SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal quarter ended April 2, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
Commission file number 1-5480
TEXTRON INC.
(Exact name of registrant as specified in its charter)
Delaware 05-315468
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 Westminster Street, Providence, RI 02903
401-421-2800
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Common stock outstanding at April 30, 1994 - 88,664,000 shares
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
TEXTRON INC.
Consolidated Statement of Income (unaudited)
(Dollars in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
April 2, April 3,
1994 1993
Revenues
<S> <C> <C>
Sales $ 1,687 $ 1,478
Interest, discount and service charges 324 315
Insurance premiums 290 278
Investment income (including net realized investment 107 94
gains)
Total revenues 2,408 2,165
Costs and expenses
Cost of sales 1,426 1,233
Selling and administrative 361 344
Interest expense 158 171
Provision for losses on collection of finance
receivables, less recoveries 43 39
Insurance benefits and increase in policy 225 206
liabilities
Amortization of insurance policy acquisition costs 26 37
Total costs and expenses 2,239 2,030
Income before income taxes 169 135
Income taxes (65) (52)
Elimination of minority interest in net income of (4) -
Paul Revere
Net income $ 100 $ 83
Net income per common share $ 1.10 $ .92
Average shares outstanding* 90,588,000 89,600,000
Dividends per share:
$2.08 Preferred stock, Series A $.52 $.52
$1.40 Preferred stock, Series B $.35 $.35
Common stock $.35 $.31
</TABLE>
* Average shares outstanding assume full conversion of preferred stock and
exercise of options.
See notes to consolidated financial statements.
Item 1. FINANCIAL STATEMENTS (Continued)
TEXTRON INC.
Consolidated Balance Sheet (unaudited)
(In millions)
<TABLE>
<CAPTION>
April 2, January 1,
1994 1994
Assets
<S> <C> <C>
Cash $ 26 $ 26
Investments 4,897 4,764
Receivables - net:
Finance 7,589 7,562
Commercial and U.S. Government 802 678
8,391 8,240
Inventories 1,514 1,488
Property, plant and equipment - net 1,271 1,269
Unamortized insurance policy acquisition costs 802 784
Goodwill, less accumulated amortization of $357 and 1,423 1,437
$343
Other assets (including net prepaid income taxes) 1,644 1,650
Total assets $ 19,968 $ 19,658
Liabilities and shareholders' equity
Liabilities
Accounts payable $ 643 $ 614
Accrued postretirement benefits other than pensions 1,037 1,033
Other accrued liabilities (including income taxes) 2,334 2,268
Insurance reserves and claims 4,183 4,091
Debt:
Textron Parent Company Borrowing Group 2,058 2,025
Finance and insurance subsidiaries 6,843 6,847
8,901 8,872
Total liabilities 17,098 16,878
Shareholders' equity
Capital stock:
Preferred stock 16 16
Common stock* 12 12
Capital surplus 695 687
Retained earnings 2,278 2,209
Other (39) (52)
2,962 2,872
Less cost of treasury shares 92 92
Total shareholders' equity 2,870 2,780
Total liabilities and shareholders' equity $ 19,968 $ 19,658
*Common shares outstanding 88,652,000 88,413,000
</TABLE>
See notes to consolidated financial statements.
Item 1. FINANCIAL STATEMENTS (Continued)
TEXTRON INC.
Consolidated Statement of Cash Flows (unaudited)
(In millions)
<TABLE>
<CAPTION>
Three Months Ended
April 2, April 3,
1994 1993
Cash flows from operating activities:
<S> <C> <C>
Net income $ 100 $ 83
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 72 65
Provision for losses on receivables 51 49
Deferred income taxes 17 12
Increase in insurance policy liabilities 91 81
Amortization of insurance policy acquisition costs 26 37
Changes in assets and liabilities:
Increase in commercial and U.S. Government receivables (125) (43)
Increase in inventories (26) (47)
Additions to insurance policy acquisition costs (49) (57)
Increase in other assets (25) (24)
Increase in accounts payable 29 16
Increase (decrease) in accrued liabilities 64 (1)
Other - net (19) 29
Net cash provided by operating activities 206 200
Cash flows from investing activities:
Purchases of investments (471) (476)
Proceeds from sales of debt and marketable equity securities 144 29
available for sale
Proceeds from sales of debt securities held to maturity 10 118
Proceeds from maturities and calls of debt and marketable 213 168
equity securities
Finance receivables originated or purchased
(1,298) (1,139)
Finance receivables repaid or sold 1,165 1,020
Capital expenditures (60) (43)
Other investing activities - net 13 18
Net cash used by investing activities (284) (305)
Cash flows from financing activities:
Increase (decrease) in short-term debt (123) 279
Proceeds from issuance of long-term debt 638 405
Principal payments on long-term debt (419) (569)
Receipts from interest-sensitive insurance products 49 56
Return of account balances on interest-sensitive insurance (31) (23)
products
Proceeds from exercise of stock options 6 5
Dividends paid (31) (27)
Net cash provided by financing activities 89 126
Effect of foreign exchange rate changes on cash (11) -
Net increase in cash - 21
Cash at beginning of period 26 31
Cash at end of period $ 26 $ 52
</TABLE>
See notes to consolidated financial statements.
