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 September 27, 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 October 25, 1997 - 164,322,000 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 Nine Months Ended
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues
Manufacturing sales $ 1,950 $1,722 $6,088 $5,289
Finance revenues 558 526 1,638 1,557
Total revenues 2,508 2,248 7,726 6,846
Costs and expenses
Cost of sales 1,589 1,395 4,975 4,308
Selling and administrative 372 335 1,114 1,008
Interest 183 183 546 549
Provision for losses on collection of finance
receivables 63 59 190 166
Other 71 69 208 208
Total costs and expenses 2,278 2,041 7,033 6,239
Income from continuing operations before
income taxes and distributions on
preferred securities of subsidiary trust 230 207 693 607
Income taxes (86) (81) (266) (237)
Distributions on preferred securities of
subsidiary trust, net of income taxes (6) (6) (19) (16)
Income from continuing operations 138 120 408 354
Discontinued operation, net of income
taxes - (155) - (229)
Net income $ 138 $ (35) $ 408 $ 125
Per common share*:
Income from continuing operations $ .81 $ .70 $ 2.39 $ 2.05
Discontinued operation - (.90) - (1.33)
Net income $ .81 $ (.20) $ 2.39 $ .72
Average shares outstanding* 170,412,000 171,580,000 170,419,000 172,592,000
Dividends per share:
$2.08 Preferred stock, Series A $ .52 $ .52 $ 1.56 $ 1.56
$1.40 Preferred stock, Series B $ .35 $ .35 $ 1.05 $ 1.05
Common stock* $ .25 $ .22 $ .75 $ .66
*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.
</TABLE>
See notes to condensed consolidated financial statements.
Item 1. FINANCIAL STATEMENTS (Continued)
<TABLE>
TEXTRON INC.
Condensed Consolidated Balance Sheet (unaudited)
(Dollars in millions)
<CAPTION>
September 27, December 28,
1997 1996
<S> <C> <C>
Assets
Cash $ 89 $ 47
Investments 845 820
Receivables - net:
Finance 9,877 9,856
Commercial and U.S. government 1,015 882
10,892 10,738
Inventories 1,435 1,192
Investment in discontinued operation - 770
Property, plant, and equipment, less accumulated
depreciation of $1,803 and $1,664 1,713 1,539
Goodwill, less accumulated amortization of $442 and
$404 1,773 1,609
Other (including net prepaid income taxes) 1,770 1,520
Total assets $18,517 $ 18,235
Liabilities and shareholders' equity
Liabilities
Accounts payable $ 866 $ 850
Accrued postretirement benefits other than pensions 806 817
Other accrued liabilities (including income taxes) 2,764 2,556
Debt:
Parent Group 1,317 1,507
Finance Group 8,992 8,839
10,309 10,346
Total liabilities 14,745 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 13 14
Common stock* 24 12
Capital surplus 825 793
Retained earnings 3,253 2,969
Other (56) 7
4,059 3,795
Less cost of treasury shares 770 612
Total shareholders' equity 3,289 3,183
Total liabilities and shareholders' equity $18,517 $ 18,235
*Common shares outstanding 164,852,000** 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.
</TABLE>
See notes to condensed consolidated financial statements.
Item 1. FINANCIAL STATEMENTS (Continued)
<TABLE>
TEXTRON INC.
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In millions)
<CAPTION>
Nine Months Ended
September 27, September 28,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 408 $ 354
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 316 286
Provision for losses on receivables 192 168
Changes in assets and liabilities excluding those
related to acquisitions and divestitures:
Increase in commercial and U.S. government
receivables (60) (8)
Increase in inventories (187) (150)
Increase in other assets (150) (105)
Decrease in accounts payable (18) (16)
Increase in accrued liabilities 13 176
Other - net (58) (83)
Net cash provided by operating activities 456 622
Cash flows from investing activities:
Purchases of investments (178) (204)
Proceeds from disposition of investments 336 143
Maturities and calls of investments 56 41
Finance receivables:
Originated or purchased (5,674) (4,874)
Repaid or sold 5,093 4,657
Proceeds from sale of securitized assets 373 -
Cash used in acquisitions (398) (172)
Cash received from disposition of business 571 180
Capital expenditures (254) (215)
Other investing activities - net 31 (25)
Net cash used by investing activities (44) (469)
Cash flows from financing activities:
Increase in short-term debt 120 230
Proceeds from issuance of long-term debt 1,604 1,222
Principal payments on long-term debt (1,872) (1,648)
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 32 29
Purchases of Textron common stock (130) (239)
Purchases of Textron common stock from Paul Revere - (34)
Dividends paid (124) (111)
Net cash used by financing activities (370) (68)
Net increase in cash 42 85
Cash at beginning of period 47 84
Cash at end of period $ 89 $ 169
</TABLE>
See notes to condensed consolidated financial statements.
