SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
October 6, 1998
(Date of earliest event
reported)
TEXTRON INC.
(Exact name of registrant as specified in its
charter)
Delaware 1-5480 05-0315468
(State of (Commission File (IRS Employer
Incorporation ) No.) Identification No.)
40 Westminster Street, Providence, Rhode
Island 02903
(Address of principal executive offices,
including zip code)
(401)-421-2800
(Registrant's telephone number,
including area code)
N/A
(Former name or former address, if
changed since last report)
Item 5. Other Events
As previously reported by the Registrant, Textron Inc. ("Textron"), in a Current
Report on Form 8-K dated August 11, 1998, Textron has entered into an agreement
to sell its Avco Financial Services, Inc. (AFS) unit to Associates First Capital
Corporation. Textron has restated its financial statements for the following
periods to reflect AFS as a discontinued operation: 1) for each of the three
years in the period ended January 3, 1998; 2) for the three month period ended
April 4, 1998; and 3) for the six month period ended July 4, 1998. The restated
financial statements, together with other restated financial information, are
filed herewith as Exhibit 99.1, Exhibit 99.2 and Exhibit 99.3.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit Exhibit
No.
23 Consent of Independent Auditors.
Note: Exhibits 27.1 through 27.14 are filed electronically only
27.1 Restated financial data schedule for period ended April 1, 1995
27.2 Restated financial data schedule for period ended July 1, 1995
27.3 Restated financial data schedule for period ended September 30,
1995
27.4 Restated financial data schedule for period ended December 30,
1995
27.5 Restated financial data schedule for period ended March 30, 1996
27.6 Restated financial data schedule for period ended June 29, 1996
27.7 Restated financial data schedule for period ended September 28,
1996
27.8 Restated financial data schedule for period ended December 28,
1996
27.9 Restated financial data schedule for period ended March 29, 1997
27.10 Restated financial data schedule for period ended June 28, 1997
27.11 Restated financial data schedule for period ended September 27,
1997
27.12 Restated financial data schedule for period ended January 3, 1998
27.13 Restated financial data schedule for period ended April 4, 1998
27.14 Restated financial data schedule for period ended July 4, 1998
99.1 Restated financial statements and related financial information
for the period ended January 3, 1998
99.2 Restated financial statements and related financial information
for the three month period ended April 4, 1998
99.3 Restated financial statements and related financial information
for the six month period ended July 4, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TEXTRON INC.
(Registrant)
By:/s/ Richard Yates
Name: Richard L. Yates
Title: Vice President and Controller
Dated: October 6, 1998
INDEX TO EXHIBITS
Exhibit Exhibit
No.
23 Consent of Independent Auditors.
Note: Exhibits 27.1 through 27.12
27.1 Restated financial data schedule for period ended April 1, 1995
27.2 Restated financial data schedule for period ended July 1, 1995
27.3 Restated financial data schedule for period ended September 30,
1995
27.4 Restated financial data schedule for period ended December 30,
1995
27.5 Restated financial data schedule for period ended March 30,
1996
27.6 Restated financial data schedule for period ended June 29, 1996
27.7 Restated financial data schedule for period ended September 28,
1996
27.8 Restated financial data schedule for period ended December 28,
1996
27.9 Restated financial data schedule for period ended March 29,
1997
27.10 Restated financial data schedule for period ended June 28, 1997
27.11 Restated financial data schedule for period ended September 27,
1997
27.12 Restated financial data schedule for period ended January 3,
1998
27.13 Restated financial data schedule for period ended April 4, 1998
27.14 Restated financial data schedule for period ended July 4, 1998
99.1 Restated financial statements and related financial information
for the period ended January 3, 1998
99.2 Restated financial statements and related financial information
for the three month period ended April 4, 1998
99.3 Restated financial statements and related financial information
for the six month period ended July 4, 1998
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statements (Form S-8 No. 333-50931, Form S-3
No. 33-63227, Form S-8 No. 333-07121, Form S-8 No. 33-19402,
Form S-8 No. 33-38094, Form S-8 No. 33-57025 and Form S-8
No. 33-63741) of Textron Inc. of our report dated January
27, 1998, except for note 21, as to which the date is August
11, 1998, with respect to the restated financial statements
of Textron Inc. for the year ended January 3, 1998 included
in its Current Report on Form 8-K dated October 6, 1998,
filed with the Securities and Exchange Commission.
Boston, Massachusetts
October 2, 1998
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.1
<LEGEND>
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
April 1, 1995 and Consolidated Statement of Income for the three months
ended April 1, 1995, previously filed electronically with the
Commission. The aforementioned financial statements were not required
to be restated in the Company's Annual Report on Form 8-K dated October 6, 1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> APR-01-1995
<CASH> 40
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,267
<CURRENT-ASSETS> 4,181
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,547
<CURRENT-LIABILITIES> 1,946
<BONDS> 3,951
<COMMON> 12
0
16
<OTHER-SE> 2,952
<TOTAL-LIABILITY-AND-EQUITY> 10,547
<SALES> 1,554
<TOTAL-REVENUES> 1,629
<CGS> 1,278
<TOTAL-COSTS> 1,278
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 90
<INCOME-TAX> 36
<INCOME-CONTINUING> 54
<DISCONTINUED> 55
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.63
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.2
<LEGEND>
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
July 1, 1995 and Consolidated Statement of Income for the six months
ended July 1, 1995, previously filed electronically with the
Commission. The aforementioned financial statements were not required
to be restated in the Company's Annual Report on Form 8-K dated October 6, 1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> JUL-01-1995
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,259
<CURRENT-ASSETS> 4,380
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,755
<CURRENT-LIABILITIES> 2,175
<BONDS> 4,064
<COMMON> 12
0
15
<OTHER-SE> 3,069
<TOTAL-LIABILITY-AND-EQUITY> 10,755
<SALES> 3,205
<TOTAL-REVENUES> 3,358
<CGS> 2,629
<TOTAL-COSTS> 2,629
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 176
<INCOME-PRETAX> 201
<INCOME-TAX> 80
<INCOME-CONTINUING> 121
<DISCONTINUED> 109
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.33
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.3
<LEGEND>
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
September 30, 1995 and Consolidated Statement of Income for the nine months
ended September 30, 1995, previously filed electronically with the
Commission. The aforementioned financial statements were not required
to be restated in the Company's Annual Report on Form 8-K dated October 6,
1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 66
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,244
<CURRENT-ASSETS> 4,458
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,895
<CURRENT-LIABILITIES> 1,986
<BONDS> 3,948
<COMMON> 12
0
15
<OTHER-SE> 3,200
<TOTAL-LIABILITY-AND-EQUITY> 10,895
<SALES> 4,763
<TOTAL-REVENUES> 4,993
<CGS> 3,905
<TOTAL-COSTS> 3,905
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 257
<INCOME-PRETAX> 301
<INCOME-TAX> 120
<INCOME-CONTINUING> 181
<DISCONTINUED> 172
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 353
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 2.03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.4
<LEGEND>
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
December 30, 1995 and Consolidated Statement of Income for the year
ended December 30, 1995, previously filed electronically with the
Commission. The aforementioned financial statements were restated in the
Company's Annual Report on Form 8-K dated October 6, 1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 59
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,284
<CURRENT-ASSETS> 4,489
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,207
<CURRENT-LIABILITIES> 2,247
<BONDS> 4,051
<COMMON> 12
0
15
<OTHER-SE> 3,342
<TOTAL-LIABILITY-AND-EQUITY> 11,207
<SALES> 6,469
<TOTAL-REVENUES> 6,780
<CGS> 5,295
<TOTAL-COSTS> 5,295
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 325
<INCOME-PRETAX> 413
<INCOME-TAX> 165
<INCOME-CONTINUING> 248
<DISCONTINUED> 231
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 479
<EPS-PRIMARY> 2.82
<EPS-DILUTED> 2.77
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.5
<LEGEND>
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
March 30, 1996 and Consolidated Statement of Income for the three months
ended March 30, 1996, previously filed electronically with the
Commission. The aforementioned financial statements were not required
to be restated in the Company's Annual Report on Form 8-K dated October 6,
1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> MAR-30-1996
<CASH> 59
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,368
<CURRENT-ASSETS> 4,517
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,352
<CURRENT-LIABILITIES> 2,095
<BONDS> 3,820
<COMMON> 12
0
15
<OTHER-SE> 3,201
<TOTAL-LIABILITY-AND-EQUITY> 11,352
<SALES> 1,700
<TOTAL-REVENUES> 1,779
<CGS> 1,393
<TOTAL-COSTS> 1,393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 72
<INCOME-PRETAX> 115
<INCOME-TAX> 45
<INCOME-CONTINUING> 67
<DISCONTINUED> (32)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.6
<LEGEND>
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
June 29, 1996 and Consolidated Statement of Income for the six months
ended June 29, 1996, previously filed electronically with the
Commission. The aforementioned financial statements were not required
to be restated in the Company's Annual Report on Form 8-K dated October 6,
1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 166
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,471
<CURRENT-ASSETS> 4,824
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,947
<CURRENT-LIABILITIES> 2,350
<BONDS> 4,139
<COMMON> 12
0
15
<OTHER-SE> 3,254
<TOTAL-LIABILITY-AND-EQUITY> 11,947
<SALES> 3,567
<TOTAL-REVENUES> 3,728
<CGS> 2,913
<TOTAL-COSTS> 2,913
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> 259
<INCOME-TAX> 101
<INCOME-CONTINUING> 148
<DISCONTINUED> 12
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.93
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.7
<LEGEND>
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
September 28, 1996 and Consolidated Statement of Income for the nine months
ended September 28, 1996, previously filed electronically with the
Commission. The aforementioned financial statements were not required
to be restated in the Company's Annual Report on Form 8-K dated October 6,
1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 142
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,303
<CURRENT-ASSETS> 4,434
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,572
<CURRENT-LIABILITIES> 2,454
<BONDS> 4,048
<COMMON> 12
0
14
<OTHER-SE> 3,061
<TOTAL-LIABILITY-AND-EQUITY> 11,572
<SALES> 5,289
<TOTAL-REVENUES> 5,533
<CGS> 4,308
<TOTAL-COSTS> 4,308
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> 393
<INCOME-TAX> 154
<INCOME-CONTINUING> 223
<DISCONTINUED> (98)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.73
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.8
<LEGEND>
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
December 28, 1996 and Consolidated Statement of Income for the year
ended December 28, 1996, previously filed electronically with the
Commission. The aforementioned financial statements were restated in the
Company's Annual Report on Form 8-K dated October 6, 1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 4,052
<ALLOWANCES> 75
<INVENTORY> 1,192
<CURRENT-ASSETS> 4,287
<PP&E> 2,990
<DEPRECIATION> 1,531
<TOTAL-ASSETS> 11,514
<CURRENT-LIABILITIES> 2,496
<BONDS> 3,948
<COMMON> 12
0
14
<OTHER-SE> 3,157
<TOTAL-LIABILITY-AND-EQUITY> 11,514
<SALES> 7,179
<TOTAL-REVENUES> 7,506
<CGS> 5,837
<TOTAL-COSTS> 5,837
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 295
<INCOME-PRETAX> 540
<INCOME-TAX> 211
<INCOME-CONTINUING> 306
<DISCONTINUED> (53)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 253
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.47
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.9
<LEGEND>
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
March 29, 1997 and Consolidated Statement of Income for the three months
ended March 29, 1997, previously filed electronically with the Commission.
The aforementioned financial statements were not required to be
restated in the Company's Annual Report on Form 8-K dated October 6, 1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 102
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,373
<CURRENT-ASSETS> 4,112
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,753
<CURRENT-LIABILITIES> 2,494
<BONDS> 3,895
<COMMON> 12
0
14
<OTHER-SE> 3,190
<TOTAL-LIABILITY-AND-EQUITY> 11,753
<SALES> 2,021
<TOTAL-REVENUES> 2,103
<CGS> 1,656
<TOTAL-COSTS> 1,656
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> 144
<INCOME-TAX> 58
<INCOME-CONTINUING> 80
<DISCONTINUED> 45
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.73
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.10
<LEGEND>
This schedule contains the restatement of summary financial information
previously 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, previously filed electronically with the Commission.
The aforementioned financial statements were not required to be
restated in the Company's Annual Report on Form 8-K dated October 6, 1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JUN-28-1997
<CASH> 120
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,416
<CURRENT-ASSETS> 4,042
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,716
<CURRENT-LIABILITIES> 2,348
<BONDS> 3,858
<COMMON> 24
0
13
<OTHER-SE> 3,183
<TOTAL-LIABILITY-AND-EQUITY> 11,716
<SALES> 4,138
<TOTAL-REVENUES> 4,310
<CGS> 3,386
<TOTAL-COSTS> 3,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 317
<INCOME-TAX> 124
<INCOME-CONTINUING> 180
<DISCONTINUED> 90
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 270
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.59
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.11
<LEGEND>
This schedule contains the restatement of summary financial information
previously 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, previously filed electronically with the Commission.
The aforementioned financial statements were not required to be
restated in the Company's Annual Report on Form 8-K dated October 6, 1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 63
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,435
<CURRENT-ASSETS> 4,051
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,476
<CURRENT-LIABILITIES> 2,338
<BONDS> 3,558
<COMMON> 24
0
13
<OTHER-SE> 3,251
<TOTAL-LIABILITY-AND-EQUITY> 11,476
<SALES> 6,088
<TOTAL-REVENUES> 6,352
<CGS> 4,975
<TOTAL-COSTS> 4,975
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 18
<INTEREST-EXPENSE> 218
<INCOME-PRETAX> 472
<INCOME-TAX> 182
<INCOME-CONTINUING> 271
<DISCONTINUED> 137
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 408
<EPS-PRIMARY> 2.46
<EPS-DILUTED> 2.40
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.12
<LEGEND>
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
January 3, 1998 and Consolidated Statement of Income for the year
ended January 3, 1998, previously filed electronically with the Commission.
The aforementioned financial statements were restated in the Company's Annual
Report on Form 8-K dated October 6, 1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JAN-03-1998
<CASH> 43
<SECURITIES> 0
<RECEIVABLES> 3,989
<ALLOWANCES> 76
<INVENTORY> 1,349
<CURRENT-ASSETS> 3,698
<PP&E> 3,455
<DEPRECIATION> 1,685
<TOTAL-ASSETS> 11,330
<CURRENT-LIABILITIES> 2,141
<BONDS> 3,586
<COMMON> 24
0
13
<OTHER-SE> 3,191
<TOTAL-LIABILITY-AND-EQUITY> 11,330
<SALES> 8,333
<TOTAL-REVENUES> 8,683
<CGS> 6,836
<TOTAL-COSTS> 6,836
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 23
<INTEREST-EXPENSE> 282
<INCOME-PRETAX> 648
<INCOME-TAX> 250
<INCOME-CONTINUING> 372
<DISCONTINUED> 186
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 558
<EPS-PRIMARY> 3.38
<EPS-DILUTED> 3.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.13
<LEGEND>
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
April 4, 1998 and Consolidated Statement of Income for the three months
ended April 4, 1998, previously filed electronically with the Commission.
The aforementioned financial statements were restated in the Company's
Quarterly Report on Form 8-K dated October 6, 1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> APR-04-1998
<CASH> 20
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,568
<CURRENT-ASSETS> 4,128
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,191
<CURRENT-LIABILITIES> 2,540
<BONDS> 4,120
<COMMON> 24
0
13
<OTHER-SE> 3,325
<TOTAL-LIABILITY-AND-EQUITY> 12,191
<SALES> 2,167
<TOTAL-REVENUES> 2,252
<CGS> 1,765
<TOTAL-COSTS> 1,765
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 74
<INCOME-PRETAX> 170
<INCOME-TAX> 65
<INCOME-CONTINUING> 99
<DISCONTINUED> 43
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.85
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27.14
<LEGEND>
This schedule contains the restatement of summary financial information
previously extracted from Textron Inc.'s Consolidated Balance Sheet as of
July 4, 1998 and Consolidated Statement of Income for the six months ended
July 4, 1998, previously filed electronically with the Commission. The
aforementioed financial statements were restated in the Company's Quarterly
Report on Form 8-K dated October 6, 1998.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,602
<CURRENT-ASSETS> 4,321
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,650
<CURRENT-LIABILITIES> 2,747
<BONDS> 4,339
<COMMON> 24
0
13
<OTHER-SE> 3,425
<TOTAL-LIABILITY-AND-EQUITY> 12,650
<SALES> 4,560
<TOTAL-REVENUES> 4,736
<CGS> 3,712
<TOTAL-COSTS> 3,712
<OTHER-EXPENSES> (10)
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 152
<INCOME-PRETAX> 379
<INCOME-TAX> 151
<INCOME-CONTINUING> 215
<DISCONTINUED> 91
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 306
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.83
</TABLE>
Exhibit 99.1
TEXTRON INC.
INDEX TO RESTATED FINANCIAL STATEMENTS
AND RELATED FINANCIAL INFORMATION
Page (s)
Business Segment Data 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations 3-9
Report of Independent Auditors 10
Consolidated Statement of Income for each of the three years
in the period ended January 3, 1998 11
Parent Group and Finance Group Statement of Income for each
of the three years in the period ended January 3, 1998 12
Consolidated Balance Sheet at January 3, 1998 and
December 28, 1998 13
Consolidated Statement of Cash Flows for each of the three
years in the period ended January 3, 1998 14
Parent Group and Finance Group Statement of Cash Flows for
each of the three years in the period ended January 3, 1998 15
Consolidated Statement of Changes in Shareholders' Equity for
each of three years in the period ended January 3, 1998 16
Notes to the Consolidated Financial Statements 17-30
Quarterly Data (Unaudited) 31
Selected Financial Data (Seven Year Summary) 32
<PAGE>2
1997 TEXTRON ANNUAL REPORT
Business Segment Data
<TABLE>
<CAPTION>
Revenues Operating Income Operating Income Margins
(In millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aircraft $ 3,025 $2,593 $2,420 $ 313 $ 261 $ 237 10.3% 10.1% 9.8%
Automotive 2,127 1,627 1,534 150 146 135 7.1 9.0 8.8
Industrial 3,181 2,959 2,515 346 300 250 10.9 10.1 9.9
Finance 350 327 311 108 96 88 30.9 29.4 28.3
- ----------------------------------------------------------------------------------------------------------------------------
$ 8,683 $7,506 $6,780 917 803 710 10.6 10.7 10.5
============================================================----------------------------------------------------------------
Corporate expenses and other - net (140) (115) (119)
Interest expense - net (129) (148) (178)
---------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes* $ 648 $ 540 $ 413
=============================================================================================
</TABLE>
*Before distributions on preferred securities of subsidiary trust in 1997 and
1996.
Income of the Finance segment is net of interest expense.
Prior year amounts have been reclassified to conform to the current year's
segment presentation as more fully described on page 3.
<TABLE>
<CAPTION>
1997 REVENUES - $8.7 BILLION 1997 OPERATING INCOME - $917 MILLION
- - -------------------------------------- ------------------------------------
<S> <C> <C> <C>
AIRCRAFT 35% AIRCRAFT 34%
AUTOMOTIVE 24% AUTOMOTIVE 16%
INDUSTRIAL 37% INDUSTRIAL 38%
FINANCE 4% FINANCE 12%
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS CAPITAL EXPENDITURES DEPRECIATION
(In millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aircraft $ 1,941 $ 1,856 $ 1,739 $107 $116 $ 74 $ 69 $ 53 $ 49
Automotive 1,515 1,020 861 103 60 78 69 41 39
Industrial 2,596 2,455 2,378 153 130 100 101 104 82
Finance 3,178 3,269 3,061 8 3 2 3 3 2
--------------------------------------------------------------------------------------------------------------------------
Corporate, including investment
in discontinued operations 2,557 3,161 3,243 3 3 4 4 4 5
Eliminations (457) (247) (75) - - - - - -
- - -------------------------------------------------------------------------------------------------------------------------
$11,330 $11,514 $11,207 $374 $312 $258 $246 $205 $177
===========================================================================================================================
</TABLE>
Prior year amounts have been reclassified to conform to the current year's
segment presentation as more fully described on page 3.
<PAGE>3
Management's Discussion and Analysis
Results of Operations Textron Inc.
1997 vs. 1996
REVENUES - Diluted earnings per share from continuing
operations in 1997 were $2.19, up 23% from the 1996
95 (3)% $ 6,780 amount of $1.78. Income from continuing operations in
96 +11% $ 7,506 1997 of $372 million was up 22% from $306 million for
97 +16% $ 8,683 1996. Revenues increased 16% to $8.7 billion in 1997
from $7.5 billion in 1996. Net income in 1997 was
$558 million versus $253 million in 1996, which
reflected the impact of a $229 million loss from a
discontinued operation (Paul Revere) that was
disposed of early in 1997.
On August 11, 1998, Textron announced that it had
reached an agreement to sell Avco Financial Services
(AFS) to Associates First Capital Corporation for
$3.9 billion in cash. This transaction is subject
to regulatory approvals and it is expected to close
at the end of 1998 or early 1999. Textron has restated
its financial statements as presented herein to treat
AFS as a discontinued operation. See Note 21 to the
consolidated financail statements for additional
information.
