SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
April 29, 1996
(Date of earliest event reported)
TEXTRON INC.
(Exact name of Registrant as specified in its charter)
Delaware 1-5480 05-0315468
(State of (Commission File No.) (IRS Employer
Incorporation) Identification No.)
40 Westminster Street, Providence, Rhode Island 02903
(Address of principal executive offices, including zip code)
(401) 421-2800
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS.
On April 29, 1996, the Registrant, Textron Inc. ("Textron"), issued a
press release announcing that The Paul Revere Corporation ("Paul Revere")
had entered into an agreement with Provident Companies, Inc. ("Provident")
whereby Provident will acquire all of the outstanding shares of Paul
Revere's common stock, 83% of which are owned by Textron. The press release
stated that, for its Paul Revere shares, Textron will receive $20 per share
in cash (an aggregate of $750 million) and $6 per share in Provident common
stock, for a total of approximately $975 million, and that the minority
shareholders of Paul Revere will be able to elect to receive the same
combination of $20 in cash and $6 in Provident common stock or $26 in cash
or $26 in Provident common stock. The number of shares of Provident common
stock to be received will be determined in accordance with an exchange
ratio based upon closing prices of Provident common stock prior to the
closing of the transaction, subject to certain limitations. The press
release further stated that the transaction has been approved by the Boards
of Directors of the three companies, is subject to regulatory approvals and
the consent of Provident and Paul Revere shareholders, and is expected to
close in the third quarter of 1996. A copy of the press release is filed
herewith as Exhibit 99.1 and is incorporated herein by reference.
In connection with the transaction described in the press release,
Textron entered into a Voting Agreement and Election with Provident dated
as of April 29, 1996, whereby Textron agreed to vote its shares of Paul
Revere in favor of approval of the transaction and to elect to accept the
combination of cash and Provident shares described above. A copy of the
Voting Agreement and Election is filed herewith as Exhibit 99.2 and is
incorporated herein by reference.
Textron also announced that it has restated financial statements for
each of the three years in the period ended December 30, 1995 to reflect
Paul Revere as a discontinued operation. The restated financial statements,
together with other restated financial information, is filed herewith as
Exhibit 99.3 and is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
Exhibit No. Exhibit
23 Consent of Independent Auditors.
Note: Exhibits 27.1 through 27.6 are filed electronically only.
27.1 Restated financial data schedule for period ended
October 1, 1994.
27.2 Restated financial data schedule for period ended
December 31, 1994.
27.3 Restated financial data schedule for period ended
April 1, 1995.
27.4 Restated financial data schedule for period ended
July 1, 1995.
27.5 Restated financial data schedule for period ended
September 30, 1995.
27.6 Restated financial data schedule for period ended
December 30, 1995.
99.1 Press release issued April 29, 1996.
99.2 Voting Agreement and Election dated as of April 29, 1996,
between Textron Inc. and Provident Companies, Inc.
99.3 Restated financial statements and related financial
information.
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 hereunto duly authorized.
TEXTRON INC.
(Registrant)
By:/s/ Richard L. Yates
Name: Richard L. Yates
Title: Vice President and
Controller
Dated: May 2, 1996
INDEX TO EXHIBITS
Exhibit No. Exhibit
23 Consent of Independent Auditors.
Note: Exhibits 27.1 through 27.6 are filed electronically only.
27.1 Restated financial data schedule for period ended
October 1, 1994.
27.2 Restated financial data schedule for period ended
December 31, 1994.
27.3 Restated financial data schedule for period ended
April 1, 1995.
27.4 Restated financial data schedule for period ended
July 1, 1995.
27.5 Restated financial data schedule for period ended
September 30, 1995.
27.6 Restated financial data schedule for period ended
December 30, 1995.
99.1 Press release issued April 29, 1996.
99.2 Voting Agreement and Election dated as of April 29,
1996, between Textron Inc. and Provident Companies, Inc.
99.3 Restated financial statements and related financial
information.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-3 No. 33-46501, Form S-3 No. 33-63227, Form S-8 No.
2-78073, Form S-8 No. 2-95413, Form S-8 No. 33-00668, Form S-8 No.
33-19402, Form S-8 No. 33-37139, Form S-8 No. 33-38094, Form S-8 No.
33-57025 and Form S-8 No. 33-63741) of Textron Inc. and in the related
Prospectuses and Prospectus Supplements of our report dated January 25,
1996, except for note 1, as to which the date is April 29, 1996, with
respect to the restated financial statements of Textron Inc. for the
year ended December 30, 1995 included in its Current Report on Form 8-K
dated April 29, 1996, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
May 2, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.1
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
October 1, 1994 and Consolidated Statement of Income for the nine months
ended October 1, 1994, previously filed electronically with the Commission.
The aforementioned quarterly financial statements were not required to be
restated in the Company's Annual Report on Form 8-K dated April 29, 1996.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> OCT-01-1994
<CASH> 87
<SECURITIES> 0
<RECEIVABLES> 8872
<ALLOWANCES> 246
<INVENTORY> 1455
<CURRENT-ASSETS> 0
<PP&E> 2827
<DEPRECIATION> 1575
<TOTAL-ASSETS> 15955
<CURRENT-LIABILITIES> 0
<BONDS> 9103
<COMMON> 12
0
16
<OTHER-SE> 2967
<TOTAL-LIABILITY-AND-EQUITY> 15955
<SALES> 5084
<TOTAL-REVENUES> 6311
<CGS> 4241
<TOTAL-COSTS> 4377
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 117
<INTEREST-EXPENSE> 489
<INCOME-PRETAX> 432
<INCOME-TAX> 166
<INCOME-CONTINUING> 266
<DISCONTINUED> 55
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 321
<EPS-PRIMARY> 3.54
<EPS-DILUTED> 3.54
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.2
This schedule contains the restatement of summary financial
information previously extracted from Textron Inc.'s Consolidated Balance
Sheet as of December 31, 1994 and Consolidated Statement of Income for the
year ended December 31, 1994, previously filed electronically with the
Commission. The aforementioned financial statements were restated in the
Company's Annual Report on Form 8-K dated April 29, 1996.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 49
<SECURITIES> 0
<RECEIVABLES> 9786
<ALLOWANCES> 250
<INVENTORY> 1211
<CURRENT-ASSETS> 0
<PP&E> 2604
<DEPRECIATION> 1389
<TOTAL-ASSETS> 15992
<CURRENT-LIABILITIES> 0
<BONDS> 9342
<COMMON> 12
0
16
<OTHER-SE> 2854
<TOTAL-LIABILITY-AND-EQUITY> 15992
<SALES> 6678
<TOTAL-REVENUES> 8352
<CGS> 5514
<TOTAL-COSTS> 5704
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 162
<INTEREST-EXPENSE> 665
<INCOME-PRETAX> 623
<INCOME-TAX> 257
<INCOME-CONTINUING> 366
<DISCONTINUED> 67
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 433
<EPS-PRIMARY> 4.80
<EPS-DILUTED> 4.80
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.3
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
April 1, 1995 and Consolidated Statement of Income for the three months
ended April 1, 1995, previously filed electronically with the Commission.
The aforementioned quarterly financial statements were not required to be
restated in the Company's Annual Report on Form 8-K dated April 29, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> APR-01-1995
<CASH> 52
<SECURITIES> 0
<RECEIVABLES> 10437
<ALLOWANCES> 265
<INVENTORY> 1267
<CURRENT-ASSETS> 0
<PP&E> 2722
<DEPRECIATION> 1491
<TOTAL-ASSETS> 16796
<CURRENT-LIABILITIES> 0
<BONDS> 10156
<COMMON> 12
0
16
<OTHER-SE> 2952
<TOTAL-LIABILITY-AND-EQUITY> 16796
<SALES> 1554
<TOTAL-REVENUES> 2029
<CGS> 1278
<TOTAL-COSTS> 1329
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 39
<INTEREST-EXPENSE> 202
<INCOME-PRETAX> 157
<INCOME-TAX> 62
<INCOME-CONTINUING> 95
<DISCONTINUED> 14
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.4
This schedule contains the restatement of summary financial
information previously 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, previously filed electronically with the
Commission. The aforementioned quarterly financial statements were not
required to be restated in the Company's Annual Report on Form 8-K dated
April 29, 1996.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> JUL-01-1995
<CASH> 120
<SECURITIES> 0
<RECEIVABLES> 10454
<ALLOWANCES> 261
<INVENTORY> 1259
<CURRENT-ASSETS> 0
<PP&E> 2779
<DEPRECIATION> 1534
<TOTAL-ASSETS> 16940
<CURRENT-LIABILITIES> 0
<BONDS> 10244
<COMMON> 12
0
15
<OTHER-SE> 3069
<TOTAL-LIABILITY-AND-EQUITY> 16940
<SALES> 3205
<TOTAL-REVENUES> 4167
<CGS> 2629
<TOTAL-COSTS> 2735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 78
<INTEREST-EXPENSE> 411
<INCOME-PRETAX> 335
<INCOME-TAX> 132
<INCOME-CONTINUING> 203
<DISCONTINUED> 27
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230
<EPS-PRIMARY> 2.65
<EPS-DILUTED> 2.65
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.5
This schedule contains the restatement of summary financial
information previously extracted from Textron Inc.'s Consolidated Balance
Sheet as of September 30, 1995 and Consolidated Statement of Income for the
nine months ended September 30, 1995, previously filed electronically with
the Commission. The aforementioned quarterly financial statements were not
required to be restated in the Company's Annual Report on Form 8-K dated
April 29, 1996.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 78
<SECURITIES> 0
<RECEIVABLES> 10758
<ALLOWANCES> 272
<INVENTORY> 1244
<CURRENT-ASSETS> 0
<PP&E> 2833
<DEPRECIATION> 1581
<TOTAL-ASSETS> 17052
<CURRENT-LIABILITIES> 0
<BONDS> 10193
<COMMON> 12
0
15
<OTHER-SE> 3199
<TOTAL-LIABILITY-AND-EQUITY> 17052
<SALES> 4763
<TOTAL-REVENUES> 6224
<CGS> 3905
<TOTAL-COSTS> 4070
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 609
<INCOME-PRETAX> 508
<INCOME-TAX> 201
<INCOME-CONTINUING> 307
<DISCONTINUED> 45
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 352
<EPS-PRIMARY> 4.05
<EPS-DILUTED> 4.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.6
This schedule contains the restatement of summary financial
information previously extracted from Textron Inc.'s Consolidated Balance
Sheet as of December 30, 1995 and Consolidated Statement of Income for the
year ended December 30, 1995, previously filed electronically with the
Commission. The aforementioned financial statements were restated in the
Company's Annual Report on Form 8-K dated April 29, 1996.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 84
<SECURITIES> 0
<RECEIVABLES> 10,671
<ALLOWANCES> 270
<INVENTORY> 1,284
<CURRENT-ASSETS> 0
<PP&E> 2,958
<DEPRECIATION> 1,585
<TOTAL-ASSETS> 17,347
<CURRENT-LIABILITIES> 0
<BONDS> 10,211
<COMMON> 12
0
15
<OTHER-SE> 3,385
<TOTAL-LIABILITY-AND-EQUITY> 17,347
<SALES> 6,468
<TOTAL-REVENUES> 8,453
<CGS> 5,294
<TOTAL-COSTS> 5,529
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 169
<INTEREST-EXPENSE> 812
<INCOME-PRETAX> 690
<INCOME-TAX> 274
<INCOME-CONTINUING> 416
<DISCONTINUED> 63
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 479
<EPS-PRIMARY> 5.51
<EPS-DILUTED> 5.51
</TABLE>
EXHIBIT 99.1
Investor Contact: FOR IMMEDIATE RELEASE
Mary F. Lovejoy
401/457-6009
Media Contact:
Susan M. Gillette
401/457-2354
TEXTRON TO SELL ITS INTEREST IN
PAUL REVERE CORPORATION
PROVIDENCE, RHODE ISLAND -- APRIL 29, 1996 -- Textron Inc. today
announced that The Paul Revere Corporation has entered into an agreement
with Provident Companies, Inc. whereby Provident will acquire all of the
outstanding shares of Paul Revere's common stock, 83% of which is owned by
Textron, for $26 per share.
For its Paul Revere shares, Textron will receive $20 per share in
cash (an aggregate of $750 million) and $6 per share in Provident common
stock, for a total of approximately $975 million. This transaction has been
approved by the Boards of Directors of the three companies and is subject
to regulatory approvals and the consent of Provident and Paul Revere
shareholders. It is expected to close in the third quarter of 1996.
-more-
TEXTRON TO SELL PAUL REVERE/2
"This transaction reinforces Textron's strategy to focus on its core
manufacturing and finance businesses where the company can continue to add
value and realize attractive returns on invested capital," said Textron
Chairman and CEO James F. Hardymon.
According to Hardymon, up to 50% of the proceeds are expected to be
used to repurchase Textron common shares and finance acquisitions. The
remainder will be used to reduce debt.
For each share of Paul Revere stock, Paul Revere's minority
shareholders can elect to receive the $26 per share in cash, a combination
of $20 in cash and $6 in Provident common stock, or all Provident common
stock.
This transaction will result in a discontinued operations loss on
disposal of approximately $90 million for Textron. On April 17, 1996,
Textron reported net income for the three months ended March 30, 1996 of
$125 million, or $1.44 per share. The company has restated these results to
reflect Paul Revere as a discontinued operation (see attached).
Textron Inc. (NYSE:TXT) is a global, multi-industry company with
market-leading operations in five business segments: Aircraft,
Automotive, Industrial, Systems and Components and Finance.
Paul Revere (NYSE:PRL), based in Worcester, MA, is a $1.5 billion
provider of individual disability insurance, group disability, life and
annuity products.
# # #
EXHIBIT 99.2
VOTING AGREEMENT AND ELECTION
VOTING AGREEMENT AND ELECTION (this "Agreement"), dated as of
April 29, 1996, between Textron Inc., a Delaware corporation and a
stockholder (the "Stockholder") of The Paul Revere Corporation, a
Massachusetts corporation (the "Company"), and Provident Companies, Inc., a
Delaware corporation ("Parent").
WHEREAS, concurrently with the execution of this Agreement, the
Company, Parent and Patriot Acquisition Corporation, a Massachusetts
corporation and a wholly owned subsidiary of Parent ("Newco"), have entered
into an Agreement and Plan of Merger (as the same may be amended from time
to time, the "Merger Agreement"), providing for the merger (the "Merger")
of Newco with and into the Company pursuant to the terms and conditions of
the Merger Agreement; and
WHEREAS, the Stockholder owns of record and beneficially
37,500,000 shares (the "Shares") of common stock, par value $1.00 per
share, of the Company (the "Common Stock") and wishes to enter into this
Agreement with respect to the Shares; and
WHEREAS, in order to induce Parent to enter into the Merger
Agreement, the Stockholder has agreed, upon the terms and subject to the
conditions set forth herein, to vote the Shares at a meeting of the
Company's stockholders in favor of approval of the Merger Agreement;
NOW, THEREFORE, for good and valuable consideration, the
receipt, sufficiency and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:
1. Agreement to Vote Shares.
(a) Subject to Section 1(b) hereof, the Stockholder
agrees during the term of this Agreement to vote the Shares, in person or
by proxy, (i) in favor of approval of the Merger Agreement at every meeting
of the stockholders of the Company at which such matters are considered and
at every adjournment thereof (each, a "Stockholder Meeting") and (ii)
against an Alternative Proposal (as such term is defined in the Merger
Agreement).