TEXTRON INC.
Notes to Consolidated Financial Statements (unaudited)
Note 1: Summary of significant accounting policies
The financial statements should be read in conjunction with the
financial statements included in Textron's Form 10-K for the year
ended January 1, 1994. The financial statements reflect all
adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation
of Textron's consolidated financial position at April 2, 1994 and
January 1, 1994, and its consolidated results of operations and cash
flows for each of the respective three month periods ended April 2,
1994 and April 3, 1993. The results of operations for the three
months ended April 2, 1994 are not necessarily indicative of results
for the full year.
Note 2: Acquisitions
Avdel plc
In early 1989, Textron acquired Avdel plc, a fastening systems
manufacturing business based in England, the total cost of which
approximated $250 million. In February 1989, the U.S. Federal Trade
Commission (FTC) challenged the acquisition under antitrust law. On
May 10, 1994, the FTC gave final approval to a settlement of the
matter by Textron's licensing a new competitor for Avdel's Monobolt
non-aerospace blind rivet and selling the licensee certain
manufacturing equipment of Avdel's U.S. operation. Textron expects
to assume control of Avdel before the end of May 1994, and will begin
in the second quarter of 1994 to consolidate in its financial
statements the results of operations of Avdel.
For the full year of 1993 (the latest period for which information is
available relative to Avdel's operating results), Avdel's sales and
earnings before income taxes were $153 million and $17 million,
respectively, compared with $163 million and $16 million,
respectively, in 1992. Such results do not reflect any purchase
price adjustments which would be required as a result of Textron's
acquisition of Avdel, principally amortization of goodwill.
Textron Acustar Plastics
On May 3, 1993, Textron acquired the plastics operations of the
Acustar division of Chrysler Corporation at a cost of $139 million in
cash.
Note 3: Investments
<TABLE>
<CAPTION>
April 2, January 1,
1994 1994
(In millions)
<S> <C> <C>
Debt and marketable equity securities
available for sale (April 2, 1994
amortized cost: $2,735) $ 2,802 $ 648
Debt securities held to maturity
(April 2, 1994 estimated fair value: 1,763 3,778
$1,735)
Other 332 338
$ 4,897 $ 4,764
</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 principle. FAS 115
established new, more restrictive criteria to be used in determining
which debt securities can be carried in the financial statements at
amortized cost. Beginning in 1994, securities carried at amortized
cost and classified in Textron's held to maturity category are those
which Textron has both the ability and positive intent to hold to
maturity. Securities classified in the available for sale category
are carried at fair value and consist of those securities which
Textron intends to hold for an indefinite period of time but not
necessarily to maturity. Unrealized gains and losses related to
securities available for sale are reported as a separate component of
shareholders' equity. To comply with FAS 115, Textron transferred
certain debt securities from the held to maturity category to the
available for sale category of its investment portfolio. The net
unrealized gains of $94 million, net of applicable income taxes,
relating to the debt securities classified in the available for sale
category of its investment portfolio at the date of adoption, were
recorded as an increase to shareholders' equity. The net unrealized
gains related to the available for sale category were $40 million,
net of applicable income taxes, at April 2, 1994. The decrease in
the net unrealized gains was principally due to financial market
fluctuations during the first quarter of 1994. The adoption of
FAS 115 had no effect upon Textron's net income.
In the first quarter of 1994, an investment in the held to maturity
category, with an amortized cost of $10 million, was sold due to a
significant deterioration in the issuer's creditworthiness. Proceeds
from the sale were $10 million. Gross realized gains and losses from
sales of securities classified as available for sale were $10 million
and $1 million, respectively, in the first quarter of 1994.
