SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal quarter ended June 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
Commission file number 1-5480
_______________
TEXTRON INC.
(Exact name of registrant as specified in its charter)
_______________
Delaware 05-0315468
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
40 Westminster Street, Providence, RI 02903
401-421-2800
(Address and telephone number of principal executive offices)
_______________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Common stock outstanding at July 26, 1997 - 164,988,000 shares
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
TEXTRON INC.
Condensed Consolidated Statement of Income (unaudited)
(Dollars in millions except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues
Manufacturing sales $2,117 $1,867 $4,138 $3,567
Finance revenues 550 517 1,080 1,031
Total revenues 2,667 2,384 5,218 4,598
Costs and expenses
Cost of sales 1,730 1,520 3,386 2,913
Selling and administrative 380 342 742 673
Interest 180 183 363 366
Provision for losses on collection of finance
receivables 63 54 127 107
Other 67 69 137 139
Total costs and expenses 2,420 2,168 4,755 4,198
Income from continuing operations before
income taxes and distributions on
preferred securities of subsidiary trust 247 216 463 400
Income taxes (95) (84) (180) (156)
Distributions on preferred securities of
subsidiary trust, net of income taxes (7) (7) (13) (10)
Income from continuing operations 145 125 270 234
Discontinued operation, net of income taxes - - - (74)
Net income $ 145 $ 125 $ 270 $ 160
Per common share*:
Income from continuing operations $ .85 $ .72 $ 1.58 $ 1.35
Discontinued operation - - - (0.43)
Net income $ .85 $ .72 $ 1.58 $ .92
Average shares outstanding* 170,405,000 173,150,000 170,695,000 173,194,000
Dividends per share:
$2.08 Preferred stock, Series A $ .52 $ .52 $ 1.04 $ 1.04
$1.40 Preferred stock, Series B $ .35 $ .35 $ .70 $ .70
Common stock* $ .25 $ .22 $ .50 $ .44
*Reflects the effect of the two-for-one stock split in the form of a stock
dividend paid May 30, 1997 to shareholders of record on May 9, 1997.
See notes to condensed consolidated financial statements.
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
<TABLE>
TEXTRON INC.
Condensed Consolidated Balance Sheet (unaudited)
(Dollars in millions)
<CAPTION>
June 28, December 28,
1997 1996
Assets
<C> <C> <C>
Cash $ 161 $ 47
Investments 838 820
Receivables - net:
Finance 10,268 9,856
Commercial and U.S. government 1,028 882
11,296 10,738
Inventories 1,416 1,192
Investment in discontinued operation - 770
Property, plant, and equipment, less accumulated
depreciation of $1,802 and $1,664 1,681 1,539
Goodwill, less accumulated amortization of $427 and
$404 1,777 1,609
Other (including net prepaid income taxes) 1,626 1,520
Total assets $ 18,795 $ 18,235
Liabilities and shareholders' equity
Liabilities
Accounts payable $ 883 $ 850
Accrued postretirement benefits other than pensions 816 817
Other accrued liabilities (including income taxes) 2,765 2,556
Debt:
Parent Group 1,295 1,507
Finance Group 9,333 8,839
10,628 10,346
Total liabilities 15,092 14,569
Textron - obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely Textron junior subordinated debt securities 483 483
Shareholders' equity
Capital stock:
Preferred stock 14 14
Common stock* 24 12
Capital surplus 813 793
Retained earnings 3,157 2,969
Other (35) 7
3,973 3,795
Less cost of treasury shares 753 612
Total shareholders' equity 3,220 3,183
Total liabilities and shareholders' equity $ 18,795 $ 18,235
*Common shares outstanding 164,887,000** 82,809,000
** Reflects the effect of the two-for-one stock split in the form of a stock
dividend paid May 30, 1997 to shareholders of record on May 9, 1997.
See notes to condensed consolidated financial statements.
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
<TABLE>
TEXTRON INC.
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In millions)
<CAPTION>
Six Months Ended
June 28, June 29,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 270 $ 234
Adjustments to reconcile income from continuing
operations to net cash provided by
operating activities:
Depreciation and amortization 210 189
Provision for losses on receivables 129 109
Changes in assets and liabilities excluding
those related to acquisitions and divestitures:
Increase in commercial and U.S. government
receivables (61) (1)
Increase in inventories (171) (113)
Increase in other assets (66) (49)
Increase (decrease) in accounts payable 1 (11)
Increase in accrued liabilities 27 84
Other - net (29) (31)
Net cash provided by operating activities 310 411
Cash flows from investing activities:
Purchases of investments (126) (71)
Proceeds from disposition of investments 311 30
Maturities and calls of investments 34 27
Finance receivables:
Originated or purchased (3,777) (3,221)
Repaid or sold 3,349 3,027
Cash used in acquisitions (367) (111)
Cash received from disposition of business 571 -
Capital expenditures (156) (128)
Other investing activities - net 21 (25)
Net cash used by investing activities (140) (472)
Cash flows from financing activities:
Increase in short-term debt 229 463
Proceeds from issuance of long-term debt 1,377 867
Principal payments on long-term debt (1,494) (1,452)
Issuance of Textron-obligated mandatorily
redeemable preferred securities of subsidiary
trust holding solely Textron junior
subordinated debt securities - 483
Proceeds from exercise of stock options 27 25
Purchases of Textron common stock (112) (117)
Purchases of Textron common stock from Paul Revere - (34)
Dividends paid (83) (74)
Net cash provided (used) by financing activities (56) 161
Net increase in cash 114 100
Cash at beginning of period 47 84
Cash at end of period $ 161 $ 184
See notes to condensed consolidated financial statements.