(b) Notwithstanding anything to the contrary contained
herein, the obligations of the Stockholder pursuant to Section 1(a) hereof
with respect to matters to be considered at any Stockholder Meeting are
subject to the following conditions:
(i) Parent and Newco shall have
performed in all material respects all of their respective material
obligations under the Merger Agreement to have been performed at or prior
to the date of such Stockholder Meeting;
(ii) all representations and war-
ranties of Parent and Newco set forth in the Merger Agreement shall be true
and correct in all material respects as of the date of such Stockholder
Meeting as though made on and as of such date (except for changes permitted
by the Merger Agreement and that those representations which address
matters only as of a particular date shall remain true and correct as of
such date), except in any case for such failures to be true and correct
which would not have a Parent Material Adverse Effect (as defined in the
Merger Agreement);
(iii) there shall not be in
effect on the date of such Stockholder Meeting any statute, rule,
regulation, executive order, decree, ruling or injunction or other order of
a court or governmental or regulatory agency of competent jurisdiction
directing that the transactions contemplated by the Merger Agreement not be
consummated; provided, however, that, subject to the terms and provisions
provided in the Merger Agreement (including but not limited to Section
6.8 thereof), prior to invoking this condition each party shall use its
reasonable efforts to have any such decree, ruling, injunction or order
vacated; and
(iv) the Registration Statement
(as such term is defined in the Merger Agreement) to be filed with the
Securities and Exchange Commission (the "SEC") by Parent under the
Securities Act of 1933, as amended (the "Act") to register the shares of
Parent Common Stock (as such term is defined in the Merger Agreement) to be
issued in the Merger shall have become effective under the Act and shall
not be the subject of any stop order or proceeding by the SEC seeking a
stop order.
2. No Voting Trusts. The Stockholder agrees that the
Stockholder will not, nor will the Stockholder permit any entity under the
Stockholder's control to, deposit any of the Stockholder's Shares in a
voting trust or subject any of its Shares to any arrangement with respect
to the voting of the Shares inconsistent with this Agreement.
3. Limitation on Dispositions and Proxies. During the term of
this Agreement, the Stockholder agrees not to sell, assign, pledge,
transfer or otherwise dispose of, or grant any proxies with respect to
(except for a proxy which is not inconsistent with the terms of this
Agreement) any of the Stockholder's Shares.
4. Specific Performance. Each party hereto acknowledges that it
will be impossible to measure in money the damage to the other party if a
party hereto fails to comply with the obligations imposed by this
Agreement, and that, in the event of any such failure, the other party will
not have an adequate remedy at law or in damages. Accordingly, each party
hereto agrees that injunctive relief or other equitable remedy, in addition
to remedies at law or damages, is the appropriate remedy for any such
failure and will not oppose the granting of such relief on the basis that
the other party has an adequate remedy at law. Each party hereto agrees
that it will not seek, and agrees to waive any requirement for, the
securing or posting of a bond in connection with any other party's seeking
or obtaining such equitable relief.
5. Term of Agreement; Termination.
(a) Subject to Section 9(f), the term of this Agreement
shall commence on the date hereof, and such term and this Agreement shall
terminate upon the earliest to occur of (i) the Effective Time; (ii) the
date on which the Merger Agreement is terminated in accordance with its
terms; (iii) the date on which the Board of Directors of the Company
withdraws or materially modifies or changes its recommendation of the
Merger Agreement if the Board of Directors of the Company after
consultation with its counsel determines that the failure to take such
action could reasonably be deemed a breach of its fiduciary duties to the
Company's stockholders under applicable law; and (iv) October 31, 1996.
Upon such termination, no party shall have any further obligations or
liabilities hereunder; provided, however, that such termination shall not
relieve any party from liability for any breach of this Agreement prior to
such termination.
(b) If (i) an Alternative Proposal (as such term is
defined in the Merger Agreement) which provides that the Company's
stockholders will receive in excess of $26.00 per share of Common Stock is
then outstanding, and (ii) at a meeting of stockholders of the Company held
for the purpose of voting on a proposal to approve the Merger Agreement,
the Stockholder shall have failed to vote the Shares in favor of such
proposal then, unless Parent shall be entitled to receive the Termination
Fee (as defined in the Merger Agreement) pursuant to Section 8.5(b) of the
Merger Agreement and provided that Parent shall not be in material breach
of its obligations hereunder or under the Merger Agreement, the Stockholder
will pay Parent the sum of $22,500,000 as promptly as practicable, but not
later than three business days following such meeting, and such payment
will be made by wire transfer of immediately available funds to an account
designed by Parent. Notwithstanding anything in this Agreement to the
contrary, the fee which may become payable under this Section 5(b) shall be
the sole and exclusive remedy available to Parent for the Stockholder's
failure to vote the Shares in accordance with the terms of this Agreement.
6. Entire Agreement. This Agreement supersedes all prior
agreements, written or oral, among the parties hereto with respect to the
subject matter hereof and contains the entire agreement among the parties
with respect to the subject matter hereof. This Agreement may not be
amended, supplemented or modified, and no provisions hereof may be modified
or waived, except by an instrument in writing signed by all parties hereto.
No waiver of any provisions hereof by any party shall be deemed a waiver of
any other provisions hereof by any such party, nor shall any such waiver be
deemed a continuing waiver of any provision hereof by such party.
7. Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein shall be in writing
and shall be deemed to have been duly given if mailed, by first class or
registered mail, three (3) business days after deposit in the United
States Mail, or if telexed or telecopied, sent by telegram, or delivered by
hand or reputable overnight courier, when confirmation is received, in each
case as follows:
If to Stockholder:
Textron Inc.
40 Westminster Street
Providence, RI 02903-2596
Attention: Executive Vice President
and General Counsel
Telecopy: (401) 457-2418
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Beacon Street
Boston, MA 02108
Attention: Margaret A. Brown, Esq.
Telecopy: (617) 573-4822
If to Parent:
Provident Companies, Inc.
1 Fountain Square
Chattanooga, TN 37402
Attention: Chief Financial Officer
Telecopy: (423) 755-1755
With a copy to:
Alston & Bird
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: Dean Copeland, Esq.
Telecopy: (404) 881-7777
or to such other persons or addresses as may be designated in writing by
the party to receive such notice. Nothing in this Section 7 shall be deemed
to constitute consent to the manner and address for service of process in
connection with any legal proceeding (including litigation arising out of
or in connection with this Agreement), which service shall be effected as
required by applicable law.
8. Election. Notwithstanding any rights with respect to the
election of Merger Consideration (as such term is defined in the Merger
Agreement) which may be available to the Stockholder under the Merger
Agreement, the Stockholder shall make a Mixed Election (as such term is
defined in the Merger Agreement).
9. Miscellaneous.
(a) Nothing contained in this Agreement shall be
construed as creating any liability on the part of the Stockholder under
the Merger Agreement.
(b) This Agreement shall be deemed a contract made under,
and for all purposes shall be construed in accordance with, the laws of the
Commonwealth of Massachusetts, without reference to its conflicts of law
principles.
(c) If any provision of this Agreement or the application
of such provision to any person or circumstances shall be held invalid or
unenforceable by a court of competent jurisdiction, such provision or
application shall be unenforceable only to the extent of such invalidity or
unenforceability, and the remainder of the provision held invalid or
unenforceable and the application of such provision to persons or
circumstances, other than the party as to which it is held invalid, and the
remainder of this Agreement, shall not be affected.
(d) This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
(e) All Section headings herein are for convenience of
reference only and are not part of this Agreement, and no construction or
reference shall be derived therefrom.
(f) The obligations of the Stockholder set forth in this
Agreement shall not be effective or binding upon the Stockholder until
after such time as the Merger Agreement is executed and delivered by the
Company, Parent and Newco.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first written above.
PROVIDENT COMPANIES, INC.
By:/s/ J. Harold Chandler
Name: J. Harold Chanler
Title: President
TEXTRON INC.
By:/s/ Stephen L. Key
Name: Stephen L. Key
Title: Executive Vice
President and Chief
Financial Officer
Exhibit 99.3
TEXTRON INC.
INDEX TO RESTATED FINANCIAL STATEMENTS
AND RELATED FINANCIAL INFORMATION
Page (s)
Textron Inc.
Business Segment Data 2-3
Management's Discussion and Analysis of Financial Condition 4-9
and Results of Operations
Condensed Financial Information for the Textron Parent 10-11
Company Borrowing Group
Report of Management 12
Report of Independent Auditors 12
Consolidated Statement of Income for each of the three
years in the period ended December 30, 1995 13
Consolidated Balance Sheet at December 30, 1995 and 14
December 31, 1994
Consolidated Statement of Cash Flows for each of the three
years in the period ended December 30, 1995 15-16
Consolidated Statement of Changes in Shareholders' Equity
for each of the three years in the period ended 17
December 30, 1995
Summary of Significant Accounting Policies 18-19
Notes to Consolidated Financial Statements 20-37
Quarterly Financial Information 1995 and 1994 (Unaudited) 38
Selected Financial Data (Five Year Summary) 39-40
Business Segment Data
<TABLE>
<CAPTION>
Revenues Operating Income Operating Income Margins
------------------------------ ---------------------------- ------------------------
(In millions) 1995 1994 1993 1995 1994 1993 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Manufacturing:
Aircraft $2,419 $2,186 $1,987 $ 237 $ 194 $ 171 9.8% 8.9% 8.6%
Automotive 1,576 1,557 1,221 138 139 96 8.8 8.9 7.9
Industrial 1,421 1,395 1,224 162 142 106 11.4 10.2 8.7
Systems and Components 1,052 1,540 1,839 85 99 125 8.1 6.4 6.8
- ----------------------------------------------------------------------------------------------------------------------------
6,468 6,678 6,271 622 574 498 9.6 8.6 7.9
- ----------------------------------------------------------------------------------------------------------------------------
Finance 1,985 1,672 1,610 365 331 289 18.4 19.8 18.0
- ----------------------------------------------------------------------------------------------------------------------------
$8,453 $8,350 $7,881 987 905 787 11.7 10.8 10.0
- ----------------------------------------------------------------------------------------------------------------------------
Corporate expenses
and other - net (98) (78) (85)
Interest expense - net (199) (204) (232)
- ----------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes $ 690 $ 623 $ 470
- ----------------------------------------------------------------------------------------------------
</TABLE>
Identifiable Capital
Assets Expenditures Depreciation
------------------- ----------------- ----------------
(In millions) 1995 1994 1993 1995 1994 1993 1995 1994 1993
- -------------------------------------------------------------------------------
Manufacturing:
Aircraft $ 1,739 $ 1,636 $ 1,658 $ 74 $ 78 $ 67 $ 49 $ 48 $ 46
Automotive 880 870 686 80 87 55 41 39 33
Industrial 1,250 849 585 76 70 63 45 41 33
Systems and
Components 1,109 1,216 1,832 22 29 32 35 56 67
- -------------------------------------------------------------------------------
4,978 4,571 4,761 252 264 217 170 184 179
- -------------------------------------------------------------------------------
Finance 10,816 9,900 8,801 23 22 20 20 18 18
- -------------------------------------------------------------------------------
Corporate,
including
investment in
discontinued
operation 1,628 1,554 1,750 8 16 15 12 10 9
Eliminations (75) (33) (16) - - - - - -
- -------------------------------------------------------------------------------
$17,347 $15,992 $15,296 $283 $302 $252 $202 $212 $206
- -------------------------------------------------------------------------------
Notes:
(i) Income of the Systems and Components segment for 1994 includes $30
million applicable to the Lycoming Turbine Engine division, sold in
that year, the benefit of which was immaterial to Textron's net
income due to the nontax deductibility of goodwill.
(ii) Income of the Finance segment is net of interest expense.
(iii) Corporate expenses and other - net for 1994 and 1993 include pretax
charges of $9 million and $14 million, respectively, related to the
early redemption of debt.
(iv) Identifiable assets of the discontinued operation included in
Corporate were $1,161 million, $912 million, and $916 million,
respectively, at the end of 1995, 1994, and 1993.
Management's Discussion and Analysis
Textron Inc.
1995 vs. 1994
* Textron's net income in 1995 was $479 million, up from $433 in 1994;
earnings per share of $5.51 were 15% higher than the $4.80 reported last
year.
* On April 29, 1996, Textron announced that The Paul Revere Corporation,
an 83.3% owned subsidiary, has entered into an agreement with Provident
Companies, Inc. whereby Provident will acquire all of the outstanding
shares of Paul Revere's common stock for $26 per share.
For its Paul Revere shares, Textron will receive $20 per share in cash
(an aggregate of $750 million) and $6 per share in Provident common stock,
for a total of approximately $975 million. (The number of shares of
Provident common stock to be received will be determined in accordance with
an exchange ratio based upon closing prices of Provident common stock prior
to the closing of the transaction, subject to certain limitations. Based on
the $31.50 closing price of Provident's stock on April 26, 1996, Textron
would own approximately 7.1 million of Provident shares had the closing
occurred on that date.) This transaction has been approved by the Boards of
Directors of Paul Revere, Provident, and Textron and is subject to
regulatory approvals and the consent of Provident and Paul Revere
shareholders. It is expected to close in the third quarter of 1996. The
estimated loss on sale will be approximately $90 million, net of Textron's
share of Paul Revere's estimated net income for the period April 1996
through the closing date, which Textron will record in its financial
statements at March 30, 1996 and for the three months then ended.
Textron has restated its financial statements as presented herein to
treat Paul Revere as a discontinued operation. See Note 1 to the
consolidated financial statements for additional information.
* Textron's income from continuing operations in 1995 was $416 million, up
from $366 million in 1994; earnings per share from continuing operations of
$4.79 were 18% higher than the $4.06 reported last year. Revenues increased
1% to $8.5 billion in 1995 from $8.4 billion in 1994. Excluding the effects of
the Textron Lycoming Turbine Engine and the Homelite divisions, which were
sold in 1994, revenues were up 9%.
* Operating income of Textron's business segments aggregated $1.0 billion
in 1995, up 9% from 1994, as a 15% increase in the aggregate income of the
Aircraft, Industrial and Finance segments more than offset lower results in
the Systems and Components segment. Operating income in the Automotive segment
was essentially unchanged.
* Corporate expenses and other - net increased in 1995 by $20 million
due in large part to an increase in compensation expense tied directly
to changes in the market value of Textron's common stock ($17 million).
To mitigate the impact on compensation expense of future increases in
stock price, Textron entered into a cash-settlement option program on
Textron's common stock in November 1995.
* The lower interest expense of the Textron Parent Company Borrowing
Group - $199 million in 1995 vs. $204 million in 1994 - reflected a lower
level of average borrowing, notwithstanding the incremental borrowing
associated with acquisitions in the fourth quarter, partially offset by an
increased cost of borrowing.
1994 vs. 1993
* Textron's net income in 1994 was $433 million, up from $379 million in
1993; earnings per share of $4.80 were 14% higher than the $4.21 reported
for 1993.
* Textron's income from continuing operations in 1994 was $366 million,
up from $299 million in 1993; earnings per share from continuing
operations of $4.06 were 22% higher than the $3.32 reported for 1993.
Revenues increased 6% to $8.4 billion in 1994 from $7.9 billion in 1993.
* Operating income was $0.9 billion in 1994, up 15% from 1993, as a 22%
increase in the aggregate income of the Aircraft, Automotive, Industrial,
and Finance segments more than offset lower results in the Systems and
Components segment.
* Corporate expenses and other - net in 1994 were lower by $7 million than
their corresponding level in 1993, principally as a result of a lower pretax
charge related to the early redemptions of high coupon debt ($9 million in
1994 vs. $14 million in 1993).
