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 1, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission file number 1-5480
_______________
TEXTRON INC.
(Exact name of registrant as specified in its charter)
_______________
Delaware 05-0315468
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 29, 1995 - 84,619,000 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 1, July 2, July 1, July 2,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues
Sales $ 1,651 $ 1,775 $ 3,205 $ 3,463
Interest, discount and service
charges 389 325 768 649
Insurance premiums 344 303 679 593
Investment income (including net
realized investment gains) 118 114 237 220
Total revenues 2,502 2,517 4,889 4,925
Costs and expenses
Cost of sales 1,351 1,485 2,629 2,911
Selling and administrative 380 378 753 739
Interest 209 163 411 321
Provision for losses on collection
of finance receivables, less
recoveries 39 37 78 80
Insurance benefits and increase
in policy liabilities 285 243 561 468
Amortization of insurance policy
acquisition costs 33 26 67 52
Total costs and expenses 2,297 2,332 4,499 4,571
Income before income taxes 205 185 390 354
Income taxes (81) (71) (154) (136)
Elimination of minority interest
in net income of Paul Revere (3) (4) (6) (8)
Net income $ 121 $ 110 $ 230 $ 210
Net income per common share $ 1.40 $ 1.22 $ 2.65 $ 2.32
Average shares outstanding* 86,679,000 90,533,000 86,862,000 90,556,000
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 $ .39 $ .35 $ .78 $ .70
* 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 1, December 31,
1995 1994
Assets
<S> <C> <C>
Cash $ 120 $ 49
Investments 5,915 5,294
Receivables - net:
Finance 9,200 8,583
Commercial and U.S. Government 764 702
9,964 9,285
Inventories 1,259 1,211
Property, plant and equipment, less accumulated
depreciation of $1,598 and $1,450 1,281 1,253
Insurance policy acquisition costs 964 911
Goodwill, less accumulated amortization of $410 and
$381 1,494 1,512
Other assets (including net prepaid income taxes) 1,333 1,410
Total assets $ 22,330 $ 20,925
Liabilities and shareholders' equity
Liabilities
Accounts payable $ 630 $ 619
Accrued postretirement benefits other than pensions 952 951
Other accrued liabilities (including income taxes) 2,344 2,424
Insurance reserves and claims 5,059 4,685
Debt:
Textron Parent Company Borrowing Group 1,870 1,582
Finance and insurance subsidiaries 8,379 7,782
10,249 9,364
Total liabilities 19,234 18,043
Shareholders' equity
Capital stock:
Preferred stock 15 16
Common stock* 12 12
Capital surplus 722 702
Retained earnings 2,682 2,518
Other 17 (108)
3,448 3,140
Less cost of treasury shares 352 258
Total shareholders' equity 3,096 2,882
Total liabilities and shareholders' equity $ 22,330 $ 20,925
*Common shares outstanding 84,399,000 85,497,000
See notes to consolidated financial statements.
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
<TABLE>
TEXTRON INC.
Consolidated Statement of Cash Flows (unaudited)
(In millions)
Six Months Ended
July 1, July 2,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 230 $ 210
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 204 198
Provision for losses on receivables 98 97
Increase in insurance policy liabilities 270 195
Deferred income taxes 32 27
Changes in assets and liabilities excluding those related to the
acquisition of a business:
Increase in commercial and U.S. Government receivables (65) (141)
Increase in inventories (48) (11)
Additions to insurance policy acquisition costs (130) (105)
Increase in other assets (19) (13)
Increase in accounts payable 12 14
Increase (decrease) in accrued liabilities (141) 73
Other - net 25 10
Net cash provided by operating activities 468 554
Cash flows from investing activities:
Purchases of investments (751) (1,233)
Proceeds from disposition of securities:
Sales of:
Securities available for sale 279 524
Securities held to maturity - 10
Maturities and calls 96 386
Proceeds from disposition of other investments 24 44
Finance receivables:
Originated or purchased (3,072) (2,713)
Repaid or sold 2,810 2,422
Cash used in acquisition of a business (40) -
Capital expenditures (133) (131)
Other investing activities - net (10) 41
Net cash used by investing activities (797) (650)
Cash flows from financing activities:
Increase (decrease) in short-term debt 54 (64)
Proceeds from issuance of long-term debt 1,719 1,126
Principal payments on long-term debt (1,311) (936)
Interest-sensitive insurance products:
Receipts 163 128
Return of account balances (84) (60)
Proceeds from exercise of stock options 18 9
Purchases of Textron common stock (93) -
Dividends paid (67) (63)
Net cash provided by financing activities 399 140
Effect of foreign exchange rate changes on cash 1 1
Net increase in cash 71 45
Cash at beginning of period 49 26
Cash at end of period $ 120 $ 71
See notes to consolidated financial statements.
