-----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, fJAsxF2Z5DfMhmVtCQ3IYRQkLPhx++LLu/vpO0KiLoYCxBQOlPhBCpZaWBj7yl/D y7zmCANrqe/qB1BEBnIYhw== 0000217346-94-000011.txt : 19940520 0000217346-94-000011.hdr.sgml : 19940520 ACCESSION NUMBER: 0000217346-94-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940402 FILED AS OF DATE: 19940513 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: 94528151 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 10-Q 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 April 2, 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 April 30, 1994 - 88,664,000 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 April 2, April 3, 1994 1993 Revenues Sales $ 1,687 $ 1,478 Interest, discount and service charges 324 315 Insurance premiums 290 278 Investment income (including net realized investment 107 94 gains) Total revenues 2,408 2,165 Costs and expenses Cost of sales 1,426 1,233 Selling and administrative 361 344 Interest expense 158 171 Provision for losses on collection of finance receivables, less recoveries 43 39 Insurance benefits and increase in policy 225 206 liabilities Amortization of insurance policy acquisition costs 26 37 Total costs and expenses 2,239 2,030 Income before income taxes 169 135 Income taxes (65) (52) Elimination of minority interest in net income of (4) - Paul Revere Net income $ 100 $ 83 Net income per common share $ 1.10 $ .92 Average shares outstanding* 90,588,000 89,600,000 Dividends per share: $2.08 Preferred stock, Series A $.52 $.52 $1.40 Preferred stock, Series B $.35 $.35 Common stock $.35 $.31
* 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)
April 2, January 1, 1994 1994 Assets Cash $ 26 $ 26 Investments 4,897 4,764 Receivables - net: Finance 7,589 7,562 Commercial and U.S. Government 802 678 8,391 8,240 Inventories 1,514 1,488 Property, plant and equipment - net 1,271 1,269 Unamortized insurance policy acquisition costs 802 784 Goodwill, less accumulated amortization of $357 and 1,423 1,437 $343 Other assets (including net prepaid income taxes) 1,644 1,650 Total assets $ 19,968 $ 19,658 Liabilities and shareholders' equity Liabilities Accounts payable $ 643 $ 614 Accrued postretirement benefits other than pensions 1,037 1,033 Other accrued liabilities (including income taxes) 2,334 2,268 Insurance reserves and claims 4,183 4,091 Debt: Textron Parent Company Borrowing Group 2,058 2,025 Finance and insurance subsidiaries 6,843 6,847 8,901 8,872 Total liabilities 17,098 16,878 Shareholders' equity Capital stock: Preferred stock 16 16 Common stock* 12 12 Capital surplus 695 687 Retained earnings 2,278 2,209 Other (39) (52) 2,962 2,872 Less cost of treasury shares 92 92 Total shareholders' equity 2,870 2,780 Total liabilities and shareholders' equity $ 19,968 $ 19,658 *Common shares outstanding 88,652,000 88,413,000
See notes to consolidated financial statements. Item 1. FINANCIAL STATEMENTS (Continued) TEXTRON INC. Consolidated Statement of Cash Flows (unaudited) (In millions)
Three Months Ended April 2, April 3, 1994 1993 Cash flows from operating activities: Net income $ 100 $ 83 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 72 65 Provision for losses on receivables 51 49 Deferred income taxes 17 12 Increase in insurance policy liabilities 91 81 Amortization of insurance policy acquisition costs 26 37 Changes in assets and liabilities: Increase in commercial and U.S. Government receivables (125) (43) Increase in inventories (26) (47) Additions to insurance policy acquisition costs (49) (57) Increase in other assets (25) (24) Increase in accounts payable 29 16 Increase (decrease) in accrued liabilities 64 (1) Other - net (19) 29 Net cash provided by operating activities 206 200 Cash flows from investing activities: Purchases of investments (471) (476) Proceeds from sales of debt and marketable equity securities 144 29 available for sale Proceeds from sales of debt securities held to maturity 10 118 Proceeds from maturities and calls of debt and marketable 213 168 equity securities Finance receivables originated or purchased (1,298) (1,139) Finance receivables repaid or sold 1,165 1,020 Capital expenditures (60) (43) Other investing activities - net 13 18 Net cash used by investing activities (284) (305) Cash flows from financing activities: Increase (decrease) in short-term debt (123) 279 Proceeds from issuance of long-term debt 638 405 Principal payments on long-term debt (419) (569) Receipts from interest-sensitive insurance products 49 56 Return of account balances on interest-sensitive insurance (31) (23) products Proceeds from exercise of stock options 6 5 Dividends paid (31) (27) Net cash provided by financing activities 89 126 Effect of foreign exchange rate changes on cash (11) - Net increase in cash - 21 Cash at beginning of period 26 31 Cash at end of period $ 26 $ 52
