SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 3, 1998
Commission File Number 1-5480
Textron Inc.
(Exact name of registrant as specified in charter)
Delaware 05-0315468
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 Westminster Street, Providence, R.I. 02903
(401) 421-2800
(Address and telephone number of principal executive offices)
______________
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Class Which Registered
Common Stock - par value $.125; (163,142,742 shares New York Stock Exchange
outstanding at March 6, 1998); Pacific Stock Exchange
Preferred Stock Purchase Rights Chicago Stock Exchange
$2.08 Cumulative Convertible Preferred Stock, New York Stock Exchange
Series A - no par value
$1.40 Convertible Preferred Dividend Stock, Series B New York Stock Exchange
(preferred only as to dividends) - no par value
8.75% Debentures due July 1, 2022 New York Stock Exchange
7.92% Trust Preferred Securities of Subsidiary Trust New York Stock Exchange
(and Textron Guaranty with respect thereto)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90
days. Yes X. No
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by
non-affiliates of the registrant is $12,025,454,250 as of
March 6, 1998.
Portions of Textron's Annual Report to
Shareholders for the fiscal year ended January 3, 1998
are incorporated by reference in Parts I and II of this
Report. Portions of Textron's Proxy Statement for its
Annual Meeting of Shareholders to be held on April 22, 1998
are incorporated by reference in Part III of this Report.
<PAGE>
PART I
ITEM 1. BUSINESS OF TEXTRON
Textron is a global multi-industry company with
operations in four business segments - Aircraft, Automotive,
Industrial and Finance. Included within the business
segments are operations that are unincorporated divisions of
Textron and others that are separately incorporated
subsidiaries. A listing of the operations within each
business segment, including a description of the product
lines of each business segment, is incorporated herein by
reference to pages 58 and 59 of Textron's 1997 Annual Report
to Shareholders. Financial information by business segment
and geographic area is incorporated herein by reference to
pages 24 and 55 of Textron's 1997 Annual Report to
Shareholders. Additional information regarding each
business segment and Textron in general is set forth below.
Business Segments
Aircraft. The Aircraft segment consists of Bell
Helicopter Textron and The Cessna Aircraft Company. Textron
Lycoming was included in the Aircraft segment's 1997
financial results, but was transferred for operational
purposes to the Industrial segment in January 1998, and its
business is described under Industrial below.
Based on unit sales, Bell is the largest supplier of
helicopters, spare parts and helicopter-related services in
the world. Since it was founded in 1946, Bell has delivered
over 33,000 aircraft to military and civilian customers.
Bell has three military and six civilian helicopter models
in current production. Its aircraft are turbine powered, and
range in size from the five-place Bell Model 206 series to
the Bell Model 412EP aircraft, which carries up to fifteen
people. Revenues of Bell accounted for approximately 15%,
16%, and 18% of Textron's total revenues in 1997, 1996 and
1995, respectively.
Bell's military business includes both U.S. Government
and non-U.S. Government customers. There are more
helicopters manufactured by Bell in field service in the
inventory of the U.S. Government than manufactured by any
other helicopter company. Currently, Bell is supplying
advanced military helicopters, spare parts and product
support to the U.S. and Canadian Governments and to the
governments of several countries in the Pacific Rim, Middle
East and Europe. Military sales to non-U.S. customers are
made only with the concurrence of the U.S. Government.
Bell is also a leading supplier of commercially
certified helicopters to charter, offshore, utility,
corporate, police, fire, rescue and emergency medical
helicopter operators. Bell's non-U.S. Government business
(including non-U.S. military customers) typically represents
40% to 60% of its annual sales. In 1997, such sales
accounted for approximately 60% of Bell's business.
<page 2>
Bell is teamed with the Helicopter Division of The
Boeing Company ("Boeing Helicopters") in the development of
the V-22 Osprey tiltrotor aircraft for the U.S. Department
of Defense. Tiltrotor aircraft are designed to utilize the
benefits of both helicopters and fixed-wing aircraft.
Production of V-22 aircraft was started in 1996 upon award
of a contract for the first four aircraft. In 1996, Bell
and Boeing Helicopters entered into a joint venture to
develop a commercial tiltrotor aircraft designated the Model
609. In February 1998, Bell and Boeing announced that the
joint venture will be dissolved and Bell will assume
complete control of the Model 609 program, although Boeing
will continue to work as a major program subcontractor.
In February 1998, Textron's Board of Directors approved
a plan to acquire a substantial portion of Boeing's
commercial helicopter business. Under the terms of the
proposed sale, Bell will acquire the Boeing MD 500 and MD
600 series product lines, assuming responsibility for the
manufacture, marketing and services/support of these single
engine, turbine-powered light helicopters. Boeing's MD
Explorer helicopter line is not included in the proposed
sale, but Bell has agreed to provide spare parts and support
for the MD Explorer after the sale is completed. The
proposed sale is subject to satisfactory due diligence and
governmental approvals.
Bell is developing a new light twin engine helicopter,
designated the Model 427, in collaboration with Samsung
Aerospace Industries Ltd. of South Korea. The first
delivery of this eight place aircraft is scheduled for the
first quarter of 1999.
In the light and medium helicopter market, Bell has two
major U.S. competitors (including Boeing)
and one major European competitor.
Certain of its competitors are substantially larger and more
diversified aircraft manufacturers. Bell markets its
products worldwide through its own sales force and through
independent representatives. Price, financing terms,
aircraft performance, reliability and product support are
significant factors in the sale of helicopters. Bell has
developed the world's largest distribution system to sell
and support helicopters, serving customers in over 120
countries.
Based on unit sales, The Cessna Aircraft Company is the
world's largest manufacturer of light and mid-size business
jets, single engine utility turboprop aircraft, and single
engine piston aircraft. Cessna also designs, manufactures
and sells general aviation aircraft propellers and related
accessories worldwide. Cessna currently has three major
aircraft product lines: Citation business jets, single
engine turboprop Caravans and Cessna single engine piston
aircraft. Revenues of Cessna accounted for approximately
14%, 12% and 10% of Textron's total revenues in 1997, 1996
and 1995, respectively.
Cessna currently produces a family of Citation business
jets including the CitationJet, the Citation Bravo, the
Citation Ultra, the Citation VII, and the Citation X. The
Citation X is the world's fastest business jet with a
maximum operating speed of Mach .92. Cessna placed 28
Citation Xs in service in 1997. Certification was completed
and
<page 3>
customer deliveries of the Citation Bravo began in 1997.
Cessna is scheduled to certify and begin deliveries of the
Citation Excel business jet in 1998.
The Cessna Caravan is the world's best selling utility
turboprop. More than 850 Caravans have been sold by Cessna
since the first Caravan was delivered in 1985. Caravans are
offered in four distinct models including the Grand Caravan,
Super Cargomaster, Caravan Floatplane, and the Caravan 675.
Caravans are used in the United States primarily to carry
overnight express package shipments. International uses of
Caravans include commuter flights, relief flights, tourism
and freight.
Cessna re-entered the single engine piston aircraft
market in 1996. In 1997, Cessna made deliveries of the 172
Skyhawk and the 182 Skylane, which are four-place single
engine piston aircraft. In 1998, Cessna is scheduled to
certify and begin deliveries of two six-place aircraft
models, the 206 Stationair and the T206 Turbo Stationair.
Cessna markets its products worldwide primarily through
its own sales force as well as through a network of
authorized independent sales representatives. Cessna has
four major competitors for its business jet products, two
U.S. and two foreign. Cessna's aircraft compete with other
aircraft that vary in size, speed, range, capacity, handling
characteristics, and price. Reliability and product support
are significant factors in the sale of these aircraft. The
Citation family of aircraft is supported by ten Cessna owned
and operated Citation Service Centers, along with Authorized
Service Stations in more than 15 countries throughout the
world.
Cessna provides its business jet operators with factory-
direct customer support offering 24 hour a day service and
maintenance. More than 40% of the worldwide Citation fleet
of more than 2,500 aircraft receive service through Cessna-
owned service centers. Cessna Caravan and piston customers
receive product support through independently owned service
stations and 24 hour a day spare parts support through
Cessna.
Cessna's McCauley Propeller Systems unit provides new
propellers directly to original equipment manufacturers
("OEMs") and spare parts for service and repairs worldwide.
All new Cessna single engine piston aircraft built in 1997
used McCauley propellers.
Automotive. The Automotive segment, organized under an
umbrella organization called Textron Automotive Company
("TAC"), consists of Textron Automotive Trim Operations, CWC
Castings Textron, Kautex Textron, McCord Winn Textron,
Micromatic Textron and Randall Textron. These operations
sell primarily to automotive OEMs and their suppliers
operating in North America and Europe, and, to a lesser
extent, South America and Asia. TAC is headquartered in
Troy, Michigan and has over fifty facilities located in the
United States, Argentina, Belgium, Brazil, Canada, China,
Czech Republic, Germany, Mexico, the Netherlands, Portugal,
Spain, and the United Kingdom.
<page 4>
Through its Textron Automotive Trim Operations, TAC is
a leading worldwide supplier of automotive interior and
exterior plastic components. Interior trim products include
instrument panels, door and sidewall trim, airbag doors,
consoles, trim components, armrests and headliner systems.
In addition, TAC's Trim facilities manufacture exterior
decorative components including painted bumpers and fascia,
body side moldings and claddings, fender liners, decorative
wheel trim, signal lighting and structural composite bumper
beams. Many of these products are shipped just-in-time as
fully integrated systems. Revenues of Textron Automotive
Trim Operations accounted for 13%, 15% and 15% of Textron's
total revenues in 1997, 1996 and 1995 respectively.
In January 1997, Textron completed the acquisition of
Kautex Werke Reinold Hagen AG of Bonn, Germany and the
assets of its North American affiliate, Kautex North
America, Inc. (collectively "Kautex"). Kautex is a leading
manufacturer of blow-molded plastic fuel tank systems and
other blow-molded technical parts for OEMs throughout
Europe, North America, Brazil and Argentina. Kautex
supplies Volkswagen in China through a joint venture with
Changchun Junzilan Industrial Group. Kautex established a
manufacturing plant in Puebla, Mexico in 1997. This
facility will supply all of Volkswagen's and Chrysler's
plastic fuel tank requirements for their Mexican production.
CWC Castings designs and manufactures engine camshafts
and vibration damper components for OEMs and the
aftermarket. In July 1997, Textron acquired Kaywood
Products Corporation, a manufacturer of precision machined
parts and components for assembled camshafts. Kaywood
operates as the Kaywood Products operation of CWC.
McCord Winn manufactures seating comfort systems,
windshield and headlamp washer systems, and armatures for
precision DC motors. In September 1997, Textron acquired
the General Rubber Goods division of Pirelli Tyres Limited,
based in Burton-on-Trent, England, a manufacturer of seat
comfort systems products for automotive and home/office
applications. The combination makes McCord Winn Textron a
leader in both the North American and European automotive
seat comfort markets. In September 1997, McCord introduced
its ASCTecTM, (Active Surface Control Technology) seating
comfort system, which blends microprocessor-based
electronics and a pneumatically-controlled air support
system. Potential applications include automobiles, airline
seating, office/home furniture and bedding products.
Micromatic manufactures machine tools used for
precision bore and surface finishing of automobile engines.
In addition, Micromatic produces equipment for spline
rolling and gear production. Randall produces fuel filler
systems.
More than 70 models currently carry parts made by TAC
including Chrysler's Jeep Grand Cherokee, Voyager and
Caravan mini-vans; Ford's Mondeo, Lincoln Town Car and
Windstar mini-van; General Motors' Cadillac Seville, newly
restyled Corvette, and Venture, Transport, Silhouette and
Sintra mini-vans; and Volkswagen's new concept
<page 5>
Beetle. TAC continues its strong position on Chrysler's
LH series of cars that were redesigned for the 1998 model year.
TAC's manufacturing operations are supported by a
staff of research and design specialists at TAC's Automotive
Technology Center. These specialists have developed new
processes and products, many of which are patented, that
allow TAC to offer its customers technology driven products
and processes. In the plastics and coatings area, TAC is a
recognized leader in alternative skin materials (including
non-PVC materials), spray urethane and cloth integration,
energy management foam (including head impact and knee
bolsters), the development of modular integrated assemblies
and vertical body panels, and High Crystalline Polypropylene
material for complete mold-in-color interior components.
CWC Castings is a leader in the design and manufacture of
automotive castings. It has developed a selective
austempering heat treatment process for ductile camshafts.
McCord Winn is working with OEMs worldwide to develop
advanced technologies in areas such as "intelligent" comfort
seating systems, brushless motors and carbon commutation for
flexible fuel applications. Micromatic machine tools are
used for cylindrical form generation and surface finishing.
In the automotive business, there is often a long lead
time from the time a supplier is selected to supply
components on a new car model to the time the supplier can
begin shipping production parts. During this period, the
supplier incurs engineering and development costs. Until
recently, the OEMs reimbursed the supplier for these costs
as incurred. Within the last few years, the OEMs have begun
to require that these costs be recovered in the piece prices
charged by the suppliers as the goods are shipped. In
addition, automotive OEMs often require "just-in-time"
delivery, requiring the manufacturer to plan shipments in
advance and hold inventory.