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
September 27, 1997, and its consolidated results of operations for
each of the respective three and nine month periods ended
September 27, 1997 and September 28, 1996 and consolidated cash flows
for each of the nine month periods ended September 27, 1997 and
September 28, 1996. The results of operations for the nine months
ended September 27, 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. The Basic EPS calculation does not
consider the potential effects of potentially dilutive securities and
on a pro forma basis, is approximately $.03 and $.08 per share higher
than Diluted EPS for the three and nine month periods ended
September 27, 1997, respectively. On a pro forma basis, Diluted EPS
calculated in accordance with FAS 128 does not differ significantly
from EPS as currently reported for the three and nine month periods
ended September 27, 1997.
Note 4: Inventories
<TABLE>
<CAPTION>
September 27, December 28,
1997 1996
(In millions)
<S> <C> <C>
Finished goods $ 434 $ 364
Work in process 800 769
Raw materials 350 259
1,584 1,392
Less progress payments and customer
deposits 149 200
$1,435 $1,192
</TABLE>
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 Nine Months Ended
September 27, September 28, September 27, September 28,
Condensed Statement of Income 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $1,950 $1,722 $6,088 $5,289
Costs and expenses
Cost of sales 1,589 1,395 4,975 4,308
Selling and administrative 203 182 620 548
Interest 32 36 101 111
Total costs and expenses 1,824 1,613 5,696 4,967
126 109 392 322
Pretax income on Finance Group 104 98 301 285
Income from continuing operations
before income taxes and
distributions on preferred securities
of subsidiary trust 230 207 693 607
Income taxes (86) (81) (266) (237)
Distributions on preferred securities
of subsidiary trust, net of income
taxes (6) (6) (19) (16)
Income from continuing operations 138 120 408 354
Discontinued operations, net of income
taxes - (155) - (229)
Net income $ 138 $ (35) $ 408 $ 125
</TABLE>
<TABLE>
<CAPTION>
September 27, December 28,
Condensed Balance Sheet 1997 1996
<S> <C> <C>
Assets
Cash $ 61 $ 24
Receivables - net 1,015 882
Inventories 1,435 1,192
Investments in Finance Group 1,617 1,600
Investment in discontinued operation - 770
Property, plant and equipment - net 1,614 1,454
Goodwill 1,616 1,466
Other assets (including net prepaid income taxes) 1,436 1,269
Total assets $8,794 $8,657
Liabilities and shareholders' equity
Accounts payable and accrued liabilities (including
income taxes) $3,705 $3,484
Debt 1,317 1,507
Textron - obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
Textron junior subordinated debt securities 483 483
Shareholders' equity 3,289 3,183
Total liabilities and shareholders' equity $8,794 $8,657
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
Note 7: Financial information by borrowing group (continued)
<TABLE>
PARENT GROUP
(unaudited) (In millions)
<CAPTION>
Nine Months Ended
September 27, September 28,
Condensed Statement of Cash Flows 1997 1996
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 408 $ 354
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Undistributed earnings of Finance Group (46) (80)
Depreciation and amortization 215 188
Changes in assets and liabilities excluding
those related to acquisitions and
divestitures:
Increase in receivables (60) (8)
Increase in inventories (187) (150)
Increase in other assets (138) (95)
(Decrease) increase in accounts payable and
accrued liabilities (1) 137
Other - net 6 (5)
Net cash provided by operating activities 197 341
Cash flows from investing activities:
Capital expenditures (222) (197)
Cash used in acquisitions (355) (172)
Cash received from disposition of businesses 571 180
Proceeds from disposition of investments 251 -
Other investing activities - net 20 (24)
Net cash provided (used) by investing
activities 265 (213)
Cash flows from financing activities:
