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 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 July 30, 1994 - 88,732,000 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 Six Months Ended
July 2, July 3, July 2, July 3,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues
Sales $ 1,775 $ 1,566 $ 3,463 $ 3,044
Interest, discount and service 325 314 649 629
charges
Insurance premiums 303 277 593 555
Investment income (including net
realized investment gains) 114 96 220 190
Total revenues 2,517 2,253 4,925 4,418
Costs and expenses
Cost of sales 1,483 1,302 2,909 2,535
Selling and administrative 380 351 741 695
Interest expense 163 165 321 336
Provision for losses on collection
of finance receivables, less 37 37 80 76
recoveries
Insurance benefits and increase in
policy liabilities 243 207 468 413
Amortization of insurance policy
acquisition costs 26 38 52 75
Total costs and expenses 2,332 2,100 4,571 4,130
Income before income taxes 185 153 354 288
Income taxes (71) (59) (136) (111)
Elimination of minority interest in
net income of Paul Revere (4) - (8) -
Net income $ 110 $ 94 $ 210 $ 177
Net income per common share $ 1.22 $ 1.05 $ 2.32 $ 1.97
Average shares outstanding* 90,533,000 89,992,000 90,556,000 89,794,000
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 $.35 $.31 $ .70 $ .62
* 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>
July 2, January 1,
1994 1994
<S> <C> <C>
Assets
Cash $ 71 $ 26
Investments 4,995 4,764
Receivables - net:
Finance 7,738 7,562
Commercial and U.S. Government 839 678
8,577 8,240
Inventories 1,536 1,488
Property, plant and equipment - net 1,310 1,269
Unamortized insurance policy acquisition costs 831 784
Goodwill, less accumulated amortization of $372 and 1,593 1,437
$343
Other assets (including net prepaid income taxes) 1,412 1,650
Total assets $ 20,325 $ 19,658
Liabilities and shareholders' equity
Liabilities
Accounts payable $ 637 $ 614
Accrued postretirement benefits other than pensions 1,040 1,033
Other accrued liabilities (including income taxes) 2,414 2,268
Insurance reserves and claims 4,338 4,091
Debt:
Textron Parent Company Borrowing Group 2,013 2,025
Finance and insurance subsidiaries 6,974 6,847
8,987 8,872
Total liabilities 17,416 16,878
Shareholders' equity
Capital stock:
Preferred stock 16 16
Common stock* 12 12
Capital surplus 698 687
Retained earnings 2,357 2,209
Other (82) (52)
3,001 2,872
Less cost of treasury shares 92 92
Total shareholders' equity 2,909 2,780
Total liabilities and shareholders' equity $ 20,325 $ 19,658
*Common shares outstanding 88,716,000 88,413,000
See notes to consolidated financial statements.
</TABLE>
4.
Item 1. FINANCIAL STATEMENTS (Continued)
<TABLE>
TEXTRON INC.
Consolidated Statement of Cash Flows (unaudited)
(In millions)
<CAPTION>
Six Months Ended
July 2, July 3,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $ 210 $ 177
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 146 134
Provision for losses on receivables 97 96
Deferred income taxes 27 (7)
Increase in insurance policy liabilities 195 151
Amortization of insurance policy acquisition costs 52 75
Changes in assets and liabilities excluding those related
to acquisitions:
Increase in commercial and U.S. Government receivables (141) (55)
Increase in inventories (11) (14)
Additions to insurance policy acquisition costs (105) (111)
Increase in other assets (13) (21)
Increase in accounts payable 14 108
Increase (decrease) in accrued liabilities 73 (44)
Other - net 10 (28)
Net cash provided by operating activities 554 461
Cash flows from investing activities:
Purchases of investments (972)
(1,233)
Proceeds from sales of debt and marketable equity securities 524 304
available for sale
Proceeds from sales of debt securities held to maturity 10 57
Proceeds from maturities and calls of debt and marketable 386 373
equity securities
Proceeds from other investments 44 32
Finance receivables originated or purchased
(2,713) (2,297)
Finance receivables repaid or sold 2,422 2,044
Capital expenditures (131) (101)
Cash used in acquisitions of businesses (net of cash acquired) - (139)
Other investing activities - net 41 14
Net cash used by investing activities (650) (685)
Cash flows from financing activities:
Increase (decrease) in short-term debt (64) 345
Proceeds from issuance of long-term debt 1,126 815
Principal payments on long-term debt (936) (959)
Receipts from interest-sensitive insurance products 128 104
Return of account balances on interest-sensitive insurance (60) (46)
products
Proceeds from exercise of stock options 9 13
Dividends paid (63) (55)
Net cash provided by financing activities 140 217
Effect of foreign exchange rate changes on cash 1 2
Net increase (decrease) in cash 45 (5)
Cash at beginning of period 26 31
Cash at end of period $ 71 $ 26
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 July 2, 1994 and
January 1, 1994, and its consolidated results of operations for each
of the respective three and six month periods ended July 2, 1994 and
July 3, 1993 and consolidated cash flows for each of the six month
periods ended July 2, 1994 and July 3, 1993. The results of
operations for the six months ended July 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 $254 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. Textron acquired control of Avdel plc on May 17, 1994 after
complying with the FTC settlement by licensing Avdel's Monobolt
non-aerospace blind rivet and divesting certain manufacturing
equipment to the licensee. 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
On May 3, 1993, Textron acquired the plastics operations of the
Acustar division of Chrysler Corporation at a cost of $139 million.
Note 3: Dispositions
On May 11, 1994, Textron and AlliedSignal Inc. signed a memorandum of
understanding for AlliedSignal to purchase Textron's Lycoming Turbine
Engine Division for approximately $375 million in cash plus the
assumption of certain liabilities. Completion of the transaction is
subject to negotiation of a definitive purchase and sale agreement
and regulatory approvals.
On July 21, 1994, Textron and Deere & Company entered into an
agreement under which Deere & Company will purchase Textron's
Homelite Division for approximately $120 million in cash plus the
assumption of certain liabilities. The transaction, subject to
regulatory approval, is expected to be completed by the end of the
third quarter of 1994.