* The lower interest expense of the Textron Parent Company Borrowing
Group - $204 million in 1994 vs. $232 million in 1993 - principally reflected
a lower level of average borrowing.
Aircraft
1995 vs. 1994
The Aircraft segment's revenues and income increased $233 million (11%) and
$43 million (22%), respectively.
* Bell Helicopter's revenues increased, primarily as a result of higher
international aircraft sales ($199 million) and higher revenues under the
V-22 engineering and manufacturing development contract ($97 million),
partially offset by lower sales to foreign military customers and to the U.S.
Government ($95 million). Bell's income increased primarily as a result of the
higher revenues.
* Cessna's revenues and income increased primarily as a result of higher sales
of utility turboprop aircraft. Increased product development expenses,
principally related to the Bravo and Excel Citation aircraft ($32 million),
were partially offset by reduced JPATS bid and proposal expenses and
product support costs ($23 million).
1994 vs. 1993
The Aircraft segment's revenues and income increases of $199 million
(10%)and $23 million (13%), respectively, related principally to Bell
Helicopter.
* Bell Helicopter's revenues increased, primarily as a result of higher
revenues under the V-22 and other military contracts ($233 million) and
higher international aircraft sales ($54 million), partially offset by
lower sales of spare parts, both military and commercial ($40 million).
Bell's income increased as a result of the higher revenues and improved
manufacturing efficiencies, partially offset by increased product development
expenses related to three new helicopter models ($13 million) and lower
margins on commercial spares ($13 million).
* Cessna's revenues and income increased primarily as a result of improved
margins attributable to lower LIFO expense and a shift in sales mix to
domestic utility turboprop aircraft ($12 million). Lower product development
expenses related to the Citation X aircraft and lower expenses for the JPATS
competition ($18 million) offset higher product support costs ($10 million)
resulting from an adjustment to the warranty reserve for certain aircraft
models. 1993 benefited from an $18 million insurance settlement.
Automotive
1995 vs. 1994
The Automotive segment's revenues increased $19 million (1%) despite a
reduction in North American automotive production, due to higher production
of models with Textron content. Income decreased slightly, due to start-up
costs related to the launch of new products and facilities.
1994 vs. 1993
The Automotive segment's revenues and income increased $336 million (28%)
and $43 million (45%), respectively, as a result of (a) the inclusion for
the full year of a business acquired in May 1993 (resulting in higher
revenues of $208 million in 1994), (b) higher automotive production, and
(c) lower warranty provisions ($6 million). 1993 included a provision for
the consolidation of certain manufacturing operations ($7 million).
Industrial
1995 vs. 1994
The Industrial segment's revenues increased $26 million (2%) and income
increased $20 million (14%). The increases were due principally to higher
sales in the fastening systems business ($166 million), reflecting Avdel's
results for the full year in 1995 compared with nine months in 1994, and
the acquisition of Elco Industries in October 1995. In addition, sales were
higher and performance was better in the turf care equipment and contractor
tool businesses. Partially offsetting these increases was the divestiture
of the Homelite division in August 1994 ($189 million of sales and $14
million of income). Excluding the impact of Homelite, revenues and income
increased 18% and 26%, respectively.
1994 vs. 1993
The Industrial segment's revenues increased $171 million (14%) and income
increased $36 million (34%). The increases were due principally to higher
fastening systems sales including the sales of Avdel, the results of which
have been included in Textron's consolidated results beginning in the
second quarter of 1994 ($192 million). These favorable factors were
partially offset by (a) lower income in the turf care equipment business,
resulting from the implementation of a change in distribution, which
lowered sales, and (b) higher costs. The sale of Homelite in August 1994
resulted in a gain of $8 million. 1993 included a provision for the
consolidation of certain manufacturing operations ($9 million).
Systems and Components
1995 vs. 1994
The Systems and Components segment's revenues decreased $488 million (32%)
and income decreased $14 million (14%). The decrease in revenues was due to
the divestiture of the Lycoming Turbine Engine division ($379 million) and
to reduced shipments on certain U.S. Government and commercial aerospace
contracts. The income decrease was also due to the October 1994 divestiture
of Lycoming Turbine Engine ($30 million, the after-tax effect of which was
immaterial to net income due to the nontax deductibility of goodwill).
These unfavorable factors were partially offset by provisions in 1994 for
legal matters and the consolidation of certain manufacturing operations
($25 million).
Textron's Systems and Components segment will be impacted in 1996 by a
further decline in revenues, due primarily to lower U.S. Government
spending for the defense products of this segment and the expected
continued weakness in the commercial aerospace industry, including the
effects of certain customers consolidating their operations.
In response to this adverse business environment, Textron continues to
leverage its defense technology for commercial applications, reduce costs
in line with the lower business base, and pursue business opportunities
that may arise, including joint ventures and divestitures.
1994 vs. 1993
Revenues and income in 1994 were $1.161 billion and $94 million,
respectively, compared to $1.224 billion and $105 million, respectively,
for 1993 excluding Lycoming Turbine Engine and provisions ($25 million in
1994 and $31 million in 1993) for legal matters and the consolidation of
certain manufacturing operations. The decreases in revenues ($63 million)
and income ($11 million) were due primarily to further weakness in the
defense and commercial aerospace markets.
Finance
1995 vs. 1994
The Finance segment's revenues increased $313 million (19%), while income
increased $34 million (10%).
* Avco Financial Services' (AFS) revenues increased $276 million due primarily
to (a) a higher level of finance receivables outstanding (average receivables
were $6.867 billion in 1995 vs. $5.696 billion in 1994), (b) an increase in
earned insurance premiums ($62 million), and (c) an increase in investment
income ($11 million), due primarily to higher yields (7.78% in 1995 vs. 7.06%
in 1994) and a higher level of invested assets. These higher revenues were
partially offset by a decrease in yields on finance receivables (18.20% in 1995
vs. 18.39% in 1994), due primarily to an increase in the level of retail
installment contracts outstanding. AFS' income increased $28 million, due
primarily to those factors and a decrease in the ratio of operating expenses
to revenues (32.25% in 1995 vs. 33.67% in 1994). This favorable impact was
partially offset by an increase in the average cost of borrowed funds (7.32%
in 1995 vs. 6.63% in 1994) and an increase in the ratio of net credit losses to
average finance receivables (2.10% in 1995 vs. 1.99% in 1994). The increase
in delinquencies and net credit losses, which began during the latter part
of 1995, was due to economic slowdowns in the U.S. and other countries in
which AFS operates. The consumer debt load has continued to increase faster
than the consumers' ability to pay. AFS has tightened its underwriting
standards and unless the economies in the countries in which it operates
decline further, AFS believes these trends will turn around by mid-1996.
* Textron Financial Corporation's (TFC) income increased $6 million on higher
revenues of $37 million primarily due to (a) higher yields on finance
receivables (10.34% in 1995 vs. 9.45% in 1994), (b) a higher level of
finance receivables outstanding (average receivables were $2.839 billion in
1995 vs. $2.641 billion in 1994), and (c) a lower provision for loan losses
($6 million), reflecting an improvement in the equipment portfolio and
stabilization of nonperforming real estate assets. These factors were
partially offset by increased interest expense.
1994 vs. 1993
The Finance segment's revenues increased $62 million (4%), while income
increased $42 million (15%).
* AFS' revenues increased $42 million, due primarily to a higher level of
finance receivables outstanding (average receivables were $5.696 billion in
1994 vs. $5.208 billion in 1993), partially offset by a decline in yields
on finance receivables (18.39% in 1994 vs. 19.10% in 1993). Its income
increased $33 million, due to (a) the higher level of finance receivables
outstanding, (b) a decrease in the average cost of borrowed funds (6.63% in
1994 vs. 6.97% in 1993), (c) a decrease in insurance losses in both finance-
related and nonfinance-related insurance operations, and (d) a decrease in
policy acquisition costs ($6 million), due to a reduction in nonfinance-related
insurance premiums earned. These favorable factors were partially offset by
(a) the decline in yields and (b) an increase in loan loss provisions
($15 million), due to growth in finance receivables outstanding, offset in
part by an improvement in the ratio of net credit losses to average finance
receivables. The ratio decreased to 1.99% in 1994 from 2.14% in 1993.
* TFC's income increased $9 million on higher revenues of $20 million, due
principally to (a) a higher level of finance receivables outstanding (average
receivables were $2.641 billion in 1994 vs. $2.435 billion in 1993),
(b) higher leveraged lease income ($4 million), primarily related to the
higher sales of residual appreciation rights and the benefit of a nonrecourse
debt refinancing, and (c) a decrease in loan loss provisions ($7 million).
These factors were partially offset by increased interest expense.
Discontinued Operation
1995 vs. 1994
Paul Revere's revenues increased $189 million (14%) due to increased
premiums in all lines of business, particularly the individual and group
disability lines ($98 million), and to higher net investment income ($76
million), including net realized investment gains. Its income decreased $8
million (6%), primarily as a result of a higher individual disability
insurance benefit ratio and reserve strengthening related to the excess
risk reinsurance line of business ($59 million), primarily as a result of a
loss recognition study. Effective in March 1995, new business in the excess
risk reinsurance line is no longer being written. The decreases in income
were partially offset by higher net realized investment gains ($77 million
in 1995 vs. $23 million in 1994), an improved benefit ratio in the group
disability insurance line of business (76.4% in 1995 vs. 77.1% in 1994),
and improved expense ratios across all lines of business.
The higher benefit ratio in individual disability insurance - 85.3%
excluding the impact of the reserve strengthening in the excess risk
reinsurance line of business, compared with 83.8% in 1994 - was the result
of adverse claims experience in the excess risk reinsurance line and the
block of policies issued between 1985 and 1989, especially in Florida and
California, partially offset by the favorable impact of a reinsurance
transaction in the third quarter of 1995. In addition, policies issued to
physicians have performed below expectations. During 1995, Paul Revere
experienced gradual improvement in the individual disability insurance
benefit ratio and expects this gradual improvement to continue throughout
1996, as it continues to introduce new products, initiate pricing and
underwriting adjustments, and emphasize improved claims management.
Establishment of insurance reserves requires making various actuarial
assumptions. While actual experience could differ from the assumed
actuarial experience underlying its policy and claim reserves, Textron
believes that these reserves have been determined on reasonable bases and
are adequate. The continued decline in market interest rates and/or the
absence of morbidity improvements, could result in adjustments to reserve
amounts and deferred costs. Paul Revere has undertaken underwriting and
claims management measures mentioned above to mitigate the impact of these
potential occurrences.
1994 vs. 1993
Paul Revere's revenues increased $138 million (12%), due to continued
growth in its individual disability insurance line ($83 million), increased
premium volume in group insurance ($27 million) and higher net investment
income ($26 million). Its income decreased $15 million (10%), primarily
attributed to a significantly higher individual disability insurance
benefit ratio (83.8% in 1994 vs. 72.9% in 1993). Positive earnings factors
included higher net realized investment gains ($23 million in 1994 vs. $15
million in 1993) and increased group disability and individual life
insurance income.
Liquidity & Capital Resources
Financing for Textron is conducted through two separate borrowing groups:
the Textron Parent Company Borrowing Group (consisting of all entities of
Textron other than its finance subsidiaries) and Textron's finance
subsidiaries.
Parent Company Borrowing Group
Management believes that the Textron Parent Company Borrowing Group will
continue to have adequate access to credit markets and that its credit
facilities and cash flows from operations--including dividends received
from Textron's finance operations--will continue to be more than sufficient
to meet its operating needs and to finance growth. Information about the
cash flows of this group is set forth in its statement of cash flows on
page 11.
* Cash flows from operating activities in 1995 of $536 million were
approximately the same as they were in 1994. The effect of increased
income and reductions of the cash value of company-owned life insurance
were offset by increases in receivables and inventory, due principally to
increased business, and reductions of accrued and other liabilities.
* The Group's debt increased by $192 million in 1995, as cash used for capital
expenditures, acquisitions, purchases of 1.7 million shares of Textron
common stock under its stock repurchase program, and payments of dividends
exceeded the $536 million of cash provided by operations. Notwithstanding
the increase in debt, Textron's ratio of debt to total capital decreased to
34% at December 30, 1995, from 35% at December 31, 1994.
* Cash flows from operating activities in 1994 of $538 million were down from
the 1993 level. The decrease was due to higher receivables (due in large part
to changed payment terms with a major customer and higher sales volume) and
lower reductions in inventories in 1994 compared to those in 1993. These
factors were partially offset by increased income and increased customer
deposits in 1994.
* The Group's debt decreased by $443 million in 1994, as operating
cash flows and cash proceeds from divestitures exceeded capital
expenditures, payments of dividends, and purchases of 3.3 million shares of
Textron common stock.
During 1994, Textron redeemed an aggregate principal amount of $121
million of its 9-1/4% fixed rate debt, resulting in a pretax charge to
income of $9 million.
Capital Expenditures
* Capital expenditures: See the table on page 3 for capital expenditures by
business segment for 1995, 1994, and 1993. Such expenditures reflect
Textron's growth strategy in its Aircraft, Automotive, and Industrial
segments. Aggregate capital expenditures for 1996 are expected to more
closely approximate the higher level of spending in 1994, as Textron
invests in (a) new Citation aircraft models and single-engine aircraft and
(b) increased capacity and improved manufacturing productivity in the
Industrial segment. Spending is expected to be lower in 1996 in the
Automotive segment following significant investments in 1994 and 1995.
* Acquisitions: In 1995, Textron acquired Elco Industries at an aggregate
cost of $230 million. In 1993, Textron acquired the plastics operations of
the Acustar division of Chrysler Corporation at a cost of $139 million.
* Dispositions: In 1994, Textron sold its Homelite and Lycoming Turbine
Engine divisions. Cash proceeds aggregated $495 million.
* Debt and credit facilities: Textron had a $1.5 billion credit facility
with 36 banks at December 30, 1995. The portion of the credit facility not
used or reserved as support for commercial paper or bank borrowings was
$681 million at that date.
Textron had $211 million available at December 30, 1995 for the
issuance of unsecured debt securities under its shelf registration
statement with the Securities and Exchange Commission. On February 1, 1996,
a new shelf registration statement became effective, covering an additional
aggregate amount of $800 million of (a) debt issuable by Textron and (b)
preferred securities issuable by entities formed by Textron as to which
Textron would provide certain guarantees. On February 9, 1996, a trust
sponsored by Textron issued $500 million of such preferred securities, the
proceeds of which were invested by the trust in Textron's newly issued
7.92% Junior Subordinated Deferrable Interest Debentures due 2045. The
proceeds from the issuance of the debentures were initially used by Textron
for the repayment of long-term borrowings and, ultimately, will be used for
general corporate purposes.
* Interest rate exchange agreements: The difference between the variable
rate the Group received and the fixed rate it paid on interest rate exchange
agreements increased its reported interest expense by $14 million in 1995,
$27 million in 1994, and $33 million in 1993.
Finance Subsidiaries
This group includes AFS and TFC. Information about the cash flows of this
group is set forth in its statement of cash flows included in Note 17 to
the consolidated financial statements.
* Dividends: The amount of the net assets of Textron's finance subsidiaries
available for cash dividends and other payments to the Textron Parent Company
Borrowing Group is restricted by the terms of lending agreements. The finance
subsidiaries paid dividends to the Textron Parent Company Borrowing Group of
$117 million, $106 million, and $94 million in 1995, 1994, and 1993,
respectively.