Increase (decrease) in short-term debt 11 (46)
Proceeds from issuance of long-term debt 1,085 808
Principal payments on long-term debt (1,299) (947)
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 32 29
Purchases of Textron common stock (130) (239)
Purchases of Textron common stock from Paul Revere - (34)
Dividends paid (124) (111)
Net cash used by financing activities (425) (57)
Net increase in cash 37 71
Cash at beginning of period 24 56
Cash at end of period $ 61 $ 127
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
Note 7: Financial information by borrowing group (continued)
<TABLE>
FINANCE GROUP
(unaudited) (In millions)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
Condensed Statement of Income 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues $ 558 $ 526 $1,638 $1,557
Costs and expenses
Selling and administrative 169 153 494 460
Interest 151 147 445 438
Provision for losses on collection of
finance receivables 63 59 190 166
Other 71 69 208 208
Total costs and expenses 454 428 1,337 1,272
Income before income taxes 104 98 301 285
Income taxes (39) (38) (115) (112)
Net income $ 65 $ 60 $ 186 $ 173
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
Condensed Balance Sheet 1997 1996
<S> <C> <C>
Assets
Cash $ 28 $ 23
Investments 845 814
Finance receivables - net 9,880 9,860
Other 825 712
Total assets $11,578 $11,409
Liabilities and equity
Accounts payable and accrued liabilities (including
income taxes) $ 969 $ 970
Debt 8,992 8,839
Equity 1,617 1,600
Total liabilities and equity $11,578 $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 Nine Months Ended
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES
MANUFACTURING:
Aircraft $ 752 $ 638 $2,240 $1,941
Automotive 464 355 1,544 1,199
Industrial 584 554 1,864 1,635
Systems and Components 150 175 440 514
1,950 1,722 6,088 5,289
FINANCE 558 526 1,638 1,557
Total revenues $2,508 $2,248 $7,726 $6,846
INCOME
MANUFACTURING:
Aircraft $ 84 $ 69 $ 229 $ 192
Automotive 28 27 111 105
Industrial 65 58 208 176
Systems and Components 17 19 44 46
194 173 592 519
FINANCE 104 98 301 285
Segment operating income 298 271 893 804
Corporate expenses and other - net (36) (28) (99) (86)
Interest expense - net (32) (36) (101) (111)
Income from continuing operations
before income taxes and
distributions on preferred
securities of subsidiary trust $ 230 $ 207 $ 693 $ 607
</TABLE>
Financial Condition
Parent Group: During the nine months ended September 27, 1997, the Parent
Group's operating activities provided cash of $197 million versus $341 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, higher receivable balances, and the
timing of prepaid expenses and customer tooling costs.
The Group's debt decreased by $190 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). Cash provided
by operating activities and the proceeds from the sale of Paul Revere were
primarily used for (a) acquisitions ($355 million), (b) capital expenditures
($222 million), (c) purchases of Textron common stock ($130 million), and (d)
payments of dividends ($124 million). Its ratio of debt to total capital was
26% at September 27, 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 September 27, 1997 were $1.3
billion. Textron had $511 million available at September 27, 1997 under its
shelf registration statements filed with the Securities and Exchange Commission.
At September 27, 1997, approximately 37% and 28% of total foreign currency
borrowings of $482 million under Textron's multi-currency credit agreements were
denominated in Deutsche marks and French francs, respectively.
During the nine months ended September 27, 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.
Several smaller acquisitions aggregating approximately $30 million also closed
during the period.
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 $140 million and $93 million
to the Parent Group during the nine month periods ended September 27, 1997 and
September 28, 1996, respectively.