Automotive OEMs and their suppliers are the principal
customers of TAC. The loss of the U.S. and Europe-based
automotive OEM customers and their first-tier suppliers
would have a material adverse effect on TAC. However,
because of the broad range of products sold to such
customers, it is unlikely that they would cease all
purchases from TAC.
Each of TAC's businesses faces competition from a
number of other manufacturers based primarily on price,
quality, reputation and delivery. Although TAC is one of
the largest manufacturers offering its range of products and
services, it faces strong competition in all of its market
segments. Because of the diversity of products and services
offered, no single company is a competitor in all market
segments. In certain markets, TAC also competes for
business with the OEMs' own operations.
Industrial. The Industrial segment consists of four
major product groups: Fastening Systems, Golf and Turf Care
Equipment, Fluid and Power Systems and Industrial
Components. The Fluid and Power Systems group and
<page 6>
Industrial Components group consist of operations that
previously constituted the Engineered Products group and the
Systems and Components segment.
Textron Fastening Systems ("TFS") manufactures and
sells fasteners, fastening systems and installation tools to
the aerospace, appliance, automotive, business equipment,
construction, do-it-yourself, general industrial and
transportation markets. TFS sells to a wide range of
customers throughout the world, including OEMs, distributors
and consumers. Fasteners manufactured by TFS include
rivets, threaded and non-threaded fasteners, cold-formed
components, metal stampings, plastic components and
assemblies that incorporate such products. Revenues of TFS
accounted for approximately 14%, 15% and 9% of Textron's
total revenues in 1997, 1996 and 1995, respectively.
In August 1997, Textron formed Textron Logistics
Corporation ("TLC") by combining certain existing fastener
operations. TLC provides full-range fastener inventory
management programs for OEMs and for retailers (such as
Sears and Home Depot), supplying TFS products and products
from other sources, thus offering its customers the ability
to obtain all of their fastener requirements from a single
source. In December 1997, Textron acquired Brazaco Mapri
Industrias Metalurgicas S.A. ("Mapri"), the largest
manufacturer of fasteners in Brazil, which is the primary
supplier to automotive OEMs in Brazil such as Fiat, Ford,
General Motors, Mercedes, and Volkswagen. Mapri, which
will operate as a unit of the Camcar operation of TFS, will
also serve as a lower-cost supplier of fasteners for the
other TFS operations.
Although TFS is one of the world's largest providers of
fastener products and services, there are hundreds of
competitors of TFS, ranging from small proprietorships to
large multi-national companies. Competition is based
primarily on price, quality, reputation and delivery. In
addition, larger customers of fastening systems tend to
procure products and services from the larger suppliers,
except for "niche" products which may be sourced from
smaller companies. Only the loss of the major OEM
automotive customers and their first-tier suppliers would
have a material adverse effect on TFS. However, because of
the broad range of products sold to such customers, it is
unlikely that they will cease all purchases from TFS.
The Golf and Turf Care Equipment group consists of E-Z-
GO Textron, which manufactures and sells electric powered
and gasoline powered golf cars and multipurpose utility
vehicles, Jacobsen Textron, which manufactures and sells
professional mowing and turf maintenance equipment, and
Ransomes plc, a multi-national engineering group that
specializes in the design, manufacture and marketing of
grass care machinery and specialized industrial vehicles.
Textron acquired Ransomes in January 1998.
The customers of the Golf and Turf Care Equipment group
consist primarily of golf courses, resort communities and
commercial and industrial users such as airports and
factories. Sales are made directly through factory
branches, through a network of distributors and directly to
end-users. Many sales of golf and turf care
<page 7>
equipment (both
at the distributor and end-user level) are financed through
Textron Financial Corporation, both for marketing purposes
and as an additional source of revenue to Textron.
There are two major competitors and a number of smaller
competitors for golf cars, multipurpose utility vehicles and
turf maintenance equipment for golf courses. Competition is
based primarily on price, quality, product support,
performance, reliability and reputation.
The Fluid and Power Systems group consists of Cone
Drive Textron, HR Textron, Maag Pump Systems Textron
(Switzerland) and Textron Systems. The Fluid and Power
Systems group operations face competition from other
manufacturers based primarily on price, quality, product
support, performance, delivery and reputation.
Cone Drive, which includes Textron Industrial SpA
(formerly Maag Italia), designs and manufactures double
enveloping worm gear speed reducers, gear motors and gear
sets, including gear systems primarily for railroad
applications. Maag Pump Systems manufactures gears, gear
pumps and gear systems. In December 1997, Textron acquired
the assets of Vernon Engineering Company Limited, the long-
standing distributor of the products of Maag Pump Systems in
the U.K. Cone Drive and Maag Pump Systems sell their
products to a variety of customers, including OEMs,
distributors and end-users.
HR Textron designs and manufacturers control systems
and components for aircraft, armored vehicles and commercial
applications. HR Textron is in the process of diversifying
its business base by adapting aerospace technology to
servovalves used in industrial and automotive applications.
HR Textron's aerospace and defense products are marketed
directly to the U.S. Government and OEMs and, in the
aftermarket, both directly and through service centers.
Textron Systems manufactures "smart" munitions,
airborne surveillance systems, automatic aircraft landing
systems and advanced composite materials for the U.S.
Department of Defense. Once exclusively a supplier to the
Department of Defense, Textron Systems now applies its
technologies to non-defense and international markets.
Current commercial products include laser ultrasonic systems
for industrial control, infrared sensors for medical,
industrial and agribusiness applications, and fire
protection and insulating materials for oil and chemical
companies. While Textron Systems sells most of its products
directly to customers, it also sells some products through a
growing, global network of sales representatives and
distributors.
The Industrial Components group consists of Fuel
Systems Textron, Greenlee Textron, Textron Lycoming, Textron
Marine & Land Systems and Turbine Engine Components Textron,
each of which is a leading company in its industry.
Products of this group are sold to a wide variety of
customers, including OEMs, distributors and end users,
including the military. The principal competitive factors
affecting sales of the products of the Industrial Components
<page 8>
group are price, quality, customer service, performance,
reliability, reputation and existing product base. The
Speidel operation, a manufacturer of watch attachments and
fashion jewelry, was sold to Herman Hirsch USA, Inc. at the
end of 1997.
Fuel Systems designs, manufactures and overhauls gas
turbine engine injection and metering devices, fuel
distribution valves, and afterburner fuel injection systems
for commercial and military aircraft, and industrial,
marine, and vehicular markets. Fuel Systems invests in the
design and development of innovative, proprietary products,
with on-site engineering support at customer facilities and
an advanced product development facility to extend the
customers' own design activities.
Greenlee is a worldwide market leader in powered
equipment, electrical test instruments and hand tools. The
principal applications of these products are electrical
construction and maintenance, power generation, transmission
and distribution, telecommunications, electronics, plumbing
and the mechanical trades.
Textron Lycoming is the world leader in the design,
manufacture and overhaul of reciprocating piston aircraft
engines serving the worldwide general aviation market.
Textron Lycoming sells new products directly to general
aviation airframe manufacturers, including Piper Aircraft,
Robinson Helicopter, and SOCATA, a division of Aerospatiale,
and is the exclusive supplier of engines for Cessna's new
product line of single engine aircraft. Aftermarket sales
are made to the more than 180,000 existing owners of Textron
Lycoming products through a worldwide network of
independently owned distributors.
Textron Marine & Land Systems is a world leader in the
design and construction of advanced technology air cushion
vehicles, surface effect ships, high performance search and
rescue vessels, Cadillac Gage light armored combat vehicles,
suspension systems, turrets and artillery systems. Textron
Marine & Land Systems has products operating in over 35
countries.
Turbine Engine Components is one of the world's largest
independent suppliers of internal components for gas turbine
engines for aircraft and industrial applications. Its
products include fan and compressor blades, vanes, shafts,
disks, rotors, blisks and other rotating components; the
forgings from which those products are machined; and
stationary components of turbine engines, such as frames,
diffusers, and air collectors. Turbine Engine Components
manufacturers its products to the specifications of its
customers.
Finance. The Finance segment consists of Avco
Financial Services ("AFS") and Textron Financial Corporation
("TFC"). AFS is engaged in consumer finance, insurance
services related to consumer finance, and commercial
finance. TFC is engaged in commercial finance.
<page 9>
AFS's consumer finance activities consist primarily of
the following: (i) loans which are unsecured or secured by
personal property for relatively small amounts and short
periods; (ii) real estate loans secured by real property for
larger amounts and for considerably longer periods; (iii)
auto financing of pre-owned autos; and (iv) retail
installment contracts, principally covering personal
property. AFS, through various insurance subsidiaries, also
offers a variety of insurance products to its consumer loan
customers and to consumer loan customers of unrelated
financial institutions. AFS's insurance products include
credit life, credit disability and casualty insurance.
AFS's consumer loan business is conducted through a
network of branch offices. At December 31, 1997, AFS
operated approximately 1,200 consumer finance offices
located in the United States, Australia, Australia, Canada,
Hong Kong, India, Ireland, New Zealand, Spain, Sweden and
the United Kingdom. Revenues of AFS's consumer lending
business (including insurance products sold to its loan
customers) accounted for approximately 14%, 16% and 17% of
Textron's total revenues in 1997, 1996 and 1995,
respectively.
The consumer finance business is highly competitive,
with price and service being the principal competitive
factors. AFS's competitors include not only other companies
operating under consumer loan laws, but also other types of
lending institutions not so regulated and usually not
limited in the size of their loans, such as companies which
finance the sale of their own merchandise or the merchandise
of others, industrial banks, the personal loan departments
of commercial banks and credit unions. AFS's strongest
competition is from commercial banks and credit unions. The
interest rates charged by these lenders are usually lower
than the rates charged by AFS. AFS's insurance businesses,
to the extent not related to AFS's finance activities,
compete with many other insurance companies offering similar
products.
AFS's consumer finance business is regulated by laws
that, among other things, can limit maximum charges for
loans and the maximum amount and term thereof. Such laws
also require disclosure to customers of the interest rate
and other basic terms of most credit transactions and give
customers a limited right to cancel certain loans and retail
installment contracts without penalty. AFS's insurance
business is subject to licensing and regulation by state
authorities.
AFS's commercial business focuses primarily on
equipment leasing and inventory financing outside the United
States. During 1996 and 1997, AFS acquired or opened
commercial financing operations in Australia, Canada,
France, India, and the United Kingdom. These operations
were added to AFS's commercial businesses already being
conducted in Australia and Hong Kong. AFS's commercial
business portfolio grew to over $900 million at December 31,
1997, from approximately $300 million at December 31, 1996.
TFC is a diversified commercial finance company
specializing in aircraft finance, golf finance, vendor and
middle market equipment finance, and revolving credit
arrangements. TFC originates and syndicates a wide variety of
<page 10>
secured loan and lease transactions, selectively invests
in leveraged lease transactions and provides third-party
portfolio servicing. TFC provides commercial financing for
a wide range of customers, including those who purchase or
lease Textron products and certain suppliers to Textron
operations. TFC presently offers its services primarily in
the United States and, to a lesser extent, in Europe and
Canada. Each TFC business unit has a discrete market focus
and specific profit objectives and is staffed to provide
responsive services to its market.
The commercial finance businesses in which AFS and TFC
operate are highly competitive. AFS and TFC are subject to
competition from various types of financing institutions,
including banks, leasing companies, insurance companies,
independent finance companies associated with manufacturers
and finance companies that are subsidiaries of banking
institutions. Competition within the commercial finance
industry is primarily focused on price and service.
Finance Receivables
The following table presents the Finance segment's
outstanding finance receivables by country:
December 31,
1997 1996
(In millions)
United States $6,626 $6,925
Canada 1,239 1,079
Australia 1,174 1,067
United Kingdom 857 692
Other countries 916 659
$10,812 $10,422
At December 31, 1997, finance receivables in the United
States represented 61% of Textron's total finance
receivables outstanding. At such date, no receivables
outstanding in any one state other than California exceeded
8% of the United States portfolio. In California,
outstanding receivables represented 15% of the United States
portfolio and 9% of the consolidated portfolio.
<page 11>
The following table presents accruing commercial loans
and all consumer loans on which one or more installments
were more than 60 days past due on a contractual basis
(expressed as a percentage of the related gross receivables
outstanding):
Years ended Consumer* Commercial Total
December 31 loans loans loans
1997 3.42% 0.37% 2.30%
1996 3.25% 0.21% 2.32%
*Excludes commercial loans that are subject to recourse
to other Textron operating units.
The following table shows gross and net write-offs, the
percentages whichthat those amounts bear to average finance
receivables, and the amount of the provision for losses
charged to income:
<TABLE>
Gross write-offs Recoveries net write-offs
<S> <C> <C> <C> <C> <C> <C>
Percentage from Percentage
of average receivables of average
Years ended finance previously finance Provision
December 31, Amount receivables written off Amount receivables for losses
(In millions)
1997
Consumer 267 3.9% 48 219 3.2% 229
Commercial 32 0.9% 10 22 0.6% 27
299 2.8% 58 241 2.3% 256
1996
Consumer $230 3.3% $36 $194 2.8% $203
Commercial 30 1.0% 3 27 0.9% 27
$260 2.6% $39 $221 2.2% $230
1995
Consumer $177 2.6% $33 $144 2.1% $149
Commercial 25 0.9% 4 21 0.7% 20
$202 2.1% $37 $165 1.7% $169
</TABLE>
<page 12>
Backlog
Information regarding Textron's backlog of government
and commercial orders at the end of the past two fiscal
years is contained on page 32 of Textron's 1997 Annual
Report to Shareholders, which page is incorporated herein by
reference.