Note 4: Finance receivables - net
<TABLE>
<CAPTION>
April 2, January 1,
1994 1994
(In millions)
<S> <C> <C>
Finance receivables $ 8,052 $ 8,019
Less allowance for credit losses 232 225
Less finance-related insurance reserves
and claims 231 232
$ 7,589 $ 7,562
</TABLE>
Note 5: Inventories
<TABLE>
<CAPTION>
April 2, January 1,
1994 1994
(In millions)
<S> <C> <C>
Finished goods $ 370 $ 395
Work in process 1,168 1,120
Raw materials 222 241
1,760 1,756
Less progress and advance payments 246 268
$ 1,514 $ 1,488
</TABLE>
Note 6: Insurance reserves and claims
<TABLE>
<CAPTION>
April 2, January 1,
1994 1994
(In millions)
Paul Revere:
<S> <C> <C>
Future policy benefits $ 1,108 $ 1,090
Unpaid claim and claim expenses 1,400 1,358
Other policyholder funds 1,499 1,462
Other 176 181
$ 4,183 $ 4,091
</TABLE>
Note 7: Contingencies
There are pending or threatened against Textron and its subsidiaries
lawsuits and other proceedings, some of which allege violations of
federal government procurement regulations, involve environmental
matters, or are or purport to be class actions. Among these suits
and proceedings are some which seek compensatory, treble or punitive
damages in substantial amounts; fines, penalties or restitution; the
cleanup of allegedly hazardous wastes; or, under federal government
procurement regulations, could result in suspension or debarment of
Textron or its subsidiaries from U.S. Government contracting for a
period of time. These suits and proceedings are being defended or
contested on behalf of Textron and its subsidiaries. On the basis of
information presently available, Textron believes that any such
liability or the impact of the application of relevant government
regulations would not have a material effect on Textron's net income
or financial condition.
See Part II, Item 1., LEGAL PROCEEDINGS.
Note 8: Subsequent events
On May 11, 1994, Textron and AlliedSignal Inc. signed a memorandum of
understanding for AlliedSignal to acquire the Textron Lycoming
Turbine Engine Division of Textron for approximately $375 million in
cash plus the assumption of certain liabilities. Completion of the
transaction is subject to negotiation of a final agreement and
regulatory approvals. The proceeds from the sale will be used for
general corporate purposes including debt reduction, repurchase of
common shares and the financing of acquisitions.
On May 12, 1994, Textron reactivated its share repurchase program to
purchase up to five million shares of its common stock from time to
time in the open market as conditions warrant.
Note 9: Financial information by borrowing group
Textron consists of two borrowing groups - the Textron Parent Company
Borrowing Group and the finance and insurance subsidiaries.
The Textron Parent Company Borrowing Group is comprised of all
entities of Textron other than its finance and insurance
subsidiaries. The financial statements of this group as set forth
below reflect Textron's investments in its finance and insurance
subsidiaries on the equity basis. Its sources of cash flow include
dividends paid by the finance and insurance subsidiaries, as well as
cash generated by other operating units.
The finance and insurance subsidiaries finance their respective
operations by borrowing from their own group of external creditors.
Note 9: Financial information by borrowing group (continued)
Textron, which had been the sole shareholder of The Paul Revere
Corporation (PRC), sold 7.5 million shares of PRC, representing 16.7%
of the outstanding shares of PRC, on October 26, 1993 in an
underwritten public offering registered under the Securities Act of
1933.