The proceeds from the sales of these divisions will be used for
general corporate purposes including debt reduction, repurchase of
common shares and the financing of acquisitions.
Note 4: Investments
<TABLE>
<CAPTION>
July 2, January 1,
1994 1994
<S> <C> <C>
(In millions)
Debt and marketable equity securities
available for sale (July 2, 1994
amortized cost: $2,433) $ 2,410 $ 648
Debt securities held to maturity
(July 2, 1994 estimated fair value: 2,279 3,778
$2,163)
Other 306 338
$ 4,995 $ 4,764
</TABLE>
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 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 losses related to the available for sale
category were $13 million, net of applicable income tax benefit, at
July 2, 1994. The adoption of FAS 115 had no effect on Textron's net
income.
During the six months ended July 2, 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.
Note 5: Finance receivables - net
<TABLE>
<CAPTION>
July 2, January 1,
1994 1994
<S> <C> <C>
(In millions)
Finance receivables $ 8,214 $ 8,019
Less allowance for credit losses 239 225
Less finance-related insurance reserves
and claims 237 232
$ 7,738 $ 7,562
</TABLE>
Note 6: Inventories
<TABLE>
<CAPTION>
July 2, January 1,
1994 1994
<S> <C> <C>
(In millions)
Finished goods $ 397 $ 395
Work in process 1,159 1,120
Raw materials 221 241
1,777 1,756
Less progress and advance payments 241 268
$ 1,536 $ 1,488
</TABLE>
Note 7: Insurance reserves and claims
<TABLE>
<CAPTION>
July 2, January 1,
1994 1994
<S> <C> <C>
(In millions)
Paul Revere:
Future policy benefits $ 1,135 $ 1,090
Unpaid claims and claim expenses 1,458 1,358
Other policyholder funds 1,568 1,462
Other 177 181
$ 4,338 $ 4,091
</TABLE>
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.
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)
<TABLE>
TEXTRON PARENT COMPANY BORROWING GROUP
(unaudited) (In millions)
<CAPTION>
Three Months Ended Six Months Ended
July 2, July 3, July 2, July 3,
Statement of Income 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues $ 1,776 $ 1,567 $ 3,464 $ 3,046
Costs and expenses
Cost of sales 1,483 1,302 2,909 2,535
Selling and administrative 173 157 333 309
Interest expense 55 59 108 120
Total costs and expenses 1,711 1,518 3,350 2,964
65 49 114 82
Pretax income of finance and
insurance subsidiaries 120 104 240 206
Income before income taxes 185 153 354 288
Income taxes (71) (59) (136) (111)
Elimination of minority interest
in net income of Paul Revere (4) - (8) -
Net income $ 110 $ 94 $ 210 $ 177
</TABLE>
<TABLE>
<CAPTION>
July 2, January 1,
Balance Sheet 1994 1994
<S> <C> <C>
Assets
Cash $ 57 $ 12
Receivables - net 839 695
Inventories 1,536 1,488
Investments in finance and insurance subsidiaries 2,205 2,161
Property, plant and equipment - net 1,191 1,150
Goodwill, less accumulated amortization of $193 and $173 1,303 1,138
Other assets (including net prepaid income taxes) 1,221 1,433
Total assets $ 8,352 $ 8,077
Liabilities and shareholders' equity
Accounts payable and accrued liabilities (including income $ 3,430 $ 3,272
taxes)
Debt 2,013 2,025
Shareholders' equity 2,909 2,780
Total liabilities and shareholders' equity $ 8,352 $ 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>
Six Months Ended
July 2, July 3,
Statement of Cash Flows 1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $ 210 $ 177
Adjustments to reconcile net income to net cash provided
by operating activities:
Undistributed earnings of finance and insurance (83) (81)
subsidiaries
Depreciation and amortization 120 108
Interest accretion 19 18
Changes in assets and liabilities excluding those
related to acquisitions:
Increase in receivables (125) (70)
Increase in inventories (11) (14)
Increase in other assets (34) (27)
Increase in accounts payable and accrued 94 49
liabilities
Other - net 10 4
Net cash provided by operating activities 200 164
Cash flows from investing activities:
Cash used in acquisitions of businesses (net of cash - (139)
acquired)
Capital expenditures (117) (92)
Other investing activities - net 41 7
Net cash used by investing activities (76) (224)
Cash flows from financing activities:
Increase (decrease) in short-term debt (20) 8
Proceeds from issuance of long-term debt 462 224
Principal payments on long-term debt (467) (142)
Proceeds from exercise of stock options 9 13
Dividends paid (63) (55)
Net cash provided (used) by financing activities (79) 48
Net increase (decrease) in cash 45 (12)
Cash at beginning of period 12 28
Cash at end of period $ 57 $ 16
</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 Six Months Ended
June 30, June 30, June 30, June 30,
Statement of Income 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues
Interest, discount and service charges $ 325 $ 314 $ 649 $ 629
Credit life, credit disability and
casualty insurance premiums 70 75 133 151
Non-cancellable disability income, life
and group insurance premiums 233 202 460 404
Investment income (including net
realized investment gains) 113 95 219 188
Total revenues 741 686 1,461 1,372
Costs and expenses
Selling and administrative 207 194 408 386
Interest expense 108 106 213 216
Provision for losses on collection of
finance receivables, less recoveries 37 37 80 76
Credit life, credit disability and
casualty insurance losses and
adjustment expenses, less recoveries 31 34 62 67
Death and other insurance benefits 111 95 218 191
Increase in insurance policy 101 78 188 155
liabilities
Amortization of insurance policy
acquisition costs 26 38 52 75
Total costs and expenses 621 582 1,221 1,166
Income before income taxes 120 104 240 206
Income taxes (48) (40) (94) (79)
Net income 72 64 146 127
Elimination of minority interest in net
income of Paul Revere (4) - (8) -
Textron's equity in net income $ 68 $ 64 $ 138 $ 127
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
Note 9: Financial information by borrowing group (continued)
<TABLE>
FINANCE AND INSURANCE SUBSIDIARIES
(unaudited) (In millions)
<CAPTION>
June 30, December 31,
Balance Sheet 1994 1993
<S> <C> <C>
Assets
Cash $ 14 $ 14
Investments 4,990 4,760
Finance receivables - net 7,798 7,605
Property, plant and equipment - net 101 99
Unamortized insurance policy acquisition costs 831 784
Goodwill, less accumulated amortization of $179 290 299
and $170
Other assets 616 660
Total assets $ 14,640 $ 14,221
Liabilities and equity
Accounts payable and accrued liabilities
(including income taxes) $ 939 $ 939
Insurance reserves and claims 4,338 4,091
Debt 6,974 6,847
Equity:
Textron 2,205 2,161
Minority interest 184 183
Total liabilities and equity $ 14,640 $ 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 Six Months Ended