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 April 2, 1994 and January 1, 1994, and its consolidated results of operations and cash flows for each of the respective three month periods ended April 2, 1994 and April 3, 1993. The results of operations for the three months ended April 2, 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 $250 million. In February 1989, the U.S. Federal Trade Commission (FTC) challenged the acquisition under antitrust law. On May 10, 1994, the FTC gave final approval to a settlement of the matter by Textron's licensing a new competitor for Avdel's Monobolt non-aerospace blind rivet and selling the licensee certain manufacturing equipment of Avdel's U.S. operation. Textron expects to assume control of Avdel before the end of May 1994, and will begin in the second quarter of 1994 to consolidate in its financial statements the results of operations of Avdel. For the full year of 1993 (the latest period for which information is available relative to Avdel's operating results), Avdel's sales and earnings before income taxes were $153 million and $17 million, respectively, compared with $163 million and $16 million, respectively, in 1992. Such results do not reflect any purchase price adjustments which would be required as a result of Textron's acquisition of Avdel, principally amortization of goodwill. Textron Acustar Plastics On May 3, 1993, Textron acquired the plastics operations of the Acustar division of Chrysler Corporation at a cost of $139 million in cash. Note 3: Investments
April 2, January 1, 1994 1994 (In millions) Debt and marketable equity securities available for sale (April 2, 1994 amortized cost: $2,735) $ 2,802 $ 648 Debt securities held to maturity (April 2, 1994 estimated fair value: 1,763 3,778 $1,735) Other 332 338 $ 4,897 $ 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 principle. FAS 115 established new, more restrictive criteria to be used in determining which debt securities can 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 which Textron has both the ability and positive intent to hold to maturity. Securities classified in the available for sale category are carried at 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 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 net unrealized gains of $94 million, net of applicable income taxes, relating to the debt securities classified in the available for sale category of its investment portfolio at the date of adoption, were recorded as an increase to shareholders' equity. The net unrealized gains related to the available for sale category were $40 million, net of applicable income taxes, at April 2, 1994. The decrease in the net unrealized gains was principally due to financial market fluctuations during the first quarter of 1994. The adoption of FAS 115 had no effect upon Textron's net income. In the first quarter of 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. Proceeds from the sale were $10 million. Gross realized gains and losses from sales of securities classified as available for sale were $10 million and $1 million, respectively, in the first quarter of 1994. Note 4: Finance receivables - net
April 2, January 1, 1994 1994 (In millions) Finance receivables $ 8,052 $ 8,019 Less allowance for credit losses 232 225 Less finance-related insurance reserves and claims 231 232 $ 7,589 $ 7,562
Note 5: Inventories
April 2, January 1, 1994 1994 (In millions) Finished goods $ 370 $ 395 Work in process 1,168 1,120 Raw materials 222 241 1,760 1,756 Less progress and advance payments 246 268 $ 1,514 $ 1,488
Note 6: Insurance reserves and claims
April 2, January 1, 1994 1994 (In millions) Paul Revere: Future policy benefits $ 1,108 $ 1,090 Unpaid claim and claim expenses 1,400 1,358 Other policyholder funds 1,499 1,462 Other 176 181 $ 4,183 $ 4,091