</TABLE>
TEXTRON INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1: Basis of presentation
The financial statements should be read in conjunction with the
financial statements included in Textron's Annual Report on Form 10-K
for the year ended December 28, 1996. The financial statements
reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair presentation of Textron's consolidated financial position at
June 28, 1997, and its consolidated results of operations for each of
the respective three and six month periods ended June 28, 1997 and
June 29, 1996 and consolidated cash flows for each of the six month
periods ended June 28, 1997 and June 29, 1996. The results of
operations for the six months ended June 28, 1997 are not necessarily
indicative of results for the full year. Textron completed the sale
of Paul Revere to Provident Companies, Inc. on March 27, 1997. See
Management's Discussion and Analysis for additional information.
Note 2: Stock split in the form of a stock dividend
At Textron's Annual Meeting on April 23, 1997, Textron's shareholders
approved an increase in the authorized number of common shares from
250 million to 500 million in connection with a two-for-one stock
split of Textron common stock to be effected in the form of a stock
dividend. The new shares were distributed on May 30, 1997 to
shareholders of record on the close of business on May 9, 1997.
Average shares outstanding and per share amounts have been restated to
reflect the stock split for all periods presented.
Note 3: Earnings per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," (FAS 128) which is effective
for financial statements for both interim and annual periods ending
after December 15, 1997. FAS 128 will require the presentation of
"Basic" and "Diluted" EPS. On a pro forma basis, Diluted EPS
calculated in accordance with FAS 128 does not differ significantly
from EPS as currently reported for the quarter and six month periods
ended June 28, 1997. The Basic EPS calculation does not consider the
potential effects of potentially dilutive securities and on a pro
forma basis, is approximately $.03 and $.05 per share higher than
Diluted EPS for the second quarter and six month periods ended
June 28, 1997, respectively.
Note 4: Inventories
June 28, December 28,
1997 1996
(In millions)
Finished goods $311 $364
Work in process 811 769
Raw materials 430 259
1,552 1,392
Less progress payments and
customer deposits 136 200
$1,416 $1,192
Note 5: Textron-obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely Textron junior subordinated debt
securities
In 1996, a trust sponsored and wholly-owned by Textron issued
preferred securities to the public (for $500 million) and shares of
its common securities to Textron (for $15.5 million), the proceeds of
which were invested by the trust in $515.5 million aggregate principal
amount of Textron's newly issued 7.92% Junior Subordinated Deferrable
Interest Debentures, due 2045. The debentures are the sole asset of
the trust. The amounts due to the trust under the debentures and the
related income statement amounts have been eliminated in Textron's
consolidated financial statements.
The preferred securities accrue and pay cash distributions quarterly
at a rate of 7.92% per annum. Textron has guaranteed, on a
subordinated basis, distributions and other payments due on the
preferred securities. The guarantee, when taken together with
Textron's obligations under the debentures and in the indenture
pursuant to which the debentures were issued and Textron's obligations
under the Amended and Restated Declaration of Trust governing the
trust, provides a full and unconditional guarantee of amounts due on
the preferred securities.
The preferred securities are mandatorily redeemable upon the maturity
of the debentures on March 31, 2045, or earlier to the extent of any
redemption by Textron of any debentures. The redemption price in
either such case will be $25 per share plus accrued and unpaid
distributions to the date fixed for redemption.
Note 6: Contingencies
Lawsuits and other proceedings are pending or threatened against
Textron and its subsidiaries. Some allege violations of federal
government procurement regulations, involve environmental matters, or
are or purport to be class actions. Some seek compensatory, treble or
punitive damages in substantial amounts; fines, penalties or
restitution; or remediation of contamination. Under federal
government procurement regulations, some 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 these suits and proceedings
will not have a material effect on Textron's net income or financial
condition.
Note 7: Financial information by borrowing group
Textron consists of two borrowing groups - the Textron Parent Company
Borrowing Group (Parent Group) and Textron's finance subsidiaries
(Finance Group). The Parent Group consists of all entities of Textron
(primarily manufacturing) other than its wholly-owned finance
subsidiaries. The Finance Group consists of Avco Financial Services
(AFS) and Textron Financial Corporation (TFC). Summarized financial
information for the Parent Group includes the Finance Group on a one-
line basis under the equity method of accounting.