Approximately 39% of Textron's total backlog of $6.3
billion at January 3, 1998, represents orders which are not
expected to be filled within the 1998 fiscal year. At
January 3, 1998, approximately 96% of the total government
backlog of $2.2 billion was funded.
Government Contracts
In 1997, 20% and 14% of the revenues of the Aircraft and
the Industrial segments, respectively, constituting in the
aggregate 10% of Textron's consolidated revenues, were
generated by or resulted from contracts with the U.S.
Government. U.S. Government business is subject to
competition, changes in procurement policies and
regulations, the continuing availability of Congressional
appropriations, world events, and the size and timing of
programs in which Textron may participate.
A substantial portion of Textron's government contracts
are fixed-price or fixed-price incentive contracts.
Contracts that contain incentive pricing terms provide for
upward or downward adjustments in the prices paid by the
U.S. Government upon completion of the contract or any
agreed portion thereof, based on cost or other performance
factors. U.S. Government contracts generally may be
terminated in whole or in part at the convenience of the
U.S. Government or if the contractor is in default. Upon
termination of a contract for the convenience of the U.S.
Government, the contractor is normally entitled to
reimbursement for allowable costs incurred (up to a maximum
equal to the contract price) and an allowance for profit or
adjustment for loss if the contractor would have incurred a
loss had the entire contract been completed. If, however, a
contract is terminated for default: (i) the contractor is
paid such amount as may be agreed upon for manufacturing
materials and partially completed products accepted by the
U.S. Government; (ii) the U.S. Government is not liable for
the contractor's costs with respect to unaccepted items and
is entitled to repayment of advance payments and progress
payments, if any, related to the terminated portions of the
contract; and (iii) the contractor may be liable for excess
costs incurred by the U.S. Government in procuring
undelivered items from another source.
Research and Development
Information regarding Textron's research and development
expenditures is contained on page 51 of Textron's 1997
Annual Report to Shareholders, which page is incorporated
herein by reference.
<page 13>
Patents and Trademarks
Textron owns, or is licensed under, a number of patents
and trademarks throughout the world relating to products and
methods of manufacturing. Patents and trademarks have been
of value in the past and are expected to be of value in the
future; however, the loss of any single patent or group of
patents would not, in the opinion of Textron, materially
affect the conduct of its business.
Environmental Considerations
Textron's operations are subject to numerous laws and
regulations designed to protect the environment.
Compliance with such laws and expenditures for environmental
control facilities have not had, and are not expected to
have, a material effect on capital expenditures, earnings or
the competitive position of Textron. Additional
information regarding environmental matters is contained on
pages 31 and 54 of Textron's 1997 Annual Report to
Shareholders, which pages are incorporated herein by
reference.
Employees
At January 3, 1998, Textron had approximately 64,000
employees.
ITEM 2. PROPERTIES
At January 3, 1998, Textron operated a total of 139
plants located throughout the United States and 45 plants
outside the United States. Of the total of 184 plants,
Textron owned 114 and the balance were leased. In the
aggregate, the total manufacturing space was approximately
34 million square feet.
In addition, Textron owns or leases offices, warehouse
and other space at various locations throughout the United
States and outside the United States. Textron considers
the productive capacity of the plants operated by each of
its business segments to be adequate. In general, Textron's
facilities are in good condition, are considered to be
adequate for the uses to which they are being put, and are
substantially in regular use.
ITEM 3. LEGAL PROCEEDINGS
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; and someand 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
<page 14>
that any liability for these suits and proceedings would
not have a material effect on Textron's net income or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Textron's
security holders during the last quarter of the period
covered by this Report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information
concerning the executive officers of Textron as of March
6, 1998. Unless otherwise indicated, the employer is
Textron.
Name Age Position
James F. Hardymon 63 Chairman since 1993, and Chief
Executive Officer since 1992;
formerly President, 1989 to
1993; Director since 1989.
Lewis B. Campbell 51 President and Chief Operating
Officer since 1994; formerly
Executive Vice President and
Chief Operating Officer, 1992
to 1993; Director since 1994.
John D. Butler Executive Vice President
50 Administration and Chief Human
Resources Officer since July
1997; formerly Vice President
Personnel of General Motors
International Operations
(Zurich, Switzerland), 1993 to
June 1997.
Mary L. Howell 45 Executive Vice President
Government and International
since 1995; formerly Senior
Vice President Government and
International Relations, 1993
to 1995; Vice President
Government Affairs, 1985 to
1993.
Wayne W. Juchatz 51 Executive Vice President and
General Counsel since 1995;
formerly Executive Vice
President and General Counsel
of R.J. Reynolds Tobacco
Company, 1994 to 1995; Senior
Vice President, General
Counsel and Secretary of R.J.
Reynolds Tobacco Company, 1987
to 1994.
Stephen L. Key 54 Executive Vice President and
Chief Financial Officer since
1995; formerly Executive Vice
President and Chief Financial
Officer of ConAgra, Inc., 1992
to 1995.
<page 15>
Herbert L. Henkel 49 President, Textron Industrial
Products since 1995; formerly
Group Vice President of
Textron Inc., 1993 to 1995;
President of the Greenlee
Textron Division, 1987 to
1993.
Edward C. Arditte Vice President and Treasurer
42 since May 1997; formerly Vice
President Finance and Business
Development of Textron
Fastening Systems, 1995 to May
1997; Vice President
Communications and Risk
Management of Textron Inc.,
1994 to 1995; Vice President
Investor Relations and Risk
Management, 1993 to 1994.
Frederick K. Butler 46 Vice President and Secretary
since January 1997; formerly
Group General Counsel
Financial Services, 1995 to
1996; Assistant General
Counsel, 1994 to 1995; Vice
President and General Counsel
of Paul Revere Investment
Management Company, 1993 to
1994; Senior Vice
President/Law of Textron
Investment Management Company,
1991 to 1993.
Peter B. S. Ellis 44 Vice President Strategic
Planning since 1995; formerly
Managing Director
Telecommunications Practice of
Arthur D. Little, Inc., 1991
to 1995.
Douglas A. Fahlbeck 52 Vice President Mergers and
Acquisitions since 1995;
formerly Executive Vice
President and Chief Financial
Officer of Textron Financial
Corporation, 1994 to 1995;
Senior Vice President and
Chief Financial Officer of
Textron Financial Corporation,
1985 to 1994.
Arnold M. Friedman 55 Vice President and Deputy
General Counsel since 1984.
William B. Gauld 44 Vice President Corporate
Information Management and
Chief Information Officer
since 1995; formerly Staff
Vice President, Corporate
Information Management and
Chief Information Officer,
1994 to 1995; Chief
Information Officer of General
Electric (Electrical
Distribution and Control
business) 1992 to 1994.
Carol J. Grant 44 Vice President Human Resources
since February 1997; formerly
Vice President of NYNEX (Rhode
Island Strategic Business
Unit), 1993 to January 1997;
Vice President Public Affairs
and Communications of NYNEX -
Rhode Island, 1991 to 1993.
Gregory E. Hudson 51 Vice President Taxes since
1987.
<page 16>
William P. Janovitz 55 Vice President Financial
Management since January 1997;
formerly Vice President
Financial Reporting, 1995 to
January 1997; Vice President
and Controller, 1983 to 1995.
Mary F. Lovejoy 42 Vice President Communications
and Investor Relations since
1996; formerly Vice President
Investor Relations, 1995 to
1996; Director Investor
Relations, 1993 to 1995; Vice
President and Senior Corporate
Banker of The First National
Bank of Chicago, 1991 to
1993.
John W. Mayers, Jr. 44 Vice President Risk Management
since January 1997; formerly
Director Risk Management, 1993
to January 1997; Vice
President and Treasurer of
Textron Financial Corporation,
1990 to 1993.
Frank W. McNally 58 Vice President Employee
Relations and Benefits since
1995; formerly Staff Vice
President, Employee Relations
and Benefits, 1993 to 1995;
Staff Vice President Employee
Relations, 1992 to 1993.
Gero K. H. Meyersiek 50 Vice President International
since 1996; formerly Vice
President of Textron
International Inc., 1995 to
1996; Vice President
International Business
Development of GE Financial
Services, 1991 to 1994.
Freda M. Peters 56 Vice President Executive
Development and Human Resource
Policy and Compliance since
February 1997; formerly
Director
Management/Organization
Development, 1996 to January
1997; Vice President Human
Resources of Branson
Ultrasonics Corporation
(subsidiary of Emerson
Electric Company), 1985 to
1996.
Daniel L. Shaffer 61 Vice President Audit and
Business Ethics since 1994;
formerly President of
Textron's Aircraft Engine
Components Division, 1992 to
1994.
Richard F. Smith 58 Vice President Government
Affairs since 1995; formerly
Staff Vice President
Government Affairs, March 1995
to August 1995; Director
Government Affairs, 1985 to
March 1995.
Richard L. Yates 47 Vice President and Controller
since 1995; formerly Executive
Vice President, Chief
Financial Officer and
Treasurer of The Paul Revere
Corporation, 1993 to 1995;
Senior Vice President, Chief
Financial Officer and
Treasurer of The Paul Revere
Corporation, 1991 to 1993.
<page 17>
John F. Zugschwert 64 Vice President Government
Marketing since 1995; formerly
Staff Vice President
Government Marketing, 1993 to
1995; Vice President
Washington Operations of Bell
Helicopter Textron, 1991 to
1993.
Textron's Board of Directors has approved a management
succession plan in which Mr. Campbell will become chief
executive officer on July 1, 1998. Mr. Hardymon will remain
chairman of Textron's Board of Directors until his
retirement at year-end 1999 at age 65.
PART II
ITEM 5. MARKETS FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Textron's Common Stock is traded on the New York,
Chicago and Pacific Stock Exchanges. At January 3, 1998,
there were approximately 24,000 holders of Textron Common
Stock. The information on the price range of Textron's
Common Stock and dividends paid per share appearing under
"Common Stock Information" on page 56 of Textron's 1997
Annual Report to Shareholders is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing under "Selected Financial
Information" on page 57 of Textron's 1997 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis," appearing on
pages 25 through 32 of Textron's 1997 Annual Report to
Shareholders, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary
information contained in Textron's 1997 Annual report to
Shareholders and the Financial Statement schedules, as
listed in the accompanying Index to Financial Statements and
Financial Statement Schedules, are incorporated herein by
reference.
<page 18>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under "Nominees for Director"
on pages 2 through 6 of Textron's Proxy Statement for the
Annual Meeting of Shareholders to be held on April 22, 1998,
is incorporated herein by reference.
Information regarding Textron's executive officers is
included on pages 15 through 18 of Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Report of the
Organization and Compensation Committee on Executive
Compensation, Executive Compensation and Performance Graph"
on pages 10 through 20 of Textron's Proxy Statement for the
Annual Meeting of Shareholders to be held on April 22, 1998,
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under "Security Ownership of
Certain Beneficial Holders" and "Security Ownership of
Management," on pages 8 through 10 of Textron's Proxy
Statement for the Annual Meeting of Shareholders to be held
on April 22, 1998, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under "Transactions with
Management" on page 19 of Textron's Proxy Statement for the
Annual Meeting of Shareholders to be held on April 22, 1998,
is incorporated herein by reference.
<page 19>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
The consolidated financial statements, supplementary
information and financial statement schedules listed in the
accompanying Index to Financial Statements and Financial
Statement Schedules are filed as part of this Report.
Exhibits
3.1 Restated Certificate of Incorporation of
Textron as filed January 29, 1998.
3.2 By-Laws of Textron, restated December
10, 1992. Incorporated by reference to
Exhibit 3.2 to Textron's Annual Report on
Form 10-K for the fiscal year ended January
2, 1993.
NOTE: Exhibits 10.1 through 10.21B below are
management contracts or compensatory plans,
contracts or agreements.
10.1 Annual Incentive Compensation Plan For
Textron Employees. Incorporated by reference
to Exhibit 10.1 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.2 Deferred Income Plan For Textron Key
Executives. Incorporated by reference to
Exhibit 10.2 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.3 Severance Plan For Textron Key
Executives. Incorporated by reference to
Exhibit 10.3 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.4 Special Benefits for Textron Key
Executives. Incorporated by reference to
Exhibit 10.4 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.5 Supplemental Benefits Plan For Textron
Key Executives with Market Square Profit
Sharing Plan Schedule. Incorporated by
reference to Exhibit 10.5 to Textron's Annual
Report on Form 10-K for the fiscal year ended
December 30, 1995.
10.6 Supplemental Retirement Plan For Textron
Key Executives. Incorporated by reference to
Exhibit 10.6 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.7 Survivor Benefit Plan For Textron Key
Executives. Incorporated by reference to
Exhibit 10.7 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.8A Textron 1987 Long-Term Incentive Plan
("1987 Plan"). Incorporated by reference to
Exhibit 10.6 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1989.
10.8B First Amendment to 1987 Plan.