July 2, July 3, July 2, July 3,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
REVENUES
MANUFACTURING:
Aircraft $ 532 $ 472 $ 1,040 $ 888
Automotive 399 299 790 552
Industrial 416 355 760 670
Systems and Components 428 440 873 934
1,775 1,566 3,463 3,044
FINANCIAL SERVICES:
Finance 406 400 806 802
Paul Revere 335 286 655 570
741 686 1,461 1,372
Total revenues* $ 2,516 $ 2,252 $ 4,924 $ 4,416
INCOME
MANUFACTURING:
Aircraft $ 39 $ 30 $ 75 $ 50
Automotive 41 29 76 50
Industrial 42 33 78 61
Systems and Components 14 34 26 75
136 126 255 236
FINANCIAL SERVICES:
Finance 83 71 161 141
Paul Revere 37 33 79 65
120 104 240 206
Segment operating income 256 230 495 442
Corporate expenses and other - (17) (19) (34) (36)
net
Interest expense - net (54) (58) (107) (118)
Income before income taxes $ 185 $ 153 $ 354 $ 288
* Revenues by business segment exclude interest income of the Textron Parent
Company Borrowing Group of $1 million for the three and six month periods
ended July 2, 1994 and $1 million and $2 million for the respective three
and six month periods ended July 3, 1993.
</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 six months ended July 2,
1994, the Textron Parent Company Borrowing Group's operating activities
provided cash of $200 million versus $164 million during the corresponding
period of 1993. The improvement in 1994 was due to increased income and
customer deposits in 1994, partially offset by higher receivables in 1994, due
primarily to changed payment terms with certain customers. The Group's debt
decreased by $12 million principally as a result of cash provided by operations
in excess of capital expenditures and payments of dividends.
During the six months ended July 3, 1993, the Group's operating activities
provided cash of $164 million versus cash used of $13 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 and (b) significant payments on trade payables and
other liabilities in 1992. The Group's debt increased by $75 million
principally 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
July 2, 1994 were $872 million. Textron had $236 million available at July 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.
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.
In the second quarter of 1994, Textron announced its agreement to sell its
Lycoming Turbine Engine Division to AlliedSignal Inc. for approximately $375
million, and on July 21, 1994, Textron announced its agreement to sell its
Homelite Division to Deere & Company for approximately $120 million. See
Note 3 to the consolidated financial statements for additional information.
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 $55 million and $46 million to the Textron Parent Company
Borrowing Group during the six month periods ended July 2, 1994 and July 3,
1993, respectively.
During the six months ended June 30, 1994, Avco Financial Services (AFS) issued
$365 million of unsecured debt securities, including $300 million under its
shelf registration statements. AFS had $1.3 billion and $154 million available
at June 30, 1994 for unsecured debt securities under its shelf registration
statements with the Securities and Exchange Commission and Canadian provincial
security exchanges, respectively.
On July 27, 1994, AFS issued $200 million of unsecured debt securities under
its shelf registration statement with the Securities and Exchange Commission.
In June 1994, 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 June 30, 1994.
During the first half of 1994, the finance subsidiaries had $295 million of
interest rate exchange agreements go into effect. Of these, $100 million
expire in 1995 and had the effect of exchanging the indices used to determine
interest expense under certain variable rate borrowings at June 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 4.2 years and expire
through 1999, had the effect of fixing the rate of interest at approximately
6.6% on $195 million of variable rate borrowings at June 30, 1994.
Results of Operations - Three months ended July 2, 1994 vs. Three months ended
July 3, 1993
Textron reported second quarter net income of $110 million ($1.22 per share),
up 17% from 1993 net income of $94 million ($1.05 per share). Revenues
increased 12% to $2.5 billion in 1994 from $2.3 billion in 1993. Earnings per
share for 1994 reflect an increased number of average shares outstanding.
The Aircraft segment's revenues increased $60 million (13%), while income
increased $9 million (30%). Bell's revenues and income increased, primarily as
a result of higher sales of military aircraft and higher revenues under the
Bell-Boeing V-22 engineering and manufacturing development contract (EMD),
partially offset by lower sales of both military and commercial spare parts.
Cessna's income approximated last year's level, as the benefit of increased
aircraft sales and lower product development expenses related to the Citation X
aircraft were offset by higher product support costs and higher bid and
proposal expenses for the Joint Primary Aircraft Training System (JPATS)
competition for a new military jet trainer.
The Automotive segment's revenues and income increased by $100 million (33%)
and $12 million (41%), respectively, due primarily to the inclusion of the
operating results of Textron Acustar Plastics (acquired in May 1993) for all
three months in 1994 compared to two months in 1993 and higher automotive
production, partially offset by higher costs related to the start-up of new
plants at Textron Automotive Interiors.
The Industrial segment's revenues increased $61 million (17%), due principally
to the inclusion of the operating results of Avdel plc, beginning in the second
quarter of 1994, and higher sales at other fasteners businesses and in the
outdoor products businesses. Income increased $9 million (27%), due primarily
to the higher sales, improved productivity in the fasteners businesses and the
addition of Avdel's operating income in 1994, which exceeded dividend income of
$3 million from Avdel in 1993.
The Systems and Components segment's revenues decreased $12 million (3%) and
income decreased $20 million (59%), due primarily to lower sales at Textron
Lycoming Turbine Engine (principally attributable to reduced shipments of
turbine engines for the Abrams main battle tank) and certain valuation
adjustments at that division. Income was also lower at Textron Marine and Land
Systems as a result of a cumulative unfavorable profit adjustment on certain
combat vehicle and turret contracts. At the remaining divisions in this
segment, revenues and income, in the aggregate, approximated the corresponding
1993 levels.