- Operating income of Textron's four business
segments aggregated $917 million in 1997, up 14% from
1996, as a result of continued improved financial
results in the Aircraft, Industrial and Finance
segments. Operating income in the Automotive segment
was essentially unchanged.
EARNINGS PER SHARE * - Total segment margins decreased to 10.6% in 1997
from 10.7% in 1996, due primarily to lower margins
95 +20% $1.43 associated with the Kautex acquisition.
96 +24% $1.78
97 +23% $2.19 - Corporate expenses and other - net increased in
1997 by $25 million due to 1997 litigation expenses
related to a divested operation, higher 1997 expenses
* From Continuing related to organizational changes and higher support
Operations costs related to international expansion, and 1997
costs associated with the termination of interest
rate swap agreements no longer qualifying as
accounting hedges.
- The lower interest of the Parent Group - $129
million in 1997 vs. $148 million in 1996 - was due to
lower 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.
- Business segment data for prior years has been
reclassified to reflect the combination of the
Systems and Components segment into the Industrial
segment due to the increased commercialization of the
Systems and Components businesses and their
underlying technologies. In addition, business
segment data has been reclassified to reflect the
transfer of Lycoming from the Aircraft segment to the
Industrial segment.
1996 vs. 1995
- Diluted earnings per share from continuing
operations in 1996 were $1.78, up 24% from the 1995
amount of $1.43. Income from continuing operations in
1996 of $306 million was up 23% from $248 million for
1995. Revenues increased 11% to $7.5 million in 1996
from $6.8 billion in 1995. Net income in 1996 was
$253 million vs. $479 million in 1995, reflecting the
impact of a $229 million loss from a discontinued
operation in 1996.
- Segment operating income aggregated $803 million in
1996, up 13% from 1995, as a result of continued
improved financial results across all business segments.
- The lower interest of the Parent Group - $148
million in 1996 vs. $178 million in 1995-was due to
lower average debt, due in part to the payment of
debt with the proceeds from the issuance of preferred
securities in February 1996.
AIRCRAFT
<PAGE>4
1997 vs. 1996
AIRCRAFT
REVENUES The Aircraft segment's revenues and income increased
$432 million (17%) and $52 million (20%),
95 +11% $2,420 respectively, due primarily to higher results at
96 + 7% $2,593 Cessna Aircraft.
97 +17% $3,025
- Bell Helicopter's revenues increased primarily as a
result of higher U.S. government and commercial
OPERATING INCOME aircraft sales ($91 million) and higher revenues on
the Huey upgrade contract for the U.S. Marines ($28
95 +22% $237 million), partially offset by lower revenues on the
96 +10% $261 V-22 program ($80 million) and lower foreign military
97 +20% $313 sales ($23 million). Bell's commercial aircraft sales
included the completion of the three-year contract
for model 412 helicopters with the Canadian Forces.
Its income increased slightly as a result of the
higher revenues, partially offset by higher product
development expenses primarily related to its new
commercial aircraft models.
- Cessna Aircraft's revenues increased as a result of
higher sales of business jets, including the Citation
X and 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.
1996 vs. 1995
The Aircraft segment's revenues and income increased
$173 million (7%) and $24 million (10%),
respectively, due to higher results at Cessna
Aircraft.
- Bell Helicopter's revenues decreased primarily as a
result of lower sales of military helicopters to the
U.S. government ($136 million) and lower revenues on
the V-22 program ($69 million), partially offset by
higher domestic and international helicopter sales,
including increased deliveries on the Canadian Forces
contract ($119 million), and increased military and
commercial spares sales ($41 million). Bell's income
decreased slightly, as the impact of lower revenues
and costs associated with the introduction of new
commercial aircraft models was partially offset by
additional income on the V-22 program.
- Cessna's revenues increased primarily as a result
of higher sales of business jets, principally the
Citation X and Citation VII models, and utility
turboprop aircraft. Its income increased as a result
of the higher revenues, partially offset by higher
product development and selling and administrative
expenses due to the introduction and support of new
products.
<PAGE>5
AUTOMOTIVE
1997 vs. 1996
The Automotive segment's revenues increased $500
AUTOMOTIVE million (31%), primarily as a result of the first
REVENUES quarter 1997 acquisition of Kautex, the third quarter
1997 acquisition of the General Rubber Goods division
95 + 2% $1,534 of Pirelli Tyres, Ltd., and the 1996 acquisitions of
96 + 6% $1,627 Valeo Wiper Systems and the remaining 50% of a joint
97 +31% $2,127 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 approximated last year's level,
reflecting the above factors, increased costs related
to new model launches and the impact of a
restructuring effort which began in the second
quarter 1997.
1996 vs. 1995
OPERATING The Automotive segment's revenues increased $93
INCOME million (6%) and income increased $11 million (8%).
95 + 2% $135 The improved results reflected the increased
96 + 8% $146 production of models with Textron content,
97 + 3% $150 particularly light trucks at Chrysler, and the
benefits of the acquisitions of Valeo Wiper Systems
and the remaining 50% of a joint venture in Born,
Netherlands.
INDUSTRIAL
INUSTRIAL 1997 vs. 1996
REVENUES
The Industrial segment's revenues increased $222
95 (16)% $2,515 million (8%). Income increased $46 million (15%),
96 +18 % $2,959 reflecting higher sales from both acquisitions and
97 + 8 % $3,181 organic growth, and improved operating margins,
principally in industrial components and fastening
systems. The revenue and income increases were due
primarily to higher sales in the fastening systems
business ($143 million), including the second quarter
1996 acquisition of Textron Industries S.A.S. In
addition, results benefited from the 1997
acquisitions of Maag Pump Systems, Maag Italia,
S.p.A., and Burkland Holding, Inc., an increase in
demand for aerospace components and higher revenues
on the sensor fuzed weapon contract, partially offset
by the third quarter 1996 divestiture of Textron
Aerostructures and lower revenues in marine and land
systems products.
1996 vs. 1995
OPERATING The Industrial segment's revenues and income
INCOME increased $444 million (18%) and $50 million (20%),
respectively. These increases were due primarily to
95 + 1% $250 higher sales in the fastening systems business ($558
96 +20 % $300 million), reflecting the fourth quarter 1995
97 +15 % $346 acquisitions of Elco Industries and Boesner, and the
first half 1996 acquisitions of Textron Industries
S.A.S. and Xact Products. In addition, the year's
results benefited from higher sales and improved
performance at E-Z-GO, and continued strong
performance in the contractor tool business,
including the contribution from the Klauke
acquisition. These increases were partially offset by
reduced shipments on certain U.S. government and
commercial aerospace contracts and the impact of the
divestiture of Textron Aerostructures in the third
quarter of 1996.
<PAGE>6
FINANCE
1997 vs. 1996
FINANCE
REVENUES
95 +12% $ 311 - Textron Financial Corporation's (TFC) revenues
96 + 5% $ 327 increased $23 million (7%), due to a higher level of
97 + 7% $ 350 average receivables ($3.128 billion in 1997 vs $3.036
billion in 1996) and increases in other income, due
primarily to the securitization of $401 million of
Textron-related receivables and increased syndication
OPERATING fee income. Its income increased $12 million (13%), due
INCOME to the higher revenues and a lower provision for loan
losses related to the real estate portfolio,
95 + 6% $ 88 partially offset by growth in businesses with higher
96 + 9% $ 96 operating expense ratios.
97 +13% $108
1996 vs. 1995 1996 vs. 1995
- TFC's revenues increased $16 million (5%), due to a
higher level of average receivables ($3.036 billion
in 1996 vs. $2.839 billion in 1995) and higher fee
income, partially offset by lower yields of
receivables (10.03% in 1996 and 10.34% in 1995)
predominantly on floating rate receivables,
reflecting a decline in the prevailing interest rate
environment. Its income increased $8 million (9%), due
to the higher revenues, partially offset by a higher
provision for loan losses, principally due to
charge-offs of nonperforming equipment loans.
DISCONTINUED OPERATIONS
1997 vs. 1996
- Avco Financial Services' (AFS) revenues and income
increased $93 million and $13 million, respectively.
Revenues in its finance and related insurance
business increased $75 million, due to an increase in
investment and other income, and an increase in
average finance receivables ($7.546 billion in 1997
vs $6.892 billion in 1996), reflecting the benefit of
the acquisition of approximately $720 million of
finance receivables during 1997, which consists of
commercial receivables ($534 million) and consumer
receivables ($186 million). The increase in
investment and other income was primarily
attributable to a $22 million gain on the sale of
certain underperforming branches in 1997, offset in
part by a $7 million gain on the sale of its U.S.
small-ticket leasing operation in 1996 and a decrease
in capital gains of $3 million. The benefit of these
revenue increases were partially offset by a decrease
in yields on finance receivables (17.77% in 1997 vs
18.52% in 1996), reflecting both decreases in yields
on consumer finance receivables and the impact of an
increase in lower-yielding commercial receivables.
Income increased $3 million due to the benefit of the
higher revenues and a decrease in the average cost of
borrowed funds (6.39% in 1997 vs 6.88% in 1996),
partially offset by an increase in the provision for
losses resulting from a higher level of net credit
losses to average finance receivables (2.93% in 1997
vs 2.82% in 1996), and higher operating expenses
related to international expansion and the start-up
of centralized sales processing centers in the U.S.
and Canada. The increase in the net credit losses to
average finance receivables was primarily
attributable to an increase in the ratio in the
consumer finance business (3.18% in 1997 vs. 2.91% in
1996).
In AFS' nonrelated insurance business, revenues
increased $18 million, due primarily to higher premiums
earned and a higher level of investment income, partially
offset by a decrease in capital gains. Income increased
$10 million, due to the higher revenues and a decrease
in underwriting expenses in relation to earned premiums.
1996 vs. 1995
- AFS' revenues and income increased $96 million and
$11 million, respectively. Revenues in its finance
and related insurance business increased $55 million,
primarily as a result of an increase in yields on
finance receivables (18.52% in 1996 vs. 18.20% in
1995), an increase in earned premiums, and an
increase in capital gains (due primarily to a higher
volume of sales in the bond investment portfolio),
and gains on the sale of certain finance receivables.
Income increased $7 million due to the higher
revenues and a decrease in the average cost of
borrowed funds (6.88% in 1996 vs. 7.32% in 1995).
This favorable impact was partially offset by an
increase in the ratio of net credit losses to average
finance receivables (2.82% in 1996 vs. 2.10% in 1995)
and the strengthening of the allowance for credit
losses (3.01% of finance receivables at December 31,
1996 vs. 2.82% at December 31, 1995).
<PAGE>7
In AFS' nonrelated insurance business, revenues
increased $41 million, due primarily to higher
premiums earned and investment income. Income
increased $4 million, due to the higher revenues as
well as an improved underwriting expense ratio (as a
percent of earned insurance premiums), partially
offset by an increase in the ratio of insurance
losses to earned insurance premiums.
LIQUIDITY & The liquidity and capital resources of Textron's
CAPITAL RESOURCES (Textron or the Company) operations are best
understood by separately considering its
independent borrowing groups (Parent Group and
Finance Group). The Parent Group consists of
Textron's manufacturing businesses, whose
financial results are a reflection of the ability
to manage and finance the development, production
and delivery of tangible goods and services. The
Finance Group business involves commercial financing
activities. The Finance Group's financial results
are a reflection of its ability to provide financial
services in a competitive marketplace, at the
appropriate pricing, while managing the associated
financial risks. The fundamental differences
between each borrowing group's activities
result in different measures used by investors,
rating agencies and analysts.
OPERATING CASH FLOWS
Textron's financial position remained strong in
1997. Cash flows from operations continue to be
the primary source of funds for operating needs
and capital expenditures of the Parent Group.
Operating activities have generated increased cash
flow in each of the past three years. The
Statement of Cash Flows for each borrowing group
detailing the changes in cash balances are on page
15. The Parent Group's operating cash flow
includes dividends received from the Finance
Group. Beginning in late 1997, the methodology
used to determine the amount of dividends to be
paid to the Parent Group changed from payments
based on a percentage of net income to payments
based on maintaining a leverage ratio of 6.5 to 1.
This change resulted in the availability of
additional Finance Group cash flows for the Parent
Group in 1997.
FINANCING
Borrowings are a secondary source of funds for the
Parent Group and, along with the collection of
finance receivables, are a primary source of funds
for the Finance Group. Both the Parent and Finance
borrowing groups maintain debt levels considered
prudent based on cash flows, interest coverage
ratios and ratios of debt to capital. The Parent
Group's debt to total capital decreased to 25 % in
1997. Both the Parent and Finance Group utilize a
broad base of financial sources for their
respective liquidity and capital requirements. The
Company's strong credit ratings from Moody's and
Standard & Poor's provide flexibility in obtaining
funds on competitive terms. Credit facilities are
summarized on page 20. In addition, at the end of
1997, the Parent Group had $311 million available
for unsecured debt securities under shelf-
registration statements with the Securities and
Exchange Commission. The Finance Group has a
medium-term note facility of which $92 million
was available at year-end 1997. The Company believes
that both borrowing groups, individually and in the
aggregate, have adequate credit facilities and have
available access to capital markets to meet their
financing needs.
Periodically, capital resources are generated through
dispositions. In August 1998, Textron announced that
it had reached an agreement to sell
AFS to Associats First Capital Corporation
for $3.9 billion. This transactions is
subject to regulatory approval and is
expected to close at the end of 1998 or early
1999. In early 1997, Textron completed the
sale of its 83.3% owned subsidiary, Paul Revere
to Provident Companies Inc. Net proceeds to
Textron after adjustments and contingent
payments were approximately $800 million
(which included the value of shares of
Provident common stock subsequently sold for $245
million).
USES OF CAPITAL
Cash flows from operations and borrowing capacity
provide both borrowing groups with the flexibility
to actively manage acquisitions, dispositions and
internal investments in a changing environment.
During the past three years, Textron acquired 18
companies for an aggregate cost of $1.2 billion.
The principal acquisitions in 1997 were the
purchase of the Kautex Group, a world-wide
supplier of plastic-molded fuel tanks and
Brazil-based Brazaco Mapri Industrias S.A., a
leading maker of fasteners in South America.
In addition, in November 1997, the Company
announced a tender offer to acquire the
capital stock of Ransomes PLC, a UK-based
equipment manufacturer, for approximately $230
million, plus the assumption of debt. This
transaction closed in early 1998.
Capital spending increased in 1997 by $62
million. The increased capital was primarily used to
increase automotive capacity and improve
manufacturing productivity in the domestic fastening
businesses. 1998 capital spending is expected to
increase from 1997, as a result of anticipated
investments to support increased fastening production
and aircraft capacity.
On August 11, 1998, Textron announced that its Board
of Directors had authorized a new 25 million share
repurchase program that supersedes the 8 million shares
that remained under its previous authorization.
<PAGE>8
In 1997, Textron repurchased 5 million shares of
common stock under its Board authorized share repurchase
program. Textron's Board of Directors has increased the
cash dividend to shareholders by an average annual
compound growth rate of 12% since 1992. Textron's Board
of Directors raised the dividend per common share to
$1.00 in 1997 from $.88 in 1996. Dividend payments
to shareholders in 1997 amounted to $202 million. This
amount represents an increase of $54 million over 1996.
Because 1997 was a 53 week fiscal year for Textron,
the 1997 dividend payment amount includes five
payments as opposed to 1996 when four payments were
paid.
FINANCIAL RISK
MANAGEMENT
INTEREST RATE RISKS
Textron's financial results could be affected by
changes in U.S. and foreign interest rates. As part
of managing this risk, the Company enters into
interest rate exchange agreements to convert certain
variable-rate debt to long-term fixed-rate debt and
vice versa. The overall objective of Textron's
interest rate risk management is to reduce the risk
that near-term earnings could be adversely affected
by changes in interest rates while also reducing the
overall cost of debt.
The Parent Group generally uses these agreements
to alter the underlying interest rate and effective
maturity of certain variable-rate short-term
borrowings (and their anticipated replacements) to
that of a fixed-rate debt instrument. By doing so,
the Parent Group is able to obtain fixed-rate
financing at a lower cost than had fixed-rate debt
instruments been issued. The difference between the
variable-rate the Parent Group received and the
fixed-rate it paid on interest rate exchange
agreements increased its reported interest expense by
$11 million in 1997, $12 million in 1996 and $14
million in 1995.
By adjusting the underlying effective interest
rate of certain variable-rate debt instruments with
fixed-pay interest rate exchange agreements, the
Finance Group matches the effective maturity and
interest rates of the debt to certain finance
receivables to reduce the risk of the interest rate
margins declining from increases in interest rates.
The difference between the variable-rate the Finance
Group received and the fixed-rate it paid on interest
rate exchange agreements increased its reported
interest expense by $1 million in 1997, $3 million
in 1996 and $3 million in 1995. The Finance Group's
ratio of variable-rate debt to total debt, after
considering the impact of interest rate exchange
agreements, was approximately 64% at year-end 1997
(67% in 1996).
FOREIGN EXCHANGE RISKS
Textron's financial results could be affected by
changes in foreign currency exchange rates or weak
economic conditions in the foreign markets in which
products are manufactured and sold. The Parent
Group's primary currency exposures are the
Deutschemark, British pound, Canadian dollar
and French franc.
Textron's Parent Group manages its foreign
currency exposures primarily by funding certain
foreign currency denominated assets with liabilities
in the same currency and, as such, certain exposures
are naturally offset. In addition, as part of
managing its foreign currency exposures, Textron
enters into foreign currency forward exchange
contracts. These agreements are generally used to fix
the local currency cost of purchased goods or
services or selling prices denominated in currencies
other than the functional currency. These contracts
are also used to hedge certain assets and liabilities
denominated in foreign currencies.
QUANTITATIVE RISK MEASURES
Textron has used a value-at-risk model to quantify
the market risk inherent in its financial instruments
at year end. The value-at-risk model is intended to
measure the maximum amount of fair value Textron's
financial instruments could hypothetically lose over
a given time period from adverse movements in
interest rates and foreign exchange rates at a 95%
confidence level. The model considers financial
instruments (finance receivables, debt,
interest rate swaps and foreign exchange forward
contracts) but not all underlying exposures. The
model only assumes adverse market conditions and most
likely is not indicative of actual results. The
estimated value-at-risk amounts representing the
potential loss in value the Company's financial
instruments could realize from adverse changes in
interest rates and foreign exchange rates for a one
day period are not material.
<PAGE>9
OTHER MATTERS ENVIRONMENTAL
As with other industrial enterprises engaged in
similar businesses, Textron is involved in a number
of remedial actions under various federal and state
laws and regulations relating to the environment
which impose liability on companies to clean up, or
contribute to the cost of cleaning up, sites on which
their hazardous wastes or materials were disposed or
released. Expenditures to evaluate and remediate
contaminated sites approximated $10 million, $12
million and $15 million in 1997, 1996 and 1995,
respectively. Textron currently projects that
expenditures for remediation will range between $10
million and $20 million for each of the years 1998
and 1999.
Textron's accrued estimated environmental
liabilities are based on assumptions which are
subject to a number of factors and uncertainties.
Circumstances which can affect the accruals'
reliability and precision include identification of
additional sites, environmental regulations, level of
cleanup required, technologies available, number and
financial condition of other contributors to
remediation, and the time period over which
remediation may occur. Textron believes that any
changes to the accruals that may result from these
factors and uncertainties will not have a material
effect on Textron's net income or financial
condition. Textron estimates that its accrued
environmental remediation liabilities will likely be
paid over the next five to ten years.
YEAR 2000 COMPUTER CONVERSION COSTS
Many computer programs, including those used by
Textron and Textron's suppliers and customers, use
only two digits to identify a year, and were not
designed to handle years beginning after 1999. These
programs, some of which are critical to operations,
could fail to properly process data that contain
dates after 1999 unless they are modified. Textron
commenced a company-wide effort to substantially
complete the necessary modifications to our computer
programs by early 1999. Textron also is working with
its principal suppliers and customers to ensure that
problems in their computer programs will not
materially affect Textron. The remaining cost of the
Year 2000 remediation effort is estimated to be
between $25 million - $35 million. Textron believes
it is on track to resolve this issue in a timely
fashion without having a material adverse effect on
its business, operations or financial condition.
BACKLOG
Textron's commercial backlog was $4.1 billion and
$3.1 billion at the end of 1997 and 1996,
respectively, and U.S. government backlog was $2.2
billion at the end of both of those years. Backlog
for the Aircraft segment was approximately 79% and
73% of Textron's commercial backlog at the end of
1997 and 1996, respectively, and 71% of Textron's
U.S. government backlog at the end of both of those
years.
FOREIGN MILITARY SALES
Certain Textron products are sold through the
Department of Defense's Foreign Military Sales
Program. In addition, Textron sells directly to
select foreign military organizations, primarily
Canada. Sales under these programs totaled
approximately 4.1% of Textron's consolidated revenues
in 1997 and 5.8% in 1996. Such sales, which include
spare parts, are made only after approval of
applicable United States government agencies.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" was issued. This
Statement establishes new standards for reporting
information about operating segments. This Statement
is effective for periods beginning after December 15,
1997. Textron is evaluating the impact of this
Statement on future segment reporting.