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
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 December 31, 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 1, 1995 and
December 31, 1994 and its consolidated results of operations for each
of the respective three and six month periods ended July 1, 1995 and
July 2, 1994 and consolidated cash flows for each of the six month
periods ended July 1, 1995 and July 2, 1994. The results of
operations for the six months ended July 1, 1995 are not necessarily
indicative of results for the full year.
Note 2: Investments
<TABLE>
<CAPTION>
July 1, December 31,
1995 1994
(In millions)
<S> <C> <C>
Debt and marketable equity securities
available for sale, at estimated fair value
(amortized cost: $2,857 and $2,610) $2,976 $2,511
Debt securities to be held to maturity, at amortized
cost (estimated fair value: $2,731 and $2,294) 2,605 2,470
Other 334 313
$5,915 $5,294
</TABLE>
Note 3: Finance receivables - net
<TABLE>
<CAPTION>
July 1, December 31,
1995 1994
(In millions)
<S> <C> <C>
Finance receivables $9,690 $9,084
Less allowance for credit losses 261 250
Less finance-related insurance reserves and
claims 229 251
$9,200 $8,583
</TABLE>
Note 4: Inventories
<TABLE>
<CAPTION>
July 1, December 31,
1995 1994
(In millions)
<S> <C> <C>
Finished goods $ 353 $ 288
Work in process 966 948
Raw materials 175 212
1,494 1,448
Less progress and advance payments 235 237
$1,259 $1,211
</TABLE>
Note 5: Insurance reserves and claims
<TABLE>
July 1, December 31,
1995 1994
(In millions)
<S> <C> <C>
Paul Revere:
Future policy benefits $1,258 $1,193
Unpaid claims and claim expenses 1,719 1,576
Other policyholder funds 1,843 1,714
Other 239 202
$5,059 $4,685
</TABLE>
Note 6: 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.
Note 7: Financial information by borrowing group
Textron consists of two borrowing groups - the Textron Parent Company
Borrowing Group and its finance and insurance subsidiaries.
The Textron Parent Company Borrowing Group is comprised of all
entities of Textron other than its finance and insurance subsidiaries.
The financial statements of this group as set forth below reflect
Textron's investments in its finance and insurance subsidiaries on the
equity basis. Its sources of cash flow include dividends paid by the
finance and insurance subsidiaries, as well as cash generated by other
operating units.
The finance and insurance subsidiaries finance their respective
operations by borrowing from their own group of external creditors.