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 in the first half of
1994 at Textron's Lycoming Turbine Engine division. The completion of the
pending sale of that division (see Note 3 to the consolidated financial
statements) would further reduce this segment's income from operations.
The Finance segment's revenues increased $6 million while income increased $12
million (17%). AFS' revenues increased slightly, due primarily to the 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 and a decrease in premiums earned in its nonfinance-related
insurance business. Its income increased, due to (a) a 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) a decrease in yields on finance
receivables. Revenues at TFC increased slightly, due to a higher level of
finance receivables outstanding and higher prepayment fee income, partially
offset by a decrease in yields on receivables. Its income increased due to
those factors and a decrease in loan loss provisions, reflecting a reduction in
commercial real estate asset charge-offs.
Paul Revere's revenues increased $49 million (17%), due to continued growth in
its individual disability income and group lines of business, higher net
realized investment gains and higher investment income. Its income increased
$4 million (12%), primarily as a result of the higher net realized investment
gains and increased premium and investment income, partially offset by higher
individual and group disability income benefit ratios. The higher benefit
ratios in the individual disability income business were the result of poor
results in Paul Revere's excess risk reinsurance business and adverse
experience on policies issued between 1985 and 1989. Group disability results
were negatively impacted by claims in southern California and the Province of
Quebec and by claims on a specific product that had been sold to physicians and
other professionals. 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 ($11 million in 1994 vs.
$2 million in 1993).
Corporate expenses and other - net for the three months ended July 2, 1994 were
slightly lower than the 1993 level. Lower interest expense of the Textron
Parent Company Borrowing Group primarily reflected a lower level of average
borrowing. The quarter's results reflected a slightly lower effective income
tax rate than the corresponding prior year rate, 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 among taxing jurisdictions.
Results of Operations - Six months ended July 2, 1994 vs. Six months ended
July 3, 1993
Net income for the first half of 1994 was $210 million ($2.32 per share), up
19% from 1993 net income of $177 million ($1.97 per share). Revenues increased
11% to $4.9 billion in 1994 from $4.4 billion in 1993. Earnings per share for
1994 reflect an increased number of average shares outstanding.
The Aircraft segment's revenues increased $152 million (17%), while income
increased $25 million (50%). Bell's revenues and income increased, primarily
as a result of higher sales of military aircraft, higher international sales
and higher revenues under the V-22 EMD contract, partially offset by lower
sales of both military and commercial spare parts sales. Cessna's income
approximated last year's level, as the benefit of increased aircraft sales and
lower product development expenses related to the Citation X aircraft were
offset by higher product support costs and higher bid and proposal expenses for
the JPATS competition for a new military jet trainer.
The Automotive segment's revenues and income increased $238 million (43%) and
$26 million (52%), respectively, due primarily to the inclusion of the
operating results of Textron Acustar Plastics (acquired in May 1993) for all
six months in 1994 compared to two months in 1993 and higher automotive
production, partially offset by higher costs related to the start-up of new
plants at Textron Automotive Interiors.
The Industrial segment's revenues increased $90 million (13%), due principally
to the inclusion of the operating results of Avdel plc, beginning in the second
quarter of 1994, and higher sales at other fasteners businesses and in the
outdoor products businesses. Income increased $17 million (28%), due to the
higher sales, improved productivity in the fasteners business and the addition
of Avdel's operating income.
The Systems and Components segment's revenues decreased $61 million (7%).
Income decreased $49 million (65%), due primarily to (a) lower sales at Textron
Lycoming Turbine Engine (principally attributable to reduced shipments of
turbine engines for the Abrams main battle tank) and certain valuation
adjustments at that division, (b) first quarter provisions for further
consolidation of manufacturing operations and certain legal matters, (c) a
cumulative unfavorable profit adjustment on certain combat vehicle and turret
contracts at Textron Marine and Land Systems and (d) lower revenues at other
divisions, principally Textron Defense Systems and Textron Aerostructures.
At Textron Defense Systems, income decreased on substantially lower revenues,
due principally 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 on a sensor-fuzed
weapon program and the effect of a loss in 1993 on a mobile microwave landing
system contract. Textron Aerostructures' income decreased, principally as a
result of a cumulative favorable profit adjustment on a long-term contract in
1993. Its revenues were lower than the 1993 level as lower commercial
aerospace sales in 1994 and nonrecurring tooling revenues on a long-term
contract in 1993 were partially offset by the completion of the Titan IV
contract in 1994.
The Finance segment's revenues increased $4 million while income increased $20
million (14%). AFS' revenues decreased slightly, due primarily to a decrease
in premiums earned in its nonfinance-related insurance business, partially
offset by an increase in investment income due to improving yields. Its income
increased, due to (a) a 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) 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 receivables. Its income increased
due to those factors and a decrease in the cost of borrowed funds.
Paul Revere's revenues increased $85 million (15%), due to continued growth in
its individual disability income and group lines of business, higher net
realized investment gains and higher investment income. Its income increased
$14 million (22%), primarily as a result of the higher net realized investment
gains and increased premium and investment income, partially offset by higher
individual and group disability income benefit ratios. The higher benefit
ratios in the individual disability income business were the result of poor
results in Paul Revere's excess risk reinsurance business and adverse
experience on policies issued between 1985 and 1989. Group disability results
were negatively impacted by claims in southern California and the Province of
Quebec and by claims on a specific product that had been sold to physicians and
other professionals. 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 ($16 million in 1994 vs.
$3 million in 1993). Realized investment gains in 1994 ($20 million) were
partially offset by an increased provision for other than temporary declines in
values of investments ($4 million).
Corporate expenses and other - net for the first half of 1994 were slightly
lower than the 1993 level. Lower interest expense of the Textron Parent
Company Borrowing Group primarily reflected a lower level of average
borrowing. The first half results reflected a slightly lower effective income
tax rate than the corresponding prior year rate, 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 among taxing jurisdictions.
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 $254 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. Textron acquired control of Avdel plc on May 17, 1994, after
complying with the FTC settlement by licensing Avdel's Monobolt
non-aerospace blind rivet and divesting certain manufacturing
equipment to the licensee. Textron commenced consolidating the
results of operations of Avdel in its financial statements in the
second quarter of 1994.
