-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HyTZmPlLl886QjjolYAz4p26FmaGcRgDitrhSiTPrMf2PrxApin5yCBZyx2A6ujG v+cREfzLjUNGYa2o/uTRjg== 0000217346-98-000011.txt : 19980812 0000217346-98-000011.hdr.sgml : 19980812 ACCESSION NUMBER: 0000217346-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980704 FILED AS OF DATE: 19980810 SROS: NYSE 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: SEC FILE NUMBER: 001-05480 FILM NUMBER: 98680437 BUSINESS ADDRESS: STREET 1: 40 WESTMINSTER ST CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 4014212800 MAIL ADDRESS: STREET 1: 40 WESTMINSTER ST CITY: PROVIDENCE STATE: RI ZIP: 02903 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 4, 1998 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 incorporation or organization) 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 August 1, 1998 - 163,880,000 shares PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS TEXTRON INC. Condensed Consolidated Statement of Income (unaudited) (Dollars in millions except per share amounts)
Three Months Ended Six Months Ended July 4, June 28, July 4, June 28, 1998 1997 1998 1997 Revenues Manufacturing sales $ 2,393 $2,117 $4,560 $4,138 Finance revenues 560 550 1,111 1,080 Total revenues 2,953 2,667 5,671 5,218 Costs and expenses Cost of sales 1,947 1,730 3,712 3,386 Selling and administrative 409 380 798 742 Gain on sale of division (97) - (97) - Special charges 87 - 87 - Interest 191 180 380 363 Provision for losses on collection of finance receivables 64 63 127 127 Other 66 67 139 137 Total costs and expenses 2,667 2,420 5,146 4,755 Income before income taxes and distributions on preferred securities of subsidiary trust 286 247 525 463 Income taxes (115) (95) (206) (180) Distributions on preferred securities of subsidiary trust, net of income taxes (7) (7) (13) (13) Net income $ 164 $ 145 $ 306 $ 270 Earnings per common share: Basic $ 1.00 $ .88 $ 1.87 $ 1.63 Diluted $ .98 $ .86 $ 1.83 $ 1.59 Average shares outstanding: Basic 163,613,000 165,173,000 163,189,000 165,442,000 Diluted 168,027,000 169,797,000 167,541,000 169,993,000 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 $ .285 $ .25 $ .57 $ .50
See notes to condensed consolidated financial statements. Item 1. FINANCIAL STATEMENTS (Continued) TEXTRON INC. Condensed Consolidated Balance Sheet (unaudited) (Dollars in millions)
July 4, January 3, 1998 1998 Assets Cash $ 132 $ 87 Investments 883 844 Receivables - net: Finance 10,456 10,226 Commercial and U.S. government 1,077 920 11,533 11,146 Inventories 1,602 1,349 Property, plant, and equipment, less accumulated depreciation of $1,917 and $1,827 2,016 1,860 Goodwill, less accumulated amortization of $495 and $465 1,986 1,753 Other (including net prepaid income taxes) 1,827 1,571 Total assets $ 19,979 $ 18,610 Liabilities and shareholders' equity Liabilities Accounts payable $ 985 $ 963 Accrued postretirement benefits other than pensions 804 799 Other accrued liabilities (including income taxes) 2,840 2,641 Debt: Parent Group 1,873 1,221 Finance Group 9,532 9,275 11,405 10,496 Total liabilities 16,034 14,899 Textron - obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Textron junior subordinated debt securities 483 483 Shareholders' equity Capital stock: Preferred stock 13 13 Common stock 24 24 Capital surplus 881 830 Retained earnings 3,575 3,362 Accumulated other comprehensive income (92) (62) 4,401 4,167 Less cost of treasury shares 939 939 Total shareholders' equity 3,462 3,228 Total liabilities and shareholders' equity $ 19,979 $ 18,610 Common shares outstanding 163,772,000 162,343,000
See notes to condensed consolidated financial statements. Item 1. FINANCIAL STATEMENTS (Continued) TEXTRON INC. Condensed Consolidated Statement of Cash Flows (Unaudited) (In millions)