Item 1. FINANCIAL STATEMENTS (Continued)
Note 9: Financial information by borrowing group (continued)
TEXTRON PARENT COMPANY BORROWING GROUP
(unaudited) (In millions)
<TABLE>
<CAPTION>
Three Months Ended
April 2, April 3,
Statement of Income 1994 1993
<S> <C> <C>
Revenues $ 1,688 $ 1,479
Costs and expenses
Cost of sales 1,426 1,233
Selling and administrative 160 152
Interest expense 53 61
Total costs and expenses 1,639 1,446
49 33
Pretax income of finance and insurance subsidiaries 120 102
Income before income taxes 169 135
Income taxes (65) (52)
Elimination of minority interest in net income of (4) -
Paul Revere
Net income $ 100 $ 83
</TABLE>
<TABLE>
<CAPTION>
April 2, January 1,
Balance Sheet 1994 1994
Assets
<S> <C> <C>
Cash $ 10 $ 12
Receivables - net 830 695
Inventories 1,514 1,488
Investments in finance and insurance subsidiaries 2,212 2,161
Property, plant and equipment - net 1,153 1,150
Goodwill, less accumulated amortization of $183 and 1,128 1,138
$173
Other assets (including net prepaid income taxes) 1,476 1,433
Total assets $ 8,323 $ 8,077
Liabilities and shareholders' equity
Accounts payable and accrued liabilities (including $ 3,395 $ 3,272
income taxes)
Debt 2,058 2,025
Shareholders' equity 2,870 2,780
Total liabilities and shareholders' equity $ 8,323 $ 8,077
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
Note 9: Financial information by borrowing group (continued)
TEXTRON PARENT COMPANY BORROWING GROUP (continued)
(unaudited) (In millions)
<TABLE>
<CAPTION>
Three Months Ended
April 2, April 3,
Statement of Cash Flows 1994 1993
Cash flows from operating activities:
<S> <C> <C>
Net income $ 100 $ 83
Adjustments to reconcile net income to net cash provided
by operating activities:
Undistributed earnings of finance and insurance (44) (46)
subsidiaries
Depreciation and amortization 59 53
Interest accretion 10 9
Changes in assets and liabilities:
Increase in receivables (135) (48)
Increase in inventories (26) (47)
Increase in other assets (46) (18)
Increase in accounts payable and accrued 119 46
liabilities
Other - net (3) 5
Net cash provided by operating activities 34 37
Cash flows from investing activities:
Capital expenditures (54) (39)
Other investing activities - net 6 2
Net cash used by investing activities (48) (37)
Cash flows from financing activities:
Increase (decrease) in short-term debt (15) 3
Proceeds from issuance of long-term debt 307 130
Principal payments on long-term debt (255) (92)
Proceeds from exercise of stock options 6 5
Dividends paid (31) (27)
Net cash provided by financing activities 12 19
Net increase (decrease) in cash (2) 19
Cash at beginning of period 12 28
Cash at end of period $ 10 $ 47
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
Note 9: Financial information by borrowing group (continued)
FINANCE AND INSURANCE SUBSIDIARIES
(unaudited) (In millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
Statement of Income 1994 1993
Revenues
<S> <C> <C>
Interest, discount and service charges $ 324 $ 315
Credit life, credit disability and casualty 63 76
insurance premiums
Non-cancellable disability income, life and group 227 202
insurance premiums
Investment income (including net realized investment 106 93
gains)
Total revenues 720 686
Costs and expenses
Selling and administrative 201 192
Interest expense 105 110
Provision for losses on collection of finance
receivables, less recoveries 43 39
Credit life, credit disability and casualty
insurance losses and adjustment expenses, less 31 33
recoveries
Death and other insurance benefits 107 96
Increase in insurance policy liabilities 87 77
Amortization of insurance policy acquisition costs 26 37
Total costs and expenses 600 584
Income before income taxes 120 102
Income taxes (46) (39)
Net income 74 63
Elimination of minority interest in net income of (4) -
Paul Revere
Textron's equity in net income $ 70 $ 63
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
Balance Sheet 1994 1993
Assets
<S> <C> <C>
Cash $ 16 $ 14
Investments 4,892 4,760
Finance receivables - net 7,651 7,605
Property, plant and equipment - net 99 99
Unamortized insurance policy acquisition costs 802 784
Goodwill, less accumulated amortization of $174 and 295 299
$170
Other assets 636 660
Total assets $ 14,391 $ 14,221
Liabilities and equity
Accounts payable and accrued liabilities (including $ 967 $ 939
income taxes)
Insurance reserves and claims 4,183 4,091
Debt 6,843 6,847
Equity:
Textron 2,212 2,161
Minority interest 186 183
Total liabilities and equity $ 14,391 $ 14,221
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
TEXTRON INC.