* Capital resources: AFS and TFC each utilize a broad base of financial sources
for their respective liquidity and capital requirements. Cash is provided from
both operations and several different sources of borrowings, including
unsecured borrowings under bank lines of credit, the issuance of commercial
paper and short-term bank debt, and sales of medium- and long-term debt in
the U.S. and foreign financial markets. During 1995, the net proceeds from
medium- and long-term financing sources, including the issuances described
below, totaled $1.9 billion. Debt increased by $693 million in 1995, due
principally to receivable growth and debt assumed upon the acquisition of
HFC of Australia, Ltd.
* Debt and credit facilities: During 1995, AFS issued $1.4 billion of
unsecured debt securities, including $1.1 billion under its shelf
registration statements. At December 31, 1995, AFS had $1.3 billion
available for unsecured debt securities under its shelf registration
statement with the Securities and Exchange Commission and $417 million
available for similar securities under its shelf registration statements
with the Canadian provincial security exchanges.
In 1994, TFC established a medium-term note facility for $500 million.
TFC had $367 million available under this facility at December 31, 1995.
By utilizing medium- and long-term fixed rate financing, as well as
interest rate exchange agreements, Textron's finance subsidiaries
effectively had a combined ratio of variable rate debt to total debt of 43%
at December 31, 1995.
* Acquisition: In January 1995, AFS acquired HFC of Australia, Ltd., and
through this acquisition added approximately $436 million of finance
receivables to its portfolio.
* Interest rate exchange agreements: The difference between the variable rate
the finance subsidiaries received and the fixed rate they paid on interest rate
exchange agreements increased their reported interest expense by $13
million in 1995, $21 million in 1994, and $47 million in 1993.
* Investment in real estate: Textron's finance subsidiaries have substantial
amounts of investments and finance receivables backed up or secured by real
estate.
AFS had residential real estate loans outstanding of $2.5 billion at
December 31, 1995, which were secured primarily by first and second
mortgages on single family homes, and averaged $27 thousand in outstanding
principal balance. Residential real estate loans are geographically
dispersed and loan amounts are limited to a maximum of 85% of the
property's appraised market value, although most loans are made at
significantly lower loan to value ratios.
TFC had real estate loans and leveraged leases of real estate
aggregating $426 million and $188 million, respectively, at December 31,
1995. The commercial real estate portfolio of $196 million, consisting
principally of first mortgages on income producing properties, is
diversified both geographically and by type of property financed.
Nonearning commercial real estate loans were $72 million at December 31,
1995 ($76 million at December 31, 1994).
* Finance receivables: Textron's finance subsidiaries have a diversified
portfolio of other consumer and commercial receivables.
For further information about investments and finance receivables, see Note
2 and Note 3 to the consolidated financial statements.
Discontinued Operation - Paul Revere
Management believes that Paul Revere's cash flow from operating activities
will continue to provide sufficient liquidity for its operations so that
Paul Revere will be able to meet its obligations and pay dividends to its
shareholders.
* Investment in real estate: At December 31, 1995, Paul
Revere held $309 million of first mortgages on real estate. The real estate
portfolio is well diversified geographically and by type of property
financed.
* Mortgage-backed securities: Paul Revere's investments included mortgage-
backed securities with an amortized cost of $561 million at December 31, 1995
($773 million at December 31, 1994) a substantial portion of which is
guaranteed by the U.S. Government or U.S. Government agencies. Future
investment income from mortgage-backed securities may be affected by
the timing of principal payments and the yields on reinvestment
alternatives available at the time of such payments.
* Other investments: Paul Revere also has significant investments in other
debt securities. The predominant portion of these investments is in high
quality, investment grade assets. Paul Revere's investment strategies place
an emphasis on matching investment maturities with the timing of amounts
estimated to be payable under insurance contracts.
Other Matters
* Environmental: Textron is involved in a number of remedial actions under
various federal and state laws and regulations relating to the environment
which impose liability on companies to clean up, or contribute to the cost
of cleaning up, sites on which their hazardous wastes or materials were
disposed or released. Expenditures to evaluate and remediate contaminated
sites approximated $15 million, $14 million and $18 million in 1995, 1994,
and 1993, respectively. Textron currently projects that expenditures for
remediation will range between $10 million and $20 million for each of the
years 1996 and 1997. (See the Summary of Significant Accounting Policies
and Note 15 to the consolidated financial statements for further
information about environmental matters.)
Based upon the information currently available, Textron believes it
has made adequate provision for costs associated with known remediation
efforts. Despite the uncertainty concerning the overall costs of
additional remedial actions that might be identified in the future, it is
not currently anticipated that such costs will have a material adverse
effect on Textron's liquidity, net income or financial condition.
* Interest rate management: As part of managing its interest rate risk,
Textron utilizes interest rate exchange agreements. The objective is not
to speculate for profit, but, rather, is to convert variable rate debt
into fixed rate debt, with respect to specific designated borrowings. These
agreements do not involve a high degree of complexity or risk. For further
information about these agreements and the debt and credit facilities of
the Textron Parent Company Borrowing Group and the finance subsidiaries,
see Note 7 to the consolidated financial statements.
* Foreign currency exchange agreements: Textron's exposure to foreign
exchange rate risk is not significant due to the diversification of its
operations among various divisions and geographic locations, there being no
one significant foreign operation and no significant exposure to highly
inflationary currencies. Textron enters into forward exchange contracts to
hedge the risk associated with currency fluctuations on certain firm sales
and purchase commitments denominated in foreign currencies. For further
information about these contracts see the Summary of Significant Accounting
Policies in the consolidated financial statements.
- ------------------------------------------------------------------
Backlog
(Unaudited) December 30, December 31,
(In billions) 1995 1994
- ------------------------------------------------------------------
U.S. Government:
Aircraft $1.2 $1.6
Systems and Components .5 .7
- ------------------------------------------------------------------
1.7 2.3
- ------------------------------------------------------------------
Commercial:
Aircraft 2.3 2.2
Industrial .3 .3
Systems and Components .5 .5
- ------------------------------------------------------------------
3.1 3.0
- ------------------------------------------------------------------
$4.8 $5.3
==================================================================
Note:
The decrease in the Aircraft segment's U.S. Government backlog was due
primarily to revenues recorded in 1995 under the V-22 program.
Condensed Financial Information for the Textron Parent Company Borrowing
Group
Statement of Income
For each of the three years in the period ended December 30, 1995
(In millions) 1995 1994 1993
- -----------------------------------------------------------------
Revenues $6,468 $6,680 $6,275
- -----------------------------------------------------------------
Costs and expenses
Cost of sales 5,294 5,514 5,210
Selling and administrative 650 668 648
Interest 199 206 236
- -----------------------------------------------------------------
Total costs and expenses 6,143 6,388 6,094
- -----------------------------------------------------------------
325 292 181
Pretax income of finance
subsidiaries 365 331 289
- -----------------------------------------------------------------
Income from continuing
operations before income
taxes 690 623 470
Income taxes (274) (257) (171)
- -----------------------------------------------------------------
Income from continuing
operations 416 366 299
Income from discontinued
operation, net of
income taxes 63 67 80
- ------------------------------------------------------------------
Net income $ 479 $ 433 $ 379
- ------------------------------------------------------------------
Balance Sheet
December 30, December 31,
(In millions) 1995 1994
- ------------------------------------------------------------------
Assets
Cash $ 56 $ 20
Receivables - net 777 702
Inventories 1,284 1,211
Investments in finance subsidiaries 1,475 1,334
Property, plant and equipment - net 1,297 1,146
Goodwill, less accumulated amortization
of $233 and $194 1,344 1,231
Investment in discontinued operation 1,161 912
Other (including net prepaid income taxes) 1,177 1,262
- ------------------------------------------------------------------
Total assets $8,571 $7,818
- ------------------------------------------------------------------
Liabilities and shareholders' equity
Accounts payable and accrued liabilities
(including income taxes) $3,385 $3,354
Debt 1,774 1,582
Shareholders' equity 3,412 2,882
- ------------------------------------------------------------------
Total liabilities and shareholders'
equity $8,571 $7,818
- ------------------------------------------------------------------
Statement of Cash Flows
For each of the three years in the period ended December 30, 1995
(In millions) 1995 1994 1993
- ----------------------------------------------------------------------------
Cash flows from operating activities:
Income from continuing operations $ 416 $ 366 $ 299
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Undistributed earnings of finance
subsidiaries (106) (97) (85)
Depreciation and amortization 221 238 229
Other - net 5 31 141
- ------------------------------------------------------------------------------
Net cash provided by operating activities 536 538 584
Net cash provided (used) by investing
activities (437) 224 (168)
Net cash used by financing activities (63) (754) (432)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash 36 8 (16)
Cash at beginning of year 20 12 28
- ------------------------------------------------------------------------------
Cash at end of year $ 56 $ 20 $ 12
- ------------------------------------------------------------------------------
Report of Management
The consolidated financial statements of Textron Inc. have been prepared by
management and have been audited by Textron's independent auditors, Ernst &
Young LLP, whose report appears below. Management is responsible for the
consolidated financial statements, which have been prepared in conformity
with generally accepted accounting principles and include amounts based on
management's best estimates and judgments.
Management is also responsible for maintaining internal control
systems designed to provide reasonable assurance, at appropriate cost, that
assets are safeguarded and that transactions are executed and recorded in
accordance with established policies and procedures. Textron's systems are
under continuing review and are supported by, among other things, business
conduct and other written guidelines, an internal audit function and the
selection and training of qualified personnel.
The Board of Directors, through its Audit Committee, oversees
management's financial reporting responsibilities. The Audit Committee,
comprised of four outside directors, meets regularly with the independent
auditors, representatives of management and the internal auditors to
discuss and make inquiries into their activities. Both the independent
auditors and the internal auditors have free access to the Audit Committee,
with and without management representatives in attendance.
/s/James F. Hardymon
James F. Hardymon
Chairman and Chief Executive Officer
/s/Stephen L. Key
Stephen L. Key
Executive Vice President and Chief Financial Officer
January 25, 1996, except for note 1, as to which the date is April 29, 1996
Report of Independent Auditors
To the Board of Directors and Shareholders
Textron Inc.
We have audited the accompanying consolidated balance sheet of Textron Inc.
as of December 30, 1995 and December 31, 1994, and the related consolidated
statements of income, cash flows and changes in shareholders' equity for
each of the three years in the period ended December 30, 1995. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Textron Inc. at December 30, 1995 and December 31, 1994 and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 30, 1995 in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
New York, New York
January 25, 1996, except for note 1, as to which the date is April 29, 1996
Consolidated Statement of Income
For each of the three years in the period ended December 30, 1995
(In millions except per share amounts) 1995 1994 1993
- ----------------------------------------------------------------------------
Revenues
Manufacturing sales $6,468 $6,678 $6,271
Finance revenues 1,985 1,674 1,614
- ----------------------------------------------------------------------------
Total revenues 8,453 8,352 7,885
- ----------------------------------------------------------------------------
Costs and expenses
Cost of sales 5,294 5,514 5,210
Selling and administrative 1,253 1,198 1,163
Interest 812 665 668
Provision for losses on collection
of finance receivables, less recoveries 169 162 153
Other finance expenses 235 190 221
- ----------------------------------------------------------------------------
Total costs and expenses 7,763 7,729 7,415
- ----------------------------------------------------------------------------
Income from continuing operations before
income taxes 690 623 470
Income taxes (274) (257) (171)
- ----------------------------------------------------------------------------
Income from continuing operations 416 366 299
Income from discontinued operation,
net of income taxes 63 67 80
- ----------------------------------------------------------------------------
Net income $ 479 $ 433 $ 379
- ----------------------------------------------------------------------------
Per common share:
Income from continuing operations $ 4.79 $ 4.06 $ 3.32
Discontinued operation .72 .74 .89
- ----------------------------------------------------------------------------
Net income $ 5.51 $ 4.80 $ 4.21
- ----------------------------------------------------------------------------
See summary of significant accounting policies and notes to consolidated
financial statements.
Consolidated Balance Sheet
December 30, December 31,
(Dollars in millions) 1995 1994
- ---------------------------------------------------------------
Assets
Cash $ 84 $ 49
Investments 778 672
Receivables - net:
Finance 9,362 8,583
Commercial and U.S. Government 777 702
- ---------------------------------------------------------------
10,139 9,285
Inventories 1,284 1,211
Property, plant and equipment,
less accumulated depreciation of
$1,585 and $1,389 1,373 1,215
Goodwill, less accumulated
amortization of $347 and $298 1,491 1,388
Investment in discontinued operation 1,161 912
Other (including net prepaid
income taxes) 1,037 1,260
- ---------------------------------------------------------------
Total assets $17,347 $15,992
- ---------------------------------------------------------------
Liabilities and shareholders' equity
Liabilities
Accounts payable $ 684 $ 619
Accrued postretirement benefits
other than pensions 919 931
Other accrued liabilities
(including income taxes) 2,121 2,218
Debt:
Textron Parent Company Borrowing
Group 1,774 1,582
Finance subsidiaries 8,437 7,760
- ----------------------------------------------------------------
10,211 9,342
- ----------------------------------------------------------------
Total liabilities 13,935 13,110
- ----------------------------------------------------------------
Shareholders' equity
Capital stock:
Preferred stock (15,000,000
shares authorized):
$2.08 Cumulative Convertible
Preferred Stock, Series A
(liquidation value - $16.8) 8 9
$1.40 Convertible Preferred Dividend
Stock, Series B
(preferred only as to dividends) 7 7
Common stock, 12.5 cents par value
(250,000,000 shares authorized;
93,462,000 and 92,284,000 shares
issued) 12 12
Capital surplus 750 702
Retained earnings 2,864 2,518
Other 129 (108)
- ----------------------------------------------------------------
3,770 3,140
Less cost of treasury shares 358 258
- ----------------------------------------------------------------
Total shareholders' equity 3,412 2,882
- ----------------------------------------------------------------
Total liabilities and shareholders'
equity $17,347 $15,992
- ----------------------------------------------------------------
See summary of significant accounting policies and notes to consolidated
financial statements.
Consolidated Statement of Cash Flows
For each of the three years in the 1995 1994 1993
period ended December 30, 1995 (in
millions)
- ------------------------------------------------------------------------------
Cash flows from operating activities:
Income from continuing operations $ 416 $ 366 $ 299
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization 342 338 357
Provision for losses on receivables 208 200 195
Deferred income taxes 28 53 20
Changes in assets and liabilities excluding
those related to acquisitions and divestitures:
Increase in commercial and U.S.
Government receivables (40) (163) (27)
Decrease (increase) in inventories (28) 64 176
Decrease (increase) in other assets 25 (51) (46)
Increase in accounts payable 54 86 78
Increase (decrease) in accrued liabilities (96) 100 (23)
Other - net 35 (28) (58)
- -------------------------------------------------------------------------------
Cash from operating activities of
continuing operations 944 965 971
Cash from operating activities of
discontinued operation 349 314 330
- -------------------------------------------------------------------------------
Net cash provided by operating activities 1,293 1,279 1,301
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of investments (188) (189) (287)
Proceeds from disposition of investments 96 65 114
Maturities and calls of investments 55 56 127
Finance receivables:
Originated or purchased (6,237) (6,020) (5,011)
Repaid or sold 5,695 4,803 4,253
Cash used in acquisitions (252) (9) (139)
Net proceeds from sales of businesses and
minority interest in subsidiary - 492 175
Capital expenditures (279) (294) (246)
Other investing activities - net 30 2 32
- -------------------------------------------------------------------------------
Cash used by investing activities
of continuing operations (1,080) (1,094) (982)
Cash used by investing activities
of discontinued operation (420) (520) (521)
- -------------------------------------------------------------------------------
Net cash used by investing activities (1,500) (1,614) (1,503)
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in short-term debt (253) 449 485
Proceeds from issuance of long-term debt 2,984 2,078 1,666
Principal payments on long-term debt (2,347) (2,072) (1,954)
Proceeds from exercise of stock options 42 12 19
Purchases of Textron common stock (100) (166) -
Purchases of Textron common stock from Paul Revere (22) (25) -
Dividends paid (133) (124) (110)
Capital contribution to Paul Revere - - (100)
- -------------------------------------------------------------------------------
Cash from financing activities of continuing
operations 171 152 6
Cash from financing activities of discontinued
operation 86 206 191
- -------------------------------------------------------------------------------
Net cash provided by financing activities 257 358 197
- -------------------------------------------------------------------------------
Net increase (decrease) in cash 50 23 (5)
Elimination of cash flow of discontinued operation (15) - -
- -------------------------------------------------------------------------------
Cash at beginning of year 49 26 31
- -------------------------------------------------------------------------------
Cash at end of year $ 84 $ 49 $ 26
- -------------------------------------------------------------------------------
Supplemental Information:
Cash paid during the year for:
Interest $ 765 $ 624 $ 642
Income taxes 276 194 144
Non-cash transactions:
Liabilities assumed for acquisitions 562 - 58
- -------------------------------------------------------------------------------
See summary of significant accounting policies and notes to consolidated
financial statements.