* * * * *
Forward-looking Information: Certain statements
in this Report, and other oral and written statements
made by Textron from time to time, are
forward-looking statements, including those that
discuss strategies, goals, outlook or other
non-historical matters; or project revenues, income,
returns or other financial measures. These
forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ
materially from those contained in the statements,
including the following: (i) continued market demand
for the types of products and services produced and
sold by Textron, (ii) changes in worldwide economic
and political conditions and associated impact on
interest and foreign exchange rates, (iii) the level
of sales by original equipment manufacturers of
vehicles for which Textron supplies parts and (iv) the
successful integration of companies acquired by Textron.
The statement on Year 2000 Computer Conversion Costs
that appears above is subject to Textron's ability to
complete the conversion without unexpected
complications and the ability of its suppliers and
customers to successfully modify their own programs.
<PAGE>10
REPORT OF
INDEPENDENT AUDITORS To the Board of Directors and Shareholders
Textron Inc.
We have audited the accompanying consolidated balance
sheets of Textron Inc. as of January 3, 1998 and
December 28, 1996, and the related consolidated
statements of income, cash flows and changes in
shareholders' equity for each of the three years in
the period ended January 3, 1998. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an
opinion on these financial statements based on our
audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the audit
to obtain reasonable assurance about whether the
financial statements are free of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and
disclosures in the financial statements. An audit
also includes assessing the accounting principles
used and significant estimates made by management, as
well as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all
material respects, the consolidated financial
position of Textron Inc. at January 3, 1998 and
December 28, 1996, and the consolidated results of
its operations and its cash flows for each of the
three years in the period ended January 3, 1998, in
conformity with generally accepted accounting
principles.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
January 27, 1998, except for note 21, as to which the
date is August 11, 1998.
<PAGE>11
<TABLE>
<CAPTION>
STATEMENT OF INCOME
For each of the three years in the period ended January 3, 1998 CONSOLIDATED
---------------------------------
(In millions except per share amounts) 1997 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Manufacturing sales $ 8,333 $7,179 $6469
Finance revenues 350 327 311
-----------------------------------------------------------------------------------------------------------------------
Total revenues 8,683 7,506 6,780
-----------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 6,836 5,837 5,295
Selling and administrative 894 808 727
Interest 282 295 325
Provision for losses on collection of finance receivables 23 26 20
- - ------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 8,035 6,966 6,367
- - ------------------------------------------------------------------------------------------------------------------------
648 540 413
Pretax income of the Finance Group - - -
- - ------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes and
distributions on preferred securities of subsidiary trust 648 540 413
Income taxes (250) (211) (16)
Distributions on preferred securities of subsidiary trust,
net of income taxes (26) (23) -
- - ------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 372 306 248
Discontinued operations, net of income taxes:
Income from operations 186 192 231
Loss on disposal - (245) -
- - -------------------------------------------------------------------------------------------------------------------------
186 (53) 231
- - ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 558 $ 253 $ 479
===========================================================================================================================
PER COMMON SHARE**:
BASIC:
INCOME FROM CONTINUING OPERATIONS $ 2.25 $ 1.82 $ 1.45
Discontinued operations 1.13 (.31) 1.37
- - -----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 3.38 $ 1.51 $ 2.82
========================================================================================================================
DILUTED:
INCOME FROM CONTINUING OPERATIONS $ 2.19 $ 1.78 $ 1.43
Discontinued operations 1.10 (.31) 1.34
- - --------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 3.29 $ 1.47 $ 2.77
==========================================================================================================================
</TABLE>
*"Parent Group" includes all entities of Textron (primarily manufacturing) other
than its commercial finance subsidiary (TFC). The Parent Group's investment in
Textron's commercial finance subsidiary is reflected on a one-line basis under
the equity method of accounting. "Finance Group" consists of Textron's
wholly-owned commercial finance subsidiary, TFC. All significant transactions
between the Parent Group and the Finance Group have been eliminated from the
"Consolidated" column. The principles of consolidation are described in Note 1
to the consolidated financial statements.
**Reflects the effect of the two-for-one stock split in the form of a stock
dividend in May 1997.
See notes to the consolidated financial statements.
<PAGE>12
<TABLE>
<CAPTION>
STATEMENT OF INCOME
For each of the three years in the period ended January 3, 1998 PARENT GROUP* FINANCE GROUP
- - -------------------------------------------------------------------------------------------------------------------------
(In millions except per share amounts) 1997 1996 1995 1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Manufacturing sales $8,333 $7,179 $6,469 $ - $ - $ -
Finance revenues - - - 350 327 311
- - -------------------------------------------------------------------------------------------------------------------------
Total revenues 8,333 7,179 6,469 350 327 311
- - -------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 6,836 5,837 5,295 - - -
Selling and administrative 828 750 671 66 58 56
Interest 129 148 178 153 147 147
Provision for losses on collection of finance receivables - - - 23 26 20
- - --------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 7,793 6,735 6,144 242 231 223
- - ---------------------------------------------------------------------------------------------------------------------------
540 444 325 108 96 88
Pretax income of the Finance Group 108 96 88 - - -
- - --------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes and
distributions on preferred securities of subsidiary trust 648 540 413 108 96 88
Income taxes (250) (211) (165) (40) (38) (34)
Distributions on preferred securities of subsidiary trust,
net of income taxes (26) (23) - - - -
- - ---------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 372 306 248 68 58 54
Discontinued operations, net of income taxes:
Income from operations 186 192 231 - - -
Loss on disposal - (245) - - - -
- - ---------------------------------------------------------------------------------------------------------------------------
186 (53) 231 - - -
- - ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 558 $ 253 $ 479 $ 68 $ 58 $ 54
===========================================================================================================================
</TABLE>
*"Parent Group" includes all entities of Textron (primarily manufacturing) other
than its commercial finance subsidiary (TFC). The Parent Group's investment in
Textron's commercial finance subsidiary is reflected on a one-line basis under
the equity method of accounting. "Finance Group" consists of Textron's
wholly-owned commercial finance subsidiary, TFC. All significant transactions
between the Parent Group and the Finance Group have been eliminated from the
"Consolidated" column. The principles of consolidation are described in Note 1
to the consolidated financial statements.
See notes to the consolidated financial statements.
<PAGE>13
<TABLE>
<CAPTION>
Balance Sheet
As of January 3, 1998 and December 28, 1996
(Dollars in millions) 1997 1996
- - ------------------------------------------------------------------------------------------------------
ASSETS
PARENT GROUP
<S> <C> <C>
Cash $ 30 $ 24
Commercial and U.S. government receivables - net 920 882
Inventories 1,349 1,192
Investment in discontinued operations 1,214 1,958
Other current assets 185 231
- - ------------------------------------------------------------------------------------------------------
TOTAL PARENT GROUP CURRENT ASSETS 3,698 4,287
- - -------------------------------------------------------------------------------------------------------
Property, plant, and equipment - net 1,761 1,454
Goodwill - net 1,567 1,466
Other assets 1,126 1,038
- - -------------------------------------------------------------------------------------------------------
TOTAL PARENT GROUP ASSETS 8,152 8,245
- - -------------------------------------------------------------------------------------------------------
FINANCE GROUP
Cash 13 7
Finance receivables - net 2,993 3,094
Other assets 172 168
- - -------------------------------------------------------------------------------------------------------
TOTAL FINANCE GROUP ASSETS 3,178 3,269
- - -------------------------------------------------------------------------------------------------------
TOTAL COMPANY ASSETS $11,330 $11,514
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
PARENT GROUP
Current portion of long-term debt and short-term debt $ 476 $ 960
Accounts payable 812 724
Accrued liabilities 853 812
- - -------------------------------------------------------------------------------------------------------
TOTAL PARENT GROUP CURRENT LIABILITIES 2,141 2,496
- - -------------------------------------------------------------------------------------------------------
Accrued postretirement benefits other than pensions 766 782
Other liabilities 1,195 1,166
Long-term debt 745 547
- - -------------------------------------------------------------------------------------------------------
TOTAL PARENT GROUP LIABILITIES 4,847 4,991
- - -------------------------------------------------------------------------------------------------------
Finance Group
Other liabilities 88 101
Deferred income taxes 319 315
Debt 2,365 2,441
- - -------------------------------------------------------------------------------------------------------
TOTAL FINANCE GROUP LIABILITIES 2,772 2,857
- - -------------------------------------------------------------------------------------------------------
TOTAL COMPANY LIABILITIES 7,619 7,848
- - -------------------------------------------------------------------------------------------------------
TEXTRON - OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUST HOLDING SOLELY TEXTRON JUNIOR SUBORDINATED DEBT SECURITIES 483 483
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock:
$2.08 Cumulative Convertible Preferred Stock, Series A
(liquidation value - $14) 6 7
$1.40 Convertible Preferred Dividend Stock, Series B
(preferred only as to dividends) 7 7
Common stock (190,689,000 and 94,456,000 shares issued) 24 12
Capital surplus 830 793
Retained earnings 3,362 2,969
Other (62) 7
- - -------------------------------------------------------------------------------------------------------
4,167 3,795
Less cost of treasury shares 939 612
- - -------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 3,228 3,183
- - -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,330 $11,514
=========================================================================================================
</TABLE>
See notes to the consolidated financial statements.
<PAGE>14
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
For each of the three years in the period ended January 3, 1998 CONSOLIDATED
----------------------------------
(In millions) 1997 1996 1995
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 372 $ 306 $ 248
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities:
Earnings of Finance Group (greater than) less than distributions - - -
Dividends received from discontinued operations 108 95 99
Depreciation 246 205 177
Amortization 64 62 57
Provision for losses on receivables 25 29 26
Deferred income taxes 68 15 24
Changes in assets and liabilities excluding those related
to acquisitions and divestitures:
Decrease (increase) in commercial and U.S. government
receivables 44 (33) (40)
Increase in inventories (89) (33) (28)
Decrease (increase) in other assets (67) (110) 26
Increase in accounts payable 74 62 65
Increase (decrease) in accrued liabilities (103) 74 (69)
Other - net 1 (16) 44
- - ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 743 656 629
- - ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments 251 6 30
Proceeds from disposition of investments - (5) (9)
Finance receivables:
Originated or purchased (2,712) (2,287) (1,965)
Repaid or sold 2,441 2,088 1,770
Proceeds on sales of securitized assets 373 - -
Cash used in acquisitions (364) (216) (212)
Proceeds from sales of businesses 549 180 -
Capital expenditures (374) (312) (258)
Other investing activities - net 48 24 33
- - ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 212 (522) (611)
- - ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt (425) (85) 200
Proceeds from issuance of long-term debt 401 345 593
Principal payments on long-term debt (427) (499) (567)
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 38 42 42
Purchases of Textron common stock (299) (266) (100)
Purchases of Textron common stock from Paul Revere (29) (34) (22)
Dividends paid (202) (148) (133)
Dividends paid to Parent Group - - -
- - ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (943) (162) 13
- - ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 12 (28) 31
Cash at beginning of year 31 59 28
- - ----------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 43 $ 31 $ 59
- - ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 293 $ 289 $ 303
Cash paid during the year for income taxes 156 167 151
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*"Parent Group" includes all entities of Textron (primarily manufacturing) other
than its commercial finance subsidiary (TFC). The Parent Group's investment in
Textron's commercial finance subsidiary is reflected on a one-line basis under
the equity method of accounting. "Finance Group" consists of Textron's
wholly-owned commercial finance subsidiary, TFC. All significant transactions
between the Parent Group and the Finance Group have been eliminated from the
"Consolidated" column. The principles of consolidation are described in Note 1
to the consolidated financial statements.
See notes to the consolidated financial statements.
<PAGE>15
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
For each of the three years in the period ended January 3, 1998 PARENT GROUP* FINANCE GROUP
- - ----------------------------------------------------------------------------------------------------------------------
(In millions) 1997 1996 1995 1997 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 372 $ 306 $ 248 $ 68 $ 58 $ 54
Adjustment to reconcile income from continuing operations to
net cash provided by operating activities:
Earnings of Finance Group (greater than) less than
distributions 6 (30) (28) - - -
Dividends received from discontinued operations 108 95 99 - - -
Depreciation 243 202 175 3 3 2
Amortization 56 54 46 8 8 11
Provision for losses on receivables 2 3 4 23 26 23
Deferred income taxes 61 6 18 7 9 6
Changes in assets and liabilities excluding those related
to acquisitions and divestitures:
Decrease (increase) in commercial and U.S. government
receivables 44 (33) (40) - - -
Increase in inventories (89) (33) (28) - - -
Decrease (increase) in other assets (54) (123) 49 (1) 4 (1)
Increase (decrease) in accounts payable 70 66 58 (12) 3 (17)
Increase (decrease) in accrued liabilities (99) 70 (116) (4) 2 17
Other - net 8 (7) 49 (7) (8) (4)
- - ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 728 576 534 85 105 91
- - ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments - (5) (9) - - -
Proceeds from disposition of investments 251 6 30 - - -
Finance receivables:
Originated or purchased - - - (2,712) (2,287) (1,965)
Repaid or sold - - - 2,444 2,091 1,802
Proceeds on sales of securitized assets - - - 373 - -
Cash used in acquisitions (364) (216) (212) - - -
Proceeds from sales of businesses 549 180 - - - -
Capital expenditures (366) (309) (256) (8) (3) (2)
Other investing activities - net 35 28 12 14 (3) 21
- - ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 105 (316) (435) 111 (202) (144)
- - -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt (484) (90) 131 59 5 69
Proceeds from issuance of long-term debt 201 - 132 200 345 461
Principal payments on long-term debt (52) (279) (113) (375) (220) (454)
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 38 42 42 - - -
Purchases of Textron common stock (299) (266) (100) - - -
Purchases of Textron common stock from Paul Revere (29) (34) (22) - - -
Dividends paid (202) (148) (133) - - -
Dividends paid to Parent Group - - - (74) (29) (27)
- - ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (827) (292) (63) (190) 101 49
- - ------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 6 (32) 36 6 4 (4)
Cash at beginning of year 24 56 20 7 3 7
- - ------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 30 $ 24 $ 56 $ 13 $ 7 $ 3
==========================================================================================================================
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 140 $ 140 $ 161 $ 153 $ 149 $ 142
Cash paid during the year for income taxes 112 142 131 44 25 20
==========================================================================================================================
</TABLE>
*"Parent Group" includes all entities of Textron (primarily manufacturing) other
than its commercial finance subsidiary (TFC). The Parent Group's investment in
Textron's commercial finance subsidiary is reflected on a one-line basis under
the equity method of accounting. "Finance Group" consists of Textron's
wholly-owned commercial finance subsidiary, TFC. All significant transactions
between the Parent Group and the Finance Group have been eliminated from the
"Consolidated" column. The principles of consolidation are described in Note 1
to the consolidated financial statements.
See notes to the consolidated financial statements.
<PAGE>16
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES OUTSTANDING* DOLLARS
(In thousands) (In millions)
---------------------------------- ---------------------------------
For each of the three years in the
period ended January 3, 1998 1997 1996 1995 1997 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$2.08 PREFERRED STOCK
Beginning balance 243 267 297 $ 7 $ 8 $ 9
Conversion to common stock (42) (24) (30) (1) (1) (1)
- - ---------------------------------------------------------------------------------------------------------------------------
Ending balance 201 243 267 $ 6 $ 7 $ 8
- - ---------------------------------------------------------------------------------------------------------------------------
$1.40 PREFERRED STOCK
Beginning balance 107 118 126 $ 7 $ 7 $ 7
Conversion to common stock (15) (11) (8) - - -
- - ---------------------------------------------------------------------------------------------------------------------------
Ending balance 92 107 118 $ 7 $ 7 $ 7
- - ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
Beginning balance 82,809 84,935 85,497 $ 12 $ 12 $ 12
Purchases (4,103) (3,193) (1,734) - - -
Stock dividend declared 82,397 - - 12 - -
Conversion of preferred stock to
common stock 166 71 81 - - -
Exercise of stock options 1,066 923 1,091 - - -
Other issuances of common stock 8 73 - - - -
- - ---------------------------------------------------------------------------------------------------------------------------
Ending balance 162,343 82,809 84,935 $ 24 $ 12 $ 12
- - ---------------------------------------------------------------------------------------------------------------------------
CAPITAL SURPLUS
Beginning balance $ 793 $ 750 $ 702
Conversion of preferred stock to common stock 1 1 1
Exercise of stock options and other issuances 48 48 47
Stock dividend declared (12) - -
Purchases of common stock - (6) -
- - ---------------------------------------------------------------------------------------------------------------------------
Ending balance $ 830 $ 793 $ 750
- - ---------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Beginning balance $2,969 $2,864 $2,518
Net income 558 253 479
Dividends declared:
Preferred stock (1) (1) (1)
Common stock (per share: $1.00 in 1997;
$.88 in 1996; and $.78 in 1995) (164) (147) (132)
- - ---------------------------------------------------------------------------------------------------------------------------
Ending balance $3,362 $2,969 $2,864
- - --------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK
Beginning balance $ 612 $ 358 $ 258
Purchases of common stock 328 259 100
Issuance of common stock (1) (5) -
- - ---------------------------------------------------------------------------------------------------------------------------
Ending balance $ 939 $ 612 $ 358
- - ---------------------------------------------------------------------------------------------------------------------------
OTHER
Beginning balance $ 7 $ 129 $ (108)
Currency translation adjustment (73) 35 5
Securities valuation adjustment 4 (155) 216**
Pension liability adjustment - (2) 3
Shares allocated to ESOP participants' accounts - - 13
- - ---------------------------------------------------------------------------------------------------------------------------
Ending balance $ (62) $ 7 $ 129
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Shares issued at the end of 1997, 1996, 1995, and 1994 were as follows (in
thousands): $2.08 Preferred - 270; 312; 336; and 366 shares, respectively;
$1.40 Preferred - 579; 594; 604; and 613 shares, respectively;
Common - 190,689; 94,456; 93,462; and 92,284 shares, respectively.
**Includes net unrealized gains relating to the transfer of all of Paul
Revere's debt securities from the held to maturity category to the available
for sale category of its investment portfolio ($133 million) partially
offset by an adjustment to deferred policy acquisition costs ($73 million).
See notes to consolidated financial statements.
<PAGE>17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENT SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION
SIGNIFICANT ACCOUNTING POLICIES APPEAR IN CAPITAL
LETTERS AS AN INTEGRAL PART OF THE NOTES TO THE
FINANCIAL STATEMENTS TO WHICH THE POLICIES RELATE.
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
Textron is a global multi-industry company with
manufacturing and finance operations. Its principal
markets (listed within segments in order of the
amount of 1997 revenues) and the major locations
of such markets are as follows:
<TABLE>
<CAPTION>
SEGMENT PRINCIPAL MARKETS MAJOR LOCATIONS
--------------------------------------------------------------------------------------------------
<S> <C> <C>
AIRCRAFT - Commercial and military helicopters - North America
- Business jets - Asia/Pacific
- General aviation - South America
- Overnight express package carriers - Western Europe
- Commuter airlines, relief flights, tourism, and freight
----------------------------------------------------------------------------------------------------
AUTOMOTIVE - Automotive original equipment manufacturers and their suppliers - North America
- Western Europe
---------------------------------------------------------------------------------------------------
INDUSTRIAL - Fastening systems: automotive, electronics, aerospace, - North America
other OEMs, distributors, and consumers - Western Europe
- Industrial components: commercial aerospace and defense - Asia/Pacific
- Golf and turf-care products: golf courses, resort - South America
communities, and commercial and industrial users
- Fluid and power systems: original equipment manufacturers,
distributors, and end-users of a wide variety of products
-----------------------------------------------------------------------------------------------------
FINANCE - Commercial loans - North America
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The consolidated financial statements include the
accounts of Textron and all of its majority- and
wholly-owned subsidiaries. All significant
intercompany transactions are eliminated. Paul Revere
is reflected as a discontinued operation for 1996 and
1995 and Avco Financial Services is reflected
as a discontinued operation for all periods
presented.
Textron consists of two borrowing groups - the
Textron Parent Company Borrowing Group (Parent Group)
and Textron's finance subsidiary (Finance Group).
The Parent Group consists of all entities of Textron
(primarily manufacturing) other than its wholly-owned
finance subsidiary. The Finance Group consists of
Textron Financial Corporation (TFC).
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the amounts reported in these
statements and accompanying notes. Consequently,
actual results could differ from such estimates.
2. ACQUISITIONS AND ACQUISITIONS
DISPOSITIONS
In 1997, Textron acquired Germany-based Kautex
Group, a worldwide supplier of blow-molded plastic
fuel tanks and other automotive components and
systems for approximately $350 million, which
includes the assumption of debt. In addition,
Textron acquired Brazil-based Brazaco Mapri
Industrias, S.A., South America's leading maker
of fasteners. The purchase price of $70 million
is payable on or before March 31, 1998. Smaller
acquisitions made in 1997 aggregated
approximately $70 million.