Item 1. FINANCIAL STATEMENTS (Continued)
Note 7: Financial information by borrowing group (continued)
<TABLE>
PARENT GROUP
(unaudited) (In millions)
<CAPTION>
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
Condensed Statement of Income 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $2,117 $1,867 $4,138 $3,567
Costs and expenses
Cost of sales 1,730 1,520 3,386 2,913
Selling and administrative 211 189 417 366
Interest 30 37 69 75
Total costs and expenses 1,971 1,746 3,872 3,354
146 121 266 213
Pretax income on Finance Group 101 95 197 187
Income from continuing operations
before income taxes and
distributions on preferred securities
of subsidiary trust 247 216 463 400
Income taxes (95) (84) (180) (156)
Distributions on preferred securities
of subsidiary trust, net of income
taxes (7) (7) (13) (10)
Income from continuing operations 145 125 270 234
Discontinued operations, net of income
taxes - - - (74)
Net income $ 145 $ 125 $ 270 $ 160
</TABLE>
<TABLE>
<CAPTION>
June 28, December 28,
Condensed Balance Sheet 1997 1996
Assets
<S> <C> <C>
Cash $ 106 $ 24
Receivables - net 1,028 882
Inventories 1,416 1,192
Investments in Finance Group 1,621 1,600
Investment in discontinued operation - 770
Property, plant and equipment - net 1,591 1,454
Goodwill 1,617 1,466
Other assets (including net prepaid income taxes) 1,345 1,269
Total assets $8,724 $8,657
Liabilities and shareholders' equity
Accounts payable and accrued liabilities (including
income taxes) $3,726 $3,484
Debt 1,295 1,507
Textron - obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
Textron junior subordinated debt securities 483 483
Shareholders' equity 3,220 3,183
Total liabilities and shareholders' equity $8,724 $8,657
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
Note 7: Financial information by borrowing group (continued)
<TABLE>
PARENT GROUP (continued)
(Unaudited) (In millions)
<CAPTION>
Six Months Ended
June 28, June 29,
Condensed Statement of Cash Flows 1997 1996
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $270 $234
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Undistributed earnings of Finance Group (40) (49)
Depreciation and amortization 144 125
Changes in assets and liabilities excluding those
related to acquisitions and divestitures:
Increase in receivables (61) (1)
Increase in inventories (171) (113)
Increase in other assets (52) (55)
Increase in accounts payable and accrued
liabilities 22 91
Other - net 12 13
Net cash provided by operating activities 124 245
Cash flows from investing activities:
Capital expenditures (140) (117)
Cash used in acquisitions (324) (111)
Cash received from disposition of business 571 -
Proceeds from disposition of investment 245 -
Other investing activities - net 16 (18)
Net cash provided (used) by investing
activities 368 (246)
Cash flows from financing activities:
Increase (decrease) in short-term debt 14 (38)
Proceeds from issuance of long-term debt 876 666
Principal payments on long-term debt (1,132) (806)
Issuance of Textron - obligated mandatorily
redeemable preferred securities of subsidiary
trust holding solely Textron junior subordinated
debt securities - 483
Proceeds from exercise of stock options 27 25
Purchases of Textron common stock (112) (117)
Purchase of Textron common stock from Paul Revere - (34)
Dividends paid (83) (74)
Net cash provided (used) by financing
activities (410) 105
Net increase in cash 82 104
Cash at beginning of period 24 56
Cash at end of period $106 $160
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
Note 7: Financial information by borrowing group (continued)
<TABLE>
FINANCE GROUP
(unaudited) (In millions)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
Condensed Statement of Income 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues $ 550 $ 517 $1,080 $1,031
Costs and expenses
Selling and administrative 169 153 325 307
Interest 150 146 294 291
Provision for losses on collection of
finance receivables 63 54 127 107
Other 67 69 137 139
Total costs and expenses 449 422 883 844
Income before income taxes 101 95 197 187
Income taxes (39) (38) (76) (74)
Net income $ 62 $ 57 $ 121 $ 113
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
Condensed Balance Sheet 1997 1996
Assets
<S> <C> <C>
Cash $ 55 $ 23
Investments 831 814
Finance receivables - net 10,271 9,860
Other 766 712
Total assets $11,923 $11,409
Liabilities and equity
Accounts payable and accrued liabilities
(including income taxes) $ 969 $ 970
Debt 9,333 8,839
Equity 1,621 1,600
Total liabilities and equity $11,923 $11,409
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
TEXTRON INC.
Revenues and Income by Business Segment
(In millions)
<CAPTION>
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
REVENUES
<S> <C> <C> <C> <C>
MANUFACTURING:
Aircraft $ 782 $ 649 $1,488 $1,303
Automotive 523 439 1,080 844
Industrial 660 604 1,280 1,081
Systems and Components 152 175 290 339
2,117 1,867 4,138 3,567
FINANCE 550 517 1,080 1,031
Total revenues $2,667 $2,384 $5,218 $4,598
INCOME
MANUFACTURING:
Aircraft $ 81 $ 67 $ 145 $ 123
Automotive 33 41 83 78
Industrial 76 64 143 118
Systems and Components 16 16 27 27
206 188 398 346
FINANCE 101 95 197 187
Segment operating income 307 283 595 533
Corporate expenses and other - net (30) (30) (63) (58)
Interest expense - net (30) (37) (69) (75)
Income from continuing operations
before income taxes and
distributions on preferred
securities of subsidiary trust $ 247 $ 216 $ 463 $ 400
</TABLE>
Financial Condition
Parent Group: During the six months ended June 28, 1997, the Parent Group's
operating activities provided cash of $124 million versus $245 million during
the corresponding period of 1996. Operating cash flows for 1997 were affected
by income from continuing operations offset by inventory builds associated with
new Aircraft products and higher receivable balances.
The Group's debt decreased by $212 million. On March 27, 1997, Textron completed
the sale of its 83.3% owned subsidiary, The Paul Revere Corporation, to
Provident Companies, Inc. Net proceeds to Textron after adjustments and
contingent payments were approximately $800 million (which included shares of
Provident common stock subsequently sold in May for $245 million). These
proceeds exceeded cash used for (a) acquisitions ($324 million), (b) capital
expenditures ($140 million), (c) purchases of Textron common stock ($112
million), and (d) payments of dividends ($83 million). Its ratio of debt to
total capital was 26% at June 28, 1997, down from 29% at December 28, 1996.