Incorporated by reference to Exhibit 10.6(b)
to Textron's Annual Report on Form 10-K for
the fiscal year ended December 28, 1991.
<page 20>
10.9A Textron 1990 Long-Term Incentive Plan
("1990 Plan"). Incorporated by reference to
Exhibit 10.7 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1989.
10.9B First Amendment to 1990 Plan.
Incorporated by reference to Exhibit 10.7(c)
to Textron's Annual Report on Form 10-K for
the fiscal year ended December 28, 1991.
10.9C Second Amendment to 1990 Plan.
Incorporated by reference to Exhibit 10.7(c)
to Textron's Annual Report on Form 10-K for
the fiscal year ended January 2, 1993.
10.10 Textron 1994 Long-Term Incentive Plan.
Incorporated by reference to Exhibit 10 to
Textron's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 2, 1994.
10.11 Form of Indemnity Agreement between
Textron and its directors and executive
officers. Incorporated by reference to
Exhibit A to Textron's Proxy Statement for
its Annual Meeting of Shareholders on April
29, 1987.
10.12A Pension Plan for Directors as amended by
a First Amendment (discontinued as of
September 30, 1996). Incorporated by
reference to Exhibit 10.14 to Textron's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1988.
10.12B Second Amendment to Pension Plan for
Directors (discontinued as of September 30,
1996). Incorporated by reference to Exhibit
10.16(b) to Textron's Annual Report on Form
10-K for the fiscal year ended December 29,
1990.
10.13 Deferred Income Plan for Non-Employee
Directors. Incorporated by reference to
Exhibit 10.14 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
28, 1996.
10.14A Employment Agreement between Textron and
James F. Hardymon dated November 24, 1989
("Employment Agreement"). Incorporated by
reference to Exhibit 10.9 to Textron's Annual
Report on Form 10-K for the fiscal year ended
December 30, 1989.
10.14B Amendment dated as of December 15, 1994,
to Employment Agreement. Incorporated by
reference to Exhibit 10.10B to Textron's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
10.15A Employment Agreement between Textron and
Lewis B. Campbell dated September 22, 1992.
Incorporated by reference to Exhibit 10.9 to
Textron's Annual Report on Form 10-K for the
fiscal year ended January 2, 1993.
10.15B Retention Award granted to Lewis B.
Campbell on December 14, 1995. Incorporated
by reference to Exhibit 10.16B to Textron's
Annual Report on Form 10-K for the fiscal
year ended December 30, 1995.
10.16 Employment Agreement between
Textron and John D. Butler dated June 10,
1997. Incorporated by reference to Exhibit
10 to Textron's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 28, 1997.
<page 21>
10.17 Retention Award granted to Herbert L. Henkel
on December 12, 1996.
10.18 Employment Agreement between Textron and
Mary L. Howell dated May 4, 1993.
Incorporated by reference to Exhibit 10.11 to
Textron's Annual Report on Form 10-K for the
fiscal year ended January 1, 1994.
10.19A Employment Agreement between
Textron and Wayne W. Juchatz dated November
1, 1995. Incorporated by reference to
Exhibit 10.18 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.19B Description of modified pension arrangement.
10.20A Employment Agreement between
Textron and Stephen L. Key dated November 1,
1995. Incorporated by reference to Exhibit
10.19 to Textron's Annual Report on Form 10-K
for the fiscal year ended December 30, 1995.
10.20B Description of stock equivalent grant.
10.21A Employment Agreement between
Textron and William F. Wayland dated January
1, 1989 ("WFW Agreement"). Incorporated by
reference to Exhibit 10.12 to Textron's
Annual Report on Form 10-K for the fiscal
year ended December 30, 1989.
10.21B Supplement to WFW Agreement dated May 1, 1997.
10.22A Credit Agreement dated as of November 1,
1993, among Textron, the Lenders listed
therein and Bankers Trust Company as Admin
istrative Agent ("Credit Agreement").
Incorporated by reference to Exhibit 10.20A
to Textron's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994.
10.22B First Amendment dated as of October 30,
1994, to Credit Agreement. Incorporated by
reference to Exhibit 10.22B to Textron's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
10.22C Second Amendment to Credit Agreement
dated as of July 1, 1995. Incorporated by
reference to Exhibit (b) (3) to Schedule 14D-
1 filed by Textron on September 19, 1995.
10.22D Third Amendment to Credit Agreement
dated as of July 1, 1996. Incorporated by
reference to Exhibit 10.21D to Textron's
Annual Report on Form 10-K for the fiscal
year ended December 28, 1996.
12.1 Computation of ratio of income to
combined fixed charges and preferred stock
dividends of the Parent Group.
12.2 Computation of ratio of income to
combined fixed charges and preferred stock
dividends of Textron Inc. including all
majority-owned subsidiaries.
13 A portion (pages 24 through 59) of
Textron's 1997 Annual Report to Shareholders.
21 Certain subsidiaries of Textron.
Other subsidiaries, which considered in the
aggregate do not constitute a significant
subsidiary, are omitted from such list.
23 Consent of Independent Auditors.
<page 22>
24.1 Power of attorney.
24.2 Certified copy of a resolution of the Board
of Directors of Textron.
27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended January 3, 1998.
<page 23>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this Annual Report on Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized on this
16th day of March 1998.
TEXTRON INC.
Registrant
By: /s/Michael D. Cahn
Michael D. Cahn
Attorney-in-fact
Pursuant to the requirements of the Securities Exchange
Act of 1934, this Report has been signed below on this 16th
day of March 1998, by the following persons on behalf of the
registrant and in the capacities indicated:
NAME TITLE
* Chairman and Chief Executive Officer,
James F. Hardymon Director (principal executive officer)
* President and Chief Operating Officer,
Lewis B. Campbell Director
* Director
H. Jesse Arnelle
* Director
Teresa Beck
<page 24>
* Director
R. Stuart Dickson
* Director
Paul E. Gagne
* Director
John D. Macomber
* Director
Dana G. Mead
* Director
Barbara Scott Preiskel
* Director
Brian H. Rowe
* Director
Sam F. Segnar
* Director
Jean Head Sisco
* Director
John W. Snow
<page 25>
* Director
Martin D. Walker
* Director
Thomas B. Wheeler
* Executive Vice President and
Stephen L. Key Chief Financial Officer
(principal financial officer)
* Vice President and Controller
Richard L. Yates (principal accounting officer)
*By: /s/Michael D. Cahn
Michael D. Cahn
Attorney-in-fact
<page 26>
TEXTRON INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Item 14(a)
Form Annual Report
Textron Inc. 10-K to Shareholders
Report of Independent Auditors 33
Consolidated Statement of Income for each of the 34
three years in the period ended January 3, 1998
Consolidated Balance Sheet at January 3, 1998 36
Consolidated Statement of Cash Flows for each of 38
the three years in the period ended January 3,
1998
Consolidated Statement of Changes in Shareholders' 40
Equity for each of the three years in the period
ended January 3, 1998
Notes to Consolidated Financial Statements 41-55
Revenues and Income by Business Segment 24
Supplementary Information (Unaudited):
Quarterly Financial Information 1997 and 1996 56
Financial Statement Schedules for each of the three
years in the period ended January 3, 1998
I Condensed financial information of 28
registrant
II Valuation and qualifying accounts 29
All other schedules are omitted because the conditions
requiring the filing thereof do not exist or because the
information required is included in the financial statements
and notes thereto.
<page 27>
TEXTRON INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
For each of the three years in the period ended January 3, 1998
Financial information of the Registrant is omitted
because condensed financial information of the Parent Group,
which includes the Registrant and all of its majority-owned
subsidiaries other than its finance subsidiaries (Finance
Group), is shown on pages 34 through 39 of Textron's 1997
Annual Report to Shareholders. Management believes that the
disclosure of financial information on the basis of the
Parent Group results in a more meaningful presentation,
since this group constitutes the Registrant's basic
borrowing entity and the only restrictions on net assets of
Textron's subsidiaries relate to its Finance Group. The
Registrant's investment in its Finance Group is shown on
pages 36 and 37 of Textron's 1997 Annual Report to
Shareholders under the caption "Investments in Finance
Group."
The Parent Group received dividends of $221 million,
$124 million and $117 million from its Finance Group in
1997, 1996 and 1995, respectively. The portion of the net
assets of Textron's Finance Group available for cash
dividends and other payments to the Parent Group is
restricted by the terms of lending agreements and insurance
statutory requirements. As of January 3, 1998,
approximately $475 million of their net assets of $1.6
billion was available to be transferred to the Parent Group
pursuant to these restrictions.
The Parent Group's credit agreements contain provisions
requiring it to maintain a minimum level of shareholders'
equity and a minimum interest coverage ratio. For
additional information concerning the Parent Group's
long-term debt, see Note 9 to the consolidated financial
statements appearing on pages 46 and 47 of Textron's 1997
Annual Report to Shareholders.
For information concerning Textron-obligated
Mandatorily Redeemable Preferred Securities of Subsidiary
Trust Holding Solely Textron Junior Subordinated Debt
Securities, see Note 11 to the consolidated financial
statements appearing on page 48 of Textron's 1997 Annual
Report to Shareholders.
<page 28>
TEXTRON INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For each of the three years in the period ended January 3,
1998
(In millions)
Allowance for credit losses
Changes in the allowance for credit losses for the years
indicated were as follows:
1997 1996 1995
Balance of the allowance for
credit losses at the
beginning of the year $293 $270 $250
Add - charged to income:
Consumer 229 203 149
Commercial 27 27 20
256 230 169
Deduct - balances
charged off:
Gross charge offs:
Consumer (267) (230) (177)
Commercial (32) (30) (25)
(299) (260) (202)
Recoveries:
Consumer 48 36 33
Commercial 10 3 4
58 39 37
Net charge offs (241) (221) (165)
Other 7 14 16
Balance of the allowance for
credit losses at the end of
the year $315 $293 $270
Balance of the allowance for
credit losses at the end of
the year applicable to:
Consumer $236 $218 $195
Commercial 79 75 75
$315 $293 $270
<page 29>
EXHIBIT LIST
Exhibits
3.1 Restated Certificate of Incorporation of
Textron as filed January 29, 1998.
3.2 By-Laws of Textron, restated December
10, 1992. Incorporated by reference to
Exhibit 3.2 to Textron's Annual Report on
Form 10-K for the fiscal year ended January
2, 1993.
NOTE: Exhibits 10.1 through 10.21B below are
management contracts or compensatory plans,
contracts or agreements.
10.1 Annual Incentive Compensation Plan For
Textron Employees. Incorporated by reference
to Exhibit 10.1 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.2 Deferred Income Plan For Textron Key
Executives. Incorporated by reference to
Exhibit 10.2 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.3 Severance Plan For Textron Key
Executives. Incorporated by reference to
Exhibit 10.3 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.4 Special Benefits for Textron Key
Executives. Incorporated by reference to
Exhibit 10.4 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.5 Supplemental Benefits Plan For Textron
Key Executives with Market Square Profit
Sharing Plan Schedule. Incorporated by
reference to Exhibit 10.5 to Textron's Annual
Report on Form 10-K for the fiscal year ended
December 30, 1995.
10.6 Supplemental Retirement Plan For Textron
Key Executives. Incorporated by reference to
Exhibit 10.6 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.7 Survivor Benefit Plan For Textron Key
Executives. Incorporated by reference to
Exhibit 10.7 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.8A Textron 1987 Long-Term Incentive Plan
("1987 Plan"). Incorporated by reference to
Exhibit 10.6 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1989.
10.8B First Amendment to 1987 Plan.
Incorporated by reference to Exhibit 10.6(b)
to Textron's Annual Report on Form 10-K for
the fiscal year ended December 28, 1991.
<PAGE>
10.9A Textron 1990 Long-Term Incentive Plan
("1990 Plan"). Incorporated by reference to
Exhibit 10.7 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1989.
10.9B First Amendment to 1990 Plan.
Incorporated by reference to Exhibit 10.7(c)
to Textron's Annual Report on Form 10-K for
the fiscal year ended December 28, 1991.
10.9C Second Amendment to 1990 Plan.
Incorporated by reference to Exhibit 10.7(c)
to Textron's Annual Report on Form 10-K for
the fiscal year ended January 2, 1993.
10.10 Textron 1994 Long-Term Incentive Plan.
Incorporated by reference to Exhibit 10 to
Textron's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 2, 1994.
10.11 Form of Indemnity Agreement between
Textron and its directors and executive
officers. Incorporated by reference to
Exhibit A to Textron's Proxy Statement for
its Annual Meeting of Shareholders on April
29, 1987.
10.12A Pension Plan for Directors as amended by
a First Amendment (discontinued as of
September 30, 1996). Incorporated by
reference to Exhibit 10.14 to Textron's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1988.
10.12B Second Amendment to Pension Plan for
Directors (discontinued as of September 30,
1996). Incorporated by reference to Exhibit
10.16(b) to Textron's Annual Report on Form
10-K for the fiscal year ended December 29,
1990.
10.13 Deferred Income Plan for Non-Employee
Directors. Incorporated by reference to
Exhibit 10.14 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
28, 1996.
10.14A Employment Agreement between Textron and
James F. Hardymon dated November 24, 1989
("Employment Agreement"). Incorporated by
reference to Exhibit 10.9 to Textron's Annual
Report on Form 10-K for the fiscal year ended
December 30, 1989.