Revenues and Income by Business Segment
(In millions)
<TABLE>
<CAPTION>
Three Months Ended
April 2, April 3,
1994 1993
REVENUES
MANUFACTURING:
<S> <C> <C>
Aircraft $ 508 $ 416
Automotive 391 253
Industrial 344 315
Systems and Components 445 494
1,688 1,478
FINANCIAL SERVICES:
Finance 400 402
Paul Revere 320 284
720 686
Total revenues* $ 2,408 $ 2,164
INCOME
MANUFACTURING:
Aircraft $ 36 $ 20
Automotive 35 21
Industrial 36 28
Systems and Components 12 41
119 110
FINANCIAL SERVICES:
Finance 78 70
Paul Revere 42 32
120 102
Segment operating income 239 212
Corporate expenses and other - net (17) (17)
Interest expense - net (53) (60)
Income before income taxes $ 169 $ 135
</TABLE>
* Revenues by business segment exclude interest income of the Textron Parent
Company Borrowing Group for the three month period ended April 3, 1993 of $1
million.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Financial Condition
Textron Parent Company Borrowing Group: During the three months ended April 2,
1994, the Textron Parent Company Borrowing Group's operating activities
provided cash of $34 million versus $37 million during the corresponding period
of 1993. Such cash flows approximated last year's level as increased income
and customer deposits for 1994 were offset by higher receivables, due primarily
to strong first quarter 1994 sales. The Group's debt increased by $33 million
principally as a result of cash used for capital expenditures and payments of
dividends in excess of cash provided by operations.
During the three months ended April 3, 1993, the Group's operating activities
provided cash of $37 million versus cash used of $67 million during the
corresponding period of 1992, with the improvement due primarily to increased
deliveries on certain military contracts in 1993 and significant payments on
trade payables and other liabilities in 1992. The Group's debt increased by
$38 million principally as a result of cash used for capital expenditures and
payments of dividends in excess of cash provided by operations.
The Textron Parent Company Borrowing Group's credit facilities not used or
reserved as support for outstanding commercial paper or bank borrowings at
April 2, 1994 were $824 million. Textron had $236 million available at
April 2, 1994 for unsecured debt securities under its shelf registration
statement filed with the Securities and Exchange Commission.
In 1990, PRC purchased in the open market (on behalf of Textron) 1,696,500
shares of Textron common stock at a total cost of approximately $40 million.
Such purchase was accounted for in the Textron Parent Company Borrowing Group's
balance sheet as a purchase of stock for the Textron Parent Company Borrowing
Group's treasury and as a dividend (special distribution) from PRC. In July
1993, Textron's Board of Directors approved Textron's purchase of all of the
shares of Textron common stock owned by PRC in four annual installments of
424,125 shares each, beginning on April 10, 1994, at a share price to be equal
to the average closing price of Textron's stock over the fiscal quarter
preceding each such purchase. The first of the four purchases (for $25
million) was made in April 1994.
Management believes that Textron will continue to have adequate access to
credit markets and that its credit facilities and cash flow from operations
- - --including dividends received from Textron's finance and insurance
operations-- will continue to be more than sufficient to meet its operating
needs and to finance growth.
Finance and insurance subsidiaries: The finance and insurance subsidiaries
paid dividends of $26 million and $17 million to the Textron Parent Company
Borrowing Group during the three month periods ended April 2, 1994 and April 3,
1993, respectively.
During the three months ended March 31, 1994, Avco Financial Services (AFS)
issued $150 million under its shelf registration statements. AFS had $1,497
million and $154 million available at March 31, 1994 for unsecured debt
securities under its shelf registration statements with the Securities and
Exchange Commission and Canadian provincial security exchanges, respectively.
During the three months ended March 31, 1994, Textron Financial Corporation
(TFC) issued $105 million of medium-term notes under a $350 million medium-term
notes facility under Rule 144A of the Securities Act of 1933, as amended. TFC
had $18 million available for medium-term notes under this facility at
March 31, 1994.
During the first quarter of 1994, the finance subsidiaries had $128 million of
interest rate exchange agreements go into effect. The agreements, which have a
weighted average original term of 4.7 years and expire through 1999, had the
effect of fixing the rate of interest at approximately 6.1% on $128 million of
variable rate borrowings at March 31, 1994.
Results of Operations - Three months ended April 2, 1994 vs. Three months ended
April 3, 1993
Textron reported first quarter net income of $100 million ($1.10 per share), up
20% from net income of $83 million ($.92 per share) in 1993. Revenues
increased 11% to $2.4 billion in 1994 from $2.2 billion in 1993. Earnings per
share for 1994 reflect an increased number of average shares outstanding.