Consolidated Statement of Changes in Shareholders' Equity
Shares outstanding* Dollars
(In thousands) (In millions)
For each of the three --------------------- -----------------------
years in the period
ended December 30, 1995 1995 1994 1993 1995 1994 1993
- -------------------------------------------------------------------------------
$2.08 Preferred stock
Beginning balance 297 321 377 $ 9 $ 9 $ 11
Conversion to common stock (30) (24) (56) (1) - (2)
- -------------------------------------------------------------------------------
Ending balance 267 297 321 $ 8 $ 9 $ 9
- -------------------------------------------------------------------------------
$1.40 Preferred stock
Beginning balance 126 138 153 $ 7 $ 7 $ 8
Conversion to common stock (8) (12) (15) - - $ (1)
- -------------------------------------------------------------------------------
Ending balance 118 126 138 $ 7 $ 7 $ 7
- -------------------------------------------------------------------------------
Common stock
Beginning balance 85,497 88,413 87,563 $ 12 $ 12 $ 11
Purchases (1,734) (3,346) - - - -
Conversion of preferred
stock to common stock 81 75 151 - - 1
Exercise of stock options 1,091 349 695 - - -
Other issuances of
common stock - 6 4 - - -
- -------------------------------------------------------------------------------
Ending balance 84,935 85,497 88,413 $ 12 $ 12 $ 12
- -------------------------------------------------------------------------------
Capital surplus
Beginning balance $ 702 $ 687 $ 661
Conversion of preferred stock
to common stock 1 1 1
Exercise of stock options 47 14 25
- -------------------------------------------------------------------------------
Ending balance $ 750 $ 702 $ 687
- -------------------------------------------------------------------------------
Retained earnings
Beginning balance $2,518 $2,209 $1,940
Net income 479 433 379
Dividends declared:
Preferred stock (1) (1) (1)
Common stock (per share:
$1.56 in 1995; $1.40
in 1994 and $1.24 in 1993) (132) (123) (109)
- -------------------------------------------------------------------------------
Ending balance $2,864 $2,518 $2,209
- -------------------------------------------------------------------------------
Treasury stock
Beginning balance $ 258 $ 92 $ 91
Exercise of stock options - - 1
Purchases of common stock 100 166 -
- -------------------------------------------------------------------------------
Ending balance $ 358 $ 258 $ 92
- -------------------------------------------------------------------------------
Other
Beginning balance $ (108) $ (52) $ (52)
Currency translation adjustment 5 1 (23)
Securities valuation adjustment 216 ** (71) 11
Pension liability adjustment 3 - (3)
Shares allocated to ESOP
participants' accounts 13 14 15
- -------------------------------------------------------------------------------
Ending balance $ 129 $ (108) $ (52)
- -------------------------------------------------------------------------------
* Shares issued at the end of 1995, 1994, 1993 and 1992 were as follows
(in thousands): $2.08 Preferred - 336; 366; 390 and 446 shares, respectively;
$1.40 Preferred - 604; 613; 625 and 640 shares, respectively; Common -
93,462; 92,284; 91,859 and 91,007 shares, respectively.
** Includes net unrealized gains relating to the transfer of all of Paul
Revere's debt securities from the held to maturity category to the
available for sale category of its investment portfolio ($133 million) (See
note 1 for further information about Paul Revere's investments), partially
offset by an adjustment to deferred policy acquisition costs ($73 million).
See summary of significant accounting policies and notes to consolidated
financial statements.
Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of Textron and
all of its majority- and wholly-owned subsidiaries, excluding Paul Revere
which is reflected as a discontinued operation. All significant
intercompany transactions are eliminated.
Textron consists of two borrowing groups - the Textron Parent Company
Borrowing Group (comprised of all entities of Textron other than its
finance subsidiaries) and Textron's finance subsidiaries. Separate
financial information is presented on pages 10 and 11 for the Textron
Parent Company Borrowing Group and in Note 17 on page 37 for the finance
subsidiaries.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in those statements and
accompanying notes. Actual results could differ from such estimates.
Finance receivables
Interest income is recognized in revenues using the interest method.
Accrual of interest income is suspended for accounts which are
contractually delinquent by more than three months (commercial) or three
payments (consumer). Accrual of interest on commercial loans is resumed,
and suspended interest income is recognized, when loans become
contractually current, whereas subsequent interest income on consumer loans
is recognized when collected. Fees received and direct loan origination
costs are deferred and amortized to revenues over the contractual lives of
the respective loans using the interest method.
Finance receivables are written off when they are deemed
uncollectible. Commercial loans are written down to the fair value of the
related collateral (less estimated costs to sell) when the collateral is
repossessed or when no payment has been received for six months, unless
management deems the loans collectible. Foreclosed real estate loans are
transferred from finance receivables to other assets at the lower of the
fair value of the related real estate (less estimated costs to sell) or the
outstanding loan balance.
Provisions for losses on finance receivables are charged to income in
amounts sufficient to maintain the allowance at a level considered adequate
to cover the losses in the existing receivable portfolio.
Investments
Securities classified in the available for sale category are carried at
estimated fair value and consist of those securities which Textron intends
to hold for an indefinite period of time but not necessarily to maturity.
Unrealized gains and losses related to securities available for sale, net
of applicable income taxes, are reported as a separate component of
shareholders' equity.
Net realized gains or losses resulting from sales or calls of
investments are included in revenues. The cost of securities sold is
determined primarily on the specific identification method.
Inventories
Inventories are carried at the lower of cost or market.
Long-term contracts and programs
Sales under fixed-price contracts and programs are generally recorded as
deliveries are made. Sales under cost reimbursement-type contracts are
recorded as costs are incurred and fees are earned. Certain contracts are
awarded on a fixed-price incentive fee basis. Incentive fees on such
contracts are considered when estimating revenues and profit rates and are
recorded when the amounts can reasonably be determined. Profits expected to
be realized on long-term contracts and programs are based on estimates of
total sales value and costs at completion. (Cost of sales under programs is
determined on a program-average method and is computed as a percentage of
the sale price of the units being sold under the program.) Such estimates
are reviewed and revised periodically throughout the lives of the contracts
and programs. Revisions to contract profits are recorded in the accounting
period in which the revisions are made. Revisions to program profits are
recorded over the balance of the programs. Estimated losses on contracts
and programs are recorded when identified.
Program accounting has evolved in practice as a method of accounting
for the costs of certain products manufactured under production-type
contracts in connection with long-term programs. The program method, with
origins prior to the issuance in 1981 of SOP 81-1, "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts"
and used by a limited number of companies (mainly commercial airframe
manufacturers), consists of estimating the entire quantity of units to be
produced over the life of a program and the related revenues, costs, and
profits to be realized and recognizing those profits throughout that
period. The program method has been used by Textron in accounting for its
subcontract work under the Airbus A330/340 commercial aircraft program,
because the criteria required for its use are present - that is, (a) at the
beginning of the program (in 1988) Textron did not yet have firm orders
that would, by themselves, recover all of the initial investment in design,
development, tooling, and early production effort and (b) Textron has the
ability to make reasonably dependable estimates of the number of units to
be produced, the period of time over which they will be delivered, and the
associated costs and selling prices.
Textron does not use the program method of accounting in connection
with any of its government contracts.
Property, plant and equipment
The cost of property, plant and equipment is being depreciated based on the
estimated useful lives of the assets.
In 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" (FAS 121), which Textron is required to implement beginning in 1996. An
impairment loss must be recognized to the extent the carrying value of an
asset, including any goodwill relating to the asset, exceeds the fair value
of the asset. The adoption of FAS 121 is not expected to have a material
effect on Textron's results of operations.
Goodwill
Goodwill related to Textron's manufacturing operations is being amortized
on the straight-line method over periods ranging from 20 to 40 years.
Goodwill related to Textron's finance subsidiaries is being amortized on
the straight-line method over 25 years.
Goodwill is reviewed periodically for impairment by comparing the
carrying amount to the estimated future undiscounted cash flows of the
businesses acquired. If this review indicates that goodwill will not be
recoverable, Textron would reduce the carrying amount of the goodwill to
its fair value - generally based on future discounted cash flows - by a
noncash charge to earnings.
Income per common share
Income per common share is based on average common shares outstanding
during each year assuming full conversion of outstanding preferred stock
and exercise of stock options. Such average shares were 86,894,000 in 1995;
90,119,000 in 1994 and 90,052,000 in 1993.
Translation of foreign currencies, foreign exchange transactions and
foreign currency exchange contracts.
Adjustments resulting from the translation of the financial statements
of most of Textron's foreign operations are excluded from the determination
of its income and accumulated in a separate component of shareholders'
equity until the entity is sold or substantially liquidated.
Foreign exchange gains and losses included in income (which relate
principally to transactions denominated in foreign currencies) have not
been material.
Textron's exposure to foreign exchange rate risk is not significant
due to the diversification of its operations among various divisions and
geographic locations, there being no one significant foreign operation and
no significant exposure to highly inflationary currencies. Textron enters
into forward exchange contracts to hedge the risk associated with currency
fluctuations on certain firm sales and purchase commitments denominated in
foreign currencies. The gains and losses resulting from the impact of
currency exchange rate movements on these contracts are recorded when the
underlying transactions occur. Textron had open foreign currency forward
exchange contracts totaling approximately $191 million and $110 million at
December 30, 1995 and December 31, 1994, respectively. The unrealized
losses relating to these contracts aggregated $6 million and $12 million at
December 30, 1995 and December 31, 1994, respectively.
Interest rate exchange agreements
Textron's interest rate exchange agreements are accounted for on the
accrual basis. Certain of the agreements are designated against specific
long-term variable rate borrowings and the balance is designated against
existing short-term borrowings, through their maturity, and the anticipated
short-term borrowings which will replace the existing borrowings. Textron
continuously monitors the level of short-term borrowings to ensure that
there is a high degree of probability that its short-term borrowings will
remain at a level in excess of the notional amount of the designated
agreements. If Textron were to determine it probable that the level of
anticipated short-term borrowings will at any time be less than the
notional amount of designated agreements, any excess would be marked to
market and the associated gain or loss recorded in income.
Premiums paid to terminate any such agreements are deferred and
subsequently amortized to expense over the original terms of the
agreements. Upon early extinguishment of any of the underlying debt
originally hedged, unamortized premiums are recognized as an adjustment to
the gain or loss on such early extinguishment.
Income taxes
Deferred income taxes are recognized for temporary differences between the
financial reporting basis and income tax basis of assets and liabilities
based on enacted tax rates expected to be in effect when such amounts are
expected to be realized or settled.
Environmental remediation
Environmental liabilities are recorded based on the most probable cost if
known or on the estimated minimum cost, determined on a site by site basis.
Textron's environmental liabilities are undiscounted and do not take into
consideration any possible future insurance proceeds or any significant
amounts of claims against other third parties.
Notes to Consolidated Financial Statements
1 Discontinued Operation
On April 29, 1996, Textron announced that The Paul Revere Corporation, an
83.3% owned subsidiary, has entered into an agreement with Provident
Companies, Inc. whereby Provident will acquire all of the outstanding
shares of Paul Revere's common stock for $26 per share.
For its Paul Revere shares, Textron will receive $20 per share in cash
(an aggregate of $750 million) and $6 per share in Provident common stock,
for a total of approximately $975 million. (The number of shares of
Provident common stock to be received will be determined in accordance with
an exchange ratio based upon closing prices of Provident common stock prior
to the closing of the transaction, subject to certain limitations. Based on
the $31.50 closing price of Provident's stock on April 26, 1996, Textron
would own approximately 7.1 million of Provident shares had the closing
occurred on that date.) This transaction has been approved by the Boards of
Directors of Paul Revere, Provident, and Textron and is subject to
regulatory approvals and the consent of Provident and Paul Revere
shareholders. It is expected to close in the third quarter of 1996. The
estimated loss on sale will be approximately $90 million, net of Textron's
share of Paul Revere's estimated net income for the period April 1996
through the closing date, which Textron will record in its financial
statements at March 30, 1996 and for the three months then ended.
Textron has restated its financial statements as presented herein to
treat Paul Revere as a discontinued operation.
The operating results of the Paul Revere are summarized below:
For each of the three years ended December 31,
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------
Revenues $ 1,520 $ 1,331 $ 1,193
Costs and expenses 1,397 1,200 1,047
- --------------------------------------------------------------------------
Income before income taxes 123 131 146
Income taxes (47) (51) (63)
- --------------------------------------------------------------------------
Net income 76 80 83
Minority interest in net income (13) (13) (3)
==========================================================================
Textron's equity in net income $ 63 $ 67 $ 80
==========================================================================
Presented below is a summary of Paul Revere's financial position at
December 31, 1995 and 1994:
(In millions) 1995 1994
- ----------------------------------------------------------
Assets:
Investments $ 5,205 $ 4,686
Insurance policy acquisition 843 868
costs
Other 996 355
- ----------------------------------------------------------
Total assets $ 7,044 $ 5,909
- ----------------------------------------------------------
Liabilities:
Insurance reserves $ 5,099 $ 4,483
Other accrued liabilities 551 332
- ----------------------------------------------------------
Total liabilities 5,650 4,815
- ----------------------------------------------------------
Textron equity:
Currency translation adjustment (11) (16)
Securities valuation 144 (36)
adjustment
Capital and retained earnings 1,028 964
- ----------------------------------------------------------
Total Textron equity 1,161 912
- ----------------------------------------------------------
Minority interest 233 182
==========================================================
Total liabilities and equity $ 7,044 $ 5,909
==========================================================
Recognition of revenues and expenses
Premiums from individual disability insurance are recognized in revenues
when due. Benefits and expenses relating to individual disability insurance
are recognized over the life of the contracts through the establishment of
reserves for future policy benefits and the amortization of deferred policy
acquisition costs. For investment products, revenues consist of policy and
surrender charges assessed during the year.
Investments
Securities carried at amortized cost and classified in the held to maturity
category are those which Paul Revere has both the ability and positive
intent to hold to maturity. Securities classified in the available for sale
category are carried at estimated fair value and consist of those
securities which Paul Revere intends to hold for an indefinite period of
time but not necessarily to maturity. Unrealized gains and losses related
to securities available for sale, net of applicable income taxes, are
reported as a separate component of shareholders' equity.
Net realized gains or losses resulting from sales or calls of investments
are included in revenues. The cost of securities sold is determined
primarily on the specific identification method.