10.14B Amendment dated as of December 15, 1994,
to Employment Agreement. Incorporated by
reference to Exhibit 10.10B to Textron's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
10.15A Employment Agreement between Textron and
Lewis B. Campbell dated September 22, 1992.
Incorporated by reference to Exhibit 10.9 to
Textron's Annual Report on Form 10-K for the
fiscal year ended January 2, 1993.
10.15B Retention Award granted to Lewis B.
Campbell on December 14, 1995. Incorporated
by reference to Exhibit 10.16B to Textron's
Annual Report on Form 10-K for the fiscal
year ended December 30, 1995.
<PAGE>
10.16 Employment Agreement between
Textron and John D. Butler dated June 10,
1997. Incorporated by reference to Exhibit
10 to Textron's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 28, 1997.
10.17 Retention Award granted to Herbert L. Henkel
on December 12, 1996.
10.18 Employment Agreement between Textron and
Mary L. Howell dated May 4, 1993.
Incorporated by reference to Exhibit 10.11 to
Textron's Annual Report on Form 10-K for the
fiscal year ended January 1, 1994.
10.19A Employment Agreement between
Textron and Wayne W. Juchatz dated November
1, 1995. Incorporated by reference to
Exhibit 10.18 to Textron's Annual Report on
Form 10-K for the fiscal year ended December
30, 1995.
10.19B Description of modified pension
arrangement.
10.20A Employment Agreement
between Textron and Stephen L. Key dated
November 1, 1995. Incorporated by reference
to Exhibit 10.19 to Textron's Annual Report
on Form 10-K for the fiscal year ended
December 30, 1995.
10.20B Description of stock equivalent grant
10.21A Employment Agreement between
Textron and William F. Wayland dated January
1, 1989 ("WFW Agreement"). Incorporated by
reference to Exhibit 10.12 to Textron's
Annual Report on Form 10-K for the fiscal
year ended December 30, 1989.
10.21B Supplement to WFW Agreement dated May 1,1997.
10.22A Credit Agreement dated as of November 1,
1993, among Textron, the Lenders listed
therein and Bankers Trust Company as Admin
istrative Agent ("Credit Agreement").
Incorporated by reference to Exhibit 10.20A
to Textron's Annual Report on Form 10-K for
the fiscal year ended January 1, 1994.
10.22B First Amendment dated as of October 30,
1994, to Credit Agreement. Incorporated by
reference to Exhibit 10.22B to Textron's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
10.22C Second Amendment to Credit Agreement
dated as of July 1, 1995. Incorporated by
reference to Exhibit (b) (3) to Schedule 14D-
1 filed by Textron on September 19, 1995.
10.22D Third Amendment to Credit Agreement
dated as of July 1, 1996. Incorporated by
reference to Exhibit 10.21D to Textron's
Annual Report on Form 10-K for the fiscal
year ended December 28, 1996.
12.1 Computation of ratio of income to
combined fixed charges and preferred stock
dividends of the Parent Group.
12.2 Computation of ratio of income to
combined fixed charges and preferred stock
dividends of Textron Inc. including all
majority-owned subsidiaries.
<PAGE>
13 A portion (pages 24 through 59) of Textron's
1997 Annual Report to Shareholders.
21 Certain subsidiaries of Textron.
Other subsidiaries, which considered in the
aggregate do not constitute a significant
subsidiary, are omitted from such list.
23 Consent of Independent Auditors.
24.1 Power of attorney.
24.2 Certified copy of a resolution of the Board
of Directors of Textron.
27 Financial Data Schedule.
<PAGE>
Exhibit 3.1
TEXTRON INC.
A Delaware Corporation
Incorporated 1967
(Successor to Rhode Island Corporation
Incorporated 1928)
_______________________
RESTATED CERTIFICATE OF INCORPORATION
_______________________
As Filed January 29, 1998
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
TEXTRON INC.
* * * * * *
UNDER SECTION 245 OF THE GENERAL CORPORATION LAW
* * * * * *
TEXTRON INC., a corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
1. The name of the corporation is TEXTRON INC. The name under which it
was originally incorporated is American Textron Inc.
2. The original Certificate of Incorporation of the corporation was
filed with the Secretary of State on July 31, 1967.
3. This Restated Certificate of Incorporation was duly adopted by the
Board of Directors in accordance with the provisions of Section 245 of the
General Corporation Law of the State of Delaware and only restates and
integrates and does not further amend the provisions of the corporation's
Certificate of Incorporation as heretofore amended or supplemented. There
is no discrepancy between those provisions and the provisions of this
Restated Certificate of Incorporation.
4. The text of the Certificate of Incorporation of said TEXTRON INC., as
heretofore amended or supplemented, is hereby restated and integrated,
without further amendment, to read as follows:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is
TEXTRON INC.
SECOND: The respective names of the county and of the city within the
county in which the registered office of the Corporation is to be located
in the State of Delaware are the County of New Castle and the City of
Wilmington. The name of the registered agent of the Corporation is The
Corporation Trust Company. The street and number of said principal office
and the address by street and number of said registered agent is No. 1209
Orange Street, in the City of Wilmington, State of Delaware.
THIRD: The nature of the business of the Corporation and the objects or
purposes to be transacted, promoted or carried on by it are as follows:
1. To make, manufacture, produce, prepare, process, purchase or otherwise
acquire, and to hold, use, sell, import, export or otherwise trade or deal
in and with goods, wares, products, merchandise, machines, machinery,
appliances and apparatus, of every kind, nature and description, and, in
general, to engage or participate in any manufacturing or other business of
any kind or character whatsoever, including, but not by way of limitation,
importing, exporting, mining, quarrying, producing, farming, agriculture,
forestry, construction, management, advisory, mercantile, financial or
investment business, any business engaged in rendering any manner of
services and any business of buying, selling, leasing or dealing in
properties of any and all kinds, whether any such business is located in
the United States of America or any foreign country, and whether or not
related to, conducive to, incidental to, or in any way connected with, the
foregoing business.
2. To engage in research, exploration, laboratory and development work
relating to any material, substance, compound or mixture now known or which
may hereafter be known, discovered or developed and to perfect, develop,
manufacture, use, apply and generally to deal in and with any such
material, substance, compound or mixture.
<PAGE>
3. To purchase, lease or otherwise acquire, to hold, own, use, develop,
maintain, manage and operate, to sell, transfer, lease, assign, convey,
exchange or otherwise turn to account or dispose of, and generally, to deal
in and with, personal and real property, tangible or intangible, of every
kind and description, wheresoever situated, and any and all rights,
concessions, interests and privileges therein.
4. To adopt, apply for, obtain, register, purchase, lease or otherwise
acquire, to maintain, protect, hold, use, own, exercise, develop,
manufacture under, operate and introduce and to sell and grant licenses or
other rights in respect of, assign or otherwise dispose of, turn to
account, or in any manner deal with and contract with reference to, any
trademarks, trade names, patents, patent rights, concessions, franchises,
designs, copyrights and distinctive marks and rights analogous thereto and
inventions, devices, improvements, processes, recipes, formulae and the
like, including, but not by way of limitation, such thereof as may be
covered by, used in connection with, or secured or received under, Letters
Patent of the United States of America or elsewhere, and any licenses and
rights in respect thereof, in connection therewith or appertaining thereto.
5. To purchase or otherwise acquire and to hold, pledge, sell, exchange
or otherwise dispose of securities (which term includes any shares of
stock, bonds, debentures, notes, mortgages or other obligations and any
certificates, receipts or other instruments representing rights to receive,
purchase or subscribe for the same or representing any other rights or
interests therein or in any property or assets) created or issued by any
person, firm, association, corporation (including, to the extent permitted
by the laws of the State of Delaware, the Corporation) or government or
subdivision, agency or instrumentality thereof; to make payment therefor in
any lawful manner; and to exercise, as owner or holder thereof, any and all
rights, powers and privileges in respect thereof (to the extent aforesaid).
6. To make, enter into, perform and carry out contracts of every kind and
description with any person, firm, association, corporation or government
or subdivision, agency or instrumentality thereof; to endorse or guarantee
the payment of principal, interest or dividends upon, and to guarantee the
performance of sinking fund or other obligations of, any securities or the
payment of a certain amount per share in liquidation of the capital stock
of any other corporation; and to guarantee in any way permitted by law the
performance of any of the contracts or other undertakings of any person,
firm, association, corporation or government or subdivision, agency or
instrumentality thereof.
7. To acquire by purchase, exchange or otherwise, all, or any part of, or
any interest in, the properties, assets, business and good will of any one
or more persons, firms, associations or corporations heretofore or
hereafter engaged in any business whatsoever; to pay for the same in cash,
property or its own or other securities; to hold, operate, lease,
reorganize, liquidate, sell or in any manner dispose of the whole or any
part thereof; to assume or guarantee, in connection therewith, the
performance of any liabilities, obligations or contracts of such persons,
firms, associations or corporations; and to conduct the whole or any part
of any business thus acquired.
8. To lend its uninvested funds from time to time to such extent, to such
persons, firms, associations, corporations or governments or subdivisions,
agencies or instrumentalities thereof, and on such terms and on such
security, if any, as the Board of Directors of the Corporation (hereinafter
called the "Board of Directors") may determine.
9. To borrow money for any of the purposes of the Corporation, from time
to time, and without limit as to amount; to issue and sell from time to
time, its own securities in such amounts, on such terms and conditions, for
such purposes and for such consideration, as may now be or hereafter shall
be permitted by the laws of the State of Delaware; and to secure such
securities by mortgage upon, or the pledge of, or the conveyance or
assignment in trust of, the whole or any part of the properties, assets,
business and good will of the Corporation then owned or thereafter
acquired.
10. To promote, organize, manage, aid or assist, financially or
otherwise, persons, firms, associations or corporations engaged in any
business whatsoever; and to assume or underwrite the performance of all or
any of their obligations.
11. To organize or cause to be organized under the laws of the State
of Delaware, any other state or states of the United States of America, the
District of Columbia, any territory, dependency, colony or possession of
the United States of America or of any foreign country, a corporation or
corporations for the purpose of transacting, promoting or carrying on any
or all objects or purposes for which the Corporation is organized; to
dissolve, wind up, liquidate, merge or consolidate any such corporation or
corporations or to cause the same to be dissolved, wound up, liquidated,
merged or consolidated; and, subject to the laws of the State of Delaware,
to consolidate or merge with or into one or more other corporations
organized under the laws of the State of Delaware or under the laws of any
other state or states in the United States of America, the District of
Columbia, any territory, dependency, colony or possession of the United
States of America or of any foreign country if the laws under which said
other corporation or corporations are formed shall permit such
consolidation or merger.
<PAGE>
12. To conduct its business in any and all of its branches and
maintain offices both within and without the State of Delaware in any and
all states of the United States of America, in the District of Columbia, in
any or all territories, dependencies, colonies or possessions of the United
States of America and in foreign countries.
13. To such extent as a business corporation organized under the laws
of the State of Delaware may now or hereafter lawfully do, to do, either as
principal or agent and either alone or through subsidiaries or in
connection with other persons, firms, associations or corporations, all and
everything necessary, suitable, convenient or proper for, or in connection
with, or incident to, the accomplishment of any of the purposes or the
attainment of any one or more of the objects herein enumerated or designed
directly or indirectly to promote the interests of the Corporation or to
enhance the value of its properties; and in general to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of Delaware and to do any and all things and exercise any
and all powers, rights and privileges which a business corporation may now
or hereafter be organized or authorized to do or to exercise under the laws
of the State of Delaware.
14. Whenever the context permits, the following provisions shall
govern the construction of the paragraphs of these purposes; no specified
enumeration shall be construed as restricting in any way any general
language; any word, whether in the singular or plural shall be construed to
mean both the singular and the plural; any phrase in the conjunctive or in
the disjunctive shall include both the conjunctive and disjunctive; the
mention of the whole shall include any part or parts; any one or more or
all of the purposes set forth may be pursued from time to time and whenever
deemed desirable; verbs in the present or future tense shall be construed
to include both the present and future tenses or either of them.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 515,000,000 of which
15,000,000 shares, without par value, are to be of a class designated
"Preferred Stock" and 500,000,000 shares of the par value of $.125 each are
to be of a class designated "Common Stock".
The voting powers, designations, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, of the classes of stock of the Corporation which are
fixed by this Certificate of Incorporation, and the authority vested in the
Board of Directors to fix by resolution or resolutions providing for the
issue of Preferred Stock the voting powers, designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of the shares of
Preferred Stock which are not fixed by this Certificate of Incorporation
are as follows:
(a) The Preferred Stock may be issued from time to time in one or more
series of any number of shares; provided that the aggregate number of
shares issued and not canceled of any and all such series shall not
exceed the total number of shares of Preferred Stock hereinabove
authorized. Each series of Preferred Stock shall be distinctively
designated by letter or descriptive words. All series of Preferred Stock
shall rank equally and be identical in all respects except as permitted
by the provisions of paragraphs (b) and (f) of this Article FOURTH.