The Aircraft segment's revenues and income increased by $92 million (22%) and
$16 million (80%), respectively, due to higher results at both Bell Helicopter
and Cessna. Bell's revenues and income increased primarily as a result of
higher sales of military aircraft, higher international sales and higher
revenues under the Bell-Boeing V-22 engineering and manufacturing development
(EMD) contract, partially offset by lower sales of both military and commercial
spare parts. Cessna's income increased as a result of higher sales, the
benefit of which was partially offset by higher bid and proposal expenses for
the Joint Primary Aircraft Training System (JPATS) competition for a new U.S.
military trainer.
In October 1992, the U.S. Government terminated substantially all of the fixed
price full scale development (FSD) contract on the V-22 program and issued the
Bell-Boeing team a new cost-type letter contract, providing initial funding for
the EMD phase of the V-22 program. In the first quarter of 1994, the parties
entered into a definitized cost-type EMD contract, which replaced the letter
contract, with a value of approximately $2.65 billion. Under the terms of that
contract, Bell-Boeing will build four production-representative V-22 aircraft
and modify two existing aircraft to meet the requirements of the U.S. Marine
Corps' medium lift replacement aircraft. The settlement of the terminated
portions of the FSD contract was also finalized in the first quarter of 1994.
Textron's share of cumulative losses on the FSD contract approximated the
amounts previously recorded.
The Automotive segment's revenues and income increased by $138 million (55%)
and $14 million (67%), respectively, due primarily to the inclusion of the
operating results of Textron Acustar Plastics (acquired in May 1993), partially
offset by the completion of a higher margin program in 1993 at Davidson
Interiors.
The Industrial segment's revenues increased $29 million (9%), due to growth in
all three business lines -- outdoor products, fasteners and diversified
products. Income increased $8 million (29%), due primarily to the higher sales
and improved productivity in the fastener business and dividends of $2 million
from Avdel plc.
The Systems and Components segment's revenues decreased $49 million (10%) and
income decreased $29 million (71%), reflecting further weakness in the
commercial aerospace industry and the wind down of certain U.S. Government
contracts. Income decreased, due primarily to the reduction in volume and
provisions aggregating $15 million for further consolidation of manufacturing
operations and certain legal matters.
Excluding the effects of those provisions, income decreased principally at
Textron Lycoming Turbine Engine, the major line of business in this segment,
and at Textron Aerostructures. Despite a slight increase in revenues, Textron
Lycoming Turbine Engine's income decreased due to a lower margin in its
commercial aerospace business and reduced shipments of turbine engines for the
Abrams main battle tank, partially offset by the impact of higher sales of
military helicopter engines and kits. Textron Aerostructures' income
decreased, due principally to both nonrecurring tooling revenues and a
cumulative favorable profit adjustment on long-term contracts in 1993. At
Textron Defense Systems, income approximated the 1993 level as the impact of a
significant decrease in revenues, due to the wind down of a military
communications satellite contract, was offset by the shipment of higher margin
aircraft carrier landing systems.
The Finance segment's revenues decreased $2 million while income increased $8
million (11%). Income at AFS increased, due to a higher level of finance
receivables outstanding and a decrease in the cost of borrowed funds, partially
offset by a decrease in yields on finance receivables. AFS' revenues decreased
slightly, due to the decline in yields on finance receivables and a decrease in
premiums earned in its nonfinance-related insurance business, partially offset
by the higher level of finance receivables outstanding. Revenues at TFC
increased slightly, due to an increased level of receivables and higher
leveraged lease income primarily related to the sales of residual appreciation
rights, partially offset by a decrease in yields. Its income increased due to
those factors and a decrease in the cost of borrowed funds, partially offset by
an increase in loan loss provisions, reflecting a general strengthening of
reserves.
Paul Revere's revenues increased $36 million (13%), due to continuing growth in
its individual disability insurance business, increased premium volume in group
insurance and higher investment income. Income increased $10 million (31%),
primarily as a result of higher income in its individual disability insurance
business (due to higher revenues and lower expense ratio, partially offset by
higher benefit ratios, which reflected late reported claims in the excess risk
reinsurance business) and higher investment income. Paul Revere's investment
income increased as a result of (a) a higher level of invested assets, offset
in part by lower investment yields, and (b) higher net realized investment
gains ($5 million in 1994 vs. $2 million in 1993). Realized investment gains
in 1994 ($11 million) were partially offset by an increased provision for other
than temporary declines in values of investments ($6 million).