Six Months Ended July 4, June 28, 1998 1997 Cash flows from operating activities: Net income $ 306 $ 270 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 145 127 Amortization 88 83 Gain on sale of division (97) - Special charges 87 - Provision for losses on receivables 129 129 Changes in assets and liabilities excluding those related to acquisitions and divestitures: Increase in commercial and U.S. government (113) (61) receivables Increase in inventories (198) (171) Increase in other assets (127) (66) Increase (decrease) in accounts payable (40) 1 Increase in accrued liabilities 184 27 Other - net (69) (29) Net cash provided by operating activities 295 310 Cash flows from investing activities: Purchases of investments (264) (126) Proceeds from disposition of investments 157 311 Maturities and calls of investments 67 34 Finance receivables: Originated or purchased (5,302) (3,777) Repaid or sold 4,886 3,349 Cash used in acquisitions (441) (367) Cash received from dispositions 160 571 Capital expenditures (207) (156) Other investing activities - net 9 21 Net cash used by investing activities (935) (140) Cash flows from financing activities: Increase (decrease) in short-term debt 900 (246) Proceeds from issuance of long-term debt 1,126 778 Principal payments on long-term debt (1,286) (420) Proceeds from exercise of stock options 39 27 Purchases of Textron common stock - (112) Dividends paid (94) (83) Net cash provided (used) by financing activities 685 (56) Net increase in cash 45 114 Cash at beginning of period 87 47 Cash at end of period $ 132 $ 161
See notes to condensed consolidated financial statements. TEXTRON INC. Notes to Condensed Consolidated Financial Statements (unaudited) Note 1: Basis of presentation The financial statements should be read in conjunction with the financial statements included in Textron's Annual Report on Form 10-K for the year ended January 3, 1998. 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 4, 1998, and its consolidated results of operations for each of the respective three and six month periods ended July 4, 1998 and June 28, 1997 and consolidated cash flows for each of the six month periods ended July 4, 1998 and June 28, 1997. The results of operations for the six months ended July 4, 1998 are not necessarily indicative of results for the full year. Business segment data has been reclassified to reflect the transfer of Lycoming from the Aircraft segment to the Industrial segment. Note 2: Earnings per Share In 1997, Textron adopted FAS 128 "Earnings Per Share." FAS 128 requires companies to present basic and diluted earnings per share amounts. The dilutive effect of convertible preferred stock and stock options was 4,352,000 and 4,551,000 shares for the six month periods ending July 4, 1998 and June 28, 1997, respectively. Income available to common shareholders used to calculate both basic and diluted earnings per share approximated net income for both periods. Note 3: Inventories
July 4, January 3, 1998 1998 (In millions) Finished goods $ 475 $ 454 Work in process 855 675 Raw materials 425 366 1,755 1,495 Less progress payments and customer 153 146 deposits $1,602 $1,349
Note 4: Textron-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Textron junior subordinated debt securities In 1996, a trust sponsored and wholly-owned by Textron issued preferred securities to the public (for $500 million) and shares of its common securities to Textron (for $15.5 million), the proceeds of which were invested by the trust in $515.5 million aggregate principal amount of Textron's newly issued 7.92% Junior Subordinated Deferrable Interest Debentures, due 2045. The debentures are the sole asset of the trust. The amounts due to the trust under the debentures Note 4: Textron-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Textron junior subordinated debt securities (continued) and the related income statement amounts have been eliminated in Textron's consolidated financial statements. The preferred securities accrue and pay cash distributions quarterly at a rate of 7.92% per annum. Textron has guaranteed, on a subordinated basis, distributions and other payments due on the preferred securities. The guarantee, when taken together with Textron's obligations under the debentures and in the indenture pursuant to which the debentures were issued and Textron's obligations under the Amended and Restated Declaration of Trust governing the trust, provides a full and unconditional guarantee of amounts due on the preferred securities. The preferred securities are mandatorily redeemable upon the maturity of the debentures on March 31, 2045, or earlier to the extent of any redemption by Textron of any debentures. The redemption price in either such case will be $25 per share plus