The Parent Group's credit facilities not used or reserved as support for
outstanding commercial paper or bank borrowings at June 28, 1997 were $1.4
billion. Textron had $511 million available at June 28, 1997 under its shelf
registration statements filed with the Securities and Exchange Commission.
At June 28, 1997, approximately 37% and 28% of total foreign currency borrowings
of $496 million under Textron's multi-currency credit agreements were
denominated in Deutsche marks and French francs, respectively.
In the first half of 1997, the Parent Group acquired the Germany-based Kautex
Group, a worldwide supplier of blow-molded plastic fuel tanks and other
automotive components and systems and Switzerland-based Maag Pump Systems AG and
Italy-based Maag Italia S.p.A., manufacturers of gears, gear pumps and gear
systems for an aggregate cost of approximately $390 million. Textron also
announced an agreement to sell its Speidel division to Hermann Hirsch USA, Inc.,
an affiliate of Austria-based Hirsch Armbaender Ges.m.b.H. The
transaction is expected to close on December 31, 1997.
Management believes that the Parent 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 Group-- will continue to
be more than sufficient to meet its operating needs and to finance growth.
Finance Group: The Finance Group paid dividends of $81 million and $64 million
to the Parent Group during the six month periods ended June 28, 1997 and
June 29, 1996, respectively.
During the six months ended June 30, 1997, Avco Financial Services (AFS) issued
$451 million of unsecured debt securities, including $136 million under its
shelf registration statements. AFS had $947 million and $507 million available
at June 30, 1997 for unsecured debt securities under its shelf registration
statements with the Securities and Exchange Commission and Canadian provincial
security exchanges, respectively.
During the first half of 1997, the Finance Group had $291 million of interest
rate exchange agreements expire and $405 million of interest rate exchange
agreements go into effect. The new agreements, which have a weighted average
original term of 2.3 years and expire through 2000, had the effect of fixing the
rate of interest at approximately 6.7% on $405 million of variable rate
borrowings at June 30, 1997.
Textron Financial Corporation (TFC) issued $50 million medium-term notes on June
30, 1997 under its $500 million medium-term note facility under Rule 144A of the
Securities Act of 1933, as amended. TFC had $242 million available under this
facility at June 30, 1997.
Results of Operations - Three months ended June 28, 1997 vs. Three months ended
June 29, 1996
Textron reported second quarter 1997 earnings per share from continuing
operations of $0.85 per share, up 18% from second quarter 1996 earnings per
share from continuing operations of $0.72. Income from continuing operations in
1997 of $145 million was up 16% from the 1996 amount of $125 million. Revenues
increased 12% to $2.7 billion in 1997 from $2.4 billion in 1996.
The Aircraft segment's revenues and income increased $133 million (20%) and $14
million (21%), respectively. Bell Helicopter's revenues and income increased
primarily as a result of higher commercial and U.S. Government aircraft sales
($56 million). Cessna's revenues increased as a result of higher sales of its
recently introduced new business jets -- the Citation X and the Bravo. Its
income increased as a result of the higher revenues, partially offset by an
increased level of expenses due to the introduction and support of new products.
The Automotive segment's revenues increased $84 million (19%), reflecting the
first quarter 1997 acquisition of Kautex and the 1996 acquisitions of Valeo
Wiper Systems and the remaining 50% of a joint venture in Born, Netherlands.
The benefit of the higher sales from the acquisitions was partially offset by
the unfavorable impact of a strike at a Chrysler engine plant and the timing of
replacement business and new model launches. Income decreased $8 million (20%),
reflecting the above factors and a decision to begin a restructuring effort to
improve overall automotive margins.
The Industrial segment's revenues and income increased $56 million (9%) and $12
million (19%), respectively. These increases were due principally to higher
sales and improved performance in the fastening systems and the golf and turf-
care businesses. In addition, results benefited from the first quarter 1997
acquisitions of Maag Pump Systems and Maag Italia S.p.A. and the third quarter
1996 acquisition of Klauke.
The Systems and Components segment's revenues decreased $23 million (13%),
reflecting the third quarter 1996 divestiture of Textron Aerostructures. This
revenue decrease was partially offset by higher revenues on the sensor fuzed
weapon contract and an increase in demand for aerospace components. Income
remained unchanged as the benefit of the higher revenues was offset by the
impact of the Aerostructures divestiture and lower performance in marine and
land systems products.
The Finance segment's revenues increased $33 million (6%), while income
increased $6 million (6%). AFS' revenues and income increased $25 million and $2
million, respectively. Revenues in its finance and related insurance business
increased $21 million, primarily as a result of an increase in average finance
receivables, partially offset by a decrease in yields on finance receivables.
Income decreased $4 million, due primarily to an increase in the provision for
losses resulting from a higher level of net credit losses to average finance
receivables, partially offset by the benefit of the higher revenues and a
decrease in the average cost of borrowed funds. In AFS' nonfinance-related
insurance business, revenues increased $4 million and income increased $6
million, due primarily to higher premiums earned and investment income, as well
as improved underwriting expenses, principally lower insurance loss ratios.
TFC's revenues increased $8 million, due to increases in syndication fee income
and a higher level of average finance receivables. Its income increased $4
million, due to the higher revenues and a lower provision for loan losses
related to the real estate portfolio, partially offset by growth in businesses
with higher operating expense ratios.
Interest Expense - Net for the Parent Group decreased $7 million due to a lower
level of average debt, resulting from the payment of debt with proceeds from the
divestiture of Paul Revere, partially offset by the incremental debt associated
with acquisitions.
