lycoming Turbine Engine division in October 1994 and to reduced shipments on certain U.S. Government contracts and commercial aerospace contracts at other divisions. Income for 1994 reflected charges related to certain valuation adjustments at the Textron Lycoming Turbine Engine division. The Finance segment's revenues increased $81 million (20%), while income increased $5 million (6%). AFS' revenues increased, due primarily to (a) a higher level of finance receivables outstanding, (b) an increase in earned insurance premiums, and (c) an increase in investment income, due to improving yields and a higher level of invested assets, partially offset by a decline in yields on finance receivables, reflecting an increase in lower yielding retail installment contracts. Its income increased due to those factors, partially offset by an increase in the average cost of borrowed funds. Revenues at TFC increased, due to a higher level of finance receivables outstanding and higher yields on finance receivables, reflecting the higher interest rate environment, partially offset by lower fee income. Its income equaled last year's level as the benefit of the higher revenues was offset by an increase in the average cost of borrowed funds. Paul Revere's revenues increased $29 million (9%), due to continued premium growth in its individual disability insurance and group insurance lines of business and higher net investment income, partially offset by lower realized investment gains. Its income decreased $10 million (27%), primarily as a result of a higher individual disability insurance benefit ratio and lower realized investment gains ($3 million in 1995 vs. $11 million in 1994), partially offset by a lower benefit ratio in the group disability insurance line of business, increased premium volume, and improved expense ratios across all lines of business. The higher benefit ratio in the individual disability insurance business was the result of adverse claims experience from the block of policies issued between 1985 and 1989, especially in Florida and California. In addition, business issued to physicians has performed below expectations. The benefit ratio in the second quarter of 1995 was 87.2%, up from 81.2% in the second quarter of 1994, although it improved from 89.4% in the first quarter of 1995. Paul Revere continued its program to improve operating results through new products, pricing and underwriting adjustments, and continued emphasis on claims management. Paul Revere continues to expect a gradual improvement in the individual disability insurance benefit ratio throughout 1995. Corporate expenses and other - net for the three months ended July 1, 1995 were higher than the corresponding level in 1994, as a result of (a) increased compensation expense resulting from appreciation in the market value of Textron's common stock and (b) foreign exchange losses in 1995 compared to foreign exchange gains in 1994. 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 slightly higher effective income tax rate than the corresponding prior year rate. Results of Operations - Six months ended July 1, 1995 vs. Six months ended July 2, 1994 Earnings per share for the first half of 1995 were $2.65, up 14% from the $2.32 reported for the corresponding period in 1994, reflecting higher net income and a decreased number of average shares outstanding. Net income in 1995 was $230 million, up from $210 million for 1994. Revenues were unchanged at $4.9 billion, reflecting the impact of divestitures in 1994. Excluding the revenues of these divested businesses, revenues in the first half increased 8% over 1994. The Aircraft segment's revenues and income increased $137 million (13%) and $30 million (40%), respectively, due to improvements at both Bell Helicopter and Cessna Aircraft. Bell Helicopter's revenues increased primarily as a result of higher revenues under the V-22 engineering and manufacturing development contract and higher international aircraft and commercial spare parts sales, partially offset by lower foreign military aircraft sales. Bell's income increased as a result of the higher revenues, partially offset by increased product development expenses related to new helicopter models. Cessna's income increased due to higher revenues and an improved operating margin. Its higher product development expenses, principally related to two new Citation aircraft models, were essentially offset by lower bid and proposal expenses for the JPATS competition for a new U.S. military trainer. The Automotive segment's revenues increased $11 million (1%), while income decreased $5 million (6%), due to higher start-up costs related to the launch of new products and facilities. The Industrial segment's revenues decreased $37 million (5%), while income increased $8 million (11%). Excluding the impact of the 1994 divestiture of the Homelite division, revenues and income increased 20% and 28%, respectively, as a result of higher fasteners sales (including Avdel's results for six months in 1995 compared with three months in 1994) and increased contractor tool sales. The Systems and Components segment's revenues decreased $369 million (42%), while income increased $16 million (62%). The decrease in revenues was due to the divestiture of the Textron Lycoming Turbine Engine division in October 1994 and to reduced shipments on certain U.S. Government contracts and commercial aerospace contracts at other divisions. Income for 1994 reflected provisions for the consolidation of certain manufacturing operations and legal matters and