On October 5, 1993, the Ohio Environmental Protection Agency ("Ohio
EPA") issued a proposed consent order concerning compliance issues
related to air emissions from Textron's Randall Division plant in
Wilmington, Ohio. The Ohio EPA is currently seeking a civil penalty
of $300,000. Textron is negotiating with the Ohio EPA to resolve the
matter.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Textron's annual meeting of shareholders held on April 27, 1994,
the following items were voted upon:
1. The following persons were elected to serve as directors in Class
I for three year terms expiring in 1997 and received the votes
listed. There were no abstentions or broker non-votes applicable
to the election of directors:
Name For Withheld
Lewis B. Campbell 78,256,591 1,080,006
R. Stuart Dickson 78,260,723 1,075,874
John D. Macomber 78,252,693 1,083,904
John W. Snow 78,235,880 1,100,717
The following directors have terms of office which continued
after the meeting: H. Jesse Arnelle, B. F. Dolan, James F.
Hardymon, Webb C. Hayes, III, Barbara Scott Preiskel, Sam F.
Segnar, Jean Head Sisco, Martin D. Walker and Thomas B. Wheeler.
2. The adoption of the Textron 1994 Long-Term Incentive Plan was
approved by the following vote:
For Against Abstain Broker Non-Votes
64,137,912 9,596,181 911,730 4,690,774
3. The appointment of Ernst & Young as Textron's independent
auditors for 1994 was ratified by the following vote:
For Against Abstain Broker Non-Votes
78,402,561 544,832 389,204 0
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 Long-Term Incentive Plan
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 second quarter ended
July 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: August 11, 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
10 Long-Term Incentive Plan
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
Exhibit 10
TEXTRON 1994
LONG-TERM INCENTIVE PLAN ARTICLE I -- GENERAL 1.1 PURPOSE. This Plan
authorizes the grant of stock options ("Options") and/or performance share
units ("Performance Share Units") to officers and other selected employees of
Textron Inc. ("Textron") and its related companies to induce them to continue
as Textron employees and to reward them for improvement in Textron's long-term
performance. 1.2 ADMINISTRATION. (a) The Board of Directors of Textron
(the "Board") shall appoint from among its members a committee (the
"Committee") consisting of no fewer than three directors, none of whom shall be
eligible, and none of whom shall have been eligible at any time within one year
prior to or after exercising discretion in administering the Plan, for any
award under the Plan or under any other employee benefit plan of Textron or any
related company. Unless otherwise specified by the Board, the Committee, for
purposes hereof, shall mean the Organization and Compensation Committee of the
Board. (b) The Committee shall have the power subject to and within the
limits of the Plan: (1) to determine from time to time which
eligible persons shall be granted Options under the Plan, which Options
shall be "Incentive Options" and which shall be "Non-Qualified Options,"
as each is hereinafter defined, the term of each granted Option, the time
or times during the term of each Option within which all or portions of
the Option may be exercised and the number of shares covered by each
Option; (2) to determine from time to time which eligible persons
shall be granted Performance Share Units under the Plan, to fix the number
of Performance Share Units covered by each grant and the conditions of
each grant; (3) to construe and interpret the Plan and to
establish, amend and revoke rules and regulations for its administration.
The Committee, in the exercise of this power, shall generally determine
all questions of policy and expediency that may arise and may correct any
defect, omission or inconsistency in the Plan or in any agreement
evidencing an award hereunder in a manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective; (4)
to prescribe the terms and provisions of any award under an Option or
Performance Share Unit granted pursuant to this Plan; (5) to
authorize payments in accordance with Sections 2.5, 3.3, 3.4 or 3.6;
and (6) generally, to exercise such powers and to perform such acts
in connection with the Plan as are deemed necessary or expedient to
promote the best interests of Textron. (c) The Board at any time
may designate one or more officers or committees of Textron to act in place of
the Committee in making any determination or taking any action under the Plan.
Notwithstanding the above, all decisions concerning the Plan that relate to
persons who are Directors or Principal Officers of Textron shall be made by the
Committee. (d) The Board at any time may revest administration of the
Plan, including all powers and duties of the Committee, in the Board, provided
that in any matter relating to the administration of the Plan, a majority of
the Board and a majority of the directors acting on such matter shall not be
eligible, and shall not have been eligible at any time within one year prior
thereto, for a grant under the Plan or under any other employee benefit plan of
Textron or any related company. In such event all references herein to the
Committee shall be deemed to refer to the
Board. A-1 (e) All actions
of the Board, the Committee or any designate under Section 1.2(c) in connection
with the Plan shall be final, conclusive and binding. No member of the Board,
the Committee or any designated committee, nor any designated officer, shall be
liable for any action taken or decision made in good faith relating to the Plan
or any grant or award hereunder. 1.3 ELIGIBILITY. The Committee may
grant Options or Performance Share Units under the Plan to any full-time
employee of Textron or of any related company (determined at the date of grant)
who is a corporate officer, Division or subsidiary president, administrative or
professional employee, or other selected employee capable of making a
substantial contribution to the success of Textron. Options or Performance
Share Units may be granted to full-time employees who are also members of the
Board. In making grants and determining their form and amount, the Committee
shall consider functions and responsibilities of the employee, the employee's
potential contributions to profitability and sound growth of Textron and such
other factors as the Committee deems relevant. 1.4 GRANTS. Grants under
the Plan may be comprised of either or both of the following: (a)
Options as described in Article II; and (b) Performance Share Units
as described in Article III; 1.5 EFFECTIVE DATE OF PLAN. The Plan shall
be submitted to Textron shareholders for approval at the annual meeting on
April 27, 1994, or at any adjournment of such meeting, and shall become
effective immediately following its approval by the affirmative vote of the
holders of a majority of the shares present and entitled to vote at such
meeting. 1.6 AGGREGATE LIMITATION ON GRANTS. (a) Shares of Textron
Common Stock ("Common Stock") which may be issued pursuant to grants under the
Plan may be either authorized and unissued shares of Common Stock or authorized
and issued shares of Common Stock purchased or acquired by Textron for this or
any other purpose. Subject to section 4.9(a) (relating to adjustments upon
changes in stock), the maximum number of shares of Common Stock which may be
subject to Options under the Plan shall be 5,000,000, and the maximum number of
Performance Share Units which may be granted under the Plan shall be
1,200,000. (b) In the event that (1) any Option granted under the Plan
expires unexercised or is terminated or cancelled for any reason without having