(b) Authority is hereby vested in the Board of Directors from time to
time to issue the Preferred Stock as Preferred Stock of any series and in
connection with the creation of each such series to fix by resolution or
resolutions providing for the issue of shares thereof the voting powers,
if any, the designation, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, of such series to the full extent now or hereafter
permitted by this Certificate of Incorporation and the laws of the State
of Delaware, in respect of the matters set forth in the following
subparagraphs (1) to (8), inclusive:
(1) The distinctive designation of such series and the number of
shares which shall constitute such series, which number may be
increased or decreased (but not below the number of shares thereof then
outstanding) from time to time by action of the Board of Directors;
(2) The dividend rate of such series, any preferences to or
provisions in relation to the dividends payable on any other class or
classes or of any other series of stock, and any limitations,
restrictions or conditions on the payment of dividends;
(3) The price or prices at which, and the terms and conditions on
which, the shares of such series may be redeemed by the Corporation;
(4) The amount or amounts payable upon the shares of such series in
the event of any liquidation, dissolution or winding up of the
Corporation;
<PAGE>
(5) Whether or not the shares of such series shall be entitled to the
benefit of a sinking fund to be applied to the purchase or redemption
of shares of such series and, if so entitled, the amount of such fund
and the manner of its application;
(6) Whether or not the shares of such series shall be made
convertible into, or exchangeable for, shares of any other class or
classes of stock of the Corporation or shares of any other series of
Preferred Stock, and, if made so convertible or exchangeable, the
conversion price or prices, or the rate or rates of exchange, and the
adjustments thereof, if any, at which such conversion or exchange may
be made, and any other terms and conditions of such conversion or
exchange;
(7) Whether or not the shares of such series shall have any voting
powers and, if voting powers are so granted, the extent of such voting
powers; and
(8) Whether or not the issue of any additional shares of such series
or of any future series in addition to such series shall be subject to
restrictions in addition to the restrictions, if any, on the issue of
additional shares imposed in the resolution or resolutions fixing the
terms of and outstanding series of Preferred Stock theretofore issued
pursuant to this Article FOURTH and, if subject to additional
restrictions, the extent of such additional restrictions.
(c) The holders of Preferred Stock of each series shall be entitled to
receive, when and as declared by the Board of Directors, dividends in
cash at the rate for such series fixed by the Board of Directors as
provided in paragraph (b) of this Article FOURTH, and no more, payable
quarterly on the first days of January, April, July and October or of
such other months as may be designated by the Board of Directors (each of
the quarterly periods ending on the first day of January, April, July and
October in each year, or on the first days of such other months,
respectively, being hereinafter called a dividend period), in each case
from the date of cumulation (as defined in paragraph (h) of this Article
FOURTH) of such series. Except as may otherwise be provided in the
resolution or resolutions providing for the issue of any given series of
Preferred Stock, dividends on Preferred Stock shall be cumulative
(whether or not there shall be net profits or net assets of the
Corporation legally available for the payment of such dividends), so
that, if at any time full cumulative dividends (as defined in paragraph
(h) of this Article FOURTH) upon the Preferred Stock of all series to the
end of the last completed dividend period shall not have been paid or
declared and a sum sufficient for payment thereof set apart, the amount
of the deficiency shall be fully paid, but without interest, or dividends
in such amount shall have been declared on each such series and a sum
sufficient for the payment thereof shall have been set apart for such
payment, before any sum or sums shall be set aside for or applied to the
purchase or redemption of Preferred Stock of any series (either pursuant
to any applicable sinking fund provisions or any redemptions authorized
pursuant to paragraph (g) of this Article FOURTH or otherwise) or set
aside for or applied to the purchase of Common Stock and before any
dividend shall be declared or paid or any other distribution ordered or
made upon the Common Stock (other than a dividend payable in Common
Stock); provided, however, that any moneys deposited in the sinking fund
provided for any series of Preferred Stock in the resolution or
resolutions providing for the issue of shares of said series, in
compliance with the provisions of such sinking fund and of this paragraph
(c), may thereafter be applied to the purchase or redemption of Preferred
Stock in accordance with the terms of such sinking fund whether or not at
the time of such application full cumulative dividends upon the
outstanding Preferred Stock of all series to the end of the last
completed dividend period shall have been paid or declared and set apart
for payment. All dividends declared upon the Preferred Stock of the
respective series outstanding shall be declared pro rata, so that the
amounts of dividends declared per share on the Preferred Stock of
different series shall in all cases bear to each other the same ratio
that accrued dividends per share on the shares of such respective series
bear to each other.
(d) Before any sum or sums shall be set aside for or applied to the
purchase of Common Stock and before any dividends shall be declared or
paid or any distribution ordered or made upon the Common Stock (other
than a dividend payable in Common Stock), the Corporation shall comply
with the sinking fund provisions, if any, of any resolution or
resolutions providing for the issue of any series of Preferred Stock any
shares of which shall at the time be outstanding.
(e) Subject to the provisions of paragraphs (c) and (d) of this Article
FOURTH, the holders of Common Stock shall be entitled, to the exclusion
of the holders of Preferred Stock of any and all series, to receive such
dividends as from time to time may be declared by the Board of Directors.
(f) In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of Preferred Stock of each series then
outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, before any payment shall be made to the
holders of Common Stock, an amount determined as provided in paragraph
(b) of this Article FOURTH for every share of their holdings of Preferred
Stock of such series. If upon any liquidation, dissolution or winding up
of the Corporation the assets of the Corporation available for
distribution
<PAGE>
to its stockholders shall be insufficient to pay the holders
of Preferred Stock of all series the full account to which they
respectively shall be entitled, the holders of Preferred Stock of all
series shall share ratably in any distribution of assets according to the
respective amounts which would be payable in respect of the shares of
Preferred Stock held by them upon such distribution if all amounts
payable on or with respect to Preferred Stock of all series were paid in
full. In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment shall have
been made to the holders of Preferred Stock of the full amount to which
they shall be entitled as aforesaid, the holders of Common Stock shall be
entitled, to the exclusion of the holders of Preferred Stock of any and
all series, to share, ratably according to the number of shares of Common
Stock held by them, in all remaining assets of the Corporation available
for distribution to its stockholders. Neither the merger or consolidation
of the Corporation into or with another corporation nor the merger or
consolidation of any other corporation into or with the Corporation, nor
the sale, transfer or lease of all or substantially all the assets of the
Corporation, shall be deemed to be a liquidation, dissolution or winding
up of the Corporation. Notwithstanding the foregoing provisions of this
paragraph (f), it may be provided as to any one or more series of
Preferred Stock that upon liquidation, dissolution or winding up of the
Corporation the shares of such series shall not have any preference,
other than to be paid out of the assets of the Corporation available for
distribution to its stockholders, an amount equal to accrued dividends
[as defined in paragraph (h) hereof] and thereafter to share ratably with
the holders of Common Stock (and any other class or series having a
similar right) in all distributions of assets as they would have shared
if all of the shares of such series had been converted into Common Stock
immediately before such distribution or to share, in such event, upon
such other terms and conditions as may be provided.
(g) Subject to any requirements which may be applicable to the
redemption of any given series of Preferred Stock as provided in any
resolution or resolutions providing for the issue of such series of
Preferred Stock, the Preferred Stock of all series, or of any series
thereof, or any part of any series thereof, at any time outstanding, may
be redeemed by the Corporation, at its election expressed by resolution
of the Board of Directors, at any time or from time to time, upon not
less than 30 days, but not more than 90 days, previous notice to the
holders of record of Preferred Stock to be redeemed, given by mail in
such manner as may be prescribed by resolution or resolutions of the
Board of Directors:
(1) if such redemption shall be otherwise than by the application of
moneys in any sinking fund referred to in paragraph (d) of this Article
FOURTH, at the redemption price, fixed as provided in paragraph (b) of
this Article FOURTH, at which shares of Preferred Stock of the
particular series may then be redeemed at the option of the Corporation
and
(2) if such redemption shall be by the application of moneys in any
sinking fund referred to in paragraph (d) of this Article FOURTH, at
the redemption price, fixed as provided in paragraph (b) of this
Article FOURTH, at which shares of Preferred Stock of the particular
series may then be redeemed for such sinking fund;
provided, however, that, before any Preferred Stock of any series shall
be redeemed at said redemption price thereof specified in clause (1) of
this paragraph (g), all moneys at the time in the sinking fund, if any,
for Preferred Stock of that series shall first be applied, as nearly as
may be, to the purchase or redemption of Preferred Stock of that series
as provided in the resolution or resolutions of the Board of Directors
providing for such sinking fund. If less than all the outstanding shares
of Preferred Stock of any series are to be redeemed, the redemption may
be made either by lot or pro rata in such manner as may be prescribed by
resolution of the Board of Directors. The Corporation may, if it shall so
elect, provide moneys for the payment of the redemption price by
depositing the amount thereof for the account of the holders of Preferred
Stock entitled thereto with a bank or trust company doing business in the
City of New York, in the State of New York, and having capital and
surplus of at least $5,000,000. The date upon which such deposit may be
made by the Corporation (hereinafter called the "date of deposit") shall
be prior to the date fixed as the date of redemption. In any such case
there shall be included in the notice of redemption a statement of the
date of deposit and of the name and address of the bank or trust company
with which the deposit has been or will be made. On and after the date
fixed in any such notice of redemption as the date of redemption (unless
default shall be made by the Corporation in providing moneys for the
payment of the redemption price pursuant to such notice) or, if the
Corporation shall have made such deposit on or before the date specified
therefor in the notice, then on and after the date of deposit all rights
of the holders of the Preferred Stock to be redeemed as stockholders of
the Corporation, except the right to receive the redemption price as
hereinafter provided and, in the case of such deposit, any conversion
rights not theretofore expired, shall cease and terminate. Such
conversion rights, however, in any event shall cease and terminate upon
the date fixed for redemption or upon any earlier date fixed by the Board
of Directors pursuant to paragraph (b) of this Article FOURTH for
termination of such conversion rights. Anything herein contained to the
contrary notwithstanding, said redemption price shall include an amount
equal to accrued dividends on the Preferred Stock to be redeemed to the
date fixed for the redemption thereof and the Corporation shall not be
required to declare or pay on such Preferred Stock to be redeemed, and
the holders thereof shall not be entitled to receive, any dividends in
addition to those thus included in the redemption price; provided,
however, that the Corporation may pay in regular course any dividends
thus included in the redemption price either to the holders of record on
the record date fixed for the determination of stockholders
<PAGE>
entitled to
receive such dividend (in which event, anything herein to the contrary
notwithstanding, the amount so deposited need not include any dividends
so paid or to be paid) or as a part of the redemption price upon
surrender of the certificates for the shares redeemed. At any time on or
after the date fixed as aforesaid for such redemption or, if the
Corporation shall elect to deposit the moneys for such redemption as
herein provided, then at any time on or after the date of deposit and
without awaiting the date fixed as aforesaid for such redemption, the
respective holders of record of the Preferred Stock to be redeemed shall
be entitled to receive the redemption price upon actual delivery to the
Corporation, or, in the event of such deposit, to the bank or trust
company with which such deposit shall be made, of certificates for the
shares to be redeemed, such certificates, if required, to be properly
stamped for transfer and duly endorsed in blank or accompanied by proper
instruments of assignment and transfer thereof duly executed in blank.
Any moneys so deposited which shall remain unclaimed by the holders of
such Preferred Stock at the end of six years after the redemption date
shall be paid by such bank or trust company to the Corporation and any
interest accrued on moneys so deposited shall belong to the Corporation
and shall be paid to it from time to time. Preferred Stock redeemed
pursuant to the provisions of this paragraph (g) shall be canceled and
shall thereafter have the status of authorized and unissued shares of
Preferred Stock.
(h) The term "date of cumulation" as used with reference to any series
of Preferred Stock shall be deemed to mean the date fixed by the Board of
Directors as the date of cumulation of such series at the time of the
creation thereof or, if no date shall have been so fixed, the date on
which shares of such series are first issued. Whenever used with
reference to any share of any series of Preferred Stock, the term "full
cumulative dividends" shall be deemed to mean (whether or not in any
dividend period, or any part thereof, in respect of which such term is
used there shall have been net profits or net assets of the Corporation
legally available for the payment of such dividends) that amount which
shall be equal to dividends at the full rate fixed for such series as
provided in paragraph (b) of this Article FOURTH for the period of time
elapsed from the date of cumulation of such series to the date as of
which full cumulative dividends are to be computed (including an amount
equal to the dividend at such rate for any fraction of a dividend period
included in such period of time); and the term "accrued dividends" shall
be deemed to mean full cumulative dividends to the date as of which
accrued dividends are to be computed, less the amount of all dividends
paid, or deemed paid as hereinafter in this paragraph (h) provided, upon
said share. In the event of the issue of additional shares of Preferred
Stock of any series after the original issue of shares of Preferred Stock
of such series, all dividends paid or accrued on Preferred Stock of such
series prior to the date of issue of such additional Preferred Stock and
all dividends declared and payable to holders of Preferred Stock of such
series of record on any date prior to the issue of any such additional
Preferred Stock shall be deemed to have been paid on the additional
Preferred Stock so issued.
(i) No holder of stock of any class of the Corporation, whether now or
hereafter authorized, shall have any preemptive, preferential or other
rights to subscribe for or purchase or acquire any shares of any class or
any other securities of the Corporation, whether now or hereafter
authorized, and whether or not convertible into, or evidencing or
carrying the right to purchase, shares of any class or any other
securities now or hereafter authorized, and whether the same shall be
issued for cash, services or property, or by way of dividend or
otherwise.