Item 1 FINANCIAL STATEMENTS (Continued)
Note 7: Financial information by borrowing group (continued)
<TABLE>
TEXTRON PARENT COMPANY BORROWING GROUP
(unaudited) (In millions)
<CAPTION>
Three Months Ended Six Months Ended
July 1, July 2, July 1, July 2,
Statement of Income 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $1,651 $1,776 $3,205 $3,464
Costs and expenses
Cost of sales 1,351 1,485 2,629 2,911
Selling and administrative 158 171 315 331
Interest 52 55 102 108
Total costs and expenses 1,561 1,711 3,046 3,350
90 65 159 114
Pretax income of finance and
insurance subsidiaries 115 120 231 240
Income before income taxes 205 185 390 354
Income taxes (81) (71) (154) (136)
Elimination of minority interest in
net income of Paul Revere (3) (4) (6) (8)
Net income $ 121 $ 110 $ 230 $ 210
</TABLE>
<TABLE>
<CAPTION>
July 1, December 31,
Balance Sheet 1995 1994
Assets
<S> <C> <C>
Cash $ 89 $ 20
Receivables - net 764 702
Inventories 1,259 1,211
Investments in finance and insurance subsidiaries 2,435 2,246
Property, plant and equipment - net 1,173 1,146
Goodwill, less accumulated amortization of $213 and $194 1,216 1,231
Other assets (including net prepaid income taxes) 1,236 1,262
Total assets $8,172 $7,818
Liabilities and shareholders' equity
Accounts payable and accrued liabilities (including income taxes) $3,206 $3,354
Debt 1,870 1,582
Shareholders' equity 3,096 2,882
Total liabilities and shareholders' equity $8,172 $7,818
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
Note 7: Financial information by borrowing group (continued)
<TABLE>
TEXTRON PARENT COMPANY BORROWING GROUP (continued)
(unaudited) (In millions)
<CAPTION>
Six Months Ended
July 1, July 2,
Statement of Cash Flows 1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $230 $210
Adjustments to reconcile net income to net cash provided by
operating activities:
Undistributed earnings of finance and insurance subsidiaries (73) (83)
Depreciation and amortization 109 120
Changes in assets and liabilities:
Increase in receivables (65) (125)
Increase in inventories (48) (11)
Decrease (increase) in other assets 5 (34)
Increase (decrease) in accounts payable and accrued (118) 119
liabilities
Other - net 59 29
Net cash provided by operating activities 99 225
Cash flows from investing activities:
Capital expenditures (121) (117)
Other investing activities - net (33) 41
Net cash used by investing activities (154) (76)
Cash flows from financing activities:
Increase (decrease) in short-term debt 5 (20)
Proceeds from issuance of long-term debt 630 462
Principal payments on long-term debt (347) (467)
Proceeds from exercise of stock options 18 9
Purchases of Textron common stock (93) -
Purchases of Textron common stock from Paul Revere (22) (25)
Dividends paid (67) (63)
Net cash provided (used) by financing activities 124 (104)
Net increase in cash 69 45
Cash at beginning of period 20 12
Cash at end of period $ 89 $ 57
</TABLE>
Item 1 FINANCIAL STATEMENTS (Continued)
Note 7: 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 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues
Interest, discount and service charges $ 389 $ 325 $ 768 $ 649
Credit life, credit disability and
casualty insurance premiums 82 70 163 133
Non-cancellable disability income, life
and group insurance premiums 262 233 516 460
Investment income (including net
realized investment gains) 118 113 237 219
Total revenues 851 741 1,684 1,461
Costs and expenses
Selling and administrative 222 207 438 408
Interest 157 108 309 213
Provision for losses on collection of
finance receivables, less recoveries 39 37 78 80
Credit life, credit disability and
casualty insurance losses and
adjustment expenses, less recoveries 37 31 70 62
Death and other insurance benefits 124 111 243 218
Increase in insurance policy liabilities 124 101 248 188
Amortization of insurance
policy acquisition costs 33 26 67 52
Total costs and expenses 736 621 1,453 1,221
Income before income taxes 115 120 231 240
Income taxes (44) (48) (90) (94)
Net income 71 72 141 146
Minority interest in net income (3) (4) (6) (8)
Textron's equity in net income $ 68 $ 68 $ 135 $ 138
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
Note 7: Financial information by borrowing group (continued)
<TABLE>
FINANCE AND INSURANCE SUBSIDIARIES
(unaudited) (In millions)
<CAPTION>
June 30, December 31,
Balance Sheet 1995 1994
Assets
<S> <C> <C>
Cash $ 31 $ 29
Investments 5,880 5,265
Finance receivables - net 9,238 8,622
Property, plant and equipment - net 108 107
Insurance policy acquisition costs 964 911