been exercised in full or (2) all or any part of any Performance Share Units
granted under the Plan are terminated or unearnable for any reason, the number
of shares of Common Stock theretofore subject to such Option, or the number of
such Performance Share Units, or the unexercised, terminated, cancelled or
unearnable portion thereof, shall be added to the remaining number of shares of
Common Stock and Performance Share Units, respectively, available for grant
under the Plan. ARTICLE II -- OPTIONS 2.1 GRANT OF OPTIONS. The
Committee may from time to time, subject to the provisions of the Plan and such
other terms and conditions as it may prescribe, grant to eligible employees one
or more Options to purchase shares of Common Stock under the Plan. A maximum of
75,000 Options can be granted to any eligible employee during any calendar
year. Options granted hereunder may be incentive stock options ("Incentive
Options") under Section 422 of the Internal Revenue Code of 1986, as it may be
amended. Section 422 and the Internal Revenue Code of 1986, as each may be in
effect from time to time, are hereinafter referred to, respectively as Section
422 and the Code. Options granted hereunder which are not Incentive Options are
referred to as "Non-Qualified Options." A-2 ^L 2.2 OPTION
AGREEMENTS. The grant of an Option shall be evidenced by a written Option
Agreement, executed by Textron and the optionee, stating the number of shares
of Common Stock subject to the Option, designating whether and to what extent
the Option is an Incentive Option and containing such investment
representations and other terms and conditions as the Committee may from time
to time determine, or as may be required by Section 422 or any other
applicable law. 2.3 OPTION PRICE. The purchase price for the
Common Stock covered by any Option granted under the Plan shall in no case be
less than 100% of the fair market value of such Common Stock at the time the
Option is granted. The purchase price of the shares as to which an Option shall
be exercised shall be paid in full at the time of exercise at the election of
the optionee (1) in cash, (2) by tendering to Textron shares of Common Stock
then owned by the optionee having a fair market value equal to such purchase
price, or (3) partly in cash and partly in shares of Common Stock valued at
fair market value. 2.4 TERM OF OPTION. The term of each Option granted
under the Plan shall be for such period as the Committee shall determine but
not more than 10 years from the date of grant thereof in the case of an
Incentive Option. Each Option shall be subject to earlier termination as
provided in Section 2.6 or under Section 2.7, if applicable. 2.5
EXERCISE OF OPTION. Each Option granted under the Plan shall be exercisable on
such date or dates during the term thereof and for such number of shares of
Common Stock as may be provided in the Option Agreement evidencing its grant
provided that an Option shall not be exercisable for less than 50 shares (or
the remaining number of shares subject to the Option if that number is less
than 50). No option shall be exercisable for at least six months after the date
of its issuance. To exercise an Option as to all or part of the shares covered
thereby, an optionee shall furnish to the Secretary of Textron at Textron's
principal office written notice of such exercise together with the purchase
price for the shares. The notice shall specify the number of shares then being
purchased. In the discretion of the Committee, the Option Agreement may provide
that shares may be issued in the name of the optionee and another person
jointly with rights of survivorship. During the life of the optionee, an Option
shall be exercisable only by the optionee or by the optionee's guardian or
legal representative. 2.6 TERMINATION OF EMPLOYMENT. (a) If an
optionee's employment with Textron or a related company shall terminate for
cause, as determined by the Committee, all Options held by the optionee shall
expire immediately. (b) If the employment with Textron and its related
companies of an optionee who is not described in Section 2.6(a) shall end after
the optionee has become eligible under a Textron salaried employees' pension
plan for a normal or an early retirement benefit, the optionee shall have the
right to exercise each Option granted to the optionee within 36 months after
the end of the optionee's employment (or within such shorter period as may be
specified in the related Option Agreement) to the extent the Option is
exercisable at the time of exercise. (c) If an optionee's employment
with Textron and its related companies shall end as a result of the optionee's
total disability, the optionee shall have the right to exercise each Option
granted to the optionee as to all unexercised shares until the expiration of
its term. For purposes of the foregoing sentence and section 3.5(b)(1), "total
disability" shall mean a permanent mental or physical disability as determined
by the Committee. (d) If an optionee shall die while employed by Textron
or a related company or while any Option granted to the optionee is still
exercisable under Section 2.6(b), (c) or (e), any such Option may be exercised
as to all unexercised shares within a period of one year from the date of the
optionee's death by the executor or A-3 ^L administrator of the
optionee's estate or by the person or persons to whom the optionee shall have
transferred such right by will or by the laws of descent or
distribution. (e) If an optionee's employment with Textron and its
related companies shall end for any reason not specified in Sections 2.6(a),
(b), (c) or (d), the optionee shall have the right to exercise each Option
granted to the optionee within three months after his or her termination but,
unless otherwise determined by the Committee, only to the extent the
Option is exercisable at the time of such termination of employment. (f)
Notwithstanding anything to the contrary in this Section 2.6, in no event shall
an Option be exercisable after the expiration of its term. 2.7 INCENTIVE
OPTIONS. (a) Incentive Options shall be subject to the additional terms and
conditions of this Section 2.7. (b) No Incentive Option shall be issued
hereunder to any individual who, at the time the Incentive Option is granted,
owns stock possessing more than 10 percent of the total combined voting power
of all classes of stock of Textron or any related company. (c) To the
extent that the aggregate fair market value (determined as of the time the
Incentive Option is granted) of the Common Stock with respect to which any
incentive stock options granted are exercisable for the first time by an
optionee during any calendar year (under all employee benefit plans of Textron
and its related companies) exceeds $100,000 (or such larger maximum as may be
permitted under the Code for incentive stock options granted to an individual
employee at the time the Incentive Option is granted), such options shall be
treated as Non-Qualified Options. (d) Any optionee who disposes of
shares of Common Stock acquired by or pursuant to exercise of an Incentive
Option by sale, exchange, gift or other disposition described in Section 424(c)
of the Code, either (1) within two years after the date of the grant of the
Incentive Option under which the shares were acquired, or (2) within one year
of the acquisition of such shares, shall notify the Secretary of Textron at
Textron's principal office of such disposition, the amount realized, the
exercise price and the date of exercise of such shares. Textron shall have the
right to withhold from other sums which it may owe to the optionee, or to
accept remittance by the optionee of sums in lieu of, an amount sufficient to
satisfy any Federal, state and local withholding tax requirements relating to
