Shareholders' Equity

12 Months Ended

Dec. 28, 2013

Shareholders' Equity

Shareholders' Equity

Note 9. Shareholders’ Equity

Capital Stock

We have authorization for 15 million shares of preferred stock with a par value of $0.01 and 500 million shares of common stock with a par value of $0.125.  Outstanding common stock activity for the three years ended December 28, 2013 is presented below:

(In thousands)	2013	2012		2011
Beginning balance	271,263	278,873		275,739
Exercise of stock options	1,333	1,159		177
Issued to Textron Savings Plan	1,921	2,159		2,686
Exercise of warrants	7,435	—		—
Stock repurchases	—	(11,103	)	—
Other	107	175		271
Ending balance	282,059	271,263		278,873

Earnings per Share

We calculate basic and diluted earnings per share (EPS) based on net income, which approximates income available to common shareholders for each period.  Basic EPS is calculated using the two-class method, which includes the weighted-average number of common shares outstanding during the period and restricted stock units to be paid in stock that are deemed participating securities as they provide nonforfeitable rights to dividends.  Diluted EPS considers the dilutive effect of all potential future common stock, including stock options, restricted stock units and, prior to the maturity of our convertible notes on May 1, 2013, the shares that could have been issued upon the conversion of the notes and upon the exercise of the related warrants.

The weighted-average shares outstanding for basic and diluted EPS are as follows:

(In thousands)	2013	2012	2011
Basic weighted-average shares outstanding	279,299	280,182	277,684
Dilutive effect of:
Convertible notes and warrants	4,801	14,053	28,869
Stock options and restricted stock units	328	428	702
Diluted weighted-average shares outstanding	284,428	294,663	307,255

The dilutive effect of the convertible notes and warrants decreased significantly in 2013 from prior years due to the maturity of our convertible notes as described in Note 7.  We intended to settle the face value of the notes in cash and the excess of the conversion value over the face value in cash and/or shares of our common stock; accordingly, only the shares of our common stock potentially issuable with respect to the excess of the notes’ conversion value over the face amount were considered in calculating diluted EPS. The call options purchased in connection with the issuance of the convertible notes and the capped call transaction were excluded from the calculation of diluted EPS as their impact was always anti-dilutive.

In 2013, 2012 and 2011, stock options to purchase 5 million, 7 million and 5 million shares, respectively, of common stock outstanding are excluded from our calculation of diluted weighted-average shares outstanding as their effect would have been anti-dilutive.

Accumulated Other Comprehensive Loss

The components of Accumulated Other Comprehensive Loss are presented below:

(In millions)	Foreign Currency Translation Adjustments		Pension and Postretirement Benefits Adjustments			Deferred Gains/Losses on Hedge Contracts			Accumulated Other Comprehensive Loss
Balance at December 31, 2011	$	79	$	(1,711	)	$	7		$	(1,625	)
Other comprehensive loss before reclassifications	2		(230		)	11			(217		)
Amounts reclassified from Accumulated Other Comprehensive Loss	—		84			(12		)	72
Other comprehensive loss	2		(146		)	(1		)	(145		)
Balance at December 29, 2012	81		(1,857		)	6			(1,770		)
Other comprehensive income before reclassifications	12		626			(15		)	623
Amounts reclassified from Accumulated Other Comprehensive Loss	—		121			(1		)	120
Other comprehensive income	12		747			(16		)	743
Balance at December 28, 2013	$	93	$	(1,110	)	$	(10	)	$	(1,027	)

Other Comprehensive Income (Loss)

The before and after-tax components of other comprehensive income (loss) are presented below:

(In millions)	Pre-Tax Amount			Tax (Expense) Benefit			After-Tax Amount
2013
Pension and postretirement benefits adjustments:
Unrealized gains	$	1,019		$	(410	)	$	609
Amortization of net actuarial loss*	189			(67		)	122
Amortization of prior service cost*	(2		)	1			(1		)
Recognition of prior service cost	29			(12		)	17
Pension and postretirement benefits adjustments, net	1,235			(488		)	747
Deferred gains/losses on hedge contracts:
Current deferrals	(20		)	5			(15		)
Reclassification adjustments	(1		)	—			(1		)
Deferred gains/losses on hedge contracts, net	(21		)	5			(16		)
Foreign currency translation adjustments	13			(1		)	12
Total	$	1,227		$	(484	)	$	743
2012
Pension and postretirement benefits adjustments:
Unrealized losses	$	(417	)	$	186		$	(231	)
Amortization of net actuarial loss*	124			(43		)	81
Amortization of prior service cost*	5			(2		)	3
Recognition of prior service cost	2			(1		)	1
Pension and postretirement benefits adjustments, net	(286		)	140			(146		)
Deferred gains/losses on hedge contracts:
Current deferrals	14			(3		)	11
Reclassification adjustments	(15		)	3			(12		)
Deferred gains/losses on hedge contracts, net	(1		)	—			(1		)
Foreign currency translation adjustments	(6		)	8			2
Total	$	(293	)	$	148		$	(145	)
2011
Pension and postretirement benefits adjustments:
Unrealized losses	$	(542	)	$	182		$	(360	)
Amortization of net actuarial loss *	89			(30		)	59
Amortization of prior service cost*	8			(3		)	5
Recognition of prior service cost	15			(5		)	10
Pension and postretirement benefits adjustments, net	(430		)	144			(286		)
Deferred gains on hedge contracts
Current deferrals	(7		)	2			(5		)
Reclassification adjustments	(22		)	7			(15		)
Deferred gains/losses on hedge contracts, net	(29		)	9			(20		)
Foreign currency translation adjustments	(1		)	(2		)	(3		)
Total	$	(460	)	$	151		$	(309	)

*These components of other comprehensive income are included in the computation of net periodic pension cost.  See Note 11 for additional information.