Results of Operations - Six months ended June 28, 1997 vs. Six months ended
June 29, 1996
Textron reported first half 1997 earnings per share from continuing operations
of $1.58 per share, up 17% from first half 1996 earnings per share from
continuing operations of $1.35. Income from continuing operations in 1997 of
$270 million was up 15% from the 1996 amount of $234 million. Revenues
increased 13% to $5.2 billion in 1997 from $4.6 billion in 1996. Net income in
the first half 1997 was $270 million versus $160 million in 1996, which
reflected the impact of a $74 million loss from a discontinued operation.
The Aircraft segment's revenues and income increased $185 million (14%) and $22
million (18%), respectively. Bell Helicopter's revenues and income increased
primarily as a result of higher commercial and U.S. Government aircraft sales
($79 million), partially offset by lower revenues on the V-22 program ($57
million). Cessna's revenues increased as a result of higher sales of its
recently introduced new business jets --the Citation X and the Bravo. Its
income increased as a result of the higher revenues, partially offset by an
increased level of expenses due to the introduction and support of new products.
The Automotive segment's revenues increased $236 million (28%), reflecting the
first quarter 1997 acquisition of Kautex and the 1996 acquisitions of Valeo
Wiper Systems and the remaining 50% of a joint venture in Born, Netherlands.
The benefit of the higher sales from the acquisitions was partially offset by
the unfavorable impact in the second quarter 1997 of a strike at a Chrysler
engine plant and the timing of replacement business and new model launches.
Income increased $5 million (6%), reflecting the above factors and the impact of
the restructuring effort which began in the second quarter 1997.
Second half automotive sales, excluding the Kautex acquisition, are expected to
be lower in 1997 than in 1996 as a result of the timing of replacement business
and new model launches. Total segment margins in the second half are expected
to continue at a lower level than last year primarily as a result of the lower
sales described above, lower margins attributable to the Kautex acquisition and
the impact of the restructuring effort.
The Industrial segment's revenues and income increased $199 million (18%) and
$25 million (21%), respectively. These increases were due primarily to higher
sales in fastening systems ($120 million), including the second quarter 1996
acquisition of Textron Industries. In addition, results benefited from the
first quarter 1997 acquisitions of Maag Pump Systems and Maag Italia, S.p.A, the
third quarter 1996 acquisition of Klauke, and higher sales and improved
performance in the golf and turf-care businesses.
The Systems and Components segment's revenues decreased $49 million (14%),
reflecting the third quarter 1996 divestiture of Textron Aerostructures. This
revenue decrease was partially offset by higher revenues on the sensor fuzed
weapon contract and an increase in demand for aerospace components. Income
remained unchanged as the benefit of the higher revenues was offset by the
impact of the Aerostructures divestiture and lower performance in marine and
land systems products.
The Finance segment's revenues increased $49 million (5%), while income
increased $10 million (5%). AFS' revenues and income increased $38 million and
$5 million, respectively. Revenues in its finance and related insurance business
increased $28 million, primarily as a result of an increase in average finance
receivables ($7.322 billion in the first half 1997 versus $6.823 billion in the
first half 1996), partially offset by a decrease in yields on finance
receivables (17.99% in the first half 1997 vs. 18.59% in the first half 1996).
Income decreased $5 million, due primarily to an increase in the provision for
losses resulting from a higher level of net credit losses to average finance
receivables (2.98% in the first half 1997 vs. 2.64% in the first half 1996),
partially offset by the benefit of the higher revenues and a decrease in the
average cost of borrowed funds (6.48% in the first half 1997 vs. 6.95% in the
first half 1996). The general proliferation of credit cards has provided the
consumer with an alternative source of funds, and as a result the increase in
consumer debt in the U.S. and Canada has continued to burden the finance
consumer, resulting in higher delinquencies and charge-offs. In AFS' nonfinance-
related insurance business, revenues and income both increased $10 million, due
primarily to higher premiums earned and investment income, as well as improved
underwriting expenses, principally lower insurance loss ratios. TFC's revenues
increased $11 million, due to a higher level of average finance receivables
($3.173 billion in the first half 1997 vs. $3.019 billion in the first half
1996), and increases in syndication fee income, partially offset by lower yields
of finance receivables (9.94% in the first half 1997 vs. 10.03% in the first
half 1996), primarily on floating rate receivables. Its income increased $5
million, due to the higher revenues and a lower provision for loan losses
related to the real estate portfolio, partially offset by growth in businesses
with higher operating expense ratios.
Corporate expenses and other - net increased $5 million, due to first quarter
1997 litigation expenses related to a divested operation. Interest Expense-net
for the Parent Group decreased $6 million due to a lower level of average debt,
resulting from the payment of debt with proceeds from the divestiture of Paul
Revere, partially offset by the incremental debt associated with acquisitions.
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Textron's annual meeting of shareholders held on April 23, 1997, the
following items were voted upon:
1. The following persons were elected to serve as
directors in Class I for three year terms expiring in 2000 and
received the votes listed. There were no abstentions or
broker non-votes applicable to the election of directors:
Name For Withheld
Teresa Beck 74,404,822 557,598
Lewis B. Campbell 74,404,045 558,375
R. Stuart Dickson 74,393,859 568,561
John D. Macomber 74,387,147 575,273
John W. Snow 74,402,952 559,468
The following directors have terms of office which continued after the
meeting: H. Jesse Arnelle, Paul E. Gagne, James F. Hardymon, Dana G.