such a disposition. (e) The Option Agreement with respect to Incentive
Options shall contain such other provisions as may be required by Section 422
or any other applicable law. ARTICLE III -- PERFORMANCE SHARE UNITS 3.1
AWARD OF PERFORMANCE SHARE UNITS. (a) The Committee may, from time to
time, subject to the provisions of the Plan and such other terms and conditions
as the Committee may prescribe, grant to eligible employees one or more
Performance Share Units. Such grants shall be evidenced in writing. (b)
"Performance Share Units" means fictional shares of Textron Common Stock
accumulated and accounted for under this Plan for the sole purpose of
determining the cash amount of any distribution on account of earned
Performance Share Units. The existence of Performance Share Units is for
record-keeping purposes only and does not require any segregation of
assets. 3.2 CONDITIONS OF GRANT. When a grant of Performance Share
Units is made, the Committee shall determine: (1) the number of Performance
Share Units included in the grant; (2) the primary and minimum performance
targets ("Performance Targets") or measures ("Performance Measures"), as
described further in Section 3.4; and (3) the period ("Award Period") during
which the Performance Targets or Performance Measures are to be
accomplished. A-4 3.3
PAYMENT FOR PERFORMANCE SHARE UNITS. Payment in respect of earned Performance
Share Units shall be due not more than 90 days after the Award Period for such
Performance Share Units has ended. Such payment shall be in an amount
determined under Section 3.6, or in a greater amount pursuant to the last two
sentences of Section 3.4, and shall be made in one or more equal annual
installments subject to such terms and conditions as the Committee shall
specify. Payments for Performance Share Units shall be made in cash. 3.4
PERFORMANCE MEASURES AND PERFORMANCE TARGETS. Upon making a grant of
Performance Share Units, the Committee shall establish one or more Performance
Measures or primary and minimum Performance Targets to be attained for the
Award Period as a condition of the related Performance Share Units being earned
in whole or part. The Committee may establish Performance Measures or
Performance Targets for Textron and for any of its Divisions, subsidiaries or
other business units. Performance Measures or Performance Targets may be
expressed as an increase in Textron's earnings per share, net operating profit,
return on equity or in terms of any other standard, financial or otherwise, as
the Committee may determine. Attainment of a primary Performance Target in an
Award Period shall result in the earning of all of the Performance Share Units
related to that Performance Target. Failure to attain a minimum Performance
Target in an Award Period shall result in the failure to earn any of
Performance Share Units related to that Performance Target. Attainment between
a primary and a minimum Performance Target in an Award Period shall result in
the earning of a portion of the Performance Share Units related to those
Performance Targets, as the Committee or, in the case of non-officers, the
chief executive officer of Textron, may determine. Achievement beyond a primary
Performance Target may result in the earning of more than the value of the
Performance Share Units related to that Performance Target, as the Committee
may determine. Performance Share Units, or any amount in excess of the value of
the Performance Share Units, related to one or more Performance Measures shall
be earned only as determined by the Committee. 3.5 TERMINATION OF
EMPLOYMENT. (a) If a grantee's employment with Textron or a related company
shall terminate for less than acceptable performance, as determined by the
Committee, all of the grantee's outstanding Performance Share Units will be
cancelled immediately. (b) If the employment with Textron and its
related companies of a grantee who is not described in Section 3.5(a) shall end
during an Award Period but more than one year after its beginning: (1) due to
death or total disability, or after the grantee has become eligible
for an early or normal retirement benefit under a Textron pension plan for
salaried employees, the grantee or the grantee's successor in interest
shall be entitled to payment on account of the Performance Share Units
earned during that Award Period, if any, as if the grantee's
employment had continued throughout that Award Period; or (2)
otherwise than as described in Section 3.5(b)(1), the Committee may deem
all or any portion of the grantee's Performance Share Units for that Award
Period to have been earned. (c) If a grantee's employment with Textron
and its related companies shall end during an Award Period but one year or less
after its beginning, all of the grantee's Performance Share Units relating to
that Award Period shall be cancelled. 3.6 AMOUNT OF PAYMENT FOR SHARE
UNITS. Any payment with respect to earned Performance Share Units shall be
made in cash and shall be in an amount equal to the product of (1) the current
value of Textron Common Stock on the date on which they are deemed earned,
times (2) the number of whole and fractional Performance Share Units which have
been earned. For purposes of this Plan, earned Performance Share Units shall be
deemed earned as of the last day of the applicable Award Period unless the
Committee determines otherwise. A-5
^L 3.7 CURRENT VALUE. As used in the Plan, the "current value" of a
share of Textron Common Stock on any date shall be the average of the composite
closing prices therefor, as reported in The Wall Street Journal, for the ten
trading days after the date. ARTICLE IV -- MISCELLANEOUS 4.1 GENERAL
RESTRICTION. Each grant or award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that any listing
or registration of the shares of Common Stock or any consent or approval of any
governmental body, or any other agreement or consent, is necessary or desirable
as a condition of a grant, an award or issuance of Common Stock or cash in
satisfaction thereof, such grant or award may not be consummated unless each
such requirement is satisfied in a manner acceptable to the Committee. 4.2
NON-ASSIGNABILITY. No award under the Plan shall be assignable or
transferable by the recipient thereof, except by will or by the laws of descent
and distribution. 4.3 WITHHOLDING TAXES. Whenever Textron proposes to
or is required to issue or transfer shares of Common Stock under the Plan,
Textron shall have the right to withhold or to require the participant to remit
to Textron an amount sufficient to satisfy any Federal, state and local
withholding tax requirements. Whenever under the Plan payments by Textron are
to be made in cash, such payments shall be net of an amount sufficient to
satisfy any Federal, state and local withholding tax requirements. 4.4
NO RIGHT TO EMPLOYMENT. Nothing in the Plan or in any agreement entered into
pursuant to it shall confer upon any participant the right to continue in the
employment of Textron or a related company or affect any right which Textron or
a related company may have to terminate the employment of such
participant. 4.5 NON-UNIFORM DETERMINATION. The determinations under
the Plan of the Committee or of any designate (including without limitation its
determinations of the persons to receive grants or awards, the form, amount,
timing and payment of such grants or awards, the terms and provisions of such
grants or awards, and the establishment of Performance Measures or Performance
Targets) need not be uniform and may be made by it selectively among persons
who receive, or are eligible to receive, awards under the Plan, whether or not
such persons are similarly situated. 4.6 NO RIGHTS AS SHAREHOLDERS.