(j) Subject to the provisions of this Certificate of Incorporation and
except as otherwise provided by law, the shares of stock of the
Corporation, regardless of class, may be issued for such consideration
and for such corporate purposes as the Board of Directors may from time
to time determine.
(k) Except as otherwise provided by law, or this Certificate of
Incorporation or by the resolution or resolutions providing for the issue
of any series of Preferred Stock, the holders of shares of Preferred
Stock, as such holders, shall not have any right to vote, and are hereby
specifically excluded from the right to vote, in the election of
directors or for any other purpose. Except as aforesaid, the holders of
Preferred Stock, as such holders, shall not be entitled to notice of any
meeting of stockholders.
(l) Subject to the provisions of any applicable law, or of the By-laws
of the Corporation as from time to time amended, with respect to the
closing of the transfer books or the fixing of a record date for the
determination of stockholders entitled to vote and except as otherwise
provided by law, or by this Certificate of Incorporation or by the
resolution or resolutions providing for the issue of any series of
Preferred Stock, the holders of outstanding shares of Common Stock shall
exclusively possess voting power for the election of directors and for
all other purposes, each holder of record of shares of Common Stock being
entitled to one vote for each share of Common Stock standing in his name
on the books of the Corporation.
<PAGE>
$2.08 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A
RESOLVED that, pursuant to the authority expressly granted to and vested
in the Board of Directors by the provisions of the Certificate of
Incorporation of the Corporation, the Board of Directors hereby creates a
series of the Preferred Stock of the Corporation to consist of 3,076,223
shares, and the Board of Directors hereby fixes the voting powers,
designation, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions
thereof, of the shares of such series (in addition to the designation,
preferences and relative, participating, optional or other special rights,
and the qualifications, limitations or restrictions thereof, set forth in
the Certificate of Incorporation which are applicable to the Preferred
Stock of all series) as follows:
(1) Designation. The designation of said series of Preferred Stock
created by this resolution shall be "$2.08 Cumulative Convertible Preferred
Stock, Series A" (hereinafter called "Series A").
(2) Dividend Rate. The dividend rate of the shares of Series A shall be
$2.08 per share per annum, cumulative (entitled to "full cumulative
dividends", as defined in the Certificate of Incorporation) from January 1,
1968, payable quarterly on the first days of January, April, July and
October in each year. Holders of shares of Series A shall not be entitled
to any dividends, whether payable in cash, property or stock, in excess of
the "full cumulative dividends" at said rate.
(3) Optional Redemption. Subject to paragraph (4) below, shares of
Series A shall not be redeemable by the Corporation for any purpose until
after December 31, 1972. On and after December 31, 1972, shares of Series A
may be redeemed upon not less than 40 days' notice to the holders of Series
A shares and otherwise on the terms and conditions specified in paragraph
(g) of Article FOURTH of the Certificate of Incorporation during the
following periods at the following per share redemption prices:
Redemption
Price Period
$55 Calendar Year 1973
$54 Calendar Year 1974
$53 Calendar Year 1975
$52 Calendar Year 1976
$51 Calendar Year 1977
$50 At all times after December 31, 1977
plus, in each case, an amount equal to "accrued dividends" (as defined in
the Certificate of Incorporation). Any redemption after December 31, 1972
and prior to January 1, 1978 shall only be made as to all of the Series A
shares outstanding. On and after January 1, 1978 redemption may be made as
to all or any part of such shares from time to time outstanding.
(4) Rights on Liquidation, Dissolution, Winding Up. In the event of any
liquidation, dissolution or winding up of the Corporation, the holders of
shares of Series A then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders an
amount equal to $50 per share, plus an amount equal to "accrued dividends"
(as defined in the Certificate of Incorporation). Notwithstanding the
foregoing, in the event of any voluntary liquidation of the Corporation
prior to January 1, 1978, the holders of shares of Series A shall be
entitled to be paid an amount per share equal to the redemption price as
set forth in paragraph 3 currently in effect at the date of such
liquidation plus accrued dividends.
(5) Sinking Fund. Shares of Series A are not subject or entitled to the
benefit of a sinking fund.
(6) Conversion of Convertible Preferred Stock Into Common Stock.
(a) Conversion Right. Shares of Series A shall be convertible at the
option of the holder thereof at any time into shares of Common Stock at a
conversion price of $45.45 per share based upon a value of $50.00 per share
of Series A stock so that initially Series A shares shall be convertible at
the rate of one and one tenth share (1.1) of Common Stock for each one (1)
share of Series A stock. Such price of $45.45 per Common share (based on
$50.00 per share of Series A stock), adjusted as hereinafter provided, is
hereinafter referred to as the "Conversion Price". Such right of conversion
shall cease and terminate, as to shares of Series A called for redemption,
at the close of business on the tenth business day prior to the date fixed
for redemption unless default shall be made in the payment of the
redemption price. Upon conversion the Corporation shall make no payment or
adjustment on account of dividends accrued or in arrears on shares of
Series A surrendered for conversion; provided, however, that any holder who
converts his shares of
<PAGE>
Series A after the record date for any quarterly
dividend payment on shares of Series A but prior to such quarterly dividend
payment date shall nonetheless be entitled to receive any such quarterly
dividend.
The Common Stock issuable upon conversion of shares of Series A shall be
Common Stock, $.125 par value, as constituted at the date hereof, except as
otherwise provided in division (E) of subparagraph (c) of this paragraph
(6).
(b) Method of Conversion. In order to convert shares of Series A into
Common Stock, the holder thereof shall surrender the certificate or
certificates for such shares of Series A, duly endorsed to the Corporation
or in blank, at the office of any Transfer Agent for Series A (or at such
other place as may be designated by the Corporation) shall give written
notice to the Corporation at said office that he elects to convert said
shares of Series A, and shall state in writing therein the name or names in
which he wishes the certificate or certificates for shares of Common Stock
to be issued. As soon as practicable thereafter, the Corporation shall
issue or deliver at said office to the person for whose account such shares
of Series A were so surrendered, or to his nominee or nominees,
certificates for the number of full shares of Common Stock to which he
shall be entitled as aforesaid, together with a cash adjustment in respect
of any fraction of a share as hereinafter provided if not convertible into
a number of whole shares. Subject to the following provisions of this
paragraph (6), such conversion shall be deemed to have been made as of the
date of such surrender of certificates for the shares of Series A to be
converted; and the person or persons entitled to receive Common Stock
issuable upon the conversion of such shares of Series A shall be treated
for all purposes as the record holder or holders of such Common Stock on
such date.
(c) Adjustments of Conversion Price. The Conversion Price of shares of
Series A shall be subject to adjustment from time to time as follows:
(A) If the Corporation shall sell for cash any shares of its Common Stock
or any securities convertible into Common Stock (other than Excluded Stock,
as defined in division (B) of this subparagraph (c)) without consideration
or for a consideration per share less than the Conversion Price in effect
immediately prior to the sale of such Stock, the Conversion Price in effect
immediately prior to each such sale shall forthwith (except as provided
below in this division (A) and in division (K) of this subparagraph (c)) be
adjusted to a price equal to a quotient obtained by dividing:
(i) an amount equal to the sum of
(x) the total number of shares of Common Stock outstanding (excluding
Excluded Stock but including the shares of Common Stock deemed to have
been issued pursuant to subdivision (2) of this division (A)) immediately
prior to such sale multiplied by the Conversion Price in effect
immediately prior to such sale, plus
(y) the consideration received by the Corporation upon such sale, plus
(z) the excess of (1) the aggregate consideration received by the
Corporation upon all issuances of Common Stock after the date of first
issuance of shares of Series A (other than Excluded Stock) over (2) the
Conversion Price in effect at the time of the respective issuance
multiplied by the number of shares so issued; provided, however, that
such excess shall not be taken into account to the extent such excess has
previously been taken into account in adjusting such Conversion Price
pursuant hereto,
by
(ii) the total number of shares of Common Stock outstanding (excluding
Excluded Stock but including the shares of Common Stock deemed to have
been issued pursuant to subdivision (2) of this division (A)) immediately
after the sale of such Common Stock;
provided, however, that such adjustment shall be made only if and to the
extent that the aforesaid quotient shall be less than the Conversion Price
in effect immediately prior to such sale.
For the purposes of any adjustment of the Conversion Price pursuant to this
subparagraph (c), the following provision shall be applicable:
(1) In the case of the sale of Common Stock (or convertible or
exchangeable securities referred to in subdivision (2) of this Division
(A)), the consideration shall be deemed to be the amount of cash paid
therefor without deduction for any discounts, commissions or other
expenses allowed, paid or incurred by the Corporation for any
underwriting or otherwise in connection with the issuance and sale
thereof.
<PAGE>
(2) In the case of the sale of any securities (other than shares of
Series A) by their terms convertible into or exchangeable for Common
Stock:
(i) the aggregate number of shares of Common Stock initially
deliverable upon conversion of or in exchange for any such convertible
or exchangeable securities shall be considered to have been issued at
the time such securities were issued and for a consideration equal to
the consideration received by the Corporation for any such securities,
plus the additional consideration, if any, to be received by the
Corporation upon the conversion or exchange thereof (the consideration
in each case to be determined in the same manner as provided in
subdivision (1) above);
(ii) in the event that, after the sale of any such securities, (x) a
change shall be made in the price or rate at which such securities
which remain outstanding shall be convertible or exchangeable so that
the aggregate number of shares of Common Stock thereafter deliverable
shall decrease and (y) such increase in price or decrease in shares
deliverable is in accordance with the provisions of such securities
(other than provisions designed to protect against dilution such as
this subparagraph (c)), the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have been obtained if such
decreased number of shares had been the number of shares of Common
Stock initially deliverable upon the conversion or exchange of such
outstanding securities; and
(iii) on the termination of such right to convert or exchange, the
Conversion Price shall forthwith be readjusted to such Conversion Price
as would have been obtained had the adjustment made upon the sale of
such securities been made upon the basis of the issuance or sale of
only the number of shares of Common Stock actually issued upon the
conversion or exchange of such securities.
(B) "Excluded Stock" shall mean:
(1) Common Stock or stock convertible into Common Stock sold pursuant to
any present or future stock option plan, stock purchase plan, or other
benefit plan for employees (including officers) of the Corporation or of
its subsidiaries or present or future agreement to substitute options for
stock of the Corporation for existing stock options of a business
acquired by or merged into or consolidated with the Corporation;
(2) Shares of Common Stock sold upon exercise of warrants issued pursuant
to the terms of the Warrant Agreement, dated as of May 1, 1959, between
the Corporation and Morgan Guaranty Trust Company.
(C) If the number of shares of Common Stock outstanding at any time is
increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then, on the day
following the date fixed for the determination of holders of Common Stock
entitled to receive such stock dividend, subdivision or split-up, the
number of shares of Common Stock issuable on conversion of each share of
Series A shall be increased in proportion to such increase in outstanding
shares of Common Stock and the Conversion Price shall be correspondingly
decreased.
(D) If the number of shares of Common Stock outstanding at any time is
decreased by a combination of the outstanding shares of Common Stock, then,
on the day following the effective date of such combination, the number of
shares issuable on conversion of each share of Series A shall be decreased
in proportion to such decrease in outstanding shares and the Conversion
Price shall be correspondingly increased.
(E) In the case this Corporation shall be recapitalized or shall be
consolidated with or merged into, or shall sell or transfer its property
and assets as, or substantially as, an entirety, proper provisions shall be
made as part of the terms of such recapitalization, consolidation, merger,
sale or transfer whereby the holder of any shares of the Series A stock
convertible into Common Stock outstanding immediately prior to such event
shall thereafter be entitled to such conversion rights with respect to
securities of the Corporation resulting from such recapitalization,
consolidation or merger, or to which such sale or transfer shall be made,
as shall be substantially equivalent to the conversion rights, if any,
provided for with respect to such Series A stock; provided, however, that
no such provisions with respect to conversion rights need be made if (i)
provision is made for the redemption of such Series A stock in accordance
with redemption provisions then applicable to such Series A stock, and (ii)
the effect of such redemption is to terminate such conversion rights prior
to such recapitalization, consolidation, merger, sale or transfer.
(F) All calculations under this paragraph (6) shall be made to the nearest
cent or to the nearest one one hundredth (1/100) of a share, as the case
may be.
<PAGE>
(G) Whenever the Conversion Price shall be adjusted as in this subparagraph
(c) provided, the Corporation shall forthwith file, at each office
designated for the conversion of shares of Series A as provided in this
paragraph (6), a statement, signed by the Chairman of the Board, President
or any Vice President of the Corporation, and by its Treasurer, Assistant
Treasurer, Secretary or an Assistant Secretary, showing in detail the facts
requiring such adjustment and the Conversion Price that shall be in effect
after such adjustment. The Corporation shall also cause a notice setting
forth any such adjustment to be sent by mail, first class, postage prepaid,
to each registered holder of shares of Series A at his address appearing on
the stock register.
(H) Irrespective of any adjustments in the Conversion Price, certificates
representing shares of Series A theretofore or thereafter issued which
express the initial Conversion Price shall nevertheless be valid for all
purposes.
