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