During the nine months ended September 30, 1997, Avco Financial Services (AFS)
issued $469 million of unsecured debt securities, including $155 million under
its shelf registration statements. AFS had $947 million and $488 million
available at September 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 nine months ended September 30, 1997, the Finance Group had $390
million of interest rate exchange agreements expire and $519 million of interest
rate exchange agreements go into effect. The new agreements, which have a
weighted average original term of 2.5 years and expire through 2002, had the
effect of fixing the rate of interest at approximately 6.7% on $519 million of
variable rate borrowings at September 30, 1997.
Textron Financial Corporation (TFC) issued $50 million medium-term notes during
the nine months ended September 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 September 30, 1997.
Results of Operations - Three months ended September 27, 1997 vs. Three months
ended September 28, 1996
Textron reported third quarter 1997 earnings per share from continuing
operations of $0.81 per share, up 16% from third quarter 1996 earnings per share
from continuing operations of $0.70. Income from continuing operations in 1997
of $138 million was up 15% from the 1996 amount of $120 million. Revenues
increased 12% to $2.5 billion in 1997 from $2.2 billion in 1996. Net income in
1997 was $138 million versus a net loss of $35 million in 1996, which reflected
the impact of a $155 million loss from a discontinued operation.
The Aircraft segment's revenues and income increased $114 million (18%) and $15
million (22%), respectively, due primarily to higher results at Cessna Aircraft.
Cessna's revenues increased as a result of higher sales of business jets,
including its recently introduced Citation X and Citation Bravo. Its income
increased from the higher revenues, partially offset by an increased level of
expenses due to the introduction and support of new products. Bell Helicopter's
revenues were slightly below last year and income approximated last year's
level. Higher sales of U.S. Government aircraft and commercial spares aggregated
$29 million, while lower revenues on the V-22 program and lower foreign military
and commercial aircraft sales aggregated $37 million.
The Automotive segment's revenues increased $109 million (31%), reflecting the
first quarter 1997 acquisition of Kautex. Income increased $1 million (4%),
reflecting the increased revenues, offset by the impact of new model launches
and a restructuring effort which began in the second quarter of 1997.
The Industrial segment's revenues and income increased $30 million (5%) and $7
million (12%), respectively. These increases were due principally to the first
quarter 1997 acquisitions of Maag Pump Systems and Maag Italia S.p.A., and the
third quarter 1997 acquisition of Burkland Holding, Inc. In addition, higher
revenues and income in the fastening systems and contractor tool businesses were
partially offset by lower performance in the golf and turf-care business.
The Systems and Components segment's revenues and income decreased $25 million
(14%) and $2 million (11%), respectively, reflecting the third quarter 1996
divestiture of Textron Aerostructures and lower revenues in marine and land
systems products. These revenue and income decreases were partially offset by
an increase in demand for aerospace components and higher revenues on the sensor
fuzed weapon contract.
The Finance segment's revenues increased $32 million (6%), while income
increased $6 million (6%). AFS' revenues and income increased $23 million and $1
million, respectively. Revenues in its finance and related insurance business
increased $19 million, due to an increase in investment and other income, and an
increase in average finance receivables reflecting the benefit of the
acquisition of approximately $580 million of consumer and commercial receivables
in late 1996 and the first half of 1997. The increase in investment and other
income was primarily attributable to an $8 million gain on the sale of certain
underperforming branches. The benefit of these revenue increases were partially
offset by lower yields on finance receivables (reflecting both decreases in
yields on finance receivables and the impact of an increase in lower-yielding
commercial receivables), and a decrease in capital gains. Income increased $1
million due to the benefit of the higher revenues and a decrease in the average
cost of borrowed funds, partially offset by higher operating expenses related to
international expansion and the start-up of centralized sales processing centers
in the U.S. and Canada.
In AFS' nonrelated insurance business, revenues increased $4 million, due
primarily to higher premiums earned, partially offset by a decrease in capital
gains. Its income equaled last year's level, due to the higher revenues and a
decrease in underwriting expenses (primarily insurance losses) in relation to
premiums earned, partially offset by a decrease in capital gains.
TFC's revenues increased $9 million, due to a higher level of average
receivables and an increase in other income, due primarily to a gain from the
securitization of $401 million of Textron-related receivables. Its income
increased $5 million, due to the higher revenues and a lower provision for loan
losses related to the equipment portfolio, partially offset by an increase in
the average cost of borrowed funds and growth in businesses with higher
operating expense ratios.