Deferred policy acquisition costs
Costs which vary with and are related primarily to the production of new
business, are deferred to the extent they are deemed recoverable from
future profits. For disability insurance, these costs are amortized in
proportion to premiums over the estimated lives of the policies. For
investment products, these costs are amortized in proportion to estimated
profits.
Insurance reserves and claims
Policy reserves represent the portion of premiums received, accumulated
with interest, to provide for future claims. Such reserves for individual
disability insurance products are based on Paul Revere's withdrawal,
morbidity, and mortality experience. Claim reserves are established for
future payments not yet due on claims already incurred, primarily relating
to individual disability insurance. Other policyholder funds represent
amounts accumulated under deferred contracts to provide annuities in the
future.
Investments
The amortized cost and estimated fair value of Paul Revere's investments at
the end of 1995 and 1994 were as follows:
Gross Gross
Amortized unrealized unrealized Estimated
(In millions) cost gains losses fair value
- ------------------------------------------------------------------------------
December 30, 1995
Securities available
for sale:
Obligations of U.S.,
foreign and other
governments and
government agencies $ 521 $ 96 $ 1 $ 616
Public utility securities 648 58 - 706
Corporate securities 2,559 225 11 2,773
Mortgage-backed securities* 561 36 1 596
Marketable equity securities 48 41 - 89
- ------------------------------------------------------------------------------
$4,337 $456 $ 13 4,780
----------------------------------
Other investments, at cost
(estimated fair value $476) 425
- ------------------------------------------------------------------------------
$5,205
- ------------------------------------------------------------------------------
* Paul Revere, in accordance with the "Guide to Implementation of Statement
115 on Accounting for Certain Investments and Debt Securities," reviewed
its portfolio and transferred all its debt securities from the held to
maturity category ($2.6 billion) to the available for sale category as of
December 1, 1995. The net unrealized gains, net of applicable income taxes,
relating to the securities reclassified at that date, were recorded as an
increase to shareholders' equity. The transfer had no effect on Paul
Revere's net income or cash flows.
Securities available for sale, at fair value:
Gross Gross
Amortized unrealized unrealized Estimated
(In millions) cost gains losses fair value
- -------------------------------------------------------------------------------
December 31, 1994
Obligations of U.S., foreign
and other governments
and government agencies $ 181 $ 2 $ 6 $ 177
Public utility securities 202 1 14 189
Corporate securities 728 14 46 696
Mortgage-backed securities* 773 7 53 727
Marketable equity securities 65 56 2 119
- -------------------------------------------------------------------------------
$1,949 $ 80 $ 121 1,908
---------------------------------
- -------------------------------------------------------------------------------
Securities to be held to maturity, at amortized cost:
Gross Gross
Estimated unrealized unrealized Amortized
fair value gains losses cost
Obligations of U.S., foreign
and other governments
and government agencies $ 333 $ 2 $ 16 347
Public utility securities 463 1 39 501
Corporate securities 1,498 15 139 1,622
- -------------------------------------------------------------------------------
$ 2,294 $ 18 $ 194 2,470
----------------------------------
- -------------------------------------------------------------------------------
Other investments, at
cost (estimated fair
value $321) 308
- -------------------------------------------------------------------------------
$4,686
- -------------------------------------------------------------------------------
* A substantial portion of these securities is guaranteed by the U.S.
Government or U.S. Government agencies.
Gross realized gains and losses from sales of securities classified as
available for sale were $100 million and $12 million, respectively, in 1995
and $27 million and $2 million, respectively, in 1994. Gross gains and
losses realized on sales of debt securities were $10 million and $2
million, respectively, in 1993. Net realized gains resulting from sales of
marketable equity securities were $9 million in 1993.
Insurance reserves and claims
December 30, December 31,
(In millions) 1995 1994
- -------------------------------------------------------------------------------
Future policy benefits $1,371 $1,193
Unpaid claims and claim expenses 1,852 1,576
Other policyholder funds 1,876 * 1,714 *
- -------------------------------------------------------------------------------
$5,099 $4,483
- -------------------------------------------------------------------------------
* The estimated fair value of the other policyholder funds at December 31,
1995 and 1994 was $1,849 million and $1,694 million, respectively, and was
based on the cash surrender value of Paul Revere's financial products
portfolio.
Establishment of insurance reserves requires making various actuarial
assumptions. While actual experience could differ from the assumed
actuarial experience underlying its policy and claim reserves, Textron
believes that these reserves have been determined on reasonable bases and
are adequate. The continued decline in market interest rates and/or the
absence of morbidity improvements, could result in adjustments to reserve
amounts and deferred costs. Paul Revere has undertaken underwriting and
claims management measures to mitigate the impact of these potential
occurrences.
2 Investments
The amortized cost and estimated fair value of investments at the end of
1995 and 1994 were as follows:
Gross Gross
Amortized unrealized unrealized Estimated
(In millions) cost gains losses fair value
- -------------------------------------------------------------------------------
December 30, 1995
Obligations of U.S.,
foreign and other
governments and
government agencies $ 237 $ 13 $ 1 $ 249
Public utility securities 61 2 - 63
Corporate securities 379 16 2 393
Mortgage-backed securities* 40 - - 40
Marketable equity securities 21 3 - 24
- -------------------------------------------------------------------------------
$ 738 $ 34 $ 3 769
------------------------------------
Other investments, at cost
(estimated fair value $9 ) 9
- -------------------------------------------------------------------------------
$778
- -------------------------------------------------------------------------------
December 31, 1994
Obligations of U.S.,
foreign and other
governments and
government agencies $ 239 $ 3 $ 6 $ 236
Public utility securities 69 1 6 64
Corporate securities 327 2 16 313
Mortgage-backed securities* 37 2 4 35
Marketable equity securities 19 - - 19
- -------------------------------------------------------------------------------
$ 691 $ 8 $ 32 667
-----------------------------------
Other investments, at cost
(estimated fair value $5) 5
- -------------------------------------------------------------------------------
$672
- -------------------------------------------------------------------------------
*A substantial portion of these securities is guaranteed by the
U.S. Government or U.S. Government agencies.
The amortized cost and estimated fair value of debt securities at the end
of 1995 by contractual maturity date, were as follows:
Amortized Estimated
(In millions) cost fair value
- ------------------------------------------------------------
Due in 1996 $ 107 $ 107
Due 1997 to 2000 299 308
Due 2001 to 2005 196 207
Due after 2005 75 83
- ------------------------------------------------------------
677 705
- ------------------------------------------------------------
Mortgage-backed securities 40 40
- ------------------------------------------------------------
$ 717 $ 745
- ------------------------------------------------------------
<TABLE>
<CAPTION>
3 Finance Receivables
Contractual maturities of finance receivables outstanding at the end of 1995 and total finance
receivables outstanding at that date and at the end of 1994 were as follows:
Finance receivables
Contractual maturities Less outstanding
____________________________________ finance ____________________
(In millions) 1996 1997 After 1997 charges 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer:
Consumer loans $1,775 $1,227 $1,240 $1,221 $3,021 $2,722
Real estate loans 721 511 3,804 2,523 2,513 2,415
Retail installment contracts 904 523 365 656 1,136 1,107
Other 125 87 77 25 264 92
- --------------------------------------------------------------------------------------------------------------------
3,525 2,348 5,486 4,425 6,934 6,336
- --------------------------------------------------------------------------------------------------------------------
Commercial:
Installment contracts 403 307 621 236 1,095 977
Real estate loans 78 83 268 3 426 440
Finance leases 154 154 342 127 523 523
Leveraged leases 9 16 613 311 327 321
Floorplan and other receivables 429 53 119 12 589 487
- --------------------------------------------------------------------------------------------------------------------
1,073 613 1,963 689 2,960 2,748
- --------------------------------------------------------------------------------------------------------------------
$4,598 $2,961 $7,449 $5,114 9,894 9,084
- --------------------------------------------------------------------------------------------------------------------
Less allowance for credit losses 270 250
Less finance-related insurance reserves
and claims 262 251
- --------------------------------------------------------------------------------------------------------------------
$9,362 $8,583
</TABLE>
The maximum term over which consumer loans and retail installment
contracts are written is ten years, but approximately 90% of these loans
are written with terms of four years or less. Consumer real estate loans
are written with a maximum term of 15 years. Nonearning consumer loans were
$115 million at the end of 1995.
Commercial installment contracts have initial terms generally ranging
from one to 12 years. Commercial real estate loans have initial terms
generally ranging from three to five years. Finance leases have initial
terms generally up to 12 years. Nonearning commercial loans were $99
million at the end of 1995.
Accounts are often repaid or refinanced prior to contractual maturity.
Accordingly, the foregoing tabulation should not be regarded as a forecast
of future cash collections. In 1995 and 1994, cash collections of
receivables (excluding finance charges) were $5.7 billion and $4.7 billion,
respectively. The ratio of cash collections to average net receivables was
approximately 63% and 58%, respectively.
Textron had both fixed rate and variable rate loan commitments in the
amount of $698 million at December 30, 1995. Generally, interest rates on
these commitments are not set until the loans are funded; therefore,
Textron is not exposed to interest rate changes.
4 Long-term Contract and Program Receivables
Long-term contract and program receivables at December 30, 1995 and
December 31, 1994 aggregated $175 million and $153 million, respectively,
including $81 million and $69 million, respectively, of unbilled costs and
accrued profits on long-term contracts for which the contractual criteria
for billing had not yet been met. An estimated $40 million and $53 million,
respectively, of the unbilled amounts are not expected to be collected
within one year. There are no significant amounts included in receivables
which represent balances billed but unpaid under contractual retainage
provisions or significant long-term contract receivables subject to
uncertainty as to collection.
5 Inventories
December 30, December 31,
(In millions) 1995 1994
- ----------------------------------------------------------------------
Finished goods $ 352 $ 288
Work in process 911 948
Raw materials 217 212
- ----------------------------------------------------------------------
1,480 1,448
Less progress and advance payments 196 237
- ----------------------------------------------------------------------
$1,284 $1,211
- ---------------------------------------------------------------------
Inventories aggregating $754 million at December 30, 1995 and $664
million at December 31, 1994 were valued by the last-in, first-out (LIFO)
method. (Had such LIFO inventories been valued at current costs, their
carrying values would have been approximately $139 million and $144 million
higher at those respective dates.) The remaining inventories, other than
those related to certain long-term contracts and programs, are valued
generally by the first-in, first-out method.
Inventories related to long-term contracts and programs, net of
progress and advance payments, were $393 million at December 30, 1995 and
$451 million at December 31, 1994. Such inventories include unamortized
tooling and deferred learning costs - $171 million at December 30, 1995;
$176 million at December 31, 1994; and $162 million at January 1, 1994
relating to Textron's subcontract work under the Airbus A330/340 program.
Textron has been using a program size of 400 aircraft in accounting for
this program since its inception. It had firm orders as of the end of 1995
from its two customers under the program, both of which are members of the
consortium producing the aircraft and each of which is producing different
sections of the wings for the aircraft, covering 191 and 207 sets of wing
components, respectively; the corresponding orders as of the end of 1994
were 150 and 207, respectively, and as of the end of 1993 were 114 and 157,
respectively. (Airbus Industrie had firm orders as of the end of 1995 for
274 A330/340s.) Textron has delivered 147 units to one customer and 140
units to the other customer through the end of 1995; deliveries in 1995
were 27 and 34 units, in 1994 were 36 and 42 units, and in 1993 were 33 and
30 units. Current customer delivery schedules call for completion of
deliveries of the 400 units in the year 2001.
The portion of the unamortized tooling and deferred learning costs
that would not be absorbed in cost of sales based on firm orders to Textron
at December 30, 1995 - that is, assuming the Airbus A330/340 aircraft
program were to be canceled after Textron completed deliveries under those
orders - was $154 million (the corresponding amounts at the end of 1994 and
1993 were $157 million and $185 million, respectively). Textron continues
to believe that in light of the orders to date, the outlook for the
aircraft in the marketplace, and the customer contractual arrangements that
exist on this program, it will recover all such costs.
As to government contracts, inventory costs also include general and
administrative expenses ($14 million at December 30, 1995; $30 million at
December 31, 1994), substantially all of which are clearly related to
production.
6 Property, Plant and Equipment
December 30, December 31,
(In millions) 1995 1994
- ----------------------------------------------------------------------
At cost:
Land and buildings $ 726 $ 670
Machinery and equipment 2,232 1,934
- ----------------------------------------------------------------------
2,958 2,604
Less accumulated depreciation 1,585 1,389
- ----------------------------------------------------------------------
$1,373 $1,215
- ----------------------------------------------------------------------
7 Debt and Credit Facilities
The Textron Parent Company Borrowing Group and Textron's finance
subsidiaries are independent borrowers, and, accordingly, their debt is
supported by their own respective assets and cash flows. At the end of 1995
and 1994, debt consisted of the following
December 30, December 31,
(In millions) 1995 1994
- ----------------------------------------------------------------------
Textron Parent Company Borrowing Group:
Senior:
Borrowings under or supported by
long-term credit facilities* $ 882 $ 432
8.75% - 10.04%; due 1996 to 2022 254 241
Medium-term notes; due 1996 to 2011
(average rate - 9.3%) 333 357
Variable rate notes due 2000 to 2002
(average rate - 6.7%) 150 365
Other notes (average rate - 6.0%) 126 158
- ----------------------------------------------------------------------
Total senior 1,745 1,553
Subordinated - 8.86% - 8.97%; due
1998 to 1999 29 29
- ----------------------------------------------------------------------
Total Textron Parent Company
Borrowing Group 1,774 1,582
Finance subsidiaries:
Senior:
Borrowings under or supported by
credit facilities** 3,424 3,370
4.93% - 5.91%; due 1996 to 2000 896 1,322
6% - 7.99%; due 1996 to 2002 2,550 1,509
8% - 9.82%; due 1996 to 2000 834 710
10.4% - 11.85%; due 1996 to 1998 101 267
Variable rate notes due 1996 to 2000
(average rate - 6.1%) 597 543
- ----------------------------------------------------------------------
Total senior 8,402 7,721
- ----------------------------------------------------------------------
Senior subordinated - 10.28% - 11.56%;
due 1996 to 1998 35 39
- ----------------------------------------------------------------------
Total finance subsidiaries 8,437 7,760
- ----------------------------------------------------------------------
Total debt $10,211 $9,342
- ----------------------------------------------------------------------
*The weighted average interest rates on these borrowings, before
consideration of the effect of interest rate exchange agreements, at the
end of 1995, 1994, and 1993 were 6.1%, 6.2%, and 3.6%, respectively. The
corresponding weighted average interest rates on these borrowings during
the years 1995, 1994, and 1993 were 6.1%, 4.4%, and 3.4%, respectively.
**The weighted average interest rates on these borrowings, before
consideration of the effect of interest rate exchange agreements, at the
end of 1995, 1994, and 1993 were 6.3%, 6.1%, and 3.7%, respectively. The
corresponding weighted average interest rates on these borrowings during
the years 1995, 1994, and 1993 were 6.4%, 4.7%, and 3.7%, respectively.
Required payments and sinking fund requirements during the next five years
on debt outstanding at December 30, 1995 (excluding amounts that might
become payable under credit facilities and revolving credit agreements) are
as follows:
(In millions) 1996 1997 1998 1999 2000
- -----------------------------------------------------------------------
Textron Parent
Company Borrowing
Group $ 62 $ 66 $ 20 $ 52 $ 134
Finance subsidiaries 1,001 713 972 651 1,277
- -----------------------------------------------------------------------
$1,063 $779 $992 $703 $1,411
- -----------------------------------------------------------------------
The Textron Parent Company Borrowing Group maintains credit facilities
with various banks for borrowing funds on both a short- and a long-term
basis. It has a credit agreement with 36 banks aggregating $1.5 billion
which is available on a fully revolving basis until July 1, 2000. The
portion of the credit facility not used or reserved as support for
commercial paper or bank borrowings at December 30, 1995 was $681 million.