Goodwill, less accumulated amortization of $197 and $187 278 281
Other assets 606 633
Total assets $17,105 $15,848
Liabilities and equity
Accounts payable and accrued liabilities (including income
taxes) $1,025 $ 953
Insurance reserves and claims 5,059 4,685
Debt 8,379 7,782
Equity:
Textron 2,435 2,246
Minority interest in Paul Revere 207 182
Total liabilities and equity $17,105 $15,848
</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)
Three Months Ended Six Months Ended
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
REVENUES
<S> <C> <C> <C> <C>
MANUFACTURING:
Aircraft $ 635 $ 532 $1,177 $1,040
Automotive 398 410 822 811
Industrial 353 405 702 739
Systems and Components 265 428 504 873
1,651 1,775 3,205 3,463
FINANCIAL SERVICES:
Finance 487 406 962 806
Paul Revere 364 335 722 655
851 741 1,684 1,461
Total revenues $2,502 $2,516 $4,889 $4,924
INCOME
MANUFACTURING:
Aircraft $ 64 $ 39 $ 105 $ 75
Automotive 36 42 73 78
Industrial 41 41 84 76
Systems and Components 23 14 42 26
164 136 304 255
FINANCIAL SERVICES:
Finance 88 83 176 161
Paul Revere 27 37 55 79
115 120 231 240
Segment operating income 279 256 535 495
Corporate expenses and other - net (22) (17) (43) (34)
Interest expense - net (52) (54) (102) (107)
Income before income taxes $ 205 $ 185 $ 390 $ 354
</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 1,
1995, the Textron Parent Company Borrowing Group's operating activities provided
cash of $99 million versus $225 million during the corresponding period of 1994.
The decrease in 1995 was principally due to increased tax payments in 1995
partially offset by increased income in 1995 and a larger increase in
receivables in 1994, due primarily to changed payment terms with certain
customers. The Group's debt increased by $288 million principally as a result
of the excess of cash used for capital expenditures, purchases of Textron common
stock and payments of dividends over the $99 million of cash provided by
operations. Its ratio of debt to total capital was 38% at July 1, 1995, up from
35% at December 31, 1994.
During the six months ended July 2, 1994, the Group's operating activities
provided cash of $225 million versus $164 million during the corresponding
period of 1993. The improvement in 1994 was due to increased income and
customer deposits, partially offset by higher receivables, due primarily to
changed payment terms with certain customers. The Group's ratio of debt to
total capital was 41% at July 2, 1994, down from 42% at year end 1993.
The Group's credit facilities not used or reserved as support for outstanding
commercial paper or bank borrowings at July 1, 1995 were $685 million. Textron
had $236 million available at July 1, 1995 for unsecured debt securities under
its shelf registration statement filed with the Securities and Exchange
Commission.
In 1994, Textron reactivated its program to purchase up to five million shares
of its common stock from time to time in the open market as conditions warrant.
In February 1995, Textron announced that it may purchase up to an additional
five million shares of its common stock under the program. In June 1995,
Textron completed the purchase of the first five million shares under the
program. None of the additional shares had been purchased as of July 29, 1995.
Management believes that the Group will continue to have adequate access to
credit markets and that its credit facilities and cash flows from operations
- --including dividends received from Textron's finance 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 $62 million and $55 million to the Textron Parent Company Borrowing
Group during the six month periods ended July 1, 1995 and July 2, 1994,
respectively.
In June 1995, Avco Financial Services (AFS) filed a shelf registration statement
with the Securities and Exchange Commission, increasing the amount of registered
debt available for issuance by $1.5 billion. During the six months ended
June 30, 1995, AFS issued $918 million of unsecured debt securities, including
$640 million under its shelf registration statements. AFS had $1.7 billion and
$465 million available at June 30, 1995 for unsecured debt securities under its
shelf registration statements with the Securities and Exchange Commission and
Canadian provincial security exchanges, respectively.
During the six months ended June 30, 1995, Textron Financial Corporation (TFC)
issued $133 million of medium-term notes under a $500 million medium-term note
facility under Rule 144A of the Securities Act of 1933, as amended. TFC had
$367 million available under this facility at June 30, 1995.