charges related to certain valuation adjustments at the Textron Lycoming Turbine Engine division. The Finance segment's revenues increased $156 million (19%), while income increased $15 million (9%). AFS' revenues increased, due primarily to (a) a higher level of finance receivables outstanding, (b) an increase in earned insurance premiums, and (c) an increase in investment income, due to improving yields and a higher level of invested assets, partially offset by (d) a decline in yields on finance receivables, reflecting an increase in lower yielding retail installment contracts. Its income increased due to those factors and to a decrease in insurance losses in both finance-related and nonfinance-related insurance operations, partially offset by (a) an increase in the average cost of borrowed funds and (b) an increase in contingent insurance commissions in the nonfinance-related insurance lines, due primarily to improved loss experience. Revenues at TFC increased, due to a higher level of finance receivables outstanding and higher yields on finance receivables, reflecting the higher interest rate environment, partially offset by higher leveraged lease income in 1994 and lower fee income in 1995. Its income increased due to those factors and a decrease in loan loss provisions, reflecting an improvement in equipment portfolios and a stabilization of nonperforming real estate loans, partially offset by an increase in the average cost of borrowed funds. Paul Revere's revenues increased $67 million (10%), due to continued premium growth in its individual disability insurance and group insurance lines of business and higher net investment income, partially offset by lower realized investment gains. Its income decreased $24 million (30%), primarily as a result of a higher individual disability insurance benefit ratio and lower realized investment gains ($10 million in 1995 vs. $16 million in 1994), partially offset by a lower benefit ratio in the group disability insurance line of business, increased premium volume, and improved expense ratios across all lines of business. The higher benefit ratio (88.3% vs. 78.4%) in the individual disability insurance business was the result of adverse claims experience from the block of policies issued between 1985 and 1989, especially in Florida and California. In addition, business issued to physicians has performed below expectations. Corporate expenses and other - net for the first half of 1995 were higher than the corresponding level in 1994, as a result of (a) increased compensation expense resulting from appreciation in the market value of Textron's common stock and (b) foreign exchange losses in 1995 compared to foreign exchange gains in 1994. 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 first half results reflected a slightly higher effective income tax rate than the corresponding prior year rate. PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At Textron's annual meeting of shareholders held on April 26, 1995, the following items were voted upon: 1. The following persons were elected to serve as directors in Class II for three year terms expiring in 1998 and received the votes listed. There were no abstentions or broker non-votes applicable to the election of directors: Name For Withheld James F. Hardymon 76,744,461 849,156 Barbara Scott Preiskel 76,611,423 982,194 Thomas B. Wheeler 76,769,261 824,356 The following directors have terms of office which continued after the meeting: H. Jesse Arnelle, Lewis B. Campbell, R. Stuart Dickson, B. F. Dolan, John D. Macomber, Sam F. Segnar, Jean Head Sisco, John W. Snow and Martin D. Walker. 2. The appointment of Ernst & Young LLP as Textron's independent auditors for 1995 was ratified by the following vote: For Against Abstain Broker Non-Votes 76,798,049 446,795 348,773 0 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 12.1Computation of ratio of income to fixed charges of the Textron Parent Company Borrowing Group. 12.2Computation 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 second quarter ended July 1, 1995. 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: August 11, 1995 s/W. P. Janovitz 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) Six Months Ended July 1, 1995 Fixed charges: Interest expense (1) $102 Estimated interest portion of rents 10 Total fixed charges $112 Income: Income before income taxes $390 Fixed charges 112 Eliminate equity in undistributed pretax income of finance and insurance subsidiaries (169) Adjusted income $333 Ratio of income to fixed charges 2.97 (1) Includes interest unrelated to borrowings of $19 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) Six Months Ended July 1, 1995 Fixed charges: Interest expense (1) $411 Estimated interest portion of rents 21 Total fixed charges $432 Income: Income before income taxes $390 Elimination of minority interest in pretax income of Paul Revere (9) Fixed charges 432 Adjusted income $813 Ratio of income to fixed charges 1.88 (1) Includes interest unrelated to borrowings of $19 million (primarily interest accretion). EX-27 4
5 This schedule contains summary financial information extracted from Textron Inc.'s Consolidated Balance sheet as of July 1, 1995 and Consolidated Statement of Income for the six months ended July 1, 1995 and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-30-1995 JUL-1-1995 120 0 10,454 261 1,259 0 2,879 1,598 22,330 0 10,249 12 0 15 3,069 22,330 3,205 4,889 2,629 3,257 0 78 411 390 154 230 0 0 0 230 2.65 2.65
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