Recipients of grants or awards under the Plan shall have no rights as
shareholders of Textron unless and until certificates for shares of Common
Stock are issued to them. 4.7 FAIR MARKET VALUE. Except as may be
required by Section 422 or any other applicable law, as used in the Plan, "fair
market value" on any date shall be the simple average of the high and low
prices of the Common Stock on the New York Stock Exchange Composite
Transactions Listing on such date. 4.8 RELATED COMPANY. As used in the
Plan "related company" means any corporation in which Textron at the time in
question owns, directly or indirectly, stock possessing 50 percent or more of
the total combined voting power of all classes of stock and any corporation
which at the time in question owns, directly or indirectly, a similar interest
in Textron. 4.9 ADJUSTMENTS FOR CERTAIN CHANGES. (a) The aggregate
number of shares of Common Stock and of Performance Share Units available for
grant under the Plan, the number of shares of Common Stock covered by each
outstanding Option or Performance Share Unit and the price per share thereof,
and the maximum number of Options that can be awarded to any eligible employee
shall all be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, stock
dividend or any other increase or decrease in such shares effective without
receipt of consideration by Textron. A-6 ^L (b) The Committee may
in its discretion and for purposes of determining whether Performance
Measures or Performance Targets have been met, equitably restate Textron's
earnings per share, net operating profit, return on equity or any other
standard utilized in establishing the Performance Measures or Performance
Targets in order to take into account the effect, if any, of (1) acquisitions
or dispositions of businesses by Textron, (2) extraordinary and
non-recurring events, (3) a change in capitalization described in Section
4.9(a), or (4) any change in accounting practices, tax laws or other laws or
regulations that, in the opinion of the Committee, significantly affects the
financial performance of Textron. 4.10 CHANGE IN CONTROL. (a)
Notwithstanding any other provision of this Plan, in the event of a change in
control as defined in Section 4.10(b): (1) the Award Period for
each outstanding Performance Share Unit shall end, and each such unit
shall be deemed to have been earned, as of the end of the Award Period and
shall be payable immediately and in full; and (2) each
unexpired Option shall be exercisable, beginning immediately, as to all
remaining shares subject to the Option. (b) For purposes of this Plan, a
"change in control" shall occur if (i) any "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Act")) other than Textron, any "person" who on February 23,
1994 was a director or officer of Textron, any trustee or other fiduciary
holding Common Stock under an employee benefit plan of Textron or a related
company, or any corporation which is owned, directly or indirectly, by the
stockholders of Textron in substantially the same proportions as their
ownership of Common Stock, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act) of more than thirty percent (30%) of the then
outstanding voting stock of Textron, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board (and any new director whose election by the Board or whose nomination
for election by Textron's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority thereof,
or (iii) the shareholders of Textron approve a merger or consolidation of
Textron with any other corporation, other than a merger or consolidation which
would result in the voting securities of Textron outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than eighty
percent (80%) of the combined voting power of the voting securities of Textron
or such surviving entity outstanding immediately after such merger or
consolidation, or (iv) the shareholders of Textron approve a plan of complete
liquidation of Textron of an agreement for the sale or disposition by Textron
of all or substantially all of Textron's assets. 4.11 AMENDMENT OR
TERMINATION OF THE PLAN. The Board, without further approval of the
shareholders, may at any time terminate the Plan or any part thereof and may
from time to time amend the Plan as it may deem advisable including with
respect to Incentive Options any changes deemed necessary or desirable to
comply with Section 422 and any regulations thereunder; provided, however, that
without shareholder approval, the Board may not (a) increase the aggregate
number of shares of Common Stock which may be issued under the Plan (other than
increases permitted under Section 4.9(a)) or (b) extend the period during which
an Incentive Option may be exercised beyond 10 years. Termination or amendment
of the Plan shall not, without the consent of the individual, affect any right
of such individual (including without limitation any right under Section 4.10)
under an award previously granted. A-7
EXHIBIT 12.1
<TABLE>
TEXTRON PARENT COMPANY BORROWING GROUP
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
(unaudited)
(In millions except ratio)
<CAPTION>
Six Months
Ended
July 2,
1994
<S> <C>
Fixed charges:
Interest expense (1) $ 108
Estimated interest portion of rents 11
Total fixed charges $ 119
Income:
Income before income taxes $ 354
Fixed charges 119
Eliminate equity in undistributed pretax income of
finance and insurance subsidiaries (185)
Adjusted income $ 288
Ratio of income to fixed charges 2.42
(1) Includes interest unrelated to borrowings of $20 million (primarily
interest accretion).
</TABLE>
EXHIBIT 12.2
<TABLE>
TEXTRON INC. INCLUDING ALL MAJORITY-OWNED SUBSIDIARIES
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
(unaudited)
(In millions except ratio)
<CAPTION>
Six Months
Ended
July 2,
1994
<S> <C>
Fixed charges:
Interest expense (1) $ 321
Estimated interest portion of rents 21
Total fixed charges $ 342
Income:
Income before income taxes $ 354
Elimination of minority interest in pretax income of (13)
Paul Revere
Fixed charges 342
Adjusted income $ 683
Ratio of income to fixed charges 2.00
(1) Includes interest unrelated to borrowings of $20 million (primarily
interest accretion).
</TABLE>