In November 1997, Textron announced a tender
offer to acquire the capital stock of Ransomes PLC,
a UK-based equipment manufacturer, for approximately
$230 million, plus the assumption of debt. This
transaction closed in early 1998.
<PAGE>18
In 1996, Textron acquired Valois Industries
(renamed Textron Industries, S.A.S.), a France-based
manufacturer of engineered fastening systems for
approximately $240 million, which includes the
assumption of debt. Other acquisitions made in 1996
aggregated approximately $130 million.
In 1995, Textron acquired Elco Industries and
Friedr. Boesner GmbH for an aggregate of
approximately $260 million.
The acquisitions were accounted for as purchases
and accordingly, the results of operations of each
acquired company are included in the statement of
income from the date of acquisition.
DISPOSITIONS
In 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 the value
of shares of Provident common stock subsequently sold
for $245 million). In 1996, the Parent Group sold,
for no gain or loss, its Aerostructures division for
$180 million in cash plus a subordinated note.
3. FINANCE RECEIVABLES INTEREST INCOME IS RECOGNIZED IN REVENUES USING
THE INTEREST METHOD. DIRECT LOAN ORIGINATION COSTS
AND FEES RECEIVED ARE DEFERRED AND AMORTIZED OVER
THE LOANS' CONTRACTUAL LIVES. THE ACCRUAL OF
INTEREST INCOME IS SUSPENDED FOR ACCOUNTS WHICH
ARE CONTRACTUALLY DELINQUENT BY MORE THAN THREE
MONTHS. ACCRUAL OF INTEREST ON
COMMERCIAL LOANS RESUMES AND SUSPENDED INTEREST
INCOME IS RECOGNIZED WHEN LOANS BECOME CONTRACTUALLY
CURRENT.
FINANCE RECEIVABLES ARE WRITTEN-OFF WHEN THEY ARE
DETERMINED TO BE UNCOLLECTIBLE. FINANCE RECEIVABLES
ARE WRITTEN DOWN TO THE FAIR VALUE OF THE RELATED
COLLATERAL (LESS ESTIMATED COSTS TO SELL) WHEN THE
COLLATERAL IS REPOSSESSED OR WHEN NO
PAYMENT HAS BEEN RECEIVED FOR SIX MONTHS, UNLESS
MANAGEMENT DEEMS THE LOANS COLLECTIBLE. FORECLOSED
REAL ESTATE LOANS AND REPOSSESSED ASSETS ARE
TRANSFERRED FROM FINANCE RECEIVABLES TO OTHER
ASSETS AT THE LOWER OF FAIR VALUE (LESS ESTIMATED
COSTS TO SELL) OR THE OUTSTANDING LOAN BALANCE.
PROVISIONS FOR LOSSES ON FINANCE RECEIVABLES ARE
CHARGED TO INCOME IN AMOUNTS SUFFICIENT TO MAINTAIN
THE ALLOWANCE AT A LEVEL CONSIDERED ADEQUATE TO COVER
LOSSES IN THE EXISTING RECEIVABLE PORTFOLIO.
MANAGEMENT EVALUATES THE ALLOWANCE BY EXAMINING
CURRENT DELINQUENCIES, THE CHARACTERISTICS OF THE
EXISTING ACCOUNTS, HISTORICAL LOSS EXPERIENCE, THE
VALUE OF THE UNDERLYING COLLATERAL, AND GENERAL
ECONOMIC CONDITIONS AND TRENDS.
Commercial installment contracts have initial
terms ranging from one to 12 years. Commercial real
estate loans have initial terms ranging from three to
five years. Finance leases have initial terms up to
12 years. Leveraged leases have initial terms up to
approximately 30 years. Floorplan and other
receivables generally mature within one year.
Nonearning commercial loans were $87 million at the
end of 1997 ($91 million at the end of 1996).
The following table displays the contractual
maturity of the finance receivables. It does not
necessarily reflect future cash collections because
of various factors including the refinancing of
receivables and repayments prior to maturity. Cash
collections from receivables, excluding finance
charges, were $2.3 billion and $2.1 billion in 1997
and 1996, respectively. In the same periods, the
ratio of cash collections to average net receivables
was approximately 76% and 69%, respectively.
<TABLE>
<CAPTION>
FINANCE RECEIVABLES
CONTRACTUAL MATURITIES LESS OUTSTANDING
- - ----------------------------------------------------------------------------------------- FINANCE ---------------------
(In millions) 1998 1999 After 1999 CHARGES 1997 1996
- - ----------------------------------------------------------------------------------------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Installment contracts 328 242 728 157 1,141 1,023
Real estate loans 57 54 236 2 345 402
Finance leases 118 109 251 86 392 789
Leveraged leases 10 33 570 283 330 327
Floorplan and other
receivables 553 122 191 5 861 628
- --------------------------------------------------------------------------------------------------
$1,066 $ 560 $1,976 $ 533 3,069 3,169
===================================================================================================
Less allowance for credit
losses 76 75
- - ----------------------------------------------------------------------------------------------------------------------------
$2,993 $ 3,094
=============================================================================================================================
</TABLE>
Textron had both fixed-rate and variable-rate
loan commitments totaling $376 million at year-end
1997. Because interest rates on these commitments are
not set until the loans are funded, Textron is not
exposed to interest rate changes.
<PAGE>19
A portion of TFC's business involves financing
the sale and lease of Textron products. In 1997,
1996, and 1995, TFC paid Textron $736 million, $663
million, and $461 million, respectively, for
receivables and operating lease equipment. Operating
agreements with Textron specify that TFC generally
has recourse to Textron with respect to these
purchases. At year-end 1997, finance receivables and
operating lease equipment of $519 million and $90
million, respectively, ($713 million and $86 million,
respectively, at year-end 1996) were due from Textron
or subject to recourse to Textron.
4. INVENTORIES INVENTORIES ARE CARRIED AT THE LOWER OF COST OR
MARKET.
<TABLE>
<CAPTION>
JANUARY 3, December 28,
(In millions) 1998 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 454 $ 364
Work in process 675 769
Raw materials 366 259
- - ------------------------------------------------------------------------------------------------------------------------
1,495 1,392
Less progress payments and customer deposits 146 200
- - ------------------------------------------------------------------------------------------------------------------------
$1,349 $1,192
=========================================================================================================================
</TABLE>
Inventories aggregating $894 million at year-end
1997 and $848 million at year-end 1996 were valued by
the last-in, first-out (LIFO) method. (Had such LIFO
inventories been valued at current costs, their
carrying values would have been approximately $159
million and $143 million higher at those respective
dates.) The remaining inventories, other than those
related to certain long-term contracts, are valued
generally by the first-in, first-out method.
Inventories related to long-term contracts, net
of progress payments and customer deposits, were $147
million at year-end 1997 and $181 million at year-end
1996.
5. LONG-TERM SALES UNDER FIXED-PRICE CONTRACTS ARE GENERALLY
CONTRACTS RECORDED AS DELIVERIES ARE MADE. CERTAIN LONG-TERM
FIXED-PRICE CONTRACTS PROVIDE FOR THE PERIODIC
DELIVERY AFTER A LENGTHY PERIOD OF TIME OVER WHICH
SIGNIFICANT COSTS ARE INCURRED OR REQUIRE A
SIGNIFICANT AMOUNT OF DEVELOPMENT EFFORT IN
RELATION TO TOTAL CONTRACT VOLUME. SALES UNDER
THOSE CONTRACTS AND ALL COST-REIMBURSEMENT-TYPE
CONTRACTS ARE RECORDED AS COSTS ARE INCURRED.
SALES UNDER THE V-22 PRODUCTION CONTRACT WITH THE
U.S. GOVERNMENT, WHICH PRESENTLY IS A
COST-REIMBURSEMENT-TYPE CONTRACT, ARE RECORDED AS
COSTS-ARE INCURRED.
CERTAIN CONTRACTS ARE AWARDED WITH FIXED-PRICE
INCENTIVE FEES. INCENTIVE FEES ARE CONSIDERED WHEN
ESTIMATING REVENUES AND PROFIT RATES, AND ARE
RECORDED WHEN THESE AMOUNTS ARE REASONABLY
DETERMINED. LONG-TERM CONTRACT PROFITS ARE BASED ON
ESTIMATES OF TOTAL SALES VALUE AND COSTS AT
COMPLETION. SUCH ESTIMATES ARE REVIEWED AND REVISED
PERIODICALLY THROUGHOUT THE CONTRACT LIFE. REVISIONS
TO CONTRACT PROFITS ARE RECORDED WHEN THE REVISIONS
ARE MADE. ESTIMATED CONTRACT LOSSES ARE RECORDED WHEN
IDENTIFIED.
Long-term contract receivables at year-end 1997
and year-end 1996 totaled $146 million and $127
million, respectively. This includes $111 million and
$56 million, respectively, of unbilled costs and
accrued profits that had not yet met the contractual
billing criteria. Long-term contract receivables do
not include significant amounts (a) billed but unpaid
due to contractual retainage provisions or (b)
subject to collection uncertainty.
6. PROPERTY, PLANT, THE COST OF PROPERTY, PLANT, AND EQUIPMENT IS
AND EQUIPMENT DEPRECIATED BASED ON THE ASSETS' ESTIMATED USEFUL
LIVES.
<TABLE>
<CAPTION>
JANUARY 3, December 28,
(In millions) 1998 1996
------------------------------------------------------------------------------------------
<S> <C> <C>
At cost:
Land and buildings $ 808 $ 716
Machinery and equipment 2,647 2,274
- - ----------------------------------------------------------------------------------------------------------------
3,455 2,990
Less accumulated depreciation 1,685 1,531
- -----------------------------------------------------------------------------------------------------------------
$1,770 $1,459
=================================================================================================================
</TABLE>
<PAGE>20
7.GOODWILL GOODWILL IS AMORTIZED ON THE STRAIGHT-LINE
METHOD AND IS AMORTIZED OVER 20 TO 40 YEARS.
Accumulated amortization of goodwill totaled
$329 million at January 3, 1998 and $278 million
at December 28, 1996.
GOODWILL IS PERIODICALLY REVIEWED FOR IMPAIRMENT
BY COMPARING THE CARRYING AMOUNT TO THE ESTIMATED
FUTURE UNDISCOUNTED CASH FLOWS OF THE BUSINESSES
ACQUIRED. IF THIS REVIEW INDICATES THAT GOODWILL IS
NOT RECOVERABLE, THE CARRYING AMOUNT WOULD BE
REDUCED TO FAIR VALUE.
8. DEBT AND CREDIT At the end of 1997 and 1996, debt consisted of the
FACILITIES following:
<TABLE>
<CAPTION>
JANUARY 3, December 28,
(In millions) 1998 1996
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PARENT GROUP:
Senior:
Borrowings under or supported by long-term credit facilities* $ 375 $ 878
Medium-term notes; due 1999 to 2011 (average rate - 9.54%) 229 291
6.63% - 10.04%; due 2001 to 2022 405 209
Other notes (average rate - 6.99%) 182 100
- - -----------------------------------------------------------------------------------------------------------------------
Total senior 1,191 1,478
- - -----------------------------------------------------------------------------------------------------------------------
Subordinated - 8.86% - 8.97%; due 1998 to 1999 30 29
- - -----------------------------------------------------------------------------------------------------------------------
Total Parent Group 1,221 1,507
- - -----------------------------------------------------------------------------------------------------------------------
FINANCE GROUP:
Senior:
Borrowings under or supported by credit facilities** 1,074 1,014
5.47% - 5.85%; due 1998 21 56
6.10% - 6.51%; due 1998 to 2000 112 65
7.14% - 7.67%; due 1998 to 2000 259 384
Variable rate notes; due 1998 to 2001 (average rate - 6.11%) 899 922
- - -----------------------------------------------------------------------------------------------------------------------
Total Finance Group 2,365 2,441
- - -----------------------------------------------------------------------------------------------------------------------
Total debt $ 3,586 $ 3,948
========================================================================================================================
</TABLE>
*The weighted average interest rates on these
borrowings, before the effect of interest rate
exchange agreements, were 4.8%, 5.0%, and 6.1% at
year-end 1997, 1996, and 1995, respectively.
Comparable rates during the years 1997, 1996, and
1995 were 4.8%, 5.0%, and 6.1%, respectively.
**The weighted average interest rates on these
borrowings, before the effect of interest rate
exchange agreements, were 6.1%, 5.7%, and 6.1% at
year-end 1997, 1996, and 1995, respectively.
Comparable rates during the years 1997, 1996, and
1995 were 5.8%, 5.7%, and 6.2%, respectively.
The following table shows required payments and
sinking fund requirements during the next five years
on debt outstanding at the end of 1997. The payments
schedule excludes amounts that may become payable
under credit facilities and revolving credit
agreements.
<TABLE>
<CAPTION>
(In millions) 1998 1999 2000 2001 2002
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Parent Group $ 97 $ 58 $ 53 $138 $ 29
Finance Group 102 491 478 220 -
- - --------------------------------------------------------------------------------------------------------
$ 199 $ 549 $ 531 $358 $ 29
========================================================================================================
</TABLE>
The Parent Group maintains credit facilities with
various banks for both short- and long-term
borrowings. The Parent Group has a $1.5 billion
domestic credit agreement with 33 banks available on
a fully revolving basis until July 1, 2002. At
year-end 1997, $1.4 billion of the credit facility
was not used or reserved as support for commercial
paper or bank borrowings. Textron also has two
five-year multi-currency credit agreements with 25
banks for $700 million for its foreign operations;
$445 million was available at year-end 1997.
<PAGE>21
The Finance Group has lines of credit with
various banks aggregating $1.1 billion at year-end
1997, of which $163 million was not used or reserved
as support for commercial paper or bank borrowings.
Lending agreements limit the Finance Group's net
assets available for cash dividends and other
payments to the Parent Group to approximately $102
million of the Finance Group's net assets of $406
million at year-end 1997. The Finance Group's loan
agreements also contain provisions regarding
additional debt, creation of liens or guarantees, and
the making of investments.
The Parent Group has agreed to cause TFC to
maintain certain minimum levels of financial
performance. No payments from the Parent Group were
necessary in 1997, 1996, or 1995 for TFC to meet
these standards.
9. DERIVATIVES AND INTEREST RATE EXCHANGE AGREEMENTS
FOREIGN CURRENCY
TRANSACTIONS Interest rate exchange agreements are used to help
manage interest rate risk by converting certain
variable-rate debt to fixed-rate debt and vice versa.
These agreements involve the exchange of fixed-rate
interest for variable-rate amounts over the life of
the agreement without the exchange of the notional
amount. INTEREST RATE EXCHANGE AGREEMENTS ARE
ACCOUNTED FOR ON THE ACCRUAL BASIS WITH THE
DIFFERENTIAL TO BE PAID OR RECEIVED RECORDED
CURRENTLY AS AN ADJUSTMENT TO INTEREST EXPENSE.
SOME AGREEMENTS THAT REQUIRE THE PAYMENT OF
FIXED-RATE INTEREST ARE DESIGNATED AGAINST SPECIFIC
LONG-TERM VARIABLE-RATE BORROWINGS, WHILE THE BALANCE
IS DESIGNATED AGAINST EXISTING SHORT-TERM BORROWINGS
THROUGH MATURITY AND THEIR ANTICIPATED REPLACEMENTS.
TEXTRON CONTINUOUSLY MONITORS VARIABLE-RATE
BORROWINGS TO MAINTAIN THE LEVEL OF BORROWINGS ABOVE
THE NOTIONAL AMOUNT OF THE DESIGNATED AGREEMENTS. IF
IT IS NOT PROBABLE VARIABLE-RATE BORROWINGS WILL
CONTINUOUSLY EXCEED THE NOTIONAL AMOUNT OF THE
DESIGNATED AGREEMENTS, THE EXCESS IS MARKED TO MARKET
AND THE ASSOCIATED GAIN OR LOSS RECORDED IN INCOME.
PREMIUMS PAID TO TERMINATE AGREEMENTS DESIGNATED AS
HEDGES ARE DEFERRED AND AMORTIZED TO EXPENSE OVER THE
REMAINING TERM OF THE ORIGINAL LIFE OF THE CONTRACT.
IF THE UNDERLYING DEBT IS THEN PAID EARLY,
UNAMORTIZED PREMIUMS ARE RECOGNIZED AS AN ADJUSTMENT
TO THE GAIN OR LOSS ASSOCIATED WITH THE DEBT'S
EXTINGUISHMENT.
During 1997, the Finance Group had $150 million
of interest rate exchange agreements go into effect.
Interest rate exchange agreements in effect at the
end of 1997 and 1996 had weighted average remaining
terms of 1.5 years and 3.2 years, respectively, for
the Parent Group and 1.2 years and 2.2 years,
respectively, for the Finance Group. Agreements that
effectively fix the rate of interest on variable-rate
borrowings are summarized as follows:
<TABLE>
<CAPTION>
JANUARY 3, 1998 December 28, 1996
- - -----------------------------------------------------------------------------------------------------------------------
FIXED-PAY INTEREST RATE EXCHANGE AGREEMENTS*
Weighted Weighted
Notional average Notional average
(Dollars in millions) amount interest rate amount interest rate
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Parent Group $ 275** 9.01% $ 453 8.53%
Finance Group 450*** 6.02 300 5.90
- - -----------------------------------------------------------------------------------------------------------------------
$ 725 7.20 $ 753 7.53
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* During 1997, the Parent Group and Finance
Group also entered into variable-pay interest
rate exchange agreements for $200 million and
$50 million, respectively, which were
designated against specific long-term
fixed-rate notes. These agreements effectively
adjusted the rate of interest on certain
long-term fixed-rate notes to 6.2% from 6.6%
for the Parent Group and to 6.0% from 6.4% for
the Finance Group as of year-end.
** The Parent Group's fixed-pay interest rate
exchange agreements were designated against
existing and anticipated short-term
variable-rate borrowings. These agreements
effectively adjusted the average rate of
interest on short-term variable-rate notes to
7.0% from 4.8%. The interest rate exchange
agreements in effect at the end of 1997 expire
as follows: $100 million (8.7%) in 1998; $25
million (7.2%) in 1999; $150 million (9.4%) in
2000.
*** The Finance Group's interest rate exchange
agreements were designated against specific
long-term variable-rate notes. These agreements
effectively adjusted the average rate of interest
on long-term variable-rate notes to 6.3% from
6.1%. The fixed-pay interest rate exchange
agreements in effect at the end of 1997
expire as follows: $200 million (5.94%) in
1998 and $250 million (6.26%) in 1999.
<PAGE>22
Textron had minimal exposure to loss from
nonperformance by the counterparties to its
interest rate exchange agreements at the end of
1997, and does not anticipate nonperformance by
counterparties in the periodic settlements of
amounts due. Textron currently minimizes this
potential for risk by entering into contracts
exclusively with major, financially sound
counterparties having no less than a long-term bond
rating of "A," by continuously monitoring the
Counterparties' credit ratings, and by limiting
exposure with any one financial institution.
The credit risk generally is limited to the amount by
which the counterparties' contractual obligations
exceed Textron's obligations to the counterparty.
TRANSLATION OF FOREIGN CURRENCIES, FOREIGN EXCHANGE
TRANSACTIONS AND FOREIGN CURRENCY EXCHANGE CONTRACTS
FOREIGN CURRENCY DENOMINATED ASSETS AND LIABILITIES
ARE TRANSLATED INTO U.S. DOLLARS WITH THE ADJUSTMENTS
FROM THE CURRENCY RATE CHANGES BEING RECORDED IN THE
CURRENCY TRANSLATION ADJUSTMENT ACCOUNT IN
SHAREHOLDERS' EQUITY UNTIL THE RELATED FOREIGN ENTITY
IS SOLD OR SUBSTANTIALLY LIQUIDATED. NON-U.S. DOLLAR
FINANCING TRANSACTIONS ARE USED TO EFFECTIVELY HEDGE
LONG-TERM INVESTMENTS IN FOREIGN OPERATIONS WITH THE
SAME CORRESPONDING CURRENCY. FOREIGN CURRENCY GAINS
AND LOSSES ON THE HEDGE OF THE LONG-TERM INVESTMENTS
ARE RECORDED IN THE CURRENCY TRANSLATION ADJUSTMENT
WITH THE OFFSET RECORDED AS AN ADJUSTMENT TO THE
NON-U.S. DOLLAR FINANCING LIABILITY.
FORWARD EXCHANGE CONTRACTS ARE USED TO HEDGE
CERTAIN FOREIGN CURRENCY TRANSACTIONS AND CERTAIN
FIRM SALES AND PURCHASE COMMITMENTS DENOMINATED IN
FOREIGN CURRENCIES. GAINS AND LOSSES FROM CURRENCY
RATE CHANGES ON HEDGES OF FOREIGN CURRENCY
TRANSACTIONS ARE RECORDED CURRENTLY IN INCOME. GAINS
AND LOSSES RELATING TO THE HEDGE OF THE FIRM SALES
AND PURCHASE COMMITMENTS ARE INCLUDED IN THE
MEASUREMENT OF THE UNDERLYING TRANSACTIONS WHEN THEY
OCCUR. Foreign exchange gains and losses included in
income have not been material.