Corporate expenses and other - net increased $8 million, due to expenses
related to organizational changes and higher support costs related to
international expansion.
Interest expense - net for the Parent Group decreased $4 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 and share repurchases.
Results of Operations - Nine months ended September 27, 1997 vs. Nine months
ended September 28, 1996
Earnings per share from continuing operations for the nine months were $2.39 per
share, up 17% from the 1996 amount of $2.05. Income from continuing operations
in 1997 of $408 million was up 15% from $354 million for 1996. Revenues
increased 13% to $7.7 billion in 1997 from $6.8 billion in 1996. Net income in
1997 was $408 million versus $125 million in 1996, which reflected the impact of
a $229 million loss from a discontinued operation.
The Aircraft segment's revenues and income increased $299 million (15%) and $37
million (19%), respectively. Cessna Aircraft's revenues increased as a result of
higher sales of business jets, including its recently introduced Citation X and
Citation Bravo. Its income increased from the higher revenues, partially offset
by an increased level of expenses due to the introduction and support of new
products. Bell Helicopter's revenues and income increased primarily as a result
of higher commercial and U.S. Government aircraft sales ($117 million),
partially offset by lower revenues on the V-22 program ($71 million) and foreign
military programs ($26 million).
The Automotive segment's revenues increased $345 million (29%), 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 in the second
quarter 1997 and the timing of replacement business and new model launches.
Income increased $6 million (6%), reflecting the above factors and the impact of
a restructuring effort which began in the second quarter 1997.
Fourth quarter 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 fourth quarter
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 $229 million (14%) and
$32 million (18%), respectively. These increases were due primarily to higher
sales in fastening systems ($125 million), including the second quarter 1996
acquisition of Textron Industries. In addition, results benefited from the 1997
acquisitions of Maag Pump Systems, Maag Italia, S.p.A., and Burkland Holding,
Inc., the third quarter 1996 acquisition of Klauke, and higher sales and
improved performance in the contractor tool and golf and turf-care businesses.
The Systems and Components segment's revenues and income decreased $74 million
(14%) and $2 million (4%), respectively, reflecting the third quarter 1996
divestiture of Textron Aerostructures and lower revenues in marine and land
systems products. These revenue and income decreases were partially offset by an
increase in demand for aerospace components and higher revenues on the sensor
fuzed weapon contract.
The Finance segment's revenues increased $81 million (5%), while income
increased $16 million (6%). AFS' revenues and income increased $61 million and
$6 million, respectively. Revenues in its finance and related insurance business
increased $48 million, due to an increase in investment and other income, and
an increase in average finance receivables ($7.376 billion for the first nine
months of 1997 vs $6.845 billion for the first nine months of 1996), reflecting
the benefit of the acquisition of approximately $580 million of consumer and
commercial receivables in late 1996 and the first half of 1997. The increase in
investment and other income was primarily attributable to an $11 million gain on
the sale of certain underperforming branches. The benefit of these revenue
increases were partially offset by a decrease in yields on finance receivables
(17.93% for the first nine months of 1997 vs 18.58% for the first nine months of
1996), reflecting both decreases in yields on finance receivables and the impact
of an increase in lower-yielding commercial 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 (2.96% for
the first nine months of 1997 vs 2.74% for the first nine months of 1996),
partially offset by the benefit of the higher revenues, a decrease in the
average cost of borrowed funds (6.45% for the first nine months of 1997 vs 6.93%
for the first nine months of 1996), and a decrease in the ratio of insurance
losses to earned premiums.
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 has
continued to burden the finance customer, resulting in higher delinquencies and
charge-offs. This is particularly true in the U.S. where charge-offs have
increased and receivables outstanding have decreased. In order to make better
use of its capital resources, AFS has undertaken a strategic review of its U.S.
operations. This review, which encompasses underperforming branches, started in
June 1997 and will take 12 to 18 months. When it is determined that
underperforming branches will not meet certain profitability standards, they
will be sold. It is not anticipated that these actions will result in any
losses.