During the first half of 1995, the finance subsidiaries had $606 million of
interest rate exchange agreements go into effect. Of these, $250 million expire
in 1996 and had the effect of exchanging the indices used to determine interest
expense under certain variable rate borrowings at June 30, 1995 for the purpose
of better matching the rate of interest incurred on financing with the rate of
interest earned on certain of the finance subsidiaries' variable rate finance
receivables. The balance of the agreements, which have a weighted average
original term of 2.2 years and expire through 1999, had the effect of fixing the
rate of interest at approximately 8.3% on $356 million of variable rate
borrowings at June 30, 1995.
Results of Operations - Three months ended July 1, 1995 vs. Three months ended
July 2, 1994
Textron reported second quarter 1995 earnings per share of $1.40, up 15% from
1994 earnings per share of $1.22, reflecting higher net income and a decreased
number of average shares outstanding. Net income in 1995 of $121 million was up
from 1994 net income of $110 million. Revenues were unchanged at $2.5 billion,
reflecting the impact of divestitures in 1994. Excluding the revenues of these
divested businesses, revenues in the second quarter increased 7% over 1994.
The Aircraft segment's revenues and income increased $103 million (19%) and $25
million (64%), respectively, due to improvements at both Bell Helicopter and
Cessna Aircraft. Bell Helicopter's revenues and income increased primarily as a
result of higher international aircraft sales and higher revenues under the V-22
engineering and manufacturing development contract. Cessna's income increased
due to higher revenues and an improved operating margin. Its higher product
development expenses, principally related to two new Citation aircraft models,
were essentially offset by lower bid and proposal expenses for the JPATS
competition for a new U.S. military trainer. An announcement was made in June
1995 that the JPATS contract would be awarded to a competitor. The award is the
subject of pending protests filed by Textron and Rockwell International with the
U.S. General Accounting Office.
The Automotive segment's revenues and income decreased $12 million (3%) and $6
million (14%), respectively, due to lower automotive production and higher
start-up costs related to the launch of new products and facilities.
The Industrial segment's revenues decreased $52 million (13%) and income equaled
last year's level, both reflecting the divestiture of the Homelite division in
August 1994. Excluding the impact of Homelite, revenues increased 9% and income
increased 19%, primarily due to higher sales in the fasteners and contractor
tool businesses.
The Systems and Components segment's revenues decreased $163 million (38%),
while income increased $9 million (64%). The decrease in revenues was due
primarily to the divestiture of the Textron Lycoming Turbine Engine division in
October 1994 and to reduced shipments on certain U.S. Government contracts and
commercial aerospace contracts at other divisions. Income for 1994 reflected
charges related to certain valuation adjustments at the Textron Lycoming Turbine
Engine division.
The Finance segment's revenues increased $81 million (20%), while income
increased $5 million (6%). AFS' revenues increased, due primarily to (a) a
higher level of finance receivables outstanding, (b) an increase in earned
insurance premiums, and (c) an increase in investment income, due to improving
yields and a higher level of invested assets, partially offset by a decline in
yields on finance receivables, reflecting an increase in lower yielding retail
installment contracts. Its income increased due to those factors, partially
offset by an increase in the average cost of borrowed funds. Revenues at TFC
increased, due to a higher level of finance receivables outstanding and higher
yields on finance receivables, reflecting the higher interest rate environment,
partially offset by lower fee income. Its income equaled last year's level as
the benefit of the higher revenues was offset by an increase in the average cost
of borrowed funds.
Paul Revere's revenues increased $29 million (9%), due to continued premium
growth in its individual disability insurance and group insurance lines of
business and higher net investment income, partially offset by lower realized
investment gains. Its income decreased $10 million (27%), primarily as a result
of a higher individual disability insurance benefit ratio and lower realized
investment gains ($3 million in 1995 vs. $11 million in 1994), partially offset
by a lower benefit ratio in the group disability insurance line of business,
increased premium volume, and improved expense ratios across all lines of
business. The higher benefit ratio in the individual disability insurance
business was the result of adverse claims experience from the block of policies
issued between 1985 and 1989, especially in Florida and California. In
addition, business issued to physicians has performed below expectations. The
benefit ratio in the second quarter of 1995 was 87.2%, up from 81.2% in the
second quarter of 1994, although it improved from 89.4% in the first quarter of
1995. Paul Revere continued its program to improve operating results through
new products, pricing and underwriting adjustments, and continued emphasis on
claims management. Paul Revere continues to expect a gradual improvement in the
individual disability insurance benefit ratio throughout 1995.