Forward exchange contracts, predominantly
denominated in Canadian dollars, Deutschemarks and
French francs, totaling approximately $524 million
and $124 million were outstanding at the end of 1997
and 1996, respectively. Unrealized gains or losses
relating to these contracts approximated the
contracts' fair value at year-end (see Note 17).
10. TEXTRON-OBLIGATED In 1996, a trust sponsored and wholly-owned by
MANDATORILY Textron issued preferred securities to the public
REDEEMABLE (for $500 million) and shares of its common
PREFERRED securities to Textron (for $15.5 million), the
SECURITIES OF proceeds of which were invested by the trust in
SUBSIDIARY TRUST $515.5 million aggregate principal amount of
HOLDING SOLELY Textron's newly issued 7.92% Junior Subordinated
TEXTRON JUNIOR Deferrable Interest Debentures, due 2045. The
SUBORDINATED DEBT debentures are the sole asset of the trust. The
SECURITIES proceeds from the issuance of the debentures were
used by Textron for the repayment of long-term
borrowings and for general corporate purposes. 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.
11. SHAREHOLDERS' PREFERRED STOCK
EQUITY
Textron has authorization for 15,000,000 shares of
preferred stock. Each share of $2.08 Preferred Stock
($23.63 approximate stated value) is convertible into
4.4 shares of common stock and can be redeemed by
Textron for $50 per share. Each share of $1.40
Preferred Dividend Stock ($11.82 approximate stated
value) is convertible into 3.6 shares of common stock
and can be redeemed by Textron for $45 per share.
<PAGE>23
COMMON STOCK
Textron has authorization for 500,000,000 shares of
12.5 cent per share par value common stock. New
shares in connection with a two-for-one stock split
in the form of a stock dividend were issued and
distributed on May 30, 1997 to shareholders of record
on the close of business on May 9, 1997. Average
shares outstanding, stock options, and per share
amounts have been restated for all periods presented.
PERFORMANCE SHARE UNITS AND STOCK OPTIONS
Textron's 1994 Long-Term Incentive Plan authorizes
awards to key employees in two forms: (a) performance
share units and (b) options to purchase Textron
common stock. The total number of shares of common
stock for which options may be granted under the plan
is 10,000,000.
PERFORMANCE SHARE UNITS AND EMPLOYEE STOCK OPTION
GRANTS ARE ACCOUNTED FOR IN ACCORDANCE WITH APB 25,
"ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES." UNDER APB
25, BECAUSE THE EXERCISE PRICE OF EMPLOYEE STOCK
OPTIONS EQUALS THE MARKET PRICE ON THE DATE OF GRANT,
NO COMPENSATION EXPENSE IS RECOGNIZED FOR STOCK
OPTION AWARDS. COMPENSATION EXPENSE FOR PERFORMANCE
SHARE UNITS IS MEASURED BASED ON THE VALUE OF TEXTRON
STOCK UNDERLYING THE AWARDS.
Compensation expense under Textron's performance
share program was approximately $65 million in 1997,
$45 million in 1996, and $23 million in 1995. To
mitigate the impact of stock price increases on
compensation expense, Textron entered into a
cash-settlement option program on Textron's common
stock in November 1995. This program generated income
of approximately $37 million in 1997 and $21 million
in 1996.
Pro forma information regarding net income and
earnings per share is required by FAS 123,
"Accounting for Stock-Based Compensation" and has
been determined under the fair value method of that
Statement. For the purpose of developing the pro
forma information, the fair values of options granted
after 1995 are estimated at the date of grant using
the Black-Scholes option-pricing model. The estimated
fair values are amortized to expense over the
options' vesting period. Using this methodology, net
income would have been reduced by $15 million or $.09
per share in 1997 and $10 million or $.06 per share
in 1996. The pro forma effect on 1995 net income was
not material. The pro forma effect on net income is
not necessarily representative of the effect in
future years because it does not take into
consideration pro forma compensation expense related
to grants made prior to 1995.
The assumptions used to estimate the fair value
of an option granted in 1997, 1996 and 1995,
respectively, are approximately as follows: dividend
yield of 2%; expected volatility of 16%; risk-free
interest rates of 6%, 6%, and 5%; and weighted
average expected lives of 3.5 years. Under these
assumptions, the weighted-average fair value of an
option to purchase one share granted in 1997, 1996,
and 1995, respectively, was approximately $14, $10,
and $8.
Stock option transactions during the last three
years are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares under option at
beginning of year 9,290 $31.08 9,116 $26.05 9,392 $22.16
Options granted 1,333 62.54 2,136 45.37 2,124 36.06
Options exercised (1,541) 24.56 (1,846) 22.89 (2,196) 19.13
Options canceled (81) 43.40 (116) 29.38 (204) 25.57
- - --------------------------------------------------------------------------------------------------------------------------
Shares under option at end of
year 9,001 36.74 9,290 31.08 9,116 26.05
============================================================================================================================
Shares exercisable at end of
year 6,641 30.21 6,128 25.26 5,888 22.69
============================================================================================================================
</TABLE>
<PAGE>24
Stock options outstanding at the end of 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Range of Exercise Remaining Average Average
Prices Contractual Exercise Exercise
(Shares in thousands) Outstanding Life Price Exercisable Price
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUARY 3, 1998:
$11 - $32 3,952 5.6 $23.44 3,952 $23.44
$33 - $50 3,745 8.5 41.67 2,689 40.15
$51 - $68 1,304 9.9 62.87 - -
December 28, 1996:
$10 - $32 5,292 6.6 $23.24 5,192 $23.15
$33 - $40 1,938 9.0 36.95 936 36.93
$40 - $46 2,060 9.9 45.69 - -
=====================================================================================================
</TABLE>
RESERVED SHARES OF COMMON STOCK
At year-end 1997, 3,277,000 shares of common stock were
reserved for the subsequent conversion of preferred stock and
9,001,000 shares were reserved for the exercise of stock
options.
PREFERRED STOCK PURCHASE RIGHTS
Each outstanding share of Textron common stock has attached
to it one-half of a preferred stock purchase right. One
preferred stock purchase right entitles the holder to buy one
one-hundredth of a share of Series C Junior Participating
Preferred Stock at an exercise price of $250. The rights
become exercisable only under certain circumstances related
to a person or group acquiring or offering to acquire a
substantial block of Textron's common stock. In certain
circumstances, holders may acquire Textron stock, or in some
cases the stock of an acquiring entity, with a value equal to
twice the exercise price. The rights expire in September 2005
but may be redeemed earlier for $.05 per right.
INCOME PER COMMON SHARE
In 1997, Textron adopted FAS 128 "Earnings Per Share." FAS
128 requires companies to present basic and diluted income
per share amounts. A reconciliation of income from continuing
operations and basic to diluted share amounts is presented
below. All periods presented have been restated.
<TABLE>
<CAPTION>
For the years ended JANUARY 3, 1998 December 28, 1996 December 30, 1995
-------------------------------------------------------------------
($ in millions, Average Average Average
shares in thousands) Income Shares Income Shares Income Shares
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations $372 $306 $248
--------------------------------------------------------------------------------------------------
Less: Preferred stock dividends (1) (1) (1)
--------------------------------------------------------------------------------------------------
BASIC
Available to common shareholders 371 164,830 305 167,453 247 169,848
Dilutive effect of convertible
preferred stock and stock options 1 4,673 1 4,199 1 3,404
DILUTED
Available to common shareholders
and assumed conversions $372 169,503 $306 171,652 $248 173,252
==================================================================================================
</TABLE>
12. LEASES Rental expense approximated $65 million, $54 million, and
$56 million in 1997, 1996, and 1995, respectively. Future
minimum rental commitments for noncancellable operating
leases in effect at year-end 1997 approximated $54 million
for 1998; $43 million for 1999; $29 million for 2000; $23
million for 2001; $20 million for 2002; and a total of $161
million thereafter.
<PAGE>25
13. RESEARCH AND Textron carries out research and development for itself and
DEVELOPMENT under contracts with others, primarily the U.S. government.
Company initiated programs include independent research and
development related to government products and services, a
significant portion of which is recoverable from the U.S.
government through overhead cost allowances.
RESEARCH AND DEVELOPMENT COSTS FOR WHICH TEXTRON IS
RESPONSIBLE ARE EXPENSED AS INCURRED. THESE COMPANY FUNDED
COSTS INCLUDE AMOUNTS FOR COMPANY INITIATED PROGRAMS, THE
COST SHARING PORTIONS OF CUSTOMER INITIATED PROGRAMS, AND
LOSSES INCURRED ON CUSTOMER INITIATED PROGRAMS. The company
funded and customer funded research and development costs for
1997, 1996, and 1995 were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Company funded $ 222 $ 185 $ 181
Customer funded 380 391 475
-------------------------------------------------------------------------------------------------
Total research and development $602 $ 576 $ 656
=================================================================================================
</TABLE>
14. PENSION Textron has defined benefit and defined contribution pension
BENEFITS plans which together cover substantially all employees. The
costs of the defined contribution plans are funded as accrued
and amounted to approximately $36 million, $32 million, and
$15 million for 1997, 1996, and 1995, respectively. Defined
benefits under salaried plans are based on salary and years
of service. Hourly plans generally provide benefits based on
stated amounts for each year of service. Textron's funding
policy is consistent with federal law and regulations. Plan
assets consist principally of corporate and government bonds
and common stocks.
Pension income in 1997, 1996, and 1995 included the
following components:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 71 $ 69 $ 55
Interest cost on projected benefit obligation 223 207 209
Actual return on plan assets (720) (494) (745)
Amortization of unrecognized transition net asset (17) (17) (17)
Net amortization and deferral of actuarial gains 438 230 482
----------------------------------------------------------------------------------------------------
Net pension income $ (5) $ (5) $ (16)
====================================================================================================
</TABLE>
The following table sets forth the funded status of
Textron's pension plans.
<TABLE>
<CAPTION>
January 3, 1998 December 28, 1996
------------------------------------------------------------------------------------------------------
Assets Accumulated Assets Accumulated
exceed benefits exceed benefits
accumulated exceed accumulated exceed
(In millions) benefits assets benefits assets
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets at fair value $4,069 $ 61 $3,516 $ 124
Actuarial present value of:
Vested benefit obligation 2,619 161 2,397 197
Nonvested benefit obligation 73 17 67 19
------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 2,692 178 2,464 216
Effect of projected pay increases 301 35 251 35
------------------------------------------------------------------------------------------------------
Projected benefit obligation 2,993 213 2,715 251
Plan funded status 1,076 (152) 801 (127)
Unrecognized net actuarial (gains) losses (716) 20 (469) 30
Unrecognized prior service cost 84 21 93 21
Unrecognized transition net obligation (net asset) (104) 7 (120) 5
Adjustment required to recognize minimum liability - (18) - (24)
-------------------------------------------------------------------------------------------------------
Net pension asset (liability) recognized on the
consolidated balance sheet $ 340 $(122) $ 305 $ (95)
========================================================================================================
</TABLE>
<PAGE>26
Major actuarial assumptions used in accounting for the
defined benefit pension plans are shown in the following
table. Net pension income is determined using these
assumptions as of the end of the prior year. The funded
status of the plans is determined using these assumptions as
of the end of the current year.
<TABLE>
<CAPTION>
January 3, December 28, December 30, December 31,
1998 1996 1995 1994
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rate 7.25% 7.50% 7.25% 8.25%
Weighted average long-term rate of
compensation increase 5.00 5.00 5.00 5.00
Long-term rate of return on plan assets 9.00 9.00 9.00 9.00
========================================================================================================
</TABLE>
15. POSTRETIREMENT Textron offers health care and life insurance benefits for
BENEFITS OTHER certain retired employees. Postretirement benefit costs other
THAN PENSIONS than pension-related expenses in 1997, 1996, and 1995
included the components shown in the following table.
Textron's postretirement benefit plans other than pensions
are unfunded.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 5 $ 5 $ 5
Interest cost on accumulated postretirement benefit obligation 46 51 56
Net amortization (13) (12) (13)
-------------------------------------------------------------------------------------------------------
Postretirement benefit costs $ 38 $ 44 $ 48
=======================================================================================================
</TABLE>
The following table sets forth the status of these
plans at the end of 1997 and 1996:
<TABLE>
<CAPTION>
January 3, December 28,
(In millions) 1998 1996
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefits attributed to:
Retirees $490 $499
Fully eligible active plan participants 62 61
Other active plan participants 88 85
-------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 640 645
Unrecognized net actuarial gains 100 107
Unrecognized prior service cost benefit 26 30
-------------------------------------------------------------------------------------------------------
Postretirement benefit liability recognized on the consolidated balance sheet $766 $782
=======================================================================================================
</TABLE>
The discount rates used to determine postretirement
benefit costs other than pensions and the status of those
plans were the same as those used for Textron's defined
benefit pension plans.
The 1997 health care cost trend rate, which is the
weighted average annual assumed rate of increase in the per
capita cost of covered benefits, was 6.5% for retirees age 65
and over and 7.5% for retirees under age 65. Both rates are
assumed to decrease gradually to 5.5% by 2001 and 2003,
respectively, and then remain at that level. Increasing the
health care cost trend rates by one percentage point in each
year would have increased the accumulated postretirement
benefit obligation as of year-end 1997 by $58 million and the
aggregate of the service and interest cost components of
postretirement benefit costs for 1997 by $5 million.
<PAGE>27
16. INCOME Textron files a consolidated federal income tax return
TAXES for all U.S. subsidiaries and separate returns for foreign
subsidiaries. TEXTRON RECOGNIZES DEFERRED INCOME TAXES FOR
TEMPORARY DIFFERENCES BETWEEN THE FINANCIAL REPORTING BASIS
AND INCOME TAX BASIS OF ASSETS AND LIABILITIES BASED ON
ENACTED TAX RATES EXPECTED TO BE IN EFFECT WHEN AMOUNTS ARE
LIKELY TO BE REALIZED OR SETTLED.
The following table shows income from continuing
operations before income taxes and distributions on
preferred securities of subsidiary trust:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $441 $393 $329
Foreign 207 147 84
--------------------------------------------------------------------------------------------------
Total $648 $540 $413
==================================================================================================
</TABLE>
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ 82 $121 $ 81
Deferred 71 15 34
State 27 25 24
Foreign 70 50 26
--------------------------------------------------------------------------------------------------
Income tax expense $250 $211 $165
==================================================================================================
</TABLE>
The following reconciles the federal statutory
income tax rate to the effective income tax rate reflected
in the consolidated statement of income:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in taxes resulting from:
State income taxes 2.8 3.0 3.7
Goodwill 2.7 2.8 3.3
Other - net (1.9) (1.7) (2.0)
--------------------------------------------------------------------------------------------------
Effective income tax rate 38.6% 39.1% 40.0%
==================================================================================================
</TABLE>
Textron's net deferred tax asset consisted of gross
deferred tax assets and gross deferred tax liabilities of
$1,517 million and $1,362 million, respectively, at the end
of 1997 and $1,316 million and $1,096 million, respectively,
at the end of 1996.
The components of Textron's net deferred tax asset
were as follows:
<TABLE>
<CAPTION>
January 3, December 28,
(In millions) 1998 1996
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance Group transactions, principally leasing $(334) $(343)
Obligation for postretirement benefits other than pensions 305 307
Fixed assets, principally depreciation (146) (133)
Self insured liabilities 147 152
Deferred compensation 115 102
Allowance for credit losses 25 31
Other, principally timing of other expense deductions 43 104
---------------------------------------------------------------------------------------------------
$ 155 $ 220
===================================================================================================
</TABLE>
Deferred income taxes have not been provided for the
undistributed earnings of foreign subsidiaries, which
approximated $455 million at the end of 1997. Management
intends to reinvest those earnings for an indefinite period,
except for distributions having an immaterial tax effect. If
foreign subsidiaries' earnings were distributed, 1997 taxes,
net of foreign tax credits, would be increased by
approximately $20 million, primarily because of foreign
withholding taxes.
<PAGE>28
17. FAIR VALUE OF The estimated fair value amounts shown below were
FINANCIAL determined from available market information and valuation
INSTRUMENTS methodologies. Because considerable judgment is required in
interpreting market data, the estimates are not necessarily
indicative of the amounts that could be realized in a current
market exchange.
<TABLE>
<CAPTION>
January 3, 1998 December 28, 1996
---------------------------------------------------------------------------------------------------
Estimated Estimated
Carrying fair Carrying fair
(In millions) value value value value
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
FINANCE RECEIVABLES 2,280 2,334 2,227 2,270
LIABILITIES:
DEBT:
Parent Group:
Debt 1,221 1,276 1,507 1,565
Interest rate exchange agreements - 10 - 37
Finance Group:
Debt 2,365 2,380 2,441 2,448
FOREIGN CURRENCY EXCHANGE CONTRACTS (4) - - 2
===================================================================================================
</TABLE>
NOTES:
(i) Finance receivables - The estimated fair values of
real estate loans and commercial installment contracts
were based on discounted cash flow analyses. The estimated
fair values of variable-rate receivables approximated the
net carrying value. The estimated fair values of
nonperforming loans were based on discounted cash flow
analyses using risk-adjusted interest rates or the fair
value of the related collateral.
(ii) Debt, interest rate exchange agreements, and foreign
currency exchange contracts - The estimated fair value of
fixed-rate debt was determined by independent investment
bankers or discounted cash flow analyses. The estimated fair
values of variable-rate debt approximated their carrying
values. The estimated fair values of interest rate exchange
agreements were determined by independent investment bankers
and represent the estimated amounts that Textron or its
counterparty would be required to pay to assume the other
party's obligations under the agreements. The estimated fair
values of the foreign currency exchange contracts were
determined by Textron's foreign exchange banks.
18. CONTINGENCIES CONTINGENCIES
AND
ENVIRONMENTAL Textron is subject to a number of lawsuits, investigations
REMEDIATION and claims arising out of the conduct of its business,
including those relating to commercial transactions,
government contracts, product liability, and environmental,
safety and health matters. Some seek compensatory, treble or
punitive damages in substantial amounts; fines, penalties or
restitution; or remediation of contamination. Some are or
purport to be class actions. 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 any liability for
these suits and proceedings would not have a material effect
on Textron's net income or financial condition.
ENVIRONMENTAL REMEDIATION
ENVIRONMENTAL LIABILITIES ARE RECORDED BASED ON THE MOST
PROBABLE COST IF KNOWN OR ON THE ESTIMATED MINIMUM COST,
DETERMINED ON A SITE-BY-SITE BASIS. TEXTRON'S ENVIRONMENTAL
LIABILITIES ARE UNDISCOUNTED AND DO NOT TAKE INTO
CONSIDERATION POSSIBLE FUTURE INSURANCE PROCEEDS OR
SIGNIFICANT AMOUNTS FROM CLAIMS AGAINST OTHER THIRD PARTIES.
Textron's accrued estimated environmental liabilities
are based on assumptions which are subject to a number
of factors and uncertainties. Circumstances which can affect
the accruals' reliability and precision include
identification of additional sites, environmental
regulations, level of cleanup required, technologies
available, number and financial condition of other
contributors to remediation, and the time period over which
remediation may occur. Textron believes that any changes to
the accruals that may result from these factors and
uncertainties will not have a material effect on Textron's
net income or financial condition. Textron estimates that
its accrued environmental remediation liabilities will
likely be paid over the next five to ten years.
<PAGE>29
19. GEOGRAPHIC Presented below is selected financial information by
DATA geographic area of Textron's operations.
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS REVENUES BY ORIGIN INCOME BY ORIGIN
------------------------- --------------------------
(In millions) 1997 1996 1995 1997 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $ 6,401 $5,919 $5,801 $ 710 $ 656 $ 626
Europe 1,213 891 660 118 69 38
Other North America 919 532 172 81 70 37
Other 150 164 147 8 8 9
---------------------------------------------------------------------------------------------------
$ 8,683 $7,506 $6,780 917 803 710
=================================================================== -------------------------------
Corporate expenses and other - net (140) (115) (119)
Interest expense - net (129) (148) (178)
---------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and distributions
on preferred securities of subsidiary trust $ 648 $ 540 $ 413
===================================================================================================
<CAPTION>
DESTINATION OF U.S. EXPORT REVENUE
(In millions) 1997 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
North America $ 340 $ 342 $ 280
Europe 227 256 306
Asia/Pacific 215 220 194
South America 172 92 110
Australia/New Zealand 32 33 41
Middle East 25 55 43
Other locations 32 43 26
--------------------------------------------------------------------------------------------------
$ 1,043 $1,041 $1,000
==================================================================================================
<CAPTION>
IDENTIFIABLE ASSETS
(In millions) 1997 1996 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 7,436 $ 7,247 $ 7,283
Europe 1,200 952 448
Other North America 423 330 305
Other 170 54 42
Corporate, including investment in discontinued
operations 2,557 3,161 3,243
Eliminations (456) (230) (114)
----------------------------------------------------------------------------------------------------
$11,330 $11,514 $11,207
====================================================================================================
</TABLE>
NOTES:
(i) Revenues include sales to the U.S. government of $1.0
billion, $1.0 billion, and $1.3 billion in 1997, 1996, and
1995, respectively and of $1.1 billion in 1997 to a single
customer.