In AFS' non-related insurance business, revenues increased $13 million, due
primarily to higher premiums earned, partially offset by a decrease in capital
gains. Income increased $10 million, due to the higher revenues and a decrease
in underwriting expenses (primarily insurance losses) in relation to premiums
earned.
TFC's revenues increased $20 million, due to a higher level of average
receivables ($3.194 billion in the first nine months of 1997 vs. $3.023 billion
in the first nine months of 1996), and increases in other income, due primarily
to the securitization of $401 million of Textron-related receivables and
increased syndication fee income, partially offset by lower yields of
receivables (9.96% in the first nine months of 1997 vs. 10.03% in the first nine
months of 1996), primarily on floating rate receivables. Its income increased
$10 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 $13 million, due to first quarter
1997 litigation expenses related to a divested operation and higher third
quarter 1997 expenses related to organizational changes and higher support costs
related to international expansion.
Interest expense-net for the Parent Group decreased $10 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 and share repurchases.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 and dividends of Textron Inc. including
all majority-owned subsidiaries.
27 Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K
During the quarter ended September 27, 1997, Textron filed the
following report on Form 8-K:
Current Report on Form 8-K filed with the Securities and Exchange
Commission dated August 8, 1997, reporting under Item 5 (Other
Events) and filing under Item 7 (Exhibits) (a) the consent of
Cravath, Swaine & Moore, special tax counsel to Textron, to the
filing of the opinion set forth in full under the caption, "United
States Tax Considerations" in the Prospectus Supplement dated
August 8, 1997 (relating to Medium-Term Notes Series D of Textron)
to the Prospectus dated February 1, 1996, included in Registration
Statement No. 33-63227, (b) the Form of Distribution Agreement for
Medium-Term Senior Securities, (c) the Form of Fixed Interest Rate
Medium-Term Senior Securities and (d) the Form of Floating
Interest Rate Medium-Term Senior Securities.
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: November 7, 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
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)
EXHIBIT 12.1
<TABLE>
PARENT GROUP
COMPUTATION OF RATIO OF INCOME TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(unaudited)
(In millions except ratio)
<CAPTION>
Nine Months
Ended
September 27, 1997
<S> <C>
Fixed charges:
Interest expense $ 101
Distributions on preferred securities of subsidiary trust,
net of income taxes 19
Estimated interest portion of rents 13
Total fixed charges $ 133
Income:
Income from continuing operations before income taxes and
distributions on preferred securities of subsidiary trust $ 693
Eliminate equity in undistributed pretax income of Finance
Group (161)
Fixed charges 133
Adjusted income $ 665
Ratio of income to fixed charges 5.00
</TABLE>
EXHIBIT 12.2
<TABLE>
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)
<CAPTION>
Nine Months
Ended
September 27, 1997
<S> <C>
Fixed charges:
Interest expense $ 546
Distributions on preferred securities of subsidiary trust,
net of income taxes 19
Estimated interest portion of rents 26
Total fixed charges $ 591
Income:
Income from continuing operations before income taxes and
distributions on preferred securities of subsidiary trust $ 693
Fixed charges 591
Adjusted income $1,284
Ratio of income to fixed charges 2.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Textron
Inc.'s Consolidated Balance Sheet as of September 27, 1997 and Consolidated
Statement of Income for the nine months ended September 27,1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 89
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,435
<CURRENT-ASSETS> 0
<PP&E> 3,516
<DEPRECIATION> 1,803
<TOTAL-ASSETS> 18,517
<CURRENT-LIABILITIES> 0
<BONDS> 10,309
<COMMON> 24
0
13
<OTHER-SE> 3,252
<TOTAL-LIABILITY-AND-EQUITY> 18,517
<SALES> 6,088
<TOTAL-REVENUES> 7,726
<CGS> 4,975
<TOTAL-COSTS> 5,183
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 190
<INTEREST-EXPENSE> 546
<INCOME-PRETAX> 693
<INCOME-TAX> 266
<INCOME-CONTINUING> 408
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 408
<EPS-PRIMARY> 2.39
<EPS-DILUTED> 2.39
</TABLE>