Mead, Barbara Scott Preiskel, Brian H. Rowe, Sam F. Segnar, Jean Head
Sisco, Martin D. Walker and Thomas B. Wheeler.
2. An amendment of Article Fourth of Textron's Restated Certificate of
Incorporation to increase the number of authorized shares of
Textron common stock to 500 million was approved by the following vote:
For Against Abstain Broker Non-Votes
71,979,770 2,658,677 323,973 0
3. An amendment to Textron's 1994 Long-Term Incentive Plan was
approved by the following vote:
For Against Abstain Broker Non-Votes
71,694,654 2,481,407 786,359 0
4. The appointment of Ernst & Young LLP as Textron's independent
auditors for 1997 was ratified by the following vote:
For Against Abstain Broker Non-Votes
74,458,561 232,423 271,436 0
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 Employment Agreement between Textron Inc. and John D.
Butler dated June 10, 1997
12.1 Computation of ratio of income to fixed charges
and preferred securities dividends of the Parent Group.
12.2 Computation of ratio of income to fixed charges
and preferred securities dividends of
Textron Inc. including all majority-owned subsidiaries.
27 Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter
ended June 28, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEXTRON INC.
Date: August 5, 1997 s/R. L. Yates
R. L. Yates
Vice President and Controller
(principal accounting officer)
LIST OF EXHIBITS
The following exhibits are filed as part of this report on Form 10-Q:
Name of Exhibit
10 Employment Agreement between Textron Inc. and John D. Butler
dated June 10, 1997
12.1 Computation of ratio of income to combined fixed charges and
preferred securities dividends of the Parent Group
12.2 Computation of ratio of income to combined fixed charges and
preferred securities dividends of Textron Inc. including
all majority-owned subsidiaries
27 Financial Data Schedule (filed electronically only)
- -
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 10, 1997, between Textron Inc., a Delaware
corporation (the "Corporation"), and John D. Butler (the "Executive").
WHEREAS, the Corporation desires to employ the Executive in the position of
Executive Vice President and Chief Human Resources Officer during the term of
this Agreement, and the Executive is willing accept such employment upon the
terms and conditions set forth below;
NOW THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration, the parties hereto hereby agree as
follows:
1. Employment.
The Corporation hereby employs and engages the services of the Executive as
one of its key principal executive officers with the initial position of
Executive Vice President and Chief Human Resources Officer of the
Corporation for the "term of employment" set forth in Section 2 of this
Agreement. The Executive agrees to serve the Corporation in such position
as set forth in Section 3 of this Agreement for the term of employment.
2. Term of Employment.
The Executive's "term of employment" (as that phrase is used herein) shall
be a period commencing on July 1, 1997, and continuing in effect through
and including December 31, 1999, provided, however, that on January 1 of
each year during the term of employment, commencing January 1, 1998, the
term of employment shall automatically be extended for an additional year
unless prior to such January 1 the Corporation gives written notice to the
Executive of the Corporation's intention not to so extend the term of
employment, and provided, further, that in the event the Executive's status
is converted to that of an employee-consultant pursuant to Section 6(b) of
this Agreement, the Executive's term of employment shall expire no earlier
than the second anniversary of the effective date of such conversion.
3. Position and Duties.
(a) During the term of employment the Executive's position, authority
and responsibilities, the type of work he is asked to perform, and the
status and stature of the people with whom he is asked to work, shall
not be diminished, and the Executive's services shall be performed at
the Corporation's headquarters in Providence, Rhode Island or at such
other location (i) as may be mutually agreed between the Corporation
and the Executive or (ii) to which the Corporation's corporate
headquarters is relocated.
(b) The Executive agrees to devote his full business time during
normal business hours to the business and affairs of the Corporation
(except as otherwise provided herein) and to use his best efforts to
promote the interests of the Corporation and to perform faithfully and
efficiently the responsibilities assigned to him in accordance with
the terms of this Agreement, to the extent necessary to discharge such
responsibilities, except for (i) services on corporate, civic or
charitable boards or committees not significantly interfering with the
performance of such responsibilities and (ii) periods of vacation and
sick leave to which he is entitled. It is expressly understood and
agreed that the Executive's continuing service on any boards and
committees with which he shall be connected, as a member or otherwise,
as of the date hereof, or any such service approved by the Corporation
during the term of employment, shall not be deemed to interfere with
the performance of the Executive's services to the Corporation
pursuant to this paragraph (b).
4. Compensation and Other Terms of Employment.
(a) Base Salary. During the term of employment, the Executive shall
receive an annual base salary ("Base Salary"), payable in equal
monthly installments, at an annual rate at least equal to the
aggregate annual base salary payable to the Executive by the
Corporation at the commencement of the term of employment. The Base
Salary shall be reviewed and may be increased at any time and from
time to time in accordance with the Corporation's regular practices.
Any increase in the Base Salary shall not serve to limit or reduce any
other obligation of the Corporation hereunder, and after any such
increase the Base Salary shall not be reduced from such increased
level.
(b) Incentive Plans. As further compensation, the Executive will be
eligible during the term of employment for participation in the
Corporation's short-term incentive compensation plan in a
participation level commensurate with his level of employment. The
Executive shall also be eligible during the term of employment for
awards of stock options and performance units under the Corporation's
long-term incentive plan. In the event such plans are amended or
superseded, the Executive shall be entitled to participate in the
amended or successor plan at a level substantially equivalent to his
participation in the plans immediately prior to such amendment or
succession. Any agreements existing as of the date hereof between the
Corporation and the Executive providing for special incentive or
similar benefits are continued by this Agreement.