Textron's finance subsidiaries have lines of credit with various banks
aggregating $4.4 billion at December 30, 1995. The subsidiaries' lines of
credit not used or reserved as support for commercial paper or bank
borrowings at December 30, 1995 were $322 million.
The amount of the net assets of Textron's finance subsidiaries available
for cash dividends and other payments to the Textron Parent Company
Borrowing Group is restricted by the terms of lending agreements. As of
December 30, 1995, approximately $341 million of their net assets of $1.5
billion was available to be transferred to the Textron Parent Company
Borrowing Group pursuant to these restrictions. The finance subsidiaries'
loan agreements also contain restrictions regarding additional debt, the
creation of liens or guarantees, and the making of investments.
Interest rate exchange agreements
As part of managing its interest rate risk, Textron utilizes interest rate
exchange agreements. The objective is not to speculate for profit, but,
rather, is to convert variable rate debt into fixed rate debt, with respect
to specific designated borrowings. These agreements do not involve a high
degree of complexity or risk. During 1995, the finance subsidiaries had
$759 million of interest rate exchange agreements go into effect. The
agreements in effect at the end of 1995 and 1994, which had weighted
average original terms of 8.3 years at both dates for the Textron Parent
Company Borrowing Group and 3.2 years and 3.5 years, respectively, for the
finance subsidiaries, had the effect of fixing the rate of interest on
variable rate borrowings as follows:
December 30, 1995 December 31, 1994
- ------------------------------------------------------------------------------
Interest rate exchange
agreements Weighted Weighted
Notional average Notional average
(Dollars in millions) amount interest rate amount interest rate
- -------------------------------------------------------------------------------
Textron Parent Company
Borrowing Group $ 602* 8.80% $ 571 8.79%
Finance subsidiaries 1,338** 7.79 824 8.12
- -------------------------------------------------------------------------------
$1,940 8.10 $1,395 8.40
- -------------------------------------------------------------------------------
*$150 million of the Textron Parent Company Borrowing Group's interest
rate exchange agreements were designated against specific long-term
variable rate notes and the balance was designated against existing and
anticipated short-term variable rate borrowings. The effect of these
agreements on the average rate of interest on the related borrowings was to
adjust those rates on the long-term variable rate notes from an average of
6.7% to 9.0% and on the short-term variable rate borrowings from 6.1% to
8.6%. The interest rate exchange agreements in effect at the end of 1995
expire as follows: $172 million (8.7%) in 1996, $24 million (6.7%) in 1997,
$100 million (9.0%) in 1998, and $306 million (8.9%) after 1999.
**$275 million of the finance subsidiaries interest rate exchange
agreements were designated against specific long-term variable rate notes
and the balance was designated against existing and anticipated short-term
variable rate borrowings. The effect of these agreements on the average
rate of interest on the related borrowings was to adjust those rates on the
long-term variable rate notes from an average of 6.1% to 6.5% and on the
short-term variable rate borrowings from 6.4% to 8.2%. The interest rate
exchange agreements in effect at the end of 1995 expire as follows: $341
million (8.8%) in 1996, $260 million (8.6%) in 1997, $460 million (7.4%) in
1998, $262 million (6.5%) in 1999, and $15 million (6.7%) thereafter.
The finance subsidiaries have interest rate exchange agreements that
have the effect of exchanging the indices used to determine interest
expense under certain variable rate borrowings for the purpose of better
matching the rate of interest incurred on their financing with the rate of
interest earned on certain of their variable rate finance receivables. At
the end of 1995, $250 million of such agreements were in effect. The
agreements expire in 1996. Also, the finance subsidiaries have fixed-pay
interest rate exchange agreements which become effective in 1996. These
agreements expire through 1999 and will fix the rate of interest at 8.1% on
$204 million of variable rate borrowings. The agreements will mitigate the
exposure to increases in interest rates primarily by replacing maturing
fixed-pay swap agreements and fixed-rate notes.
Textron did not have any exposure to loss in the event of
nonperformance by the counterparties to its interest rate exchange
agreements at either December 30, 1995 or December 31, 1994. While Textron
may become exposed to loss for the periodic settlement of amounts due from
counterparties in the event of nonperformance, Textron does not anticipate
nonperformance by any of those parties. Textron believes that such risk is
minimized by entering into contracts only with major, financially sound
counterparties having no less than a long-term bond rating of "A,"
continuously monitoring the credit ratings of such counterparties, and
limiting the amount of agreements entered into with any one financial
institution. The amounts potentially subject to credit risk are generally
limited to the amounts, if any, by which the counterparties obligations
under the contracts exceed the obligations of Textron to the same
counterparties.
8 Shareholders' Equity
Preferred stock
Each share of $2.08 Preferred Stock ($23.63 approximate stated value) is
convertible into 2.2 shares of common stock and is redeemable by Textron at
$50 per share.
Each share of $1.40 Preferred Dividend Stock ($11.82 approximate
stated value) is convertible into 1.8 shares of common stock and is
redeemable by Textron at $45 per share.
Preferred stock purchase rights
One-half of a Preferred Stock Purchase Right (Right) is attached to each
outstanding share of common stock. Each whole Right entitles the holder to
buy one unit of Series C Junior Participating Preferred Stock at an
exercise price of $175. The Rights will become exercisable only under
certain circumstances related to a person or group acquiring or offering to
acquire a substantial block of Textron's common stock. If certain
additional events then occur, each whole Right will allow holders of units
to acquire common stock of Textron, or in some cases of an acquiring
entity, having a value equal to twice the exercise price. The Rights expire
in March 1996. In September 1995, Textron's Board of Directors approved the
issuance of new Preferred Stock Purchase Rights (New Rights) to replace the
existing Rights when they expire. One New Right will be attached to each
outstanding share of common stock and, when exercisable, will entitle the
holder to buy one one-hundredth of a share of Series C Junior Participating
Preferred Stock at an exercise price of $250. The New Rights expire in
September 2005, but may be redeemed earlier at a price of $.05 per New Right.
Stock options and performance awards
In April 1994, Textron's shareholders approved the adoption of the 1994
Long-Term Incentive Plan which authorizes the granting of awards to key
employees in the following forms: (a) performance share units and (b)
options to purchase Textron common stock at an exercise price equal to the
fair value of the stock at the date of grant. The total number of shares of
common stock for which options may be granted under the Plan is 5,000,000.
Stock option transactions during 1995 are summarized as follows:
(Shares in thousands) Shares Average price
- -----------------------------------------------------------------
Shares under option at beginning
of year 4,696 $44.31
Options granted 1,062 72.11
Options exercised (349 shares in
1994 and 701 shares in 1993) (1,098) 38.26
Options canceled (102) 51.13
- ----------------------------------------------------------------
Shares under option at end of year 4,558 52.09
- ----------------------------------------------------------------
Shares exercisable at end of year
(2,957 shares in 1994) 2,944 45.38
- ----------------------------------------------------------------
Reserved shares
Shares of common stock reserved at December 30, 1995 for the subsequent
conversion of preferred stock and the exercise of stock options were as
follows:
(In thousands) Shares
- --------------------------------------------------------------------------
$2.08 Cumulative Convertible
Preferred Stock, Series A* 739
$1.40 Convertible Preferred
Dividend Stock, Series B* 1,088
Options granted to employees 4,558
- --------------------------------------------------------------------------
6,385
- --------------------------------------------------------------------------
*Includes shares issuable upon conversion of shares of preferred stock
held as treasury shares.
9 Leases
Rental expense was approximately $104 million, $108 million, and $114
million in 1995, 1994, and 1993, respectively. Future minimum rental
commitments for all noncancellable operating leases in effect at December
30, 1995 approximated $73 million for 1996, $58 million for 1997, $43
million for 1998, $31 million for 1999, $24 million for 2000, and a total
of $143 million thereafter.
10 Research and Development
Textron performs research and development under both company initiated
programs and contracts with others, primarily the U.S. Government. Company
initiated programs include research and development for commercial products
and independent research and development related to government products and
services. A significant portion of the cost incurred for independent
research and development is recoverable from the U.S. Government through
overhead cost allowances.
The costs related to research and development activities for which
Textron is at risk are expensed as incurred and include amounts for (a)
company initiated programs and (b) the cost sharing portions of, and any
losses incurred on, customer initiated programs. These costs for 1995,
1994, and 1993 were as follows:
(In millions) 1995 1994 1993
- ------------------------------------------------------------------------------
Company funded $181 $187 $195
Customer funded 475 424 319
- ------------------------------------------------------------------------------
Total research and development costs $656 $611 $514
- ------------------------------------------------------------------------------
11 Pension Benefits
Textron and certain of its subsidiaries have a number of defined benefit
pension plans covering substantially all of their employees. Benefits under
salaried plans are based on salary and years of service, while benefits
under hourly plans generally are based on negotiated amounts and years of
service. Textron's funding policy is consistent with the funding
requirements of federal law and regulations. Plan assets consist
principally of corporate and government bonds and common stocks. Pension
cost (income) in 1995, 1994, and 1993 included the following components:
(In millions) 1995 1994 1993
- ------------------------------------------------------------------------------
Service cost - benefits earned during the year $ 56 $ 69 $ 65
Interest cost on projected benefit obligation 210 199 183
Actual return on plan assets (747) (20) (364)
Amortization of unrecognized transition net asset (17) (15) (16)
Net amortization and deferral of actuarial
gains (losses) 483 (233) 135
- ------------------------------------------------------------------------------
Net pension cost (income) $ (15) $ - $ 3
- ------------------------------------------------------------------------------
The following table sets forth the funded status of Textron's pension plans
at December 30, 1995 and December 31, 1994.
December 30, 1995 December 31, 1994
- ------------------------------------------------------------------------------
Assets Accumulated Assets Accumulated
exceed benefits exceed benefits
accumulated exceed accumulated exceed
(In millions) benefits assets benefits assets
- ---------------------------------------------------------------------------
Actuarial present value of:
Vested benefit
obligation $2,121 $ 426 $1,755 $ 519
Nonvested benefit
obligation 91 35 76 35
- ----------------------------------------------------------------------------
Accumulated benefit
obligation 2,212 461 1,831 554
Additional amounts related
to projected pay increases 243 23 192 17
- ----------------------------------------------------------------------------
Projected benefit obligation 2,455 484 2,023 571
Plan assets at fair value 3,180 373 2,587 449
- ----------------------------------------------------------------------------
Plan assets in excess of (less
than) projected
benefit obligation 725 (111) 564 (122)
Unrecognized net actuarial
gains (312) (26) (167) (19)
Unrecognized prior service
cost 18 58 18 61
Unrecognized transition net
asset (132) (1) (147) (3)
Adjustment required to
recognize minimum liability - (24) - (27)
- ----------------------------------------------------------------------------
Net pension asset (liability)
recognized on the consolidated
balance sheet $ 299 $ (104) $ 268 $ (110)
- ----------------------------------------------------------------------------
Major actuarial assumptions used in the accounting for the defined
benefit pension plans are shown in the following table. Net pension cost
(income) is determined using these factors as of the end of the prior year;
the funded status of the plans is determined using the discount rate and
rate of compensation increase as of the end of the current year.
December 30, December 31, January 1, January 2,
1995 1994 1994 1993
- ------------------------------------------------------------------------------
Discount rate 7.25% 8.25% 7.25% 8.00%
Weighted average long-term
rate of compensation increase 5.00 5.00 5.00 5.50
Long-term rate of return on
plan assets 9.00 9.00 9.00 9.00
- ------------------------------------------------------------------------------
12 Employee Benefits Other than Pensions
Textron and certain of its subsidiaries have a number of defined
contribution savings and other retirement plans, covering both salaried and
hourly employees. Costs relating to these plans, which are generally funded
as accrued, amounted to approximately $36 million, $37 million, and $33
million for 1995, 1994, and 1993, respectively, of which $14 million, $18
million, and $17 million related to the employee stock ownership plan for
1995, 1994, and 1993, respectively.
Textron provides certain health care and life insurance benefits for
certain retired employees. Postretirement benefit costs other than those
related to pensions in 1995, 1994, and 1993 included the following
components:
(In millions) 1995 1994 1993
- ------------------------------------------------------------------------
Service cost - benefits earned
during the year $ 5 $ 9 $ 9
Interest cost on accumulated
postretirement benefit obligation 58 61 67
Net amortization (14) (10) (6)
- -------------------------------------------------------------------------
Postretirement benefit costs $49 $60 $70
- -------------------------------------------------------------------------
Textron's postretirement benefit plans other than pensions currently are
not funded.
The following table sets forth the status of these plans at the end of 1995
and 1994:
December 30, December 31,
(In millions) 1995 1994
- --------------------------------------------------------------------------
Actuarial present value of benefits attributed to:
Retirees $608 $598
Fully eligible active plan
participants 89 75
Other active plan participants 97 89
- --------------------------------------------------------------------------
Accumulated postretirement benefit obligation 794 762
Unrecognized net actuarial gains 101 145
Unrecognized prior service cost benefit 24 24
- --------------------------------------------------------------------------
Postretirement benefit liability recognized
on the consolidated balance sheet $919 $931
- --------------------------------------------------------------------------
An assumed discount rate of 8.25% and 7.25% was used to determine
postretirement benefit costs other than pensions for 1995 and 1994,
respectively. An assumed discount rate of 7.25% and 8.25% was used to
determine the status of Textron's plans at December 30, 1995 and December
31, 1994, respectively. The weighted average annual assumed rate of
increase in the per capita cost of covered benefits (that is, the health
care cost trend rate) is 7% for retirees age 65 and over and 11% for
retirees under age 65 in 1996, and both rates are assumed to decrease
gradually to 5.5% until 2001 and 2003, respectively, and remain at that
rate thereafter. Increasing these rates by one percentage point in each
year would have increased the accumulated postretirement benefit obligation
as of December 30, 1995 by $61 million and increased the aggregate of the
service and interest cost components of postretirement benefit costs for
1995 by $5 million.
13 Income Taxes
Textron files a consolidated federal income tax return which includes all
U.S. subsidiaries. Separate returns are filed for Textron's foreign
subsidiaries.
Income from continuing operations before income taxes is summarized as
follows:
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------
United States $476 $446 $343
Foreign 214 177 127
- --------------------------------------------------------------------------
Total $690 $623 $470
- --------------------------------------------------------------------------
Income taxes are summarized as follows:
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------
Current:
Federal $137 $103 $77
State 44 30 27
Foreign 65 71 47
- --------------------------------------------------------------------------
246 204 151
- --------------------------------------------------------------------------
Deferred:
Federal 31 57 20
State (12) 2 2
Foreign 9 (6) (2)
- --------------------------------------------------------------------------
28 53 20
- --------------------------------------------------------------------------
Total $274 $257 $171
- --------------------------------------------------------------------------
Following is a reconciliation of the federal statutory income tax rate to
the effective income tax rate as reflected in the consolidated statement
of income:
1995 1994 1993
- ----------------------------------------------------------------------------
Federal statutory income
tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes
resulting from:
State income taxes 2.9 3.3 3.9
Goodwill 2.5 5.9 3.3
Effect of tax rate
change on net
deferred tax asset - - (2.8)
Other - net (.7) (2.9) (3.0)
- ----------------------------------------------------------------------------
Effective income
tax rate 39.7% 41.3%* 36.4%
- ----------------------------------------------------------------------------
*The increase in the effective income tax rate is due primarily to the
impact of the nontax deductibility of goodwill related to the sale of the
Lycoming Turbine Engine division.