accrued and unpaid distributions to the date fixed for redemption. Note 5: Contingencies Textron is subject to a number of lawsuits, investigations and claims arising out of the conduct of its business, including those relating to commercial transactions, government contracts, product liability, and environmental, safety and health matters. Some seek compensatory, treble or punitive damages in substantial amounts; fines, penalties or restitution; or remediation of contamination. Some are or purport to be class actions. Under federal government procurement regulations, some could result in suspension or debarment of Textron or its subsidiaries from U.S. government contracting for a period of time. On the basis of information presently available, Textron believes that any liability for these suits and proceedings would not have a material effect on Textron's net income or financial condition. Note 6: Comprehensive Income In 1998, Textron adopted FAS 130, "Reporting Comprehensive Income." FAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on Textron's net income or shareholders' equity. FAS 130 requires unrealized gains or losses on the Company's available-for-sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of FAS 130. During the first six months of 1998 and 1997, comprehensive income amounted to $276 million and $228 million, respectively. Note 7: New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued FAS 131 "Disclosures about Segments of an Enterprise and Related Information." FAS 131 requires public companies to report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. This statement is effective for financial statements of fiscal years beginning after December 15, 1997. Textron is evaluating the impact of this statement on future reporting. In March 1998, the Accounting Standards Executive Committee issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires that companies capitalize certain internal-use software once certain criteria are met. This statement is effective for financial statements of fiscal years beginning after December 15, 1998. Textron is evaluating the impact of this statement on future reporting. In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 will require all costs of start-up activities, including organization costs, to be expensed as incurred. This statement is effective for financial statements of fiscal years beginning after December 15, 1998. SOP 98-5 will not have a material effect on Textron's net income and financial condition. In June 1998, the Financial Accounting Standards Board issued FAS 133 "Accounting for Derivative Instruments and Hedging Activities." FAS 133 requires an entity to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. This statement is effective for fiscal years beginning after June 15, 1999. Textron is evaluating the impact of this statement on future reporting. Note 8: Financial information by borrowing group Textron consists of two borrowing groups - the Textron Parent Company Borrowing Group (Parent Group) and Textron's finance subsidiaries (Finance Group). The Parent Group consists of all entities of Textron (primarily manufacturing) other than its wholly-owned finance subsidiaries. The Finance Group consists of Avco Financial Services (AFS) and Textron Financial Corporation (TFC). Summarized financial information for the Parent Group includes the Finance Group on a one- line basis under the equity method of accounting. Item 1. FINANCIAL STATEMENTS (Continued) Note 8: Financial information by borrowing group (continued) PARENT GROUP (unaudited) (In millions)
Three Months Ended Six Months Ended July 4, June 28, July 4, June 28, Condensed Statement of Income 1998 1997 1998 1997 Sales $2,393 $2,117 $4,560 $4,138 Costs and expenses Cost of sales 1,947 1,730 3,712 3,386 Selling and administrative 234 211 455 417 Gain on sale of division (97) - (97) - Special charges 87 - 87 - Interest 40 30 76 69 Total costs and expenses 2,211 1,971 4,233 3,872 182 146 327 266 Pretax income on Finance Group 104 101 198 197 Income before income taxes and distributions on preferred securities of subsidiary trust 286 247 525 463 Income taxes (115) (95) (206) (180) Distributions on preferred securities of subsidiary trust, net of income taxes (7) (7) (13) (13) Net income $ 164 $ 145 $ 306 $ 270