Corporate expenses and other - net for the three months ended July 1, 1995 were
higher than the corresponding level in 1994, as a result of (a) increased
compensation expense resulting from appreciation in the market value of
Textron's common stock and (b) foreign exchange losses in 1995 compared to
foreign exchange gains in 1994. Lower interest expense of the Textron Parent
Company Borrowing Group reflected a lower level of average borrowing, partially
offset by an increased average cost of borrowing. The quarter's results
reflected a slightly higher effective income tax rate than the corresponding
prior year rate.
Results of Operations - Six months ended July 1, 1995 vs. Six months ended July
2, 1994
Earnings per share for the first half of 1995 were $2.65, up 14% from the $2.32
reported for the corresponding period in 1994, reflecting higher net income and
a decreased number of average shares outstanding. Net income in 1995 was $230
million, up from $210 million for 1994. Revenues were unchanged at $4.9
billion, reflecting the impact of divestitures in 1994. Excluding the revenues
of these divested businesses, revenues in the first half increased 8% over 1994.
The Aircraft segment's revenues and income increased $137 million (13%) and $30
million (40%), respectively, due to improvements at both Bell Helicopter and
Cessna Aircraft. Bell Helicopter's revenues increased primarily as a result of
higher revenues under the V-22 engineering and manufacturing development
contract and higher international aircraft and commercial spare parts sales,
partially offset by lower foreign military aircraft sales. Bell's income
increased as a result of the higher revenues, partially offset by increased
product development expenses related to new helicopter models. Cessna's income
increased due to higher revenues and an improved operating margin. Its higher
product development expenses, principally related to two new Citation aircraft
models, were essentially offset by lower bid and proposal expenses for the JPATS
competition for a new U.S. military trainer.
The Automotive segment's revenues increased $11 million (1%), while income
decreased $5 million (6%), due to higher start-up costs related to the launch of
new products and facilities.
The Industrial segment's revenues decreased $37 million (5%), while income
increased $8 million (11%). Excluding the impact of the 1994 divestiture of the
Homelite division, revenues and income increased 20% and 28%, respectively, as a
result of higher fasteners sales (including Avdel's results for six months in
1995 compared with three months in 1994) and increased contractor tool sales.
The Systems and Components segment's revenues decreased $369 million (42%),
while income increased $16 million (62%). The decrease in revenues was due to
the divestiture of the Textron Lycoming Turbine Engine division in October 1994
and to reduced shipments on certain U.S. Government contracts and commercial
aerospace contracts at other divisions. Income for 1994 reflected provisions
for the consolidation of certain manufacturing operations and legal matters and
charges related to certain valuation adjustments at the Textron Lycoming Turbine
Engine division.
The Finance segment's revenues increased $156 million (19%), while income
increased $15 million (9%). AFS' revenues increased, due primarily to (a) a
higher level of finance receivables outstanding, (b) an increase in earned
insurance premiums, and (c) an increase in investment income, due to improving
yields and a higher level of invested assets, partially offset by (d) a decline
in yields on finance receivables, reflecting an increase in lower yielding
retail installment contracts. Its income increased due to those factors and to
a decrease in insurance losses in both finance-related and nonfinance-related
insurance operations, partially offset by (a) an increase in the average cost of
borrowed funds and (b) an increase in contingent insurance commissions in the
nonfinance-related insurance lines, due primarily to improved loss experience.
Revenues at TFC increased, due to a higher level of finance receivables
outstanding and higher yields on finance receivables, reflecting the higher
interest rate environment, partially offset by higher leveraged lease income in
1994 and lower fee income in 1995. Its income increased due to those factors
and a decrease in loan loss provisions, reflecting an improvement in equipment
portfolios and a stabilization of nonperforming real estate loans, partially
offset by an increase in the average cost of borrowed funds.