(c) Retirement, Savings and Other Executive Plans. In addition to
the Base Salary and incentive plans as hereinabove provided, during
the term of employment the Executive shall be entitled to participate
in all savings, retirement, employee benefit and key executive plans
generally available to executive officers of the Corporation. Nothing
herein shall be construed to prevent the Corporation from amending or
terminating any such plans to the extent currently permitted by the
terms of such plans. Any agreements existing as of the date hereof
between the Corporation and the Executive providing for special
pension, retirement or similar benefits are continued by this
Agreement.
(d) Expenses. During the term of employment, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the policies and
procedures of the Corporation in effect as of the date hereof.
(e) Office and Support Staff. During the term of employment, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other
assistance, commensurate with his level of employment.
(f) Vacation and Fringe Benefits. During the term of employment, the
Executive shall be entitled to paid vacation and fringe benefits
(including, but not limited to, travel facilities) in accordance with
the policies of the Corporation in effect as of the date hereof.
5. Termination.
(a) Death. Except for the obligations of the Corporation set forth
in this paragraph (a), this Agreement shall terminate automatically
upon the Executive's death. In the event of such termination, the
Corporation shall pay to the Executive's estate all benefits and
compensation accrued hereunder through the end of the month in which
the Executive died.
(b) Cause. The Corporation may terminate the Executive's employment
for Cause. For purposes of the Agreement, "Cause" shall mean (i) an
act or acts of dishonesty on the Executive's part which are intended
to result in his substantial personal enrichment at the expense of the
Corporation or (ii) any material violation by the Executive of his
responsibilities set forth in Section 3 or Section 6(c) hereof which
are demonstrably willful and deliberate on the Executive's part and
which result in material injury to the Corporation or (iii) any
material violation by the Executive of Textron's Business Conduct
Guidelines.
If the Executive's employment is terminated for Cause, the
Corporation shall pay the Executive his full accrued Base Salary
through the date of such termination at the rate in effect at the time
of such termination, and the Corporation shall have no further
obligations to the Executive under this Agreement.
6. Consulting Services.
(a) In the event of the Executive's Disability (as hereinafter
defined), the Executive's status shall automatically become that of an
employee-consultant for the remainder of the term of employment.
During such period, the Executive shall be required to provide
services to the Corporation in accordance with paragraph (c) of this
Section 6, but only to the extent the Executive has the ability to
provide such services. Upon the completion of the term of employment,
the Executive shall be entitled to receive (in addition to any other
payments and benefits accrued as of such time) such disability
benefits and other benefits as may be payable to the Executive under
the terms of the employee benefit plans referred to in Section 4(c)
hereof. "Disability" shall mean a disability which prevents the
Executive from performing the services contemplated by Section 3
hereof for the entire remainder of the term of employment.
(b) Notwithstanding any other provisions contained in this Agreement,
the Corporation, at its option for any reason, or the Executive, for
Good Reason (as hereinafter defined), may convert the Executive's
status into that of an employee-consultant for the remainder of the
term of employment in accordance with the procedures set forth in this
paragraph (b). In the event the Corporation determines that the
Executive shall no longer hold his present position or the Corporation
intends to effect any change in the Executive's employment status that
would constitute Good Reason, the Corporation shall give notice to the
Executive of such determination or intention. In the event that the
Executive claims that the Corporation has taken any action
constituting Good Reason, the Executive shall give notice to the
Corporation of such claim. In either event, the parties shall meet
and attempt to reach a mutually satisfactory adjustment of the terms
of the Executive's employment; provided, however, that the Executive
shall not be obligated to accept any change in the terms of his
employment proposed by the Corporation. If the Corporation and the
Executive cannot reach a mutually satisfactory adjustment, either the
Corporation or the Executive may then convert the Executive's status
to that of an employee-consultant.
"Good Reason" shall mean:
(i) without the express written consent of the Executive,
(A) the assignment of the Executive to any duties or location
inconsistent in any significant respect with the provisions of
Section 3(a) hereof, or (B) any other significant change in the
position, authority or responsibilities of the Executive (except
as permitted by this Section 6);
(ii) any failure by the Corporation to comply with any of
the provisions of Section 4 hereof, other than an insubstantial
and inadvertent failure remedied by the Corporation promptly
after receipt of notice thereof given by the Executive; or
(iii) any purported termination by the Corporation of
the Executive's employment hereunder other than in accordance
with, and as permitted by, this Agreement, it being understood
and agreed that any such purported termination shall not be
effective for any purpose of this Agreement.
(c) In the event the Executive's status is converted to that of an
employee-consultant as provided in this Section 6, the Executive shall
continue to be a full-time employee of the Corporation and shall,
except as limited by paragraph (a) of this Section 6, provide such
advisory services concerning the business of the Corporation, of the
same type and stature performed by the Executive prior to the
conversion of his status to employee-consultant, as may reasonably be
requested by the Corporation. The period during which the Executive
serves as an employee-consultant pursuant to this Section 6 shall for
all purposes of this Agreement be considered part of the term of
employment. During such period, the Corporation shall continue to be
bound by, and obligated to perform in all respects, all of the
provisions of Section 4 hereof, and, to the extent not inconsistent
with this Section 6, all of the other provisions of the Agreement
shall continue in full force and effect; provided, however, that
during such period, the Executive shall not be eligible for awards of
stock options and performance units under the Corporation's long-term
incentive plan, nor shall the Executive be entitled to office and
support staff under Section 4(e). During such period, the Executive
shall not engage in any activities in competition with the Corporation
and shall continue to be deemed an employee under all benefit plans
and programs of the Corporation.