July 4, January 3, Condensed Balance Sheet 1998 1998 Assets Cash $ 77 $ 30 Receivables - net 1,077 920 Inventories 1,602 1,349 Investments in Finance Group 1,617 1,620 Property, plant and equipment - net 1,917 1,761 Goodwill 1,807 1,567 Other assets (including net prepaid income taxes) 1,595 1,311 Total assets $9,692 $8,558 Liabilities and shareholders' equity Accounts payable and accrued liabilities (including income $3,874 $3,626 taxes) Debt 1,873 1,221 Textron - obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Textron junior subordinated debt securities 483 483 Shareholders' equity 3,462 3,228 Total liabilities and shareholders' equity $9,692 $8,558
Item 1. FINANCIAL STATEMENTS (Continued) Note 8: Financial information by borrowing group (continued) PARENT GROUP (unaudited) (In millions)
Six Months Ended July 4, June 28, Condensed Statement of Cash Flows 1998 1997 Cash flows from operating activities: Net income $ 306 $ 270 Adjustments to reconcile net income to cash provided by operating activities: Earnings of Finance Group (greater than) less than distributions to Parent Group 13 (40) Depreciation 132 116 Amortization 30 28 Gain on sale of division (97) - Special charges 87 - Changes in assets and liabilities excluding those related to acquisitions and divestitures: Increase in receivables (113) (61) Increase in inventories (198) (171) Increase in other assets (188) (52) Increase in accounts payable and accrued 109 22 liabilities Other - net 2 12 Net cash provided by operating activities 83 124 Cash flows from investing activities: Capital expenditures (191) (140) Cash used in acquisitions (424) (324) Cash received from disposition of businesses 160 571 Proceeds from disposition of investments - 245 Other investing activities - net 22 16 Net cash provided (used) by investing activities (433) 368 Cash flows from financing activities: Increase (decrease) in short-term debt 548 (461) Proceeds from issuance of long-term debt 107 277 Principal payments on long-term debt (180) (58) Proceeds from exercise of stock options 39 27 Purchases of Textron common stock - (112) Dividends paid (94) (83) Contributions paid to Finance Group (23) - Net cash provided (used) by financing activities 397 (410) Net increase in cash 47 82 Cash at beginning of period 30 24 Cash at end of period $ 77 $ 106
Item 1. FINANCIAL STATEMENTS (Continued) Note 8: Financial information by borrowing group (continued) FINANCE GROUP (unaudited) (In millions)
Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, Condensed Statement of Income 1998 1997 1998 1997 Revenues $ 560 $ 550 $1,111 $1,080 Costs and expenses Selling and administrative 175 169 343 325 Interest 151 150 304 294 Provision for losses on collection of finance receivables 64 63 127 127 Other 66 67 139 137 Total costs and expenses 456 449 913 883 Income before income taxes 104 101 198 197 Income taxes (40) (39) (76) (76) Net income $ 64 $ 62 $ 122 $ 121
June 30, December 31, Condensed Balance Sheet 1998 1997 Assets Cash $ 55 $ 57 Investments 883 844 Finance receivables - net 10,456 10,226 Other 803 783 Total assets $12,197 $11,910 Liabilities and equity Accounts payable and accrued liabilities (including income (taxes) $ 1,048 $ 1,015 Debt 9,532 9,275 Equity 1,617 1,620 Total liabilities and equity $12,197 $11,910
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 4, June 28, July 4, June 28, 1998 1997 1998 1997 REVENUES Aircraft $ 858 $ 755 $1,514 $1,434 Automotive 583 523 1,201 1,080 Industrial 952 839 1,845 1,624 Finance 560 550 1,111 1,080 Total revenues $2,953 $2,667 $5,671 $5,218 INCOME Aircraft $ 91 $ 79 $ 152 $ 139 Automotive 43 33 99 83 Industrial 108 94 203 176 Finance 104 101 198 197 346 307 652 595 Gain on sale of division* 97 - 97 - Special charges* (87) - (87) - Segment income 356 307 662 595 Corporate expenses and other - net (30) (30) (61) (63) Interest expense - net (40) (30) (76) (69) Income before income taxes and distributions on preferred securities of subsidiary trust $ 286 $ 247 $ 525 $ 463 *Special charges include restructuring charges of $10 million for the Aircraft segment, $25 million for the Automotive segment and $52 million for the Industrial segment. The gain on sale of division relates to the Industrial segment.