Textron's net deferred tax asset consisted of gross deferred tax assets and
gross deferred tax liabilities of $1,340 million and $1,009 million,
respectively, at December 30, 1995 and $1,289 million and $927 million,
respectively, at December 31, 1994. Management believes that such net
deferred tax assets will be realized based on Textron's history of earnings
and its expectations for the future.
The components of Textron's net deferred tax asset as of December 30, 1995
and December 31, 1994 were as follows:
December 30, December 31,
(In millions) 1995 1994
- ------------------------------------------------------------------------------
Obligation for postretirement benefits
other than pensions $ 364 $ 363
Finance subsidiary transactions,
principally leasing (324) (295)
Self insurance liabilities 162 171
Fixed assets, principally depreciation (142) (120)
Deferred compensation and vacation pay 86 66
Allowance for credit losses 85 92
Other, principally timing of other
expense deductions 100 85
- -------------------------------------------------------------------------------
$ 331 $ 362
- -------------------------------------------------------------------------------
Deferred income taxes have not been provided for the undistributed earnings
of foreign subsidiaries which aggregated approximately $644 million at the
end of 1995. Management intends to reinvest such undistributed earnings for
an indefinite period, except for distributions upon which incremental taxes
would not be material. If all such earnings were distributed, taxes (net of
foreign tax credits) would be increased by approximately $43 million,
principally due to foreign withholding taxes.
- --------------------------------------------------------------------------
14 Fair Value of Financial Instruments
The estimated fair value amounts indicated below have been determined by
using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value and, accordingly, the estimates
presented herein are not necessarily indicative of the amounts that could
be realized in a current market exchange.
December 30, 1995 December 31, 1994
- -----------------------------------------------------------------------------
Estimated Estimated
Carrying fair Carrying fair
(In millions) value value value value
- -----------------------------------------------------------------------------
Assets:
Investments $ 778 $ 778 $ 672 $ 672
Finance receivables:
Consumer loans 6,475 6,457 6,074 6,062
Commercial loans 2,050 2,087 1,846 1,862
Liabilities:
Debt:
Textron Parent Company
Borrowing Group:
Debt 1,774 1,873 1,582 1,597
Interest rate exchange
agreements - 57 - 25
Finance subsidiaries:
Debt 8,437 8,557 7,760 7,664
Interest rate exchange
agreements - 5 - (25)
Foreign currency exchange
contracts - 6 - 12
- -----------------------------------------------------------------------------
Notes:
(i) Investments - The estimated fair values of investment securities were
based on quoted market prices where available, appraisals, prices from
independent brokers or discounted cash flow analyses.
(ii) Finance receivables - The estimated fair values of fixed rate consumer
loans, real estate loans and commercial installment contracts were
estimated based on discounted cash flow analyses. The estimated fair value
of all variable rate receivables and fixed rate retail installment
contracts approximated the net carrying value. The estimated fair values of
nonperforming loans were based on independent appraisals, discounted cash
flow analyses, using risk adjusted interest rates, or Textron valuations
based upon the fair value of the related collateral.
(iii) Debt, interest rate exchange agreements, and foreign currency
exchange contracts - The estimated fair value of fixed rate debt was
determined by either independent investment bankers or discounted cash flow
analyses. The fair values of variable rate debt approximated their carrying
values. The estimated fair values of interest rate exchange agreements were
determined by independent investment bankers and represent the estimated
amounts that Textron or its counterparty would be required to pay to assume
the other party's obligations under the agreements. The estimated fair
values of the foreign currency exchange contracts were determined by
Textron's foreign exchange banks.
15 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; or the remediation of allegedly hazardous
wastes; or, which 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. On the basis of information
presently available, Textron believes that any liability for these suits
and proceedings, or the impact of the application of such government
regulations, would not have a material effect on Textron's net income or
financial condition.
Textron's accrued estimated environmental liabilities are based on
assumptions which are subject to a number of factors and uncertainties
which can affect the reliability and precision of such accruals, including
additional sites which may be identified, environmental regulations, level
of cleanup required and technologies available, number and financial
condition of other contributors to remediation, and time period over which
remediation, may occur. It is estimated that Textron's accrued
environmental remediation liabilities will be paid primarily over the next
five to ten years.
16 Geographic and Business Segment Data
Presented below and on page 36 is selected financial information by
geographic area and business segment, and a description of the nature of
Textron's operations.
Geographic areas Revenues by origin Income by origin
1995 1994 1993 1995 1994 1993
- -----------------------------------------------------------------------
United States $6,841 $7,111 $6,903 $ 773 $ 728 $ 660
Canada 807 690 633 87 85 69
Asia/Pacific 412 231 167 64 46 35
Western Europe 393 318 178 63 46 23
- ------------------------------------------------------------------------
$8,453 $8,350 $7,881 987 905 787
- ------------------------------------------------------------------------
Corporate expenses
and other - net (98) (78) (85)
Interest expense - net (199) (204) (232)
- ------------------------------------------------------------------------
Income from continuing operations
before income taxes $ 690 $ 623 $ 470
- ------------------------------------------------------------------------
Destination of U.S. exports
(In millions) 1995 1994 1993
- ------------------------------------------------------------------------------
Western Europe $ 306 $ 427 $ 476
Asia/Pacific 235 161 236
Canada 208 252 214
Mexico 72 146 114
Middle East 43 62 113
Other locations 136 148 143
- ------------------------------------------------------------------------------
$1,000 $1,196 $1,296
- ------------------------------------------------------------------------------
Identifiable assets
(In millions) 1995 1994 1993
- ------------------------------------------------------------------------------
United States $12,080 $11,520 $11,379
Canada 1,337 1,262 1,172
Asia/Pacific 1,348 766 546
Western Europe 1,077 949 501
Corporate, including investment in
discontinued operation 1,628 1,554 1,750
operation
Eliminations (123) (59) (52)
- ------------------------------------------------------------------------------
$17,347 $15,992 $15,296
- ------------------------------------------------------------------------------
Notes:
(i) Revenues include sales to the U.S. Government of $1.3 billion, $1.6
billion, and $1.6 billion in 1995, 1994, and 1993, respectively.
(ii) Revenues between geographic areas, predominantly revenues of U.S.
divisions, were approximately 4% of total revenues in each of 1995, 1994, and
1993, respectively.
(iii) Assets in foreign locations relate principally to the Finance
segment.
Nature of operations
Textron is a global multi-industry company with manufacturing and finance
operations. Its principal markets (listed within segments in order of the
amount of 1995 revenues) and the major locations of such markets are as
follows:
Segment Principal markets Major locations
- ------------------------------------------------------------------------------
Aircraft Military and commercial light North America and Asia/Pacific
and mid-sized helicopters;
light and mid-sized business
jets; and single-engine utility
turboprop aircraft
- ------------------------------------------------------------------------------
Automotive Automotive products sold to North America
original equipment
manufacturers
- ------------------------------------------------------------------------------
Industrial Fastening systems; golf North America and Western
and turf care equipment; and Europe
diversified products
- ------------------------------------------------------------------------------
Systems and Commercial aerospace and North America and Western
Components defense products Europe
- ------------------------------------------------------------------------------
Finance Consumer and commercial loans North America, Asia/Pacific
and Western Europe
- ------------------------------------------------------------------------------
17 Condensed Financial Information for Textron's Finance Subsidiaries
Statement of Income (In millions)
For each of the three years ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Revenues $1,985 $1,672 $1,610
- -------------------------------------------------------------------------------
Costs and expenses
Selling and administrative 603 530 514
Interest 613 459 432
Provision for losses on collection of finance
receivables, less recoveries 169 162 153
Other expenses 235 190 222
- -------------------------------------------------------------------------------
Total costs and expenses 1,620 1,341 1,321
- -------------------------------------------------------------------------------
Income before income taxes 365 331 289
Income taxes (142) (128) (110)
- -------------------------------------------------------------------------------
Net income $ 223 $ 203 $ 179
- -------------------------------------------------------------------------------
December 31, December 31,
Balance Sheet (In millions) 1995 1994
- -----------------------------------------------------------------------
Assets
Cash $ 28 $ 29
Investments 771 643
Finance receivables - net 9,370 8,622
Other 657 645
- -----------------------------------------------------------------------
Total assets $10,826 $ 9,939
- -----------------------------------------------------------------------
Liabilities and equity
Accounts payable and accrued liabilities
(including income taxes) $ 914 $ 845
Debt 8,437 7,760
Equity 1,475 1,334
- -----------------------------------------------------------------------
Total liabilities and equity $10,826 $9,939
- -----------------------------------------------------------------------
Statement of Cash Flows (In millions)
For each of the three years ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
Net cash provided by operating activities $ 494 $ 527 $ 481
Net cash used by investing activities (612) (1,313) (814)
Net cash provided by financing activities 117 801 344
- -------------------------------------------------------------------------------
Net (decrease) increase in cash (1) 15 11
Cash at beginning of year 29 14 3
- -------------------------------------------------------------------------------
Cash at end of year $ 28 $ 29 $ 14
- -------------------------------------------------------------------------------
Notes:
(i) TFC derives a substantial portion of its business from financing the
sale and lease of products manufactured and sold by Textron. In 1995, 1994,
and 1993, TFC paid Textron $461 million, $595 million, and $617 million,
respectively, for the purchase of receivables and operating lease
equipment. Under operating agreements with Textron, TFC generally has
recourse to Textron with respect to finance receivables and leases of
products manufactured and sold by Textron. At the end of 1995, finance
receivables and operating lease equipment of $723 million ($852 million at
the end of 1994) were due from Textron or subject to recourse to Textron.
(ii) Textron has agreed to cause TFC's pretax income available for fixed
charges to be not less than 125% of its fixed charges and its consolidated
shareholder's equity to be not less than $200 million. No related payments
were required for 1995, 1994, or 1993.
<TABLE>
<CAPTION>
Quarterly Financial Information for 1995 and 1994
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
(Unaudited) ________________ ________________ _________________ ________________
(In millions except per share
amounts) 1995 1994 1995 1994 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues
Manufacturing $1,554 $1,688 $1,651 $1,775 $1,558 $1,621 $1,705 $1,594
Finance 475 400 487 406 499 421 524 445
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues $2,029 $2,088 $2,138 $2,181 $2,057 $2,042 $2,229 $2,039
- ---------------------------------------------------------------------------------------------------------------------------
Income
Manufacturing $ 140 $ 119 $ 164 $ 136 $ 152 $ 146 $ 166 $ 173
Finance 88 78 88 83 96 86 93 84
- ---------------------------------------------------------------------------------------------------------------------------
Operating income 228 197 252 219 248 232 259 257
Corporate expenses and other - net (21) (17) (22) (17) (29) (24) (26) (20)
Interest expense - net (50) (53) (52) (54) (46) (51) (51) (46)
- ---------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 157 127 178 148 173 157 182 191
Income taxes (62) (49) (70) (57) (69) (60) (73) (91)*
- ---------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 95 78 108 91 104 97 109 100
Income from discontinued operation, 14 22 13 19 18 14 18 12
net of income taxes
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 109 $ 100 $ 121 $ 110 $ 122 $ 111 $ 127 $ 112
- ---------------------------------------------------------------------------------------------------------------------------
Per common share:
Income from continuing operations $ 1.09 $ .86 $ 1.25 $ 1.01 $ 1.20 $ 1.07 $ 1.25 $ 1.12
Income from discontinued operation $ .16 $ .24 $ .15 $ .21 $ .21 $ .16 $ .20 $ .14
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 1.25 $ 1.10 $ 1.40 $ 1.22 $ 1.41 $ 1.23 $ 1.45 $ 1.26
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock Information
Price Range: High $ 57 1/8 $ 60 5/8 $ 61 $ 56 3/4 $ 70 1/8 $ 56 1/2 $ 77 3/8 $ 52 1/2
Low 48 5/8 53 3/4 56 50 3/4 57 7/8 50 1/4 65 1/2 46 1/2
Dividend per share .39 .35 .39 .35 .39 .35 .39 .35
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The effective tax rate reflects the impact of the nontax deductibility
of the $58 million of goodwill related to the sale of the Lycoming
Turbine Engine division.
Five Year Summary
(In millions except per share amounts)
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
Revenues
Manufacturing sales $6,468 $6,678 $6,271 $5,616 $5,211
Finance revenues 1,985 1,674 1,614 1,626 1,565
- -------------------------------------------------------------------------------
Total revenues 8,453 8,352 7,885 7,242 6,776
- -------------------------------------------------------------------------------
Costs and expenses
Cost of sales 5,294 5,514 5,210 4,560 4,185
Selling and
administrative 1,253 1,198 1,163 1,150 1,091
Interest 812 665 668 739 752
Provision for losses
on collection of
finance receivables,
less recoveries 169 162 153 160 135
Other finance expenses 235 190 221 221 215
- -------------------------------------------------------------------------------
Total costs and
expenses 7,763 7,729 7,415 6,830 6,378
- -------------------------------------------------------------------------------
Income from continuing
operations before
income taxes 690 623 470 412 398
Income taxes (274) (257) (171) (160) (160)
- -------------------------------------------------------------------------------
Income from continuing
operations before
cumulative effect of
changes in accounting
principles 416 366 299 252 238
Income from discontinued
operation, net of
income taxes 63 67 80 60 62
Cumulative effect of
changes in accounting
principles, net of
income taxes - - - (667) -
- -------------------------------------------------------------------------------
Net income (loss) $ 479 $ 433 $ 379 ($355) $ 300
- -------------------------------------------------------------------------------
Per common share:
Income from continuing
operations before
cumulative effect
of changes in
accounting principles $ 4.79 $ 4.06 $ 3.32 $ 2.84 $2.71
Income from discontinued
operation .72 .74 .89 .68 .71
Cumulative effect of
changes in accounting
principles - - - ($7.53) -
- -------------------------------------------------------------------------------
Net income (loss) $ 5.51 $ 4.80 $ 4.21 ($4.01) $3.42
- -------------------------------------------------------------------------------
Dividends
declared $ 1.56 $ 1.40 $ 1.24 $ 1.12 $ 1.03
- -------------------------------------------------------------------------------
Average common
shares
outstanding 86,894,000 90,119,000 90,052,000 88,580,000 87,563,000
- -------------------------------------------------------------------------------
Financial
position at
year-end
Total assets $17,347 $15,992 $15,296 $14,638 $12,341
Debt:
Textron
Parent Company
Borrowing Group $ 1,774 $ 1,582 $ 2,025 $ 2,283 $ 1,820
Finance
subsidiaries $ 8,437 $ 7,760 $ 6,847 $ 6,440 $ 5,664
Shareholders'
equity $ 3,412 $ 2,882 $ 2,780 $ 2,488 $ 2,928
Book value per
common share $ 39.92 $ 33.45 $ 31.18 $ 28.11 $ 33.65
- -------------------------------------------------------------------------------
Other data
Capital
expenditures $ 279 $ 294 $ 246 $ 215 $ 152
Depreciation $ 195 $ 206 $ 201 $ 194 $ 177
Common stock
price range:
High $ 77 3/8 $ 60 5/8 $ 58 7/8 $ 44 3/4 $ 39 1/2
Low $ 48 5/8 $ 46 1/2 $ 40 3/8 $ 33 3/4 $ 25
Number of common
shareholders 26,000 27,000 28,000 30,000 31,000
- -------------------------------------------------------------------------------