Corporate expenses and other - net for the three months ended April 2, 1994
were at the same level as in 1993. Lower interest expense of the Textron
Parent Company Borrowing Group reflected both a lower level of average
borrowing and a decreased average cost of borrowing. The quarter's results
reflected an income tax rate equal to the prior year, as the effect of the
increase in the federal statutory tax rate from 34% to 35% (new tax legislation
passed in the third quarter of 1993, retroactive to the beginning of 1993) was
offset by lower foreign and state income taxes, resulting from a change in mix
of income between taxing jurisdictions.
Subsequent events - See Note 8 to the consolidated financial statements.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In early 1989, Textron acquired Avdel plc, a fastening systems
manufacturing business based in England, the total cost of which
approximated $250 million. In February 1989, the U.S. Federal Trade
Commission (FTC) challenged the acquisition under antitrust law. On
May 10, 1994, the FTC gave final approval to a settlement of the
matter by Textron's licensing a new competitor for Avdel's Monobolt
non-aerospace blind rivet and selling the licensee certain
manufacturing equipment of Avdel's U.S. operation. Textron expects to
assume control of Avdel before the end of May 1994, and will begin in
the second quarter of 1994 to consolidate in its financial statements
the results of operations of Avdel.
Since 1979, Textron has been engaged in arbitration in Switzerland
with the Government of Iran concerning conflicting claims and
counterclaims arising out of a 1975 helicopter coproduction agreement
between its Bell Helicopter Division and the Government of Iran. The
contract was terminated in 1978 and the arbitration started in 1979.
In May 1994, Bell Helicopter, Textron and the Government of Iran
entered into an agreement for the settlement of these matters over
time at an estimated cost not expected to exceed amounts previously
reserved.
In addition, there are pending or threatened against Textron and its
subsidiaries lawsuits and other proceedings, some which allege
violations of federal government procurement regulations, involve
environmental matters, or are or purport to be class actions. Among
these suits and proceedings are some which seek compensatory, treble
or punitive damages in substantial amounts; fines, penalties or
restitution; the cleanup of allegedly hazardous wastes; or, under
federal government procurement regulations, could result in suspension
or debarment of Textron or its subsidiaries from U.S. Government
contracting for a period of time. These suits and proceedings are
being defended or contested on behalf of Textron and its
subsidiaries. On the basis of information presently available,
Textron believes that any such liability or the impact of the
application of relevant government regulations would not have a
material effect on Textron's net income or financial condition.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12.1 Computation of ratio of income to fixed charges of the
Textron Parent Company Borrowing Group.
12.2 Computation of ratio of income to fixed charges of Textron
Inc. including all majority-owned subsidiaries.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter ended
April 2, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEXTRON INC.
Date: May 13, 1994 s/W. P. Janovitz
W. P. Janovitz
Vice President and Controller
(principal accounting officer)
LIST OF EXHIBITS
The following exhibits are filed as part of this report on Form 10-Q:
Name of Exhibit
12.1 Computation of ratio of income to fixed charges of the Textron Parent
Company Borrowing Group
12.2 Computation of ratio of income to fixed charges of Textron Inc.
including all majority-owned subsidiaries
EXHIBIT 12.1
TEXTRON PARENT COMPANY BORROWING GROUP
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
(unaudited)
(In millions except ratio)
<TABLE>
<CAPTION>
Three Months
Ended
April 2,
1994
Fixed charges:
<S> <C>
Interest expense (1) $ 53
Estimated interest portion of rents 5
Total fixed charges $ 58
Income:
Income before income taxes $ 169
Fixed charges 58
Eliminate equity in undistributed pre-tax income of
finance and insurance subsidiaries (94)
Adjusted income $ 133
</TABLE>
Ratio of income to fixed charges 2.29
(1) Includes interest unrelated to borrowings of $10 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)
<TABLE>
<CAPTION>
Three Months
Ended
April 2,
1994
Fixed charges:
<S> <C>
Interest expense (1) $ 158
Estimated interest portion of rents 11
Total fixed charges $ 169
Income:
Income before income taxes $ 169
Elimination of minority interest in pretax income of (7)
Paul Revere
Fixed charges 169
Adjusted income $ 331
Ratio of income to fixed charges 1.96
</TABLE>
(1) Includes interest unrelated to borrowings of $10 million (primarily
interest accretion).