Liquidity and Capital Resources The Statements of Cash Flows for Textron Inc. and the Parent Group detailing the changes in cash balances are on pages 4 and 9, respectively. The Parent Group's operating cash flow includes dividends received from the Finance Group of $135 million and $81 million during the first six months of 1998 and 1997, respectively. The Parent Group's debt to total capital ratio was 32% at July 4, 1998, up from 25% at year end. The Parent Group has credit facilities outstanding at July 4, 1998 aggregating $2.0 billion, $895 million of which was not used or reserved as support for outstanding commercial paper or bank borrowings. At June 30, 1998, the Finance Group had credit facilities outstanding of approximately $5.4 billion, $88 million of which was available at quarter end. The Parent Group and the Finance Group had $311 million and $607 million, respectively, available at quarter end under their shelf registration statement with the Securities and Exchange Commission and, for the Finance Group, the Canadian Provincial Security Exchanges. During the six months ended June 30, 1998, the Finance Group issued $719 million of unsecured debt securities, including $406 million under its shelf registration statements. In the first six months of 1998, the Finance Group increased its medium-term note facility by $750 million and issued $300 million medium-term notes under this facility. The Finance Group had $542 million available under the facility at June 30, 1998. In the first quarter, Textron acquired the capital stock of Ransomes PLC, a UK- based manufacturer of commercial turf-care machinery, and Sukosim, a German fastener manufacturer. The cost of these acquisitions was approximately $290 million (including notes issued for approximately $80 million), plus the assumption of debt. In the second quarter, Textron acquired Peiner, a German-based fastener company, and Ring Screw Works, a Michigan-based supplier of specialty threaded fasteners to the automotive industry. The cost of these acquisitions was approximately $200 million, plus the assumption of debt. In the first six months of 1998, the Finance Group had $267 million of interest rate exchange agreements expire and $198 million of interest rate exchange agreements go into effect. The new agreements, which have a weighted average original term of 2.9 years and expire through 2002, had the effect of fixing the rate of interest at approximately 6.5% on $198 million of variable rate borrowings at June 30, 1998. Also, during the first six months, the Parent Group terminated $275 million of fixed-pay interest rate exchange agreements. In the second quarter of 1998, Textron announced that it is reviewing its strategic alternatives for its consumer finance subsidiary, Avco Financial Services (AFS). This review will include evaluation of a sale, spin-off, or other disposition of AFS, and is targeted for completion in the third quarter of 1998. Management believes that the Parent 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 Group -- will continue to be more than sufficient to meet its operating needs and to finance growth. Results of Operations - Three months ended July 4, 1998 vs Three months ended June 28, 1997 Diluted earnings per share in the second quarter 1998 were $0.98 per share, up 14% from the 1997 amount of $0.86. Net income in 1998 of $164 million was up 13% from $145 million for 1997. Revenues increased 11% to $3.0 billion in 1998 from $2.7 billion in 1997. During the second quarter, Textron recorded a gain on sale of a division and special charges. On an after-tax basis, the net of these two transactions had no impact on earnings per share. Gain On Sale of Division -Fuel Systems Textron was sold to Woodward Governor Company for $160 million in cash on June 15, 1998, at a pretax gain of $97 million ($54 million after-tax, or $0.32 per diluted share). Special Charges - To enhance the competitiveness and profitability of its core businesses, Textron recorded a pretax charge of $87 million in the second quarter ($54 million after-tax or $0.32 per diluted share). This charge was recorded to cover asset impairments ($28 million), severance costs ($40 million), and other exit-related costs ($9 million) associated with its decision to exit several small, non-strategic product lines in Automotive and the former Systems and Components divisions which did not meet Textron's return criteria, and to realign certain operations in the Industrial segment. The pretax charges recorded in the Automotive and Industrial segments were $25 million and $52 million, respectively, and also included the cost of a litigation settlement of $10 million in the Aircraft segment. The Aircraft segment's revenues