Note 7: 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 8: Subsequent events On May 11, 1994, Textron and AlliedSignal Inc. signed a memorandum of understanding for AlliedSignal to acquire the Textron Lycoming Turbine Engine Division of Textron for approximately $375 million in cash plus the assumption of certain liabilities. Completion of the transaction is subject to negotiation of a final agreement and regulatory approvals. The proceeds from the sale will be used for general corporate purposes including debt reduction, repurchase of common shares and the financing of acquisitions. On May 12, 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. 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. Note 9: Financial information by borrowing group (continued) Textron, which had been the sole shareholder of The Paul Revere Corporation (PRC), sold 7.5 million shares of PRC, representing 16.7% of the outstanding shares of PRC, on October 26, 1993 in an underwritten public offering registered under the Securities Act of 1933. Item 1. FINANCIAL STATEMENTS (Continued) Note 9: Financial information by borrowing group (continued) TEXTRON PARENT COMPANY BORROWING GROUP (unaudited) (In millions)
Three Months Ended April 2, April 3, Statement of Income 1994 1993 Revenues $ 1,688 $ 1,479 Costs and expenses Cost of sales 1,426 1,233 Selling and administrative 160 152 Interest expense 53 61 Total costs and expenses 1,639 1,446 49 33 Pretax income of finance and insurance subsidiaries 120 102 Income before income taxes 169 135 Income taxes (65) (52) Elimination of minority interest in net income of (4) - Paul Revere Net income $ 100 $ 83
April 2, January 1, Balance Sheet 1994 1994 Assets Cash $ 10 $ 12 Receivables - net 830 695 Inventories 1,514 1,488 Investments in finance and insurance subsidiaries 2,212 2,161 Property, plant and equipment - net 1,153 1,150 Goodwill, less accumulated amortization of $183 and 1,128 1,138 $173 Other assets (including net prepaid income taxes) 1,476 1,433 Total assets $ 8,323 $ 8,077 Liabilities and shareholders' equity Accounts payable and accrued liabilities (including $ 3,395 $ 3,272 income taxes) Debt 2,058 2,025 Shareholders' equity 2,870 2,780 Total liabilities and shareholders' equity $ 8,323 $ 8,077
Item 1. FINANCIAL STATEMENTS (Continued) Note 9: Financial information by borrowing group (continued) TEXTRON PARENT COMPANY BORROWING GROUP (continued) (unaudited) (In millions)
Three Months Ended April 2, April 3, Statement of Cash Flows 1994 1993 Cash flows from operating activities: Net income $ 100 $ 83 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of finance and insurance (44) (46) subsidiaries Depreciation and amortization 59 53 Interest accretion 10 9 Changes in assets and liabilities: Increase in receivables (135) (48) Increase in inventories (26) (47) Increase in other assets (46) (18) Increase in accounts payable and accrued 119 46 liabilities Other - net (3) 5 Net cash provided by operating activities 34 37 Cash flows from investing activities: Capital expenditures (54) (39) Other investing activities - net 6 2 Net cash used by investing activities (48) (37) Cash flows from financing activities: Increase (decrease) in short-term debt (15) 3 Proceeds from issuance of long-term debt 307 130 Principal payments on long-term debt (255) (92) Proceeds from exercise of stock options 6 5 Dividends paid (31) (27) Net cash provided by financing activities 12 19 Net increase (decrease) in cash (2) 19 Cash at beginning of period 12 28 Cash at end of period $ 10 $ 47
Item 1. FINANCIAL STATEMENTS (Continued) Note 9: Financial information by borrowing group (continued) FINANCE AND INSURANCE SUBSIDIARIES (unaudited) (In millions)
Three Months Ended March 31, March 31, Statement of Income 1994 1993 Revenues Interest, discount and service charges $ 324 $ 315 Credit life, credit disability and casualty 63 76 insurance premiums Non-cancellable disability income, life and group 227 202 insurance premiums Investment income (including net realized investment 106 93 gains) Total revenues 720 686 Costs and expenses Selling and administrative 201 192 Interest expense 105 110 Provision for losses on collection of finance receivables, less recoveries 43 39 Credit life, credit disability and casualty insurance losses and adjustment expenses, less 31 33 recoveries Death and other insurance benefits 107 96 Increase in insurance policy liabilities 87 77 Amortization of insurance policy acquisition costs 26 37 Total costs and expenses 600 584 Income before income taxes 120 102 Income taxes (46) (39) Net income 74 63 Elimination of minority interest in net income of (4) - Paul Revere Textron's equity in net income $ 70 $ 63