(ii) Revenues between geographic areas, predominantly
revenues of U.S. divisions, were approximately 5% in each of
the years 1997, 1996, and 1995.
20. Other Information
- Parent Group
Current Liabilities
Included in accrued liabilities at the end of 1997 and 1996 were the following:
<TABLE>
<CAPTION>
January 3, December 28,
1998 1996
- ----------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Salary, wages and employer taxes $170 $168
Customer deposits 137 93
Other 546 551
- ----------------------------------------------------------------------------------------------------
Total accrued liabilities $853 $812
====================================================================================================
</TABLE>
<PAGE>30
21. Subsequent Events
On August 11, 1998, Textron announced that it had
reached an agreement to sell Avco Financial Services
(AFS) to Associates First Capital Corporation for
$3.9 billion in cash. This transaction is subject
to regulatory approvals and it is expected to close
at the end of 1998 or early 1999. Textron has restated
its financial statements as presented herein to treat
AFS as a discontinued operation. Also, on August 11,
1998 Textron announced that its Board of Directors had
authorized a new 25 million share repurchase program
that supersedes the 8 million shares that remained under
its previous authorization.
The operating results of AFS are summarized below:
<TABLE>
<CAPTION>
For each of the three years ended December 31,
(In millions) 1997 1996 1995
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $1,851 $1,758 $1,662
Costs and expenses 1,550 1,471 1,386
- --------------------------------------------------------------------------------------
Income before taxes 301 287 276
- --------------------------------------------------------------------------------------
Income taxes (115) (112) (108)
- --------------------------------------------------------------------------------------
Net income $ 186 $ 175 $ 168
=======================================================================================
</TABLE>
Presented below is a summary of AFS's financial
position at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(In millions) 1997 1996
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments $ 844 $ 814
Finance receivables - net 7,234 6,763
Other assets 654 563
- ---------------------------------------------------------------------------------------
Total assets $8,732 $8,140
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities
Accounts payable $ 123 $ 98
Other liabilities 485 456
Debt 6,910 6,398
- ---------------------------------------------------------------------------------------
Total liabilities 7,518 6,952
- ---------------------------------------------------------------------------------------
Equity
Common stock 1 1
Capital surplus 747 703
Retained earnings 509 472
Other (43) 12
- ---------------------------------------------------------------------------------------
Total equity 1,214 1,188
- ----------------------------------------------------------------------------------------
Total liabilities and equity $8,732 $8,140
=======================================================================================
</TABLE>
<PAGE>31
QUARTERLY DATA
<TABLE>
<CAPTION>
1997 1996
(Unaudited) --------------------------------- -------------------------------
(Dollars in millions except per share amounts) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Aircraft $ 866 $ 725 $ 755 $ 679 $ 735 $ 611 $ 620 $ 627
Automotive 583 464 523 557 428 355 439 405
Industrial 796 761 839 785 727 756 808 668
Finance 86 92 90 82 83 83 82 79
- -------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES $2,331 $2,042 $2,207 $2,103 $1,973 $1,805 $1,949 $1,779
=========================================================================================================================
INCOME
Aircraft $ 95 $ 79 $ 79 $ 60 $ 72 $ 70 $ 66 $ 53
Automotive 39 28 33 50 41 27 41 37
Industrial 83 87 94 82 75 76 81 68
Finance 28 29 27 24 25 25 23 23
- - ------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME 245 223 233 216 213 198 211 181
Corporate expenses and other - net (41) (36) (30) (33) (29) (28) (30) (28)
Interest expense - net (28) (32) (30) (39) (37) (36) (37) (38)
Income taxes (68) (58) (66) (58) (57) (53) (56) (45)
Distributions on preferred securities of
subsidiary trust, net of income taxes (7) (6) (7) (6) (7) (6) (7) (3)
- - ------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 101 91 100 80 83 75 81 67
Discontinued operations, net of income taxes:
Income from operations 49 47 45 45 45 45 44 58
Loss on disposal - - - - - (155) - (90)
- -------------------------------------------------------------------------------------------------------------------------
49 47 45 45 45 (110) 44 (32)
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 150 $ 138 $ 145 $ 125 $ 128 $ (35) $ 125 $ 35
=========================================================================================================================
EARNINGS PER COMMON SHARE
BASIC:
Income from continuing operations $ .62 $ .55 $ .60 $ .48 $ .50 $ .45 $ .48 $ .39
Discontinued operations .30 .28 .28 .27 .27 (.66) .26 (.18)
- - -------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .92 $ .83 $ .88 $ .75 $ .77 $ (.21) $ .74 $ .21
=========================================================================================================================
Average shares outstanding (in thousands) 163,697 164,912 165,173 165,897 165,551 167,060 168,188 168,929
- - -------------------------------------------------------------------------------------------------------------------------
DILUTED:
Income from continuing operations $ .60 $ .54 $ .59 $ .47 $ .49 $ .44 $ .47 $ .38
Discontinued operations .29 .27 .27 .26 .26 (.64) .26 (.18)
- - -------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .89 $ .81 $ .86 $ .73 $ .75 $ (.20) $ .73 $ .20
=========================================================================================================================
Average shares outstanding (in thousands) 168,527 169,675 169,797 170,388 169,745 171,357 172,516 172,963
- - -------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME MARGINS
Aircraft 11.0% 10.9% 10.5% 8.8% 9.8% 11.5% 10.6% 8.5%
Automotive 6.7 6.0 6.3 9.0 9.6 7.6 9.3 9.1
Industrial 10.4 11.4 11.2 10.4 10.3 10.1 10.0 10.2
Finance 32.6 31.5 30.0 29.3 30.1 30.1 28.0 29.1
OPERATING INCOME MARGIN 10.5 10.9 10.6 10.3 10.8 11.0 10.8 10.2
- - -----------------------------------------------------------------------------------------------------------------------
COMMON STOCK INFORMATION
Price range: High $65 11/16 $70 3/4 $67 11/16 $53 5/8 $48 7/8 $43 15/16 $44 1/2 $42 7/8
Low $55 1/2 $59 1/2 $49 11/16 $ 45 $42 3/8 $36 1/2 $38 1/2 $34 9/16
Dividends per share $ .25 $ .25 $ .25 $ .25 $ .22 $ .22 $ .22 $ .22
=========================================================================================================================
</TABLE>
All share related data has been restated to reflect the effect of the
two-for-one common stock split in the form of a stock dividend in May 1997.
Prior year amounts have been reclassified to conform to the current year's
segment presentation.
<PAGE>32
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(Dollars in millions except per share amounts) 1997 1996 1995
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Aircraft $ 3,025 $ 2,593 $ 2,420
Automotive 2,127 1,627 1,534
Industrial 3,181 2,959 2,515
Finance 350 327 311
- - ----------------------------------------------------------------------------------
Total revenues $ 8,683 $ 7,506 $ 6,780
==================================================================================
INCOME
Aircraft $ 313 $ 261 $ 237
Automotive 150 146 135
Industrial 346 300 250
Finance 108 96 88
- - ----------------------------------------------------------------------------------
TOTAL OPERATING INCOME 917 803 710
Corporate expenses and other - net (140) (115) (119)
Interest expense - net (129) (148) (178)
Income taxes (250) (211) (165)
Distributions on preferred securities of
subsidiary trust, net of income taxes (26) (23) -
- - ----------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS* $ 372 $ 306 $ 248
==================================================================================
PER SHARE OF COMMON STOCK
Income from continuing operations - basic* $ 2.25 $ 1.82 $ 1.45
Income from continuing operations - diluted* $ 2.19 $ 1.78 $ 1.43
Dividends declared $ 1.00 $ .88 $ .78
Book value at year-end $ 19.78 $ 19.10 $ 19.96
Common stock price: High $ 70 3/4 $ 48 7/8 $ 38 11/16
Low $ 45 $ 34 9/16 24 5/16
Year-end $ 62 5/8 $ 46 11/16 $ 33 3/4
Common shares outstanding (in thousands):
Basic average 164,830 167,453 169,848
Diluted average 169,503 171,652 173,252
Year-end 167,315 169,745 173,340
==================================================================================
FINANCIAL POSITION
Total assets $ 11,330 $ 11,514 $ 11,207
Debt:
Parent Group $ 1,221 $ 1,507 $ 1,774
Finance Group $ 2,365 $ 2,441 $ 2,277
Preferred securities of subsidiary trust $ 483 $ 483 $ -
Shareholders' equity $ 3,228 $ 3,183 $ 3,412
Parent Group debt to total capital 25% 29% 34%
==================================================================================
INVESTMENT DATA
Capital expenditures $ 374 $ 312 $ 258
Depreciation $ 246 $ 205 $ 177
Research and development $ 602 $ 576 $ 656
==================================================================================
OTHER DATA
Number of employees at year-end 56,000 49,000 46,000
Number of common shareholders at year-end 24,000 25,000 26,000
==================================================================================
<CAPTION>
1994 1993 1992 1991
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Aircraft $ 2,186 $ 1,987 $ 1,521 $ 1,256
Automotive 1,511 1,178 788 661
Industrial 2,982 3,106 3,308 3,294
Finance 277 259 258 202
- - --------------------------------------------------------------------------------------------
Total revenues $ 6,956 $ 6,530 $ 5,875 $ 5,413
==============================================================================================
INCOME
Aircraft $ 194 $ 172 $ 128 $ 113
Automotive 132 89 68 50
Industrial 248 237 285 311
Finance 83 74 62 45
- - ---------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME 657 572 543 519
Corporate expenses and other - net (92) (103) (81) (89)
Interest expense - net (190) (214) (238) (213)
Income taxes (160) (87) (87) (92)
Distributions on preferred securities of
subsidiary trust, net of income taxes - - - -
- - --------------------------------------------------------------------------------------------
Income from continuing operations* $ 215 $ 168 $ 137 $ 125
=============================================================================================
PER SHARE OF COMMON STOCK
Income from continuing operations - basic* $ 1.21 $ .95 $ .78 $ .72
Income from continuing operations - diluted* $ 1.19 $ .94 $ .77 $ .71
Dividends declared $ .70 $ .62 $ .56 $ .515
Book value at year-end $ 16.72 $ 15.59 $ 14.05 $ 16.82
Common stock price: High $30 5/16 $29 7/16 $22 3/8 $19 3/4
Low $23 1/4 $20 3/16 $16 7/8 $12 1/2
Year-end $25 3/16 $29 1/8 $22 3/8 $19 1/4
Common shares outstanding (in thousands):
Basic average 176,474 176,071 173,334 171,061
Diluted average 180,208 179,713 177,087 174,724
Year-end 174,616 180,509 178,366 175,903
=============================================================================================
FINANCIAL POSITION
Total assets $ 10,374 $ 10,462 $10,009 $ 7,862
Debt:
Parent Group $ 1,582 $ 2,025 $ 2,283 $ 1,820
Finance Group $ 2,162 $ 2,037 $ 1,873 $ 1,495
Preferred securities of subsidiary trust $ - $ - $ - $ -
Shareholders' equity $ 2,882 $ 2,780 $ 2,488 $ 2,928
Parent Group debt to total capital 35% 42% 48% 45%
=============================================================================================
INVESTMENT DATA
Capital expenditures $ 274 $ 227 $ 199 $ 135
Depreciation $ 190 $ 185 $ 178 $ 163
Research and development $ 611 $ 514 $ 430 $ 457
=============================================================================================
OTHER DATA
Number of employees at year-end 43,000 46,000 44,000 42,000
Number of common shareholders at year-end 27,000 28,000 30,000 31,000
=============================================================================================
</TABLE>
*Before cumulative effect of changes in accounting principles in 1992.
All share related data has been restated to reflect the effect of the
two-for-one common stock split in the form of a stock dividend in May 1997.
Prior year amounts have been reclassified to conform to the current year's
segment presentation.
document3
Exhibit 99.2
TEXTRON INC.
INDEX TO APRIL 4, 1998 RESTATED FINANCIAL STATEMENTS
AND RELATED INFORMATION
Page (s)
Item 1. Financial Statements
Condensed Consolidated Statement of Income 2
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Revenues and Income by Segment 12
Liquidity and Capital Resources 13
Results of Operations 13-15
Item 3. Quantitative and Qualitative Disclosures about Market 15
Risk
Other
Computation of ratio of income to combined fixed charges and 16
preferred securities dividends of the Parent Group
Computation of ratio of income to combined fixed charges and 17
preferred securities dividends of Textron Inc. including all
majority-owned subsidiaries
Item 1. FINANCIAL STATEMENTS
<TABLE>
TEXTRON INC.
Condensed Consolidated Statement of Income (unaudited)
(Dollars in millions except per share amounts)
<CAPTION>
Three months ended
April 4, March 29,
1998 1997
<S> <C> <C>
Revenues
Manufacturing sales $ 2,167 $ 2,021
Finance revenues 85 82
Total revenues 2,252 2,103
Costs and expenses
Cost of sales 1,765 1,656
Selling and administrative 238 221
Interest 74 76
Provision for losses on collection of finance 5 6
receivables
Total costs and expenses 2,082 1,959
Income from continuing operations before income taxes
and distributions on preferred securities of
subsidiary trust 170 144
Income taxes (65) (58)
Distributions on preferred securities of subsidiary
trust, net of income taxes (6) (6)
Income from continuing operations,
net of income taxes 99 80
Income from discontinued operation, net of income 43 45
taxes
Net income $ 142 $ 125
Earnings per common share:
Basic:
Income from continuing operations $ .60 $ .48
Income from discontinued operation .27 .27
Net income $ .87 $ .75
Diluted:
Income from continuing operations $ .59 $ .47
Income from discontinued operation .26 .26
Net income $ .85 $ .73
Average shares outstanding:
Basic 162,809,000 165,897,000
Diluted 167,155,000 170,388,000
Dividends per share:
$2.08 Preferred stock, Series A $ .52 $ .52
$1.40 Preferred stock, Series B $ .35 $ .35
Common stock $ .285 $ .25
</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>
April 4, January 3,
1998 1998
<S> <C> <C>
Assets
Parent Group:
Cash $ 7 $ 30
Commercial and U.S. government receivables 1,050 920
Inventories 1,568 1,349
Investment in discontinued operation 1,174 1,214
Other current assets 329 185
Total Parent Group current assets 4,128 3,698
Property, plant, and equipment, less accumulated
depreciation of $1,699 and $1,676 1,825 1,761
Goodwill, less accumulated amortization of $342 and
$329 1,733 1,567
Other 1,188 1,126
Total Parent Group assets 8,874 8,152
Finance Group:
Cash 13 13
Finance receivables - net 3,110 2,993
Other assets 194 172
Total Finance Group assets 3,317 3,178
Total Company assets $ 12,191 $ 11,330
Liabilities and shareholders' equity
Liabilities
Parent Group:
Current portion of long-term debt and short-term debt $ 866 $ 476
Accounts payable 827 812
Accrued liabilities 847 853
Total Parent Group current liabilities 2,540 2,141
Accrued postretirement benefits other than pensions 763 766
Other liabilities 1,317 1,195
Long-term debt 841 745
Total Parent Group liabilities 5,461 4,847
Finance Group:
Other liabilities 153 88
Deferred income taxes 319 319
Debt 2,413 2,365
Total Finance Group liabilities 2,885 2,772
Total Company liabilities 8,346 7,619
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 13
Common stock 24 24
Capital surplus 865 830
Retained earnings 3,457 3,362
Accumulated other comprehensive income (58) (62)
4,301 4,167
Less cost of treasury shares 939 939
Total shareholders' equity 3,362 3,228
Total liabilities and shareholders' equity $ 12,191 $ 11,330
Common shares outstanding 163,361,000 162,343,000
</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>
Three Months Ended
April 4, March 29,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 99 $ 80
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities:
Depreciation 65 57
Amortization 17 16
Provision for losses on receivables 7 8
Dividends from discontinued operation 90 25
Changes in assets and liabilities excluding those
related to acquisitions and divestitures:
Increase in commercial and U.S. government
receivables (90) (8)
Increase in inventories (156) (138)
Decrease (increase) in other assets (123) 9
Increase (decrease) in accounts payable (13) 17
Increase in accrued liabilities 114 2
Other - net 29 (7)
Net cash provided by operating activities 39 61
Cash flows from investing activities:
Finance receivables:
Originated or purchased (801) (528)
Repaid or sold 749 516
Cash used in acquisitions (227) (324)
Cash received from dispositions - 549
Capital expenditures (82) (82)
Other investing activities - net (5) 13
Net cash provided (used) by investing activities (366) 144
Cash flows from financing activities:
Increase (decrease) in short-term debt 350 (59)
Proceeds from issuance of long-term debt (329) 2
Principal payments on long-term debt 300 (45)
Proceeds from exercise of stock options 30 16
Purchases of Textron common stock - (6)
Dividends paid (47) (42)
Net cash provided (used) by financing activities 304 (134)
Net increase (decrease) in cash (23) 71
Cash at beginning of period 43 31
Cash at end of period $ 20 $ 102
</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
and the restated financial statements on Form 8-K dated October 6,
1998 for the year ended January 3, 1998. The financial statements
reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair presentation of Textron's consolidated financial position at
April 4, 1998, and its consolidated results of operations and cash
flows for each of the respective three month periods ended April 4,
1998 and March 29, 1997. Business segment data has been reclassified
to reflect the transfer of Lycoming from the Aircraft segment to the
Industrial segment.
Note 2: Subsequent events
On August 11, 1998, Textron announced that it had reached an agreement
to sell Avco Financial Services (AFS) to Associates First Capital
Corporation for $3.9 billion in cash. This transaction is subject to
regulatory approvals and it is expected to close at the end of 1998 or
early 1999. Textron has restated its financial statements as
presented herein to treat AFS as a discontinued operation. Also, on
August 11, 1998 Textron announced that its Board of Directors had
authorized a new 25 million share repurchase program that supersedes
the 8 million shares that remained under its previous authorization.
Summarized operating results of AFS are represented below:
<TABLE>
<CAPTION>
Three months ended
April 4, March 29,
1998 1997
(In millions)
<S> <C> <C>
Revenues $ 464 $ 446
Cost and expenses 394 373
Income before income taxes 70 73
Income taxes (27) (28)
Net income $ 43 $ 45
</TABLE>
Presented below is a summary of AFS' financial position at April 4 and
January 3, 1998:
<TABLE>
<CAPTION>
April 4, January 3,
1998 1998
(In millions)
<S> <C> <C>
Assets:
Investments $ 909 $ 844
Finance receivables - net 7,192 7,234
Other 638 654
Total assets $ 8,739 $ 8,732
Liabilities:
Accounts payable $ 115 $ 123
Accrued liabilities, including
income taxes 462 485
Debt 6,988 6,910
Total equity 1,174 1,214
Total liabilities and equity $ 8,739 $ 8,732
</TABLE>
Note 3: Earnings per Share
In 1997, Textron adopted FAS 128 "Earnings Per Share." FAS 128
requires companies to present basic and diluted earnings per share
amounts. The dilutive effect of convertible preferred stock and stock
options was 4,436,000 and 4,491,000 shares for the three month periods
ending April 4, 1998 and March 29, 1997, respectively. Income
available to common shareholders used to calculate both basic and
diluted earnings per share approximated net income for both periods.
Note 4: Inventories
<TABLE>
<CAPTION>
April 4, January 3,
1998 1998
(In millions)
<S> <C> <C>
Finished goods $ 458 $ 454
Work in process 865 675
Raw materials 420 366
1,743 1,495
Less progress payments and
customer 175 146
deposits
$ 1,568 $ 1,349
</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
Textron is subject to a number of lawsuits, investigations and claims
arising out of the conduct of its business, including those relating
to commercial transactions, government contracts, product liability,
and environmental, safety and health matters. Some seek compensatory,
treble or punitive damages in substantial amounts; fines, penalties or
restitution; or remediation of contamination. Some are or purport to
be class actions. 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
any liability for these suits and proceedings would not have a
material effect on Textron's net income or financial condition.
Note 7: Comprehensive Income
In 1998, Textron adopted FAS 130, "Reporting Comprehensive Income."
FAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on Textron's net income or shareholders'
equity. FAS 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately in
shareholders' equity, to be included in other comprehensive income.
Prior year financial statements have been reclassified to conform to
the requirements of FAS 130.
During the first quarter of 1998 and 1997, total comprehensive income
amounted to $146 million and $90 million, respectively.
Note 8: Financial information by borrowing group
Textron consists of two borrowing groups - the Textron Parent Company
Borrowing Group (Parent Group) and Textron's commercial finance
subsidiary (Finance Group). The Parent Group consists of all entities
of Textron (primarily manufacturing) other than its wholly-owned
commercial finance subsidiary. The Finance Group consists of Textron
Financial Corporation (TFC). Summarized financial information for the
Parent Group (Statement of Income and Statement of Cash Flows)
includes the Finance Group on a one-line basis under the equity method
of accounting.