increased $103 million (14%) and income before special charges increased $12 million (15%). Cessna's revenues and income increased as a result of higher sales of business jets, single engine aircraft and Caravans. Bell's revenues increased due to higher commercial helicopter and spares sales ($62 million) as well as increased revenues on the V-22 program and other U.S. Government programs, primarily the Huey and Cobra upgrade contract ($44 million). These higher revenues were partially offset by the completion in 1997 of the three-year contract for model 412 helicopters with the Canadian Forces ($44 million) and lower foreign military sales ($31 million). Bell's income, however, decreased due to a change in product mix, primarily resulting in lower margins on U.S. Government contracts. The Automotive segment's revenues increased $60 million (11%), while income before special charges increased $10 million (30%). The revenue increase was due to higher volume at Kautex associated with capacity expansion in North America and higher sales in the Trim operations, due primarily to increased Chrysler production, which was depressed in 1997 by a strike at Chrysler. These revenue increases were partially offset by the impact of a strike at General Motors in 1998. Income increased due to the higher sales and improved performance at Trim. The Industrial segment's revenues increased $113 million (14%) and income before special charges increased $14 million (15%). These increases reflected the contribution from acquisitions, principally Ransomes PLC, Sukosim, and Ring Screw Works, and internal growth combined with ongoing margin improvement. Internal growth was driven by continued strength in the fluid & power systems and industrial components businesses. These benefits were partially offset by the fourth quarter 1997 divestiture of Speidel, the impact of a one-month strike at Textron's Jacobsen plant and a strike at General Motors in 1998. The Finance segment's revenues increased $10 million (2%), while income increased $3 million (3%). AFS' revenues and income increased $9 million, and $3 million, respectively. Revenues in its finance and related insurance business increased $9 million, due to a gain of $10 million on the sale of its centralized real estate receivable portfolio, an increase in average finance receivables, primarily in its commercial finance operations. The benefit of these revenue increases was partially offset by a decrease in yields on finance receivables, reflecting decreases in yields on both consumer and commercial finance receivables and the impact of an increase in lower-yielding commercial receivables. Income increased $6 million, due primarily to the benefit of the higher revenues, a decrease in the ratio of insurance losses to earned premiums, and an improvement in the ratio of net credit losses to average finance receivables for both the consumer and commercial finance portfolios. In AFS' nonrelated insurance business, revenues approximated last year's level while income decreased $3 million, due to an increase in underwriting expenses, primarily insurance losses. TFC's revenues increased $1 million, due to higher yields on receivables and an increase in other income, partially offset by a lower level of average receivables, due primarily to the securitization of $401 million of Textron- related receivables in the third quarter of 1997. The increase in other income was due primarily to portfolio servicing income. Its income equaled last year's level, as the benefit of the higher revenues and a lower provision for losses was offset by growth in businesses with higher operating expense ratios. Interest expense-net for the Parent Group increased $10 million, due to higher average debt, resulting from the incremental debt associated with acquisitions. Income taxes - the current quarter's effective income tax rate of 40.2% was higher than the corresponding prior year rate of 38.5%, due primarily to the nontax deductibility of goodwill related to the divestiture of Fuel Systems Textron. Results of Operations - Six months ended July 4, 1998 vs Six months ended June 28, 1997 Diluted earnings per share in the first half of 1998 were $1.83 per share, up 15% from the 1997 amount of $1.59. Net income in 1998 of $306 million was up 13% from $270 million for 1997. Revenues increased 9% to $5.7 billion in 1998 from $5.2 billion in 1997. The Aircraft segment's revenues increased $80 million (6%) and income before special charges increased $13 million (9%). Cessna's revenues and income increased as a result of higher sales of business jets and single engine aircraft. Bell's revenues and income decreased, due primarily to the completion in 1997 of the Canadian Forces