Paul Revere's revenues increased $67 million (10%), due to continued premium
growth in its individual disability insurance and group insurance lines of
business and higher net investment income, partially offset by lower realized
investment gains. Its income decreased $24 million (30%), primarily as a result
of a higher individual disability insurance benefit ratio and lower realized
investment gains ($10 million in 1995 vs. $16 million in 1994), partially offset
by a lower benefit ratio in the group disability insurance line of business,
increased premium volume, and improved expense ratios across all lines of
business. The higher benefit ratio (88.3% vs. 78.4%) in the individual
disability insurance business was the result of adverse claims experience from
the block of policies issued between 1985 and 1989, especially in Florida and
California. In addition, business issued to physicians has performed below
expectations.
Corporate expenses and other - net for the first half of 1995 were higher than
the corresponding level in 1994, as a result of (a) increased compensation
expense resulting from appreciation in the market value of Textron's common
stock and (b) foreign exchange losses in 1995 compared to foreign exchange gains
in 1994. Lower interest expense of the Textron Parent Company Borrowing Group
reflected a lower level of average borrowing, partially offset by an increased
average cost of borrowing. The first half results reflected a slightly higher
effective income tax rate than the corresponding prior year rate.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Textron's annual meeting of shareholders held on
April 26, 1995, the following items were voted upon:
1. The following persons were elected to serve as
directors in Class II for three year terms expiring
in 1998 and received the votes listed. There were
no abstentions or broker non-votes applicable to
the election of directors:
Name For Withheld
James F. Hardymon 76,744,461 849,156
Barbara Scott Preiskel 76,611,423 982,194
Thomas B. Wheeler 76,769,261 824,356
The following directors have terms of office which
continued after the meeting: H. Jesse Arnelle,
Lewis B. Campbell, R. Stuart Dickson, B. F. Dolan,
John D. Macomber, Sam F. Segnar, Jean Head Sisco,
John W. Snow and Martin D. Walker.
2. The appointment of Ernst & Young LLP as Textron's
independent auditors for 1995 was ratified by the
following vote:
For Against Abstain Broker Non-Votes
76,798,049 446,795 348,773 0
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12.1Computation of ratio of income to fixed charges of the Textron
Parent Company Borrowing Group.
12.2Computation of ratio of income to fixed charges of Textron Inc.
including all majority-owned subsidiaries.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter
ended July 1, 1995.
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, 1995 s/W. P. Janovitz
LIST OF EXHIBITS
The following exhibits are filed as part of this report on Form 10-Q:
Name of Exhibit
12.1 Computation of ratio of income to fixed charges of the Textron Parent
Company Borrowing Group
12.2 Computation of ratio of income to fixed charges of Textron Inc.
including all majority-owned subsidiaries
27 Financial Data Schedule
EXHIBIT 12.1
TEXTRON PARENT COMPANY BORROWING GROUP
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
(unaudited)
(In millions except ratio)
Six Months
Ended
July 1, 1995
Fixed charges:
Interest expense (1) $102
Estimated interest portion of rents 10
Total fixed charges $112
Income:
Income before income taxes $390
Fixed charges 112
Eliminate equity in undistributed pretax income of
finance and insurance subsidiaries (169)
Adjusted income $333
Ratio of income to fixed charges 2.97
(1) Includes interest unrelated to borrowings of $19 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)
Six Months
Ended
July 1, 1995
Fixed charges:
Interest expense (1) $411
Estimated interest portion of rents 21
Total fixed charges $432
Income:
Income before income taxes $390
Elimination of minority interest in pretax income of Paul Revere (9)
Fixed charges 432
Adjusted income $813
Ratio of income to fixed charges 1.88
(1) Includes interest unrelated to borrowings of $19 million (primarily
interest accretion).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Textron
Inc.'s Consolidated Balance sheet as of July 1, 1995 and Consolidated Statement
of Income for the six months ended July 1, 1995 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
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<PERIOD-END> JUL-1-1995
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