March 31, December 31, Balance Sheet 1994 1993 Assets Cash $ 16 $ 14 Investments 4,892 4,760 Finance receivables - net 7,651 7,605 Property, plant and equipment - net 99 99 Unamortized insurance policy acquisition costs 802 784 Goodwill, less accumulated amortization of $174 and 295 299 $170 Other assets 636 660 Total assets $ 14,391 $ 14,221 Liabilities and equity Accounts payable and accrued liabilities (including $ 967 $ 939 income taxes) Insurance reserves and claims 4,183 4,091 Debt 6,843 6,847 Equity: Textron 2,212 2,161 Minority interest 186 183 Total liabilities and equity $ 14,391 $ 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 April 2, April 3, 1994 1993 REVENUES MANUFACTURING: Aircraft $ 508 $ 416 Automotive 391 253 Industrial 344 315 Systems and Components 445 494 1,688 1,478 FINANCIAL SERVICES: Finance 400 402 Paul Revere 320 284 720 686 Total revenues* $ 2,408 $ 2,164 INCOME MANUFACTURING: Aircraft $ 36 $ 20 Automotive 35 21 Industrial 36 28 Systems and Components 12 41 119 110 FINANCIAL SERVICES: Finance 78 70 Paul Revere 42 32 120 102 Segment operating income 239 212 Corporate expenses and other - net (17) (17) Interest expense - net (53) (60) Income before income taxes $ 169 $ 135
* Revenues by business segment exclude interest income of the Textron Parent Company Borrowing Group for the three month period ended April 3, 1993 of $1 million. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Financial Condition Textron Parent Company Borrowing Group: During the three months ended April 2, 1994, the Textron Parent Company Borrowing Group's operating activities provided cash of $34 million versus $37 million during the corresponding period of 1993. Such cash flows approximated last year's level as increased income and customer deposits for 1994 were offset by higher receivables, due primarily to strong first quarter 1994 sales. The Group's debt increased by $33 million principally as a result of cash used for capital expenditures and payments of dividends in excess of cash provided by operations. During the three months ended April 3, 1993, the Group's operating activities provided cash of $37 million versus cash used of $67 million during the corresponding period of 1992, with the improvement due primarily to increased deliveries on certain military contracts in 1993 and significant payments on trade payables and other liabilities in 1992. The Group's debt increased by $38 million principally as a result of cash used for capital expenditures and payments of dividends in excess of cash provided by operations. The Textron Parent Company Borrowing Group's credit facilities not used or reserved as support for outstanding commercial paper or bank borrowings at April 2, 1994 were $824 million. Textron had $236 million available at April 2, 1994 for unsecured debt securities under its shelf registration statement filed with the Securities and Exchange Commission. In 1990, PRC purchased in the open market (on behalf of Textron) 1,696,500 shares of Textron common stock at a total cost of approximately $40 million. Such purchase was accounted for in the Textron Parent Company Borrowing Group's balance sheet as a purchase of stock for the Textron Parent Company Borrowing Group's treasury and as a dividend (special distribution) from PRC. In July 1993, Textron's Board of Directors approved Textron's purchase of all of the shares of Textron common stock owned by PRC in four annual installments of 424,125 shares each, beginning on April 10, 1994, 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. Management believes that Textron 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 $26 million and $17 million to the Textron Parent Company Borrowing Group during the three month periods ended April 2, 1994 and April 3, 1993, respectively. During the three months ended March 31, 1994, Avco Financial Services (AFS) issued $150 million under its shelf registration statements. AFS had $1,497 million and $154 million available at March 31, 1994 for unsecured debt securities under its shelf registration statements with the Securities and Exchange Commission and Canadian provincial security exchanges, respectively. During the three months ended March 31, 1994, Textron Financial Corporation (TFC) issued $105 million of medium-term notes under a $350 million medium-term notes facility under Rule 144A of the Securities Act of 1933, as amended. TFC had $18 million available for medium-term notes under this facility at March 31, 1994. During the first quarter of 1994, the finance subsidiaries had $128 million of interest rate exchange agreements go into effect. The agreements, which have a weighted average original term of 4.7 years and expire through 1999, had the effect of fixing the rate of interest at approximately 6.1% on $128 million of variable rate borrowings at March 31, 1994. Results of Operations - Three months ended April 2, 1994 vs. Three months ended April 3, 1993 Textron reported first quarter net income of $100 million ($1.10 per share), up 20% from net income of $83 million ($.92 per share) in 1993. Revenues increased 11% 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 and income increased by $92 million (22%) and $16 million (80%), respectively, due to higher results at both Bell Helicopter and Cessna. Bell's revenues and income increased primarily as a result of higher sales of military aircraft, higher international sales and higher revenues under the Bell-Boeing V-22 engineering and manufacturing development (EMD) contract, partially offset by lower sales of both military and commercial spare parts. Cessna's income increased as a result of higher sales, the benefit of which was partially offset by higher bid and proposal expenses for the Joint Primary Aircraft Training System (JPATS) competition for a new U.S. military trainer. In October 1992, the U.S. Government terminated substantially all of the fixed price full scale development (FSD) contract on the V-22 program and issued the Bell-Boeing team a new cost-type letter contract, providing initial funding for the EMD phase of the V-22 program. In the first quarter of 1994, the parties entered into a definitized cost-type EMD contract, which replaced the letter contract, with a value of approximately $2.65 billion. Under the terms of that contract, Bell-Boeing will build four production-representative V-22 aircraft and modify two existing aircraft to meet the requirements of the U.S. Marine Corps' medium lift replacement aircraft. The settlement of the terminated portions of the FSD contract was also finalized in the first quarter of 1994. Textron's share of cumulative losses on the FSD contract approximated the amounts previously recorded. The Automotive segment's revenues and income increased by $138 million (55%) and $14 million (67%), respectively, due primarily to the inclusion of the operating results of Textron Acustar Plastics (acquired in May 1993), partially offset by the completion of a higher margin program in 1993 at Davidson Interiors. The Industrial segment's revenues increased $29 million (9%), due to growth in all three business lines -- outdoor products, fasteners and diversified products. Income increased $8 million (29%), due primarily to the higher sales and improved productivity in the fastener business and dividends of $2 million from Avdel plc. The Systems and Components segment's revenues decreased $49 million (10%) and income decreased $29 million (71%), reflecting further weakness in the commercial aerospace industry and the wind down of certain U.S. Government contracts. Income decreased, due primarily to the reduction in volume and provisions aggregating $15 million for further consolidation of manufacturing operations and certain legal matters. Excluding the effects of those provisions, income decreased principally at Textron Lycoming Turbine Engine, the major line of business in this segment, and at Textron Aerostructures. Despite a slight increase in revenues, Textron Lycoming Turbine Engine's income decreased due to a lower margin in its commercial aerospace business and reduced shipments of turbine engines for the Abrams main battle tank, partially offset by the impact of higher sales of military helicopter engines and kits. Textron Aerostructures' income decreased, due principally to both nonrecurring tooling revenues and a cumulative favorable profit adjustment on long-term contracts in 1993. At Textron Defense Systems, income approximated the 1993 level as the impact of a significant decrease in revenues, due to the wind down of a military communications satellite contract, was offset by the shipment of higher margin aircraft carrier landing systems. The Finance segment's revenues decreased $2 million while income increased $8 million (11%). Income at AFS increased, due to a higher level of finance receivables outstanding and a decrease in the cost of borrowed funds, partially offset by a decrease in yields on finance receivables. AFS' revenues decreased slightly, due to the decline in yields on finance receivables and a decrease in premiums earned in its nonfinance-related insurance business, partially offset by the higher level of finance receivables outstanding. Revenues at TFC increased slightly, due to an increased level of receivables and higher leveraged lease income primarily related to the sales of residual appreciation rights, partially offset by a decrease in yields. Its income increased due to those factors and a decrease in the cost of borrowed funds, partially offset by an increase in loan loss provisions, reflecting a general