contract ($99 million). The benefit of higher commercial helicopter and spares sales ($33 million) and increased revenues on the V-22 program and Huey and Cobra upgrade contracts ($54 million) was offset by lower revenues ($26 million) and margins on other U.S. government contracts and lower foreign military sales ($35 million). In addition, the impact of a favorable profit adjustment on the V-22 EMD contract in 1997 was offset by a lower level of product development expense in 1998. The Automotive segment's revenues increased $121 million (11%), while income before special charges increased $16 million (19%). The revenue increase was due to higher volume at Kautex associated with capacity expansion in North America and higher sales in the Trim operations, due primarily to increased Chrysler production, which was depressed in 1997 by a strike at Chrysler. These revenue increases were partially offset by the impact of a strike at General Motors in 1998. Income increased due to the higher sales and improved performance at Trim. The Industrial segment's revenues increased $221 million (14%) and income before special charges increased $27 million (15%). These increases reflected the contribution from acquisitions, principally Ransomes PLC, Sukosim, and Ring Screw Works, and internal growth combined with ongoing margin improvement. Internal growth was driven by continued strength in the fastening systems, fluid & power systems and industrial components businesses. These benefits were partially offset by the fourth quarter 1997 divestiture of Speidel, the impact of a one-month strike at Textron's Jacobsen plant and a strike at General Motors in 1998. The Finance segment's revenues increased $31 million (3%), while income increased $1 million. AFS' revenues increased $27 million, while income equaled last year's level. Revenues in its finance and related insurance business increased $19 million, due to an increase in average finance receivables ($7.646 billion in the first half 1998 vs $7.322 billion in the first half 1997), primarily in its commercial finance operations, a gain of $10 million on the sale of its centralized real estate receivable portfolio, and higher gains from the sale of certain underperforming branches ($8 million in the first half 1998 vs $3 million in the first half 1997). The benefit of these revenue increases was partially offset by a decrease in yields on finance receivables (17.33% in the first half 1998 vs 17.99% in the first half 1997), reflecting decreases in yields on both consumer and commercial finance receivables and the impact of an increase in lower-yielding commercial receivables. Income equaled last year's level, as the benefit of the higher revenues and an improvement in the ratio of net credit losses to average finance receivables (2.78% in the first half 1998 vs 2.98% in the first half 1997) was offset by the lower yields on finance receivables. The decrease in the net credit losses to average finance receivables was primarily attributable to the increase in commercial receivables, which have a lower loss ratio. In AFS' nonrelated insurance business, revenues increased $8 million due primarily to higher premiums earned and an increase in investment income. Income equaled last year's level, as the benefit of the higher revenues was offset by an increase in underwriting expenses, primarily insurance losses. TFC's revenues increased $4 million, due to an increase in other income, and higher yields on receivables (10.13% in the first half 1998 vs 9.94% in the first half 1997), partially offset by a lower level of average receivables ($3.129 billion in the first half 1998 vs $3.173 billion in the first half 1997), due primarily to the securitization of $401 million of Textron-related receivables in the third quarter of 1997. The increase in other income is due primarily to higher prepayment income, portfolio servicing income, and residual income. Its income increased $1 million as the benefit of the higher revenues and a lower provision for losses was offset by growth in businesses with higher operating expense ratios. Corporate expenses and other -net decreased $2 million due primarily to 1997 litigation costs related to a divested operation. Interest expense-net for the Parent Group increased $7 million, due to higher average debt, resulting from the incremental debt associated with acquisitions, partially offset by the payment of debt with proceeds in 1997 from the divestiture of Paul Revere. Income taxes - the effective income tax rate of 39.2% for the first half of 1998 was higher than the corresponding prior year rate of 38.9%, due primarily to the nontax deductibility of goodwill related to the divestiture of Fuel Systems Textron. * * * * * * FORWARD-LOOKING INFORMATION: CERTAIN STATEMENTS IN THIS REPORT, AND OTHER ORAL AND WRITTEN STATEMENTS MADE BY TEXTRON FROM TIME TO TIME, ARE FORWARD-LOOKING STATEMENTS, INCLUDING THOSE THAT DISCUSS STRATEGIES, GOALS, OUTLOOK OR OTHER NON-HISTORICAL MATTERS; OR PROJECT REVENUES, INCOME, RETURNS OR OTHER FINANCIAL MEASURES. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE STATEMENTS, INCLUDING THE FOLLOWING: (I) CONTINUED MARKET DEMAND FOR THE TYPES OF PRODUCTS AND SERVICES PRODUCED AND SOLD BY TEXTRON, (II) CHANGES IN WORLDWIDE ECONOMIC AND POLITICAL CONDITIONS AND ASSOCIATED IMPACT ON INTEREST AND FOREIGN EXCHANGE RATES, (III) THE LEVEL OF SALES BY ORIGINAL EQUIPMENT MANUFACTURERS OF VEHICLES FOR WHICH TEXTRON SUPPLIES PARTS, (IV) THE SUCCESSFUL INTEGRATION OF COMPANIES ACQUIRED BY TEXTRON, AND (V) CHANGES IN CONSUMER DEBT LEVELS. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See the Company's most recent annual report filed on Form 10-K (Management's Discussion and Analysis on pages 25 through 32 of Textron's Annual Report to shareholders, incorporated by reference to the Form 10-K). There has been no material change in this information. 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 22, 1998, 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 2001 and received the votes listed. Name For Withheld Paul E. Gagne 135,497,850 1,979,923 James F. Hardymon 135,506,165 1,971,608 Dana G. Mead 135,539,871 1,937,902 Thomas B. Wheeler 134,609,274 2,868,499 The following directors have terms of office which continued after the meeting: H. Jesse Arnelle, Teresa Beck, Lewis B. Campbell, R. Stuart Dickson, John D. Macomber, Brian H. Rowe, 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 1998 was ratified by the following vote: For Against Abstain Broker Non-Votes 136,306,523 631,326 539,924 0 3. A shareholder proposal requesting that the Board of Directors provide a report on Textron's foreign military sales was rejected by the following vote: For Against Abstain Broker Non-Votes 6,275,041 115,128,060 3,490,317 12,584,355 4. A shareholder proposal regarding executive compensation was rejected by the following vote: For Against Abstain Broker Non-Votes 12,263,414 110,271,249 2,343,275 12,599,835 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 12.1 Computation of ratio of income to combined fixed charges and preferred securities dividends of the Parent Group. 12.2 Computation of ratio of income to combined fixed charges and preferred securities dividends of Textron Inc. including all majority-owned subsidiaries. 27 Financial Data Schedule (filed electronically only) (b) Reports on Form 8-K No reports on Form 8-K were filed during the second quarter ended July 4, 1998 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 10, 1998 s/R. L. Yates R. L. Yates 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 combined fixed charges and preferred securities dividends of the Parent Group 12.2 Computation of ratio of income to combined fixed charges and preferred securities dividends of Textron Inc. including all majority-owned subsidiaries 27 Financial Data Schedule (filed electronically only) EX-12.1 2 EXHIBIT 12.1 PARENT GROUP COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (unaudited) (In millions except ratio)
Six Months Ended July 4, 1998 Fixed charges: Interest expense $ 76 Distributions on preferred securities of subsidiary trust, net of income taxes 13 Estimated interest portion of rents 11 Total fixed charges $100 Income: Income before income taxes and distributions on preferred securities of subsidiary trust $525 Eliminate equity in undistributed pretax income of Finance Group 87 Fixed charges * (63) Adjusted income $549 Ratio of income to fixed charges 5.49 * Adjusted to exclude distributions on preferred securities of subsidiary trust, net of income taxes
EX-12.2 3 EXHIBIT 12.2 TEXTRON INC. INCLUDING ALL MAJORITY-OWNED SUBSIDIARIES COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (unaudited) (In millions except ratio) Six Months Ended July 4,1998 Fixed charges: Interest expense $ 380 Distributions on preferred securities of subsidiary trust, net of income taxes 13 Estimated interest portion of rents 20 Total fixed charges $ 413 Income: Income before income taxes and distributions on preferred securities of subsidiary trust $ 525 Fixed charges * 400 Adjusted income $ 925 Ratio of income to fixed charges 2.24 * Adjusted to exclude distributions on preferred securities of subsidiary trust, net of income taxes
EX-27 4
5 6-MOS JAN-02-1999 JUL-04-1998 132 0 0 0 1,620 0 3,933 1,917 19,979 0 11,405 24 0 13 3,425 19,979 4,560 5,671 3,712 3,851 87 127 380 525 206 306 0 0 0 306 1.87 1.83
-----END PRIVACY-ENHANCED MESSAGE-----