7. Non-Exclusivity of Rights.
(a) Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or
other plan or program provided by the Corporation or any of its
affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the
Executive may have under any stock option or other agreements with the
Corporation or any of its affiliated companies. Amounts which are
vested benefits or which the Executive is otherwise entitled to
receive under any plan or program of the Corporation or any of its
affiliated companies shall be payable in accordance with the terms of
such plan or program.
(b) Notwithstanding the foregoing, and in consideration of the
premises contained in this Agreement, the Executive specifically
waives any rights he may have to receive any severance pay or other
severance benefits under the Textron Executive Severance Plan and any
other severance plan, program or agreement of the Corporation.
8. No Set-Off; Legal Fees.
The Corporation's obligation to make the payments provided for herein and
otherwise to perform its obligations hereunder shall not be affected by any
circumstances, including without limitation any set-off, counter-claim,
recoupment, defense or other right which the Corporation may have against
the Executive or others. Unless it is finally determined by a court of
competent jurisdiction after all available appeals that the Corporation has
validly terminated the Executive's employment for Cause, the Corporation
agrees to pay, to the full extent permitted by law, all legal fees and
expenses which the Executive may reasonably incur as a result of any
contest by the Corporation or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
performance thereof, plus interest on the total unpaid amount determined to
be payable hereunder, such interest to be calculated on the basis of the
prime commercial lending rate announced by Morgan Guaranty Trust Company in
effect from time to time, for the period commencing on the date of such
contest and ending on the date on which the Corporation shall pay such
total amount (such interest to be compounded quarterly).
9. Confidential Information.
The Executive shall hold in a fiduciary capacity for the benefit of the
Corporation all secret or confidential information, knowledge or data
relating to the Corporation or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the Executive
during his employment by the Corporation or any of its affiliated companies
and which shall not be public knowledge. During and after the end of the
term of employment, the Executive shall not, without the prior written
consent of the Corporation, communicate or divulge any such information,
knowledge or data to anyone other than the Corporation and those designated
by it.
10. No Assignment.
This Agreement is personal to the Executive and without the prior written
consent of the Corporation shall not be assignable by the Executive other
than by will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's legal
representatives.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect.
This Agreement may not be amended or modified other than by a written
agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
Textron Inc.
40 Westminster Street
Providence, RI 02903
If to the Corporation:
Textron Inc.
40 Westminster Street
Providence, Rhode Island 02903
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Corporation may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
/s/ John D. Butler
John D. Butler
TEXTRON INC.
By /s/ William F. Wayland
William F. Wayland
Executive Vice President
Administration and
Chief Human Resources Officer
ATTEST:
/s/ Michael D. Cahn
Michael D. Cahn
Assistant Secretary
(SEAL)
EXHIBIT 12.1
PARENT GROUP
COMPUTATION OF RATIO OF INCOME TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(unaudited)
(In millions except ratio)
Six Months
Ended
June 28, 1997
Fixed charges:
Interest expense $69
Distributions on preferred securities of subsidiary 13
trust, net of income taxes
Estimated interest portion of rents 9
Total fixed charges $91
Income:
Income from continuing operations before income taxes
and distributions on preferred securities of
subsidiary trust $463
Eliminate equity in undistributed pretax income of
Finance Group (116)
Fixed charges 91
Adjusted income $438
Ratio of income to fixed charges 4.81
EXHIBIT 12.2
TEXTRON INC. INCLUDING ALL MAJORITY-OWNED SUBSIDIARIES
COMPUTATION OF RATIO OF INCOME TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(unaudited)
(In millions except ratio)
Six Months
Ended
June 28,
1997
Fixed charges:
Interest expense $363
Distributions on preferred securities of subsidiary 13
trust, net of income taxes
Estimated interest portion of rents 18
Total fixed charges $394
Income:
Income from continuing operations before income
taxes and distributions on preferred securities
of subsidiary trust $463
Fixed charges 394
Adjusted income $857
Ratio of income to fixed charges 2.18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Textron
Inc.'s Consolidated Balance Sheet as of June 28, 1997 and Consolidated Statement
of Income for the six months ended June 28,1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1997
<PERIOD-END> JUN-28-1997
<CASH> 161
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,416
<CURRENT-ASSETS> 0
<PP&E> 3,483
<DEPRECIATION> 1,802
<TOTAL-ASSETS> 18,795
<CURRENT-LIABILITIES> 0
<BONDS> 10,628
<COMMON> 24
0
14
<OTHER-SE> 3,182
<TOTAL-LIABILITY-AND-EQUITY> 18,795
<SALES> 4,138
<TOTAL-REVENUES> 5,218
<CGS> 3,386
<TOTAL-COSTS> 3,523
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 127
<INTEREST-EXPENSE> 363
<INCOME-PRETAX> 463
<INCOME-TAX> 180
<INCOME-CONTINUING> 270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270
<EPS-PRIMARY> 1.58<F1>
<EPS-DILUTED> 1.58
<FN>
<F1>Reflects the effect of a two-for-one stock split in the form of a stock
dividend paid May 30, 1997 to shareholders of record on May 9, 1997. Prior
financial data schedules have not been restated.
</FN>
</TABLE>