strengthening of reserves. Paul Revere's revenues increased $36 million (13%), due to continuing growth in its individual disability insurance business, increased premium volume in group insurance and higher investment income. Income increased $10 million (31%), primarily as a result of higher income in its individual disability insurance business (due to higher revenues and lower expense ratio, partially offset by higher benefit ratios, which reflected late reported claims in the excess risk reinsurance business) and higher investment income. Paul Revere's investment income increased as a result of (a) a higher level of invested assets, offset in part by lower investment yields, and (b) higher net realized investment gains ($5 million in 1994 vs. $2 million in 1993). Realized investment gains in 1994 ($11 million) were partially offset by an increased provision for other than temporary declines in values of investments ($6 million). Corporate expenses and other - net for the three months ended April 2, 1994 were at the same level as in 1993. Lower interest expense of the Textron Parent Company Borrowing Group reflected both a lower level of average borrowing and a decreased average cost of borrowing. The quarter's results reflected an income tax rate equal to the prior year, as the effect of the increase in the federal statutory tax rate from 34% to 35% (new tax legislation passed in the third quarter of 1993, retroactive to the beginning of 1993) was offset by lower foreign and state income taxes, resulting from a change in mix of income between taxing jurisdictions. Subsequent events - See Note 8 to the consolidated financial statements. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS In early 1989, Textron acquired Avdel plc, a fastening systems manufacturing business based in England, the total cost of which approximated $250 million. In February 1989, the U.S. Federal Trade Commission (FTC) challenged the acquisition under antitrust law. On May 10, 1994, the FTC gave final approval to a settlement of the matter by Textron's licensing a new competitor for Avdel's Monobolt non-aerospace blind rivet and selling the licensee certain manufacturing equipment of Avdel's U.S. operation. Textron expects to assume control of Avdel before the end of May 1994, and will begin in the second quarter of 1994 to consolidate in its financial statements the results of operations of Avdel. Since 1979, Textron has been engaged in arbitration in Switzerland with the Government of Iran concerning conflicting claims and counterclaims arising out of a 1975 helicopter coproduction agreement between its Bell Helicopter Division and the Government of Iran. The contract was terminated in 1978 and the arbitration started in 1979. In May 1994, Bell Helicopter, Textron and the Government of Iran entered into an agreement for the settlement of these matters over time at an estimated cost not expected to exceed amounts previously reserved. In addition, there are pending or threatened against Textron and its subsidiaries lawsuits and other proceedings, some 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. (b) Reports on Form 8-K No reports on Form 8-K were filed during the first quarter ended April 2, 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: May 13, 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 EX-12.1 2 EXHIBIT 12.1 EXHIBIT 12.1 TEXTRON PARENT COMPANY BORROWING GROUP COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES (unaudited) (In millions except ratio)
Three Months Ended April 2, 1994 Fixed charges: Interest expense (1) $ 53 Estimated interest portion of rents 5 Total fixed charges $ 58 Income: Income before income taxes $ 169 Fixed charges 58 Eliminate equity in undistributed pre-tax income of finance and insurance subsidiaries (94) Adjusted income $ 133
Ratio of income to fixed charges 2.29 (1) Includes interest unrelated to borrowings of $10 million (primarily interest accretion). EX-12.2 3 EXHIBIT 12.2 EXHIBIT 12.2 TEXTRON INC. INCLUDING ALL MAJORITY-OWNED SUBSIDIARIES COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES (unaudited) (In millions except ratio)
Three Months Ended April 2, 1994 Fixed charges: Interest expense (1) $ 158 Estimated interest portion of rents 11 Total fixed charges $ 169 Income: Income before income taxes $ 169 Elimination of minority interest in pretax income of (7) Paul Revere Fixed charges 169 Adjusted income $ 331 Ratio of income to fixed charges 1.96
(1) Includes interest unrelated to borrowings of $10 million (primarily interest accretion). -----END PRIVACY-ENHANCED MESSAGE-----