Item 1 FINANCIAL STATEMENTS (Continued)
Note 8: Financial information by borrowing group (continued)
<TABLE>
PARENT GROUP
(unaudited) (In millions)
<CAPTION>
Three Months Ended
April 4, March 29,
Condensed Statement of Income 1998 1997
<S> <C> <C>
Sales $ 2,167 $ 2,021
Costs and expenses
Cost of sales 1,765 1,656
Selling and administrative 221 206
Interest 36 39
Total costs and expenses 2,022 1,901
145 120
Pretax income of Finance Group 25 24
Income from continuing operations before income taxes
and distribution on preferred securities of subsidiary
trust 170 144
Income taxes (65) (58)
Distributions on preferred securities of subsidiary
trust, net of income taxes (6) (6)
Income from continuing operations, net of income
taxes 99 80
Income from discontinued operation, net of income
taxes 43 45
Net income $ 142 $ 125
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
Note 8: Financial information by borrowing group (continued)
<TABLE>
PARENT GROUP (continued)
(Unaudited) (In millions)
<CAPTION>
Three Months Ended
April 4, March 29,
1998 1997
Condensed Statement of Cash Flows
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 99 $ 80
Adjustments to reconcile income from continuing
operations to net cash provided (used) by operating
activities:
Earnings of Finance Group (greater than)
less than distributions to Parent Group (3) 9
Dividends received from discontinued operation 90 25
Depreciation 64 55
Amortization 16 15
Changes in assets and liabilities excluding those
related to acquisitions and divestitures:
Increase in receivables (90) (8)
Increase in inventories (156) (138)
Increase in other assets (149) (25)
Increase in accounts payable and accrued
liabilities 71 16
Other - net 31 (8)
Net cash provided (used) by operating
activities (27) 21
Cash flows from investing activities:
Capital expenditures (82) (81)
Cash used in acquisitions (210) (324)
Cash received from dispositions - 549
Other investing activities - net 7 14
Net cash provided (used) by investing
activities (285) 158
Cash flows from financing activities:
Increase in short-term debt 374 (80)
Proceeds from issuance of long-term debt - 2
Principal payments on long-term debt (45) (5)
Proceeds from exercise of stock options 30 16
Purchases of Textron common stock - (6)
Dividends paid (47) (42)
Contributions paid to Finance Group (23) -
Net cash provided (used) by financing
activities 289 (115)
Net increase (decrease) in cash (23) 64
Cash at beginning of period 30 24
Cash at end of period $ 7 $ 88
</TABLE>
Item 1 FINANCIAL STATEMENTS (Continued)
Note 8: Financial information by borrowing group (continued)
<TABLE>
FINANCE GROUP
(unaudited) (In millions)
<CAPTION>
Three Months Ended
March 31, March 31,
Condensed Statement of Income 1998 1997
<S> <C> <C>
Revenues $ 85 $ 82
Costs and expenses
Selling and administrative 18 15
Interest 37 37
Provision for losses on collection of finance
receivables 5 6
Total costs and expenses 60 58
Income before income taxes 25 24
Income taxes (10) (10)
Net income $ 15 $ 14
<\TABLE\
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
</TABLE>
<TABLE>
TEXTRON INC.
Revenues and Income by Business Segment
(In millions)
<CAPTION>
Three Months Ended
April 4, March 29,
1998 1997
<S> <C> <C>
REVENUES
MANUFACTURING:
Aircraft $ 656 $ 679
Automotive 618 557
Industrial 893 785
2,167 2,021
FINANCE 85 82
Total revenues $ 2,252 $ 2,103
INCOME
MANUFACTURING:
Aircraft $ 61 $ 60
Automotive 56 50
Industrial 95 82
212 192
FINANCE 25 24
Segment operating income 237 216
Corporate expenses and other - net (31) (33)
Interest expense - net (36) (39)
Income from continuing operations before income
taxes and distributions on preferred securities
of subsidiary trust $ 170 $ 144
</TABLE>
Liquidity and Capital Resources
The Statements of Cash Flows for Textron Inc. and the Parent Group detailing the
changes in cash balances are on pages 4 and 10, respectively. The Parent
Group's operating cash flow includes dividends received from the Finance Group
of $12 million and $23 million during the first three months of 1998 and 1997,
respectively.
The Parent Group's debt to total capital ratio was 31% at April 4, 1998, up from
25% at year end. The Parent Group has credit facilities outstanding at April 4,
1998 aggregating $2.0 billion, $1.1 billion of which was not used or reserved as
support for outstanding commercial paper or bank borrowings. At March 31, 1998,
the Finance Group had credit facilities outstanding of approximately $1.1
billion, $125 million of which was available at quarter end. The Parent Group
had $311 million available at quarter end under its shelf registration statement
with the Securities and Exchange Commission. In the first quarter of 1998, the
Finance Group increased its medium-term note facility by $750 million and issued
$300 million medium-term notes under this facility. The Finance Group had $542
million available under the facility at March 31, 1998.
In the first quarter, Textron acquired the capital stock of Ransomes PLC, a UK-
based manufacturer of commercial turf-care machinery, and Sukosim, a German
fastener manufacturer. The cost of these acquisitions was approximately $290
million, which includes notes issued for approximately $80 million, plus the
assumption of debt.
In the first three months of 1998, the Parent Group terminated $275 million of
fixed-pay interest rate exchange agreements.
On August 11, 1998, Textron announced that its Board of Directors had authorized
a new 25 million share repurchase program that supersedes the 8 million shares
that remained under its previous authorization.
Management believes that the Parent Group will continue to have adequate access
to credit markets and that its credit facilities, cash flows from operations --
including dividends received from Textron's Finance Group -- and expected
proceeds from the sale of AFS, will continue to be more than sufficient to meet
its operating needs and to finance growth.
Results of Operations - Three months ended April 4, 1998 vs Three months ended
March 29, 1997
Diluted earnings per share from continuing operations in the first quarter of
1998 were $0.59 per share, up 26% from the 1997 amount of $0.47. Income from
continuing operations in 1998 of $99 million was up 24% from $80 million for
1997.
Diluted earnings per share - net income in the first quarter 1998 were $0.85 per
share, up 16% from the 1997 amount of $0.73. Net income in 1998 of $142 million
was up 14% from $125 million for 1997. Revenues increased 7% to $2.3 billion in
1998 from $2.1 billion in 1997.
On August 11, 1998, Textron announced that it had reached an agreement to sell
Avco Financial Services (AFS) to Associates First Capital Corporation for $3.9
billion in cash. This transaction is subject to regulatory approvals and it is
expected to close at the end of 1998 or early 1999. Textron has restated its
financial statements as presented herein to treat AFS as a discontinued
operation. See Note 2 to the condensed consolidated financial statements for
additional information.
The Aircraft segment's revenues decreased $23 million (3%), while income
increased $1 million (2%), due to higher results at Cessna Aircraft. Cessna's
revenues and income increased as a result of higher sales of business jets and
single engine aircraft. Bell Helicopter's revenues and income decreased due to
lower commercial helicopter sales ($89 million), reflecting the completion in
1997 of the three-year contract for model 412 helicopters with the Canadian
Forces, partially offset by higher revenues on the six-year contract to upgrade
Huey and Cobra helicopters for the U.S. Marines ($14 million). The impact of a
favorable profit adjustment on the V-22 EMD contract in 1997 was offset by a
lower level of product development expense in 1998.
The Automotive segment's revenues increased $61 million (11%), while income
increased $6 million (12%). These revenue and income increases were due to
higher volume at Kautex associated with capacity expansion in North America, and
higher sales and improved performance in the Trim operations, reflecting
increased production of models with Textron content, primarily at Chrysler.
The Industrial segment's revenues and income increased $108 million (14%) and
$13 million (16%), respectively, reflecting the contribution from acquisitions,
principally Ransomes PLC., and internal growth combined with ongoing margin
improvement. Internal growth was driven by continued strength in the fastening
systems, aerospace components and contractor tools businesses. These benefits
were partially offset by the fourth quarter 1997 divestiture of Speidel.
The Finance segment's (TFC) revenues increased $3 million, due to an increase in
other income, and higher yields on receivables (10.10% in the first quarter 1998
vs 9.84% in the first quarter 1997), partially offset by a lower level of
average receivables ($3.059 billion in the first quarter 1998 vs $3.139 billion
in the first quarter 1997), due primarily to the securitization of $401 million
of Textron-related receivables in the third quarter of 1997. The increase in
other income is due primarily to servicing fees related to securitized
receivables, an increase in fee-based services and higher prepayment income,
partially offset by lower arrangement fee income. Its income increased $1
million, due to the higher revenues and a lower provision for losses, partially
offset by growth in businesses with higher operating expense ratios.
Discontinued Operations - AFS' revenues increased $18 million, while income
decreased $3 million. Revenues in its finance and related insurance business
increased $11 million, due to an increase in average finance receivables ($7.683
billion in the first quarter 1998 vs $7.179 billion in the first quarter 1997),
reflecting the benefit of the acquisition of $534 million of commercial
receivables during 1997, and a gain of $4 million on the sale of certain
underperforming branches in 1998. The benefit of these revenue increases was
partially offset by a decrease in yields on finance receivables (17.18% in the
first quarter 1998 vs 18.08% in the first quarter 1997), reflecting both
decreases in yields on consumer finance receivables and the impact of an
increase in lower-yielding commercial receivables. Income decreased $6 million,
due primarily to the lower yields on finance receivables and a slight increase
in the average cost of borrowed funds (6.55% in the first quarter 1998 vs 6.49%
in the first quarter 1997), partially offset by the benefit of the revenue
increases and a decrease in the provision for losses resulting from a decrease
in the ratio of net credit losses to average finance receivables (2.86% in the
first quarter 1998 vs 3.06% in the first quarter 1997). The decrease in the net
credit losses to average finance receivables was attributable to the impact of
the increase in commercial receivables, which have a lower loss ratio, partially
offset by a slight increase in the loss ratio for the consumer finance business
(3.20% in the first quarter 1998 vs 3.17% in the first quarter 1997).
Delinquencies and charge-offs remain at higher than historical levels. AFS
continued to reconfigure its branch network in the U.S. and sold nine additional
underperforming branches in the first quarter.
In AFS' nonrelated insurance business, revenues increased $7 million and income
increased $3 million, due primarily to higher premiums earned and an increase in
investment income, reflecting a higher level of invested assets and capital
gains.
Corporate expenses and other -net decreased $2 million due primarily to 1997
litigation costs related to a divested operation. Interest expense-net for the
Parent Group decreased $3 million, due to lower average debt, resulting from the
payment of debt with proceeds in 1997 from the divestiture of Paul Revere,
partially offset by the incremental debt associated with acquisitions. Income
taxes - the current quarter's effective income tax rate of 38.2% was lower than
the corresponding prior year rate of 40.3%, due primarily to lower state income
taxes and an increase in tax benefits on export sales.
Forward-looking Information: Certain statements in this Report, and other oral
and written statements made by Textron from time to time, are forward-looking
statements, including those that discuss strategies, goals, outlook or other
non-historical matters; or project revenues, income, returns or other financial
measures. These forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially from those
contained in the statements, including the following: (i) continued market
demand for the types of products and services produced and sold by Textron, (ii)
changes in worldwide economic and political conditions and associated impact on
interest and foreign exchange rates, (iii) the level of sales by original
equipment manufacturers of vehicles for which Textron supplies parts, and (iv)
the successful integration of companies acquired by Textron.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
See the Company's most recent Restated Financial Statements and Related
Financial Information filed on Form 8-K Exhibit 99.1 (Management's Discussion
and Analysis on pages 3 through 9). There has been no material change in this
information.
<TABLE>
PARENT GROUP
COMPUTATION OF RATIO OF INCOME TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(unaudited)
(In millions except ratio)
<CAPTION>
Three Months
Ended
April 4, 1998
<S> <C>
Fixed charges:
Interest expense $ 36
Distributions on preferred securities of subsidiary
trust, net of income taxes 6
Estimated interest portion of rents 5
Total fixed charges $ 47
Income:
Income from continuing operations before income taxes
and distributions on preferred securities of
subsidiary trust $ 170
Eliminate equity in undistributed pretax income of
Finance Group (13)
Fixed charges (1) 41
Adjusted income $ 198
Ratio of income to fixed charges 4.21
</TABLE>
(1)Adjusted to exclude distributions on preferred securities of subsidiary
trust, net of income taxes.
<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>
Three Months
Ended
April 4,1998
<S> <C>
Fixed charges:
Interest expense $ 74
Distributions on preferred securities of subsidiary
trust, net of income taxes 6
Estimated interest portion of rents 5
Total fixed charges $ 85
Income:
Income from continuing operations before income taxes
and distributions on preferred securities of
subsidiary trust $ 170
Fixed charges (1) 79
Adjusted income $ 249
Ratio of income to fixed charges 2.93
</TABLE>
(1) Adjusted to exclude distributions on preferred securities of subsidiary
trust, net of income taxes
Exhibit 99.3
TEXTRON INC.
INDEX TO JULY 4, 1998 RESTATED FINANCIAL STATEMENTS
AND RELATED INFORMATION
Page (s)
Item 1. Financial Statements
Condensed Consolidated Statement of Income 2
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Revenues and Income by Segment 12
Liquidity and Capital Resources 13
Results of Operations 14-17
Item 3. Quantitative and Qualitative Disclosures about 18
Market Risk
Other
Computation of ratio of income to combined fixed 19
charges and preferred securities dividends of the
Parent Group
Computation of ratio of income to combined fixed 20
charges andpreferred securities dividends of
Textron Inc. including all majority-owned subsidiaries
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
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues
Manufacturing sales $ 2,393 $ 2,117 $ 4,560 $ 4,138
Finance revenues 91 90 176 172
Total revenues 2,484 2,207 4,736 4,310
Costs and expenses
Cost of sales 1,947 1,730 3,712 3,386
Selling and administrative 254 228 493 449
Gain on sale of division (97) - (97) -
Special charges 87 - 87 -
Interest 79 70 152 146
Provision for losses on collection of
finance receivables 5 6 10 12
Total costs and expenses 2,275 2,034 4,357 3,993
Income from continuing operations
before income taxes and
distributions on preferred securities
of subsidiary trust 209 173 379 317
Income taxes (86) (66) (151) (124)
Distributions on preferred securities of
subsidiary trust, net of income taxes (7) (7) (13) (13)
116 100 215 180
Income from continuing operations
Income from discontinued operation,
net of income taxes 48 45 91 90
Net income $ 164 $ 145 $ 306 $ 270
Earnings per share:
Basic:
Income from continuing operations $ .71 $ .60 $ 1.32 $ 1.09
Income from discontinued operation .29 .28 .55 .54
Net income $ 1.00 $ .88 $ 1.87 $ 1.63
Diluted:
Income from continuing operations $ .70 $ .59 $ 1.29 $ 1.06
Income from discontinued operation .28 .27 .54 .53
Net income $ .98 $ .86 $ 1.83 $ 1.59
Average shares outstanding:
Basic 163,613,000 165,173,000 163,189,000 165,442,000
Diluted 168,027,000 169,797,000 167,541,000 169,993,000
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 $ .285 $ .25 $ .57 $ .50
</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>
July 4, January 3,
1998 1998
<S> <C> <C>
Assets
Parent Group:
Cash $ 77 $ 30
Commercial and U.S. government receivables 1,077 920
Inventories 1,602 1,349
Investment in discontinued operation 1,178 1,214
Other current assets 387 185
Total Parent Group current assets 4,321 3,698
Property, plant, and equipment, less accumulated
depreciation of $1,762 and $1,676 1,917 1,761
Goodwill, less accumulated amortization of $354 and
$329 1,807 1,567
Other 1,208 1,126
Total Parent Group assets 9,253 8,152
Finance Group:
Cash 23 13
Finance receivables - net 3,179 2,993
Other assets 195 172
Total Finance Group assets 3,397 3,178
Total Company assets $ 12,650 $ 11,330
Liabilities and shareholders' equity
Liabilities
Parent Group:
Current portion of long-term debt and short-term debt $ 1,019 $ 476
Accounts payable 823 812
Accrued liabilities 905 853
Total Parent Group current liabilities 2,747 2,141
Accrued postretirement benefits other than pensions 772 766
Other liabilities 1,375 1,195
Long-term debt 854 745
Total Parent Group liabilities 5,748 4,847
Finance Group:
Other liabilities 183 88
Deferred income taxes 308 319
Debt 2,466 2,365
Total Finance Group liabilities 2,957 2,772
Total Company liabilities 8,705 7,619
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 13
Common stock 24 24
Capital surplus 881 830
Retained earnings 3,575 3,362
Accumulated other comprehensive income (92) (62)
4,401 4,167
Less cost of treasury shares 939 939
Total shareholders' equity 3,462 3,228
Total liabilities and shareholders' equity $ 12,650 $ 11,330
Common shares outstanding 163,772,000 162,343,000
</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>
Six Months Ended
July 4, June 28,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 215 $ 180
Adjustments to reconcile income from continuing
operations
to net cash provided by operating activities:
Depreciation 137 118
Amortization 31 32
Provision for losses on receivables 12 13
Special charges 87 -
Gain on sale of business (97) -
Dividends received from discontinued operation 115 50
Changes in assets and liabilities excluding those
related to acquisitions and divestitures:
Increase in commercial and U.S. government
receivables (113) (61)
Increase in inventories (198) (171)
Increase in other assets (126) (52)
Decrease in accounts payable (53) (11)
Increase in accrued liabilities 189 65
Other - net (16) 11
Net cash provided by operating activities 183 174
Cash flows from investing activities:
Proceeds from disposition of investments - 245
Finance receivables:
Originated or purchased (1,857) (1,279)
Repaid or sold 1,741 1,153
Cash used in acquisitions (441) (324)
Cash received from dispositions 160 549
Capital expenditures (196) (142)
Other investing activities - net 11 20
Net cash provided (used) by investing activities (582) 222
Cash flows from financing activities:
Increase (decrease) in short-term debt 561 (119)
Proceeds from issuance of long-term debt 310 55
Principal payments on long-term debt (361) (75)
Proceeds from exercise of stock options 39 27
Purchases of Textron common stock - (112)
Dividends paid (93) (83)
Net cash provided (used) by financing activities 456 (307)
Net increase in cash 57 89
Cash at beginning of period 43 31
Cash at end of period $ 100 $ 120
</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 and the restated financial
statements included on Form 8-K dated October 6, 1998
for the year ended January 3, 1998. The financial
statements reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion
of management, necessary for a fair presentation of
Textron's consolidated financial position at July 4,
1998, and its consolidated results of operations for
each of the respective three and six month periods
ended July 4, 1998 and June 28, 1997 and consolidated
cash flows for each of the six month periods ended July
4, 1998 and June 28, 1997. The results of operations
for the six months ended July 4, 1998 are not
necessarily indicative of results for the full year.
Business segment data has been reclassified to reflect
the transfer of Lycoming from the Aircraft segment to
the Industrial segment.
Note 2: Subsequent Events
On August 11, 1998, Textron announced that it had
reached an agreement to sell Avco Financial Services
(AFS) to Associates First Capital Corporation for $3.9
billion in cash. This transaction is subject to
regulatory approvals and it is expected to close at the
end of 1998 or early 1999. Textron has restated its
financial statements as presented herein to treat AFS
as a discontinued operation. Also, on August 11, 1998
Textron announced that its Board of Directors had
authorized a new 25 million share repurchase program
that supersedes the 8 million shares that remained
under its previous authorization.
Summarized operating results of AFS are represented
below:
<TABLE>
<CAPTION>
Three months ended Six months ended
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
(In millions)
<S> <C> <C> <C> <C>
Revenues $ 466 $ 457 $ 930 $ 903
Cost and expenses 389 384 783 757
Income before income taxes 77 73 147 146
Income taxes (29) (28) (56) (56)
Net income $ 48 $ 45 $ 91 $ 90
</TABLE>
Presented below is a summary of AFS' financial position
at July 4, 1998 and January 3, 1998:
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
(In millions)
<S> <C> <C>
Assets:
Investments $ 883 $ 844
Finance receivables - net 7,277 7,234
Other 641 654
Total assets $ 8,801 $ 8,732
Liabilities:
Accounts payable $ 130 $ 123
Accrued liabilities, including income 427 485
taxes
Debt 7,066 6,910
Total equity 1,178 1,214
Total liabilities and equity $ 8,801 $ 8,732
</TABLE>
Note 3: Earnings per Share
In 1997, Textron adopted FAS 128 "Earnings Per Share."
FAS 128 requires companies to present basic and diluted
earnings per share amounts. The dilutive effect of
convertible preferred stock and stock options was
4,352,000 and 4,551,000 shares for the six month
periods ending July 4, 1998 and June 28, 1997,
respectively. Income available to common shareholders
used to calculate both basic and diluted earnings per
share approximated net income for both periods.
Note 4: Inventories
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
(In millions)
<S> <C> <C>
Finished goods $ 475 $ 454
Work in process 855 675
Raw materials 425 366
1,755 1,495
Less progress payments and customer 153 146
deposits
$ 1,602 $ 1,349
</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
Textron is subject to a number of lawsuits,
investigations and claims arising out of the conduct of
its business, including those relating to commercial
transactions, government contracts, product liability,
and environmental, safety and health matters. Some seek
compensatory, treble or punitive damages in substantial
amounts; fines, penalties or restitution; or
remediation of contamination. Some are or purport to be
class actions. 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 any liability for these suits and
proceedings would not have a material effect on
Textron's net income or financial condition.
Note 7: Comprehensive Income
In 1998, Textron adopted FAS 130, "Reporting
Comprehensive Income." FAS 130 establishes new rules
for the reporting and display of comprehensive income
and its components; however, the adoption of this
Statement had no impact on Textron's net income or
shareholders' equity. FAS 130 requires unrealized
gains or losses on the Company's available-for-sale
securities and foreign currency translation
adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in
other comprehensive income. Prior year financial
statements have been reclassified to conform to the
requirements of FAS 130.
During the first six months of 1998 and 1997, total
comprehensive income amounted to $276 million and $228
million, respectively. For the three month period
ending July 4, 1998 and June 28, 1997 total
comprehensive income amounted to $130 million and $138
million, respectively.
Note 8: New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board
issued FAS 131 "Disclosures about Segments of an
Enterprise and Related Information." FAS 131 requires
public companies to report financial and descriptive
information about its reportable operating segments.
Operating segments are components of an enterprise
about which separate financial information is available
that is evaluated regularly by the chief operating
decision-maker in deciding how to allocate resources
and in assessing performance. This statement is
effective for financial statements of fiscal years
beginning after December 15, 1997. Textron is
evaluating the impact of this statement on future
reporting.
In March 1998, the Accounting Standards Executive
Committee issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1
requires that companies capitalize certain internal-use
software once certain criteria are met. This statement
is effective for financial statements of fiscal years
beginning after December 15, 1998. Textron is
evaluating the impact of this statement on future
reporting.
In April 1998, the Accounting Standards Executive
Committee issued Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities." SOP 98-5 will
require all costs of start-up activities, including
organization costs, to be expensed as incurred. This
statement is effective for financial statements of
fiscal years beginning after December 15, 1998.
SOP 98-5 will not have a material effect on Textron's
net income and financial condition.
In June 1998, the Financial Accounting Standards Board
issued FAS 133 "Accounting for Derivative Instruments
and Hedging Activities." FAS 133 requires an entity to
recognize all derivatives as either assets or
liabilities and measure those instruments at fair
value. This statement is effective for fiscal years
beginning after June 15, 1999. Textron is evaluating
the impact of this Statement on future reporting.
Note 9: Financial information by borrowing group
Textron consists of two borrowing groups - the Textron
Parent Company Borrowing Group (Parent Group) and
Textron's commercial finance subsidiary (Finance
Group). The Parent Group consists of all entities of
Textron (primarily manufacturing) other than its wholly-
owned commercial finance subsidiary. The Finance Group
consists of Textron Financial Corporation (TFC).
Summarized financial information (Statement of Income
and Statement of Cash Flows) for the Parent Group
reflects the Finance Group on a one-line basis under
the equity method of accounting.
Item 1. FINANCIAL STATEMENTS (Continued)
Note 9: Financial information by borrowing group (continued)
<TABLE>
PARENT GROUP
(unaudited) (In millions)
<CAPTION>
Three Months Ended Six Months Ended
July 4, June 28, July 4, June 28,
Condensed Statement of Income 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Sales $ 2,393 $ 2,117 $ 4,560 $ 4,138
Costs and expenses
Cost of sales 1,947 1,730 3,712 3,386
Selling and administrative 234 211 455 417
Gain on sale of division (97) - (97) -
Special charges 87 - 87 -
Interest 40 30 76 69
Total costs and expenses 2,211 1,971 4,233 3,872
182 146 327 266
Pretax income on Finance Group 27 27 52 51
Income from continuing operations
before income taxes and
distributions on preferred
securities of subsidiary trust 209 173 379 317
Income taxes (86) (66) (151) (124)
Distributions on preferred securities
of subsidiary trust, net of income
taxes (7) (7) (13) (13)
Income from continuing operations 116 100 215 180
Income from discontinued operation,
net of income taxes 48 45 91 90
Net income $ 164 $ 145 $ 306 $ 270
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
Note 9: Financial information by borrowing group (continued)
<TABLE>
PARENT GROUP
(unaudited) (In millions)
<CAPTION>
Six Months Ended
July 4, June 28,
Condensed Statement of Cash Flows 1998 1997
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 215 $ 180
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Earnings of Finance Group less than
distributions to Parent Group (11) -
Depreciation 132 116
Amortization 30 28
Gain on sale of division (97) -
Special charges 87 -
Dividends received from discontinued operation 115 50
Changes in assets and liabilities excluding
those related to acquisitions and divestitures:
Increase in receivables (113) (61)
Increase in inventories (198) (171)
Increase in other assets (188) (52)
Increase in accounts payable and accrued
liabilities 109 44
Other - net 1 12
Net cash provided by operating activities 82 146
Cash flows from investing activities:
Capital expenditures (191) (140)
Cash used in acquisitions (424) (324)
Cash received from disposition of businesses 160 549
Proceeds from disposition of investments - 245
Other investing activities - net 22 16
Net cash provided (used) by investing
activities (433) 346
Cash flows from financing activities:
Increase (decrease) in short-term debt 524 (242)
Proceeds from issuance of long-term debt 9 5
Principal payments on long-term debt (58) (5)
Proceeds from exercise of stock options 39 27
Purchases of Textron common stock - (112)
Dividends paid (93) (83)
Contributions paid to Finance Group (23) -
Net cash provided (used) by financing
activities 398 (410)
Net increase in cash 47 82
Cash at beginning of period 30 24
Cash at end of period $ 77 $ 106
</TABLE>
Item 1. FINANCIAL STATEMENTS (Continued)
Note 9: 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 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $ 91 $ 90 $ 176 $ 172
Costs and expenses
Selling and administrative 20 17 38 32
Interest 39 40 76 77
Provision for losses on collection of
finance receivables 5 6 10 12
Total costs and expenses 64 63 124 121
Income before income taxes 27 27 52 51
Income taxes (10) (10) (20) (20)
Net income $ 17 $ 17 $ 32 $ 31
</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
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES
Aircraft $ 858 $ 755 $ 1,514 $ 1,434
Automotive 583 523 1,201 1,080
Industrial 952 839 1,845 1,624
Finance 91 90 176 172
Total revenues $ 2,484 $ 2,207 $ 4,736 $ 4,310
INCOME
Aircraft $ 91 $ 79 $ 152 $ 139
Automotive 43 33 99 83
Industrial 108 94 203 176
Finance 27 27 52 51
269 233 506 449
Gain on sale of division* 97 - 97 -
Special charges* (87) - (87) -
Segment income 279 233 516 449
Corporate expenses and other - net (30) (30) (61) (63)
Interest expense - net (40) (30) (76) (69)
Income from continuing
operations before income taxes
and distributions on
preferred securities of
subsidiary trust $ 209 $ 173 $ 379 $ 317
*Special charges include restructuring charges of $10 million
for the Aircraft segment, $25 million for the Automotive
segment and $52 million for the Industrial segment. The gain
on sale of division relates to the Industrial segment.
</TABLE>
Liquidity and Capital Resources
The Statements of Cash Flows for Textron Inc. and the Parent
Group detailing the changes in cash balances are on pages 4 and
10, respectively. The Parent Group's operating cash flow
includes dividends received from the Finance Group of $21 million
and $31 million during the first six months of 1998 and 1997,
respectively.
The Parent Group's debt to total capital ratio was 32% at July 4,
1998, up from 25% at year end. The Parent Group has credit
facilities outstanding at July 4, 1998 aggregating $2.0 billion,
$895 million of which was not used or reserved as support for
outstanding commercial paper or bank borrowings. At June 30,
1998, the Finance Group had credit facilities outstanding of
approximately $1.1 billion, $62 million of which was available at
quarter end. The Parent Group had $311 million available at
quarter end under its shelf registration statement with the
Securities and Exchange Commission. In the first six months of
1998, the Finance Group increased its medium-term note facility
by $750 million and issued $300 million medium-term notes under
this facility. The Finance Group had $542 million available
under the facility at June 30, 1998.
In the first quarter, Textron acquired the capital stock of
Ransomes PLC, a UK-based manufacturer of commercial turf-care
machinery, and Sukosim, a German fastener manufacturer. The cost
of these acquisitions was approximately $290 million which
includes notes issued for approximately $80 million, plus the
assumption of debt. In the second quarter, Textron acquired
Peiner, a German-based fastener company, and Ring Screw Works, a
Michigan-based supplier of specialty threaded fasteners to the
automotive industry. The cost of these acquisitions was
approximately $200 million, plus the assumption of debt.
In the first six months of 1998, the Finance Group had $50
million of interest rate exchange agreements expire. Also,
during the first six months, the Parent Group terminated $275
million of fixed-pay interest rate exchange agreements.
On August 11, 1998, Textron announced that its Board of Directors
had authorized a new 25 million share repurchase program that
supersedes the 8 million shares that remained under its previous
authorization.
Management believes that the Parent Group will continue to have
adequate access to credit markets and that its credit facilities,
cash flows from operations -- including dividends received from
Textron's Finance Group -- and expected proceeds from the sale of
AFS, will continue to be more than sufficient to meet its
operating needs and to finance growth.
Results of Operations - Three months ended July 4, 1998 vs Three
months ended
June 28, 1997
Diluted earnings per share from continuing operations in the
second quarter 1998 were $0.70 per share, up 19% from the 1997
amount of $0.59. Income from continuing operations in 1998 of
$116 million was up 16% from $100 million for 1997. Diluted
earnings per share - net income was $0.98 per share in the second
quarter of 1998 as compared to 1997 amount of $0.86. Net income
in 1998 of $164 million was up 13% from $145 million in 1997.
Revenues increased 13% to $2.5 billion in 1998 from $2.2 billion
in 1997. During the second quarter, Textron recorded a gain on
sale of a division and special charges. On an after-tax basis,
the net of these two transactions had no impact on earnings per
share from continuing operations.
On August 11, 1998, Textron announced that it had reached an
agreement to sell Avco Financial Services (AFS) to Associates
First Capital Corporation for $3.9 billion in cash. This
transaction is subject to regulatory approvals and it is expected
to close at the end of 1998 or early 1999. Textron has restated
its financial statements as presented herein to treat AFS as a
discontinued operation. See Note 2 to the condensed consolidated
financial statements for additional information.
Gain On Sale of Division -Fuel Systems Textron was sold to
Woodward Governor Company for $160 million in cash on June 15,
1998, at a pretax gain of $97 million ($54 million after-tax, or
$0.32 per diluted share).
Special Charges - To enhance the competitiveness and
profitability of its core businesses, Textron recorded a pretax
charge of $87 million in the second quarter ($54 million after
tax or $0.32 per diluted share). This charge was recorded to
cover asset impairments ($28 million), severance costs ($40
million), and other exit-related costs ($9 million) associated
with its decision to exit several small, non-strategic product
lines in Automotive and the former Systems and Components
divisions which did not meet Textron's return criteria, and to
realign certain operations in the Industrial segment. The pretax
charges recorded in the Automotive and Industrial segments were
$25 million and $52 million, respectively, and also included the
cost of a litigation settlement of $10 million in the Aircraft
segment.
The Aircraft segment's revenues increased $103 million (14%) and
income before special charges increased $12 million (15%).
Cessna's revenues and income increased as a result of higher
sales of business jets, single engine aircraft and Caravans.
Bell's revenues increased due to higher commercial helicopter and
spares sales ($62 million) as well as increased revenues on the V-
22 program and other U.S. Government programs, primarily the Huey
and Cobra upgrade contract ($44 million). These higher revenues
were partially offset by the completion in 1997 of the three-year
contract for model 412 helicopters with the Canadian Forces ($44
million) and lower foreign military sales ($31 million). Bell's
income, however, decreased due to a change in product mix,
primarily resulting from lower margins on U.S. Government
contracts.
The Automotive segment's revenues increased $60 million (11%),
while income before special charges increased $10 million (30%).
The revenue increase was due to higher volume at Kautex
associated with capacity expansion in North America and higher
sales in the Trim operations, due primarily to increased Chrysler
production, which was depressed in 1997 by a strike at Chrysler.
Income increased due to the higher sales and improved performance
at Trim.
The Industrial segment's revenues increased $113 million (14%)
and income before special charges increased $14 million (15%).
These increases reflected the contribution from acquisitions,
principally Ransomes PLC., Sukosim Verbindungselemente Group, and
Ring Screw Works, and internal growth combined with ongoing
margin improvement. Internal growth was driven by continued
strength in the fluid & power systems and industrial components
businesses. These benefits were partially offset by the fourth
quarter 1997 divestiture of Speidel, the impact of a one-month
strike at Textron's Jacobsen plant and a strike at General Motors
in 1998.
The Finance Segment's (TFC) revenues increased $1 million, due to
higher yields on receivables and an increase in other income,
partially offset by a lower level of average receivables, due
primarily to the securitization of $401 million of Textron-
related receivables in the third quarter of 1997. The increase
in other income was due primarily to portfolio servicing income.
Its income equaled last year's level, as the benefit of the
higher revenues and a lower provision for losses was offset by
growth in businesses with higher operating expense ratios.
Discontinued operation -- AFS' revenues and income increased $9
million and $4 million, respectively. Revenues in its finance and
related insurance business increased $9 million, due to a gain of
$10 million on the sale of its centralized real estate receivable
portfolio, an increase in average finance receivables, primarily
in its commercial finance operations. The benefit of these
revenue increases was partially offset by a decrease in yields on
finance receivables, reflecting decreases in yields on both
consumer and commercial finance receivables and the impact of an
increase in lower-yielding commercial receivables. Income
increased $6 million, due primarily to the benefit of the higher
revenues, a decrease in the ratio of insurance losses to earned
premiums, and an improvement in the ratio of net credit losses
to average finance receivables for both the consumer and
commercial finance portfolios. In AFS' nonrelated insurance
business, revenues approximated last years' level while income
decreased $3 million, due to an increase in underwriting
expenses, primarily insurance losses.
Interest expense-net for the Parent Group increased $10 million,
due to higher average debt, resulting from the incremental debt
associated with acquisitions. Income taxes - the current
quarter's effective income tax rate of 41.1% was higher than the
corresponding prior year rate of 38.2%, due primarily to the
nontax deductibility of goodwill related to the divestiture of
Fuel Systems Textron.
Results of Operations - Six months ended July 4, 1998 vs Six
months ended June 28, 1997
Diluted earnings per share from continuing operations in the
first half of 1998 were $1.29 per share, up 22% from the 1997
amount of $1.06. Income from continuing operations in 1998 of
$215 million was up 19% from $180 million for 1997. Textron's
1998 diluted earnings per share - net income was $1.83 per share
as compared to 1997 of $1.59. Net income was $306 million versus
$270 million in 1997. Revenues increased 10% to $4.7 billion in
1998 from $4.3 billion in 1997.
The Aircraft segment's revenues increased $80 million (6%) and
income before special charges increased $13 million (9%).
Cessna's revenues and income increased as a result of higher
sales of business jets and single engine aircraft. Bell's
revenues and income decreased, due primarily to the completion in
1997 of the Canadian Forces contract ($99 million). The benefit
of higher commercial helicopter and spares sales ($33 million)
and increased revenues on the V-22 program and Huey and Cobra
upgrade contracts ($54 million) was offset by lower revenues ($26
million) and margins on other U.S. government contracts and lower
foreign military sales ($35 million). In addition, the impact of
a favorable profit adjustment on the V-22 EMD contract in 1997
was offset by a lower level of product development expense in
1998.
The Automotive segment's revenues increased $121 million (11%),
while income before special charges increased $16 million (19%).
The revenue increase was due to higher volume at Kautex
associated with capacity expansion in North America and higher
sales in the Trim operations, due primarily to increased Chrysler
production, which was depressed in 1997 by a strike at Chrysler.
Income increased due to the higher sales and improved performance
at Trim.
The Industrial segment's revenues increased $221 million (14%)
and income before special charges increased $27 million (15%).
These increases reflected the contribution from acquisitions,
principally Ransomes PLC, Sukosim, and Ring Screw Works, and
internal growth combined with ongoing margin improvement.
Internal growth was driven by continued strength in the fastening
systems, fluid & power systems and industrial components
businesses. These benefits were partially offset by the fourth
quarter 1997 divestiture of Speidel, the impact of a one-month
strike at Textron's Jacobsen plant and a strike at General Motors
in 1998.
The Finance segment's revenues increased $4 million, due to an
increase in other income, and higher yields on receivables
(10.13% in the first half of 1998 vs 9.94% in the first half of
1997), partially offset by a lower level of average receivables
($3.129 billion in the first half 1998 vs $3.173 billion in the
first half of 1997), due primarily to the securitization of $401
million of Textron-related receivables in the third quarter of
1997. The increase in other income is due primarily to higher
prepayment income, portfolio servicing income, and residual
income. Its income increased $1 million as the benefit of the
higher revenues and a lower provision for losses was offset by
growth in businesses with higher operating expense ratios.
Discontinued operations -- AFS' revenues increased $27 million,
while income approximated last year's level. Revenues in its
finance and related insurance business increased $19 million, due
to an increase in average finance receivables ($7.646 billion in
the first half 1998 vs $7.322 billion in the first half 1997),
primarily in its commercial finance operations, a gain of $10
million on the sale of its centralized real estate receivable
portfolio, and higher gains from the sale of certain
underperforming branches ($8 million in the first half 1998 vs $3
million in the first half 1997). The benefit of these revenue
increases was partially offset by a decrease in yields on finance
receivables ($17.33% in the first half 1998 vs 17.99% in the
first half 1997), reflecting decreases in yields on both consumer
and commercial finance receivables and the impact of an increase
in lower-yielding commercial receivables. Income equaled last
year's level, as the benefit of the higher revenues and an
improvement in the ratio of net credit losses to average finance
receivables (2.78% in the first half 1998 vs 2.98% in the first
half 1997) was offset by the lower yields on finance receivables.
The decrease in the net credit losses to average finance
receivables was primarily attributable to the increase in
commercial receivables, which have a lower loss ratio. In AFS'
nonrelated insurance business, revenues increased $8 million due
primarily to higher premiums earned and an increase in investment
income. Income equaled last year's level, as the benefit of the
higher revenues was offset by an increase in underwriting
expenses, primarily insurance losses.
Corporate expenses and other -net decreased $2 million due
primarily to 1997 litigation costs related to a divested
operation. Interest expense-net for the Parent Group increased
$7 million, due to higher average debt, resulting from the
incremental debt associated with acquisitions, partially offset
by the payment of debt with proceeds in 1997 from the divestiture
of Paul Revere. Income taxes - the effective income tax rate of
39.8% for the first half of 1998 was higher than the
corresponding prior year rate of 39.1%, due primarily to the
nontax deductibility of goodwill related to the divestiture of
Fuel Systems Textron.
* * * * * *
Forward-looking Information: Certain statements in this Report,
and other oral and written statements made by Textron from time
to time, are forward-looking statements, including those that
discuss strategies, goals, outlook or other non-historical
matters; or project revenues, income, returns or other financial
measures. These forward-looking statements are subject to risks
and uncertainties that may cause actual results to differ
materially from those contained in the statements, including the
following: (i) continued market demand for the types of products
and services produced and sold by Textron, (ii) changes in
worldwide economic and political conditions and associated impact
on interest and foreign exchange rates, (iii) the level of sales
by original equipment manufacturers of vehicles for which Textron
supplies parts, and (iv) the successful integration of companies
acquired by Textron.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
See the Company's most recent Restated Financial Statements and
Related Financial Information filed on Form 8-K Exhibit 99.1
(Management's Discussion and Analysis on pages 3 through 9).
There has been no material change in this information.
19.
<TABLE>
PARENT GROUP
COMPUTATION OF RATIO OF INCOME TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(unaudited)
(In millions except ratio)
<CAPTION>
Six Months
Ended
July 4, 1998
<S> <C>
Fixed charges:
Interest expense $ 76
Distributions on preferred securities of subsidiary 13
trust, net of income taxes
Estimated interest portion of rents 11
Total fixed charges $ 100
Income:
Income from continuing operations before income
taxes and distributions on preferred securities of $ 379
subsidiary trust
Eliminate equity in undistributed pretax income
of Finance Group (31)
Fixed charges (1) 87
Adjusted income $ 435
Ratio of income to fixed charges 4.35
(1) Adjusted to exclude distributions on preferred securities of
subsidiary trust, net of income taxes
</TABLE>
20.
<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)
Six Months
Ended
July 4,1998
<S> <C>
Fixed charges:
Interest expense $ 152
Distributions on preferred securities of subsidiary
trust, net of income taxes 13
Estimated interest portion of rents 11
Total fixed charges $ 176
Income:
Income from continuing operations before income
taxes and distributions on preferred securities $ 379
of subsidiary trust
Fixed charges (1) 163
Adjusted income $ 542
Ratio of income to fixed charges 3.08
(1) Adjusted to exclude distributions on preferred securities of
subsidiary trust, net of income taxes
</TABLE>