(I) No fraction of a share of Common Stock shall be issued upon any
conversion but, in lieu thereof, there shall be paid an amount in cash
equal to the same fraction of the market value of a full share of Common
Stock. For such purpose, the market value of a share of Common Stock shall
be the last recorded sale price of such a share on the New York Stock
Exchange on the day immediately preceding the date upon which such shares
are surrendered for conversion or, if there be no such recorded sale price
on such day, the last quoted bid price per share on the Common Stock on
such Exchange on the close of trading on such date. If the Common Stock
shall not at the time be dealt in on the New York Stock Exchange, such
market value shall be the prevailing market value of the Common Stock on
any other securities exchange, or in the open market, as determined by this
Corporation, which determination shall be conclusive.
(J) The Corporation shall at all times reserve and keep available, out of
its treasury stock or authorized and unissued stock, or both, solely for
the purpose of effecting the conversion of shares of Series A, such number
of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all shares of Series A from time to time
outstanding.
(K) Anything in this paragraph (6) to the contrary notwithstanding, the
Corporation shall not be required to make any adjustment of the Conversion
Price in any case in which the amount by which such Conversion Price would
be reduced in accordance with the foregoing provisions would be less than
$1.00 per share of Common Stock, but in such case any adjustment that would
otherwise be required then to be made will be carried forward and made at
the time and together with the next subsequent adjustment which, together
with any and all such adjustments so carried forward, shall amount to $1.00
or more per share of Common Stock. In the event of any stock dividend,
subdivision, split-up or combination of shares of Common Stock, said amount
of $1.00 (as theretofore decreased or increased) shall be proportionately
decreased or increased.
(L) No adjustment of the conversion rate shall be made by reason of the
issuance of Common Stock or stock convertible into Common Stock in exchange
for property or services. Any Common Stock or stock convertible into Common
Stock issued in a tax free reorganization shall be deemed to be issued
solely for property.
(7) Voting. Subject to the provisions of any applicable law, or of the
By-laws of the Corporation as from time to time amended, with respect to
the fixing of a record date for the determination of stockholders entitled
to vote, at each meeting of stockholders each holder of record of shares of
Series A shall be entitled to one vote per share on each matter on which
the holders of record of the Common Stock shall be entitled to vote, voting
together with the holders of record of the Common Stock and any other
series of Preferred Stock entitled to vote with the Common Stock and not by
classes, and each such record holder of shares of Series A shall be
entitled to notice of any such meeting of stockholders. However, so long as
any shares of Series A are outstanding, if at the time of any annual
meeting of stockholders for the election of directors a default in
preferred dividends (as defined in this paragraph (7)) shall exist, the
holders of shares of Preferred Stock, voting separately as a class without
regard to series (with each share of Preferred Stock being entitled to one
vote), shall have the right to elect two members of the Board of Directors
of the Corporation. The holders of Common Stock shall not be entitled to
vote in the election of the two directors so to be elected by the holders
of shares of Preferred Stock. Any director elected by the holders of shares
of Preferred Stock, voting as a class as aforesaid, shall continue to serve
as such director for the full term for which he shall have been elected
notwithstanding that prior to the end of such term a default in preferred
dividends shall cease to exist. If, prior to the end of the term of any
director elected by the holders of the Preferred Stock, voting as a class
as aforesaid, a vacancy in the office of such director shall occur by
reason of death, resignation, removal or disability, or for any other
cause, such vacancy shall be filled for the unexpired term in the manner
provided in the By-laws of the Corporation, provided that, if such vacancy
shall be filled by election by the stockholders at a meeting thereof, the
right to fill such vacancy shall be vested in the holders of Preferred
Stock, voting as a class as aforesaid, unless, in any such case, no default
in preferred dividends shall exist at the time of such election.
For the purposes of this paragraph (7), a default in preferred dividends
shall be deemed to have occurred whenever the amount of
<PAGE>
dividends in
arrears upon any series of Preferred Stock shall be equivalent to six full
quarter-yearly dividends or more and, having so occurred, such default in
preferred dividends shall be deemed to exist thereafter until all accrued
dividends on all shares of Preferred Stock then outstanding shall have been
paid to the end of the last preceding quarterly dividend period. Nothing
herein contained shall be deemed to prevent an amendment of the By-laws of
the Corporation, in the manner therein provided, which shall increase the
number of directors so as to provide as additional places on the Board of
Directors either of or both the directorships to be filled by the two
directors so to be elected by the holders of the Preferred Stock or to
prevent any other change in the number of directors of the Corporation.
(8) Reacquired Shares. Shares of Series A which have been issued and
reacquired by the Corporation through redemption or purchase, or which have
been converted into shares of any other class or classes of stock of the
Corporation, shall upon compliance with any applicable provision of the
General Corporation Law of the State of Delaware have the status of
authorized and unissued shares of Preferred Stock and may be reissued as
part of the Series A or as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors.
(9) Restricted Activities. (a) So long as any shares of Series A are
outstanding,
(A) without the written consent or affirmative vote of the holders of at
least two-thirds of the aggregate number of shares of Series A at the time
outstanding given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class, the Corporation shall not
amend, alter or repeal the preferences, special rights or other powers of
the Series A shares so as to affect the rights of the holders of Series A
shares adversely (and the authorization and issuance of any class of stock
prior to the Series A shares as to either dividends or liquidation
preferences shall be deemed to affect the Series A shares adversely);
(B) without the written consent or affirmative vote of the holders of at
least a majority of the aggregate number of shares of Preferred Stock at
the time outstanding given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class, without regard to
series, the Corporation will not (i) increase the authorized amount of
Preferred Stock beyond the 5,000,000 shares presently authorized or (ii)
create any other class or classes of stock ranking on a parity with the
Preferred Stock as to either dividends or liquidation preferences; and
(C) except as expressly set forth in division (B) of this subparagraph (a),
nothing in this paragraph (9) shall be deemed to restrict the issuance of
any additional shares of Series A or of any series of Preferred Stock which
may be issued in the future.
(b) For the purposes of this paragraph (9) any class or classes of stock
of the Corporation shall be deemed to rank,
(A) prior to the Series A shares either as to dividends or upon
liquidation, if the holders of such class or classes shall be entitled to
the receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or priority to
the holders of the Series A shares;
(B) on a parity with the Preferred Stock either as to dividends or upon
liquidation, whether or not the dividend rates, dividend payment dates, or
redemption or liquidation prices per share thereof be different from those
of the Preferred Stock, if the holders of such class or classes of stock
shall be entitled to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the case may be, in
proportion to their respective dividend rates or liquidation prices,
without preference or priority one over the other as between the holders of
such class or classes of stock and the holders of the Preferred Stock; and
(C) junior to the Preferred Stock either as to dividends or upon
liquidation if the rights of the holders of such class or classes shall be
subject or subordinate to the rights of the holders of the Preferred Stock
in respect of the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be.
<PAGE>
$1.40 CONVERTIBLE PREFERRED DIVIDEND STOCK, SERIES B
(PREFERRED ONLY AS TO DIVIDENDS)
RESOLVED that, pursuant to the authority expressly granted to and vested
in the Board of Directors by the provisions of the Certificate of
Incorporation of the Corporation, the Board of Directors hereby creates a
series of the Preferred Stock of the Corporation to consist of 4,856,628
shares, and the Board of Directors hereby fixes the voting powers,
designation, preferences and relative, participating option or other
special rights, and the qualifications, limitations or restrictions
thereof, of the shares of such series (in addition to the designation,
preferences and relative, participating, optional or other special rights,
and the qualifications, limitations or restrictions thereof, set forth in
the Certificate of Incorporation which are applicable to the Preferred
Stock of all series) as follows:
(1) Designation. The designation of said series of Preferred Stock
created by this resolution shall be "$1.40 Convertible Preferred Dividend
Stock, Series B (preferred only as to dividends)" (hereinafter called
"Series B").
(2) Dividend Rate. The dividend rate of the shares of Series B shall be
$1.40 per share per annum, cumulative (entitled to "full cumulative
dividends", as defined in the Certificate of Incorporation) from July 1,
1968, payable quarterly on the first days of January, April, July and
October in each year. Holders of shares of Series B shall not be entitled
to any dividends, whether payable in cash, property or stock, in excess of
the "full cumulative dividends" at said rate.
(3) Optional Redemption. Subject to paragraph (4) below, shares of
Series B shall not be redeemable by the Corporation for any purpose until
after December 31, 1973. After December 31, 1973, shares of Series B may be
redeemed upon not less than 40 days (but not more than 90 days) notice to
the holders of Series B shares and otherwise on the terms and conditions
specified in paragraph (g) of Article FOURTH of the Certificate of
Incorporation at forty-five dollars ($45.00) per share plus an amount equal
to "accrued dividends" (as defined in the Certificate of Incorporation).
After December 31, 1973, redemption may be made as to all or any part of
such shares from time to time outstanding.
(4) Rights on Liquidation, Dissolution, Winding Up. In the event of any
liquidation, dissolution or winding up of the Corporation, the holders of
shares of Series B then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders an
amount equal to "accrued dividends" (as defined in the Certificate of
Incorporation) and thereafter to share ratably with the holders of Common
Stock (and any other class or series having a similar right) in all
distributions of assets as they would have shared if all of the shares of
Series B outstanding on the date of distribution had been converted into
Common Stock immediately before such distribution.
(5) Sinking Fund. Shares of Series B are not subject or entitled to the
benefit of a sinking fund.
(6) Conversion of Convertible Preferred Stock Into Common Stock.
(a) Conversion Right. Shares of Series B shall be convertible at the
option of the holder thereof at any time into shares of Common Stock at a
conversion price of $50.00 per share based upon a value of $45.00 per share
of Series B stock so that initially Series B shares shall be convertible at
the rate of nine tenths of one share (0.9) of Common Stock for each one (1)
share of Series B stock. Such price of $50.00 per Common share (based on
$45.00 per share of Series B stock), adjusted as hereinafter provided, is
hereinafter referred to as the "Conversion Price". Such right of conversion
shall cease and terminate, as to shares of Series B called for redemption,
at the close of business on the tenth business day prior to the date fixed
for redemption, unless default shall be made in the payment of the
redemption price. Upon conversion the Corporation shall make no payment or
adjustment on account of dividends accrued or in arrears on shares of
Series B surrendered for conversion; provided, however, that any holder who
converts his shares of Series B after the record date for any quarterly
dividend payment on shares of Series B but prior to such quarterly dividend
payment date shall nonetheless be entitled to receive any such quarterly
dividend.
The Common Stock issuable upon conversion of shares of Series B shall be
Common Stock, $.125 par value, as constituted at the date hereof, except as
otherwise provided in division (E) of subparagraph (c) of this paragraph
(6).
(b) Method of Conversion. In order to convert shares of Series B into
Common Stock, the holder thereof shall surrender the certificate or
certificates for such shares of Series B, duly endorsed to the Corporation
or in blank, at the office of any Transfer Agent for Series B (or at such
other place as may be designated by the Corporation); shall give written
notice to the Corporation at said office that he elects to convert said
shares of Series B, and shall state in writing therein the name or names in
which he wishes the certificate or
<PAGE>
certificates for shares of Common Stock
to be issued. As soon as practicable thereafter, the Corporation shall
issue or deliver at said office to the person for whose account such shares
of Series B were so surrendered, or to his nominee or nominees,
certificates for the number of full shares of Common Stock to which he
shall be entitled as aforesaid, together with a cash adjustment in respect
of any fraction of a share as hereinafter provided if not convertible into
a number of whole shares. Subject to the following provisions of this
paragraph (6), such conversion shall be deemed to have been made as of the
date of such surrender of certificates for the shares of Series B to be
converted; and the person or persons entitled to receive Common Stock
issuable upon the conversion of such shares of Series B shall be treated
for all purposes as the record holder or holders of such Common Stock on
such date.
(c) Adjustments of Conversion Price. The Conversion Price of shares of
Series B shall be subject to adjustment from time to time as follows:
(A) If the Corporation shall sell for cash any shares of its Common Stock
or any securities convertible into Common Stock (other than Excluded Stock,
as defined in division (B) of this subparagraph (c)) without consideration
or for a consideration per share less than the Conversion Price in effect
immediately prior to the sale of such Stock, the Conversion Price in effect
immediately prior to each such sale shall forthwith (except as provided
below in this division (A) and in division (K) of this subparagraph (c)) be
adjusted to a price equal to a quotient obtained by dividing:
(i) an amount equal to the sum of
(x) the total number of shares of Common Stock outstanding (excluding
Excluded Stock but including the shares of Common Stock deemed to have
been issued pursuant to subdivision (2) of this division (A)) immediately
prior to such sale multiplied by the Conversion Price in effect
immediately prior to such sale, plus
(y) the consideration received by the Corporation upon such sale, plus
(z) the excess of (1) the aggregate consideration received by the
Corporation upon all issuances of Common Stock after the date of first
issuance of shares of Series B (other than Excluded Stock) over (2) the
Conversion Price in effect at the time of the respective issuance
multiplied by the number of shares so issued; provided, however, that
such excess shall not be taken into account to the extent such excess has
previously been taken into account in adjusting such Conversion Price
pursuant hereto,
by
(ii) the total number of shares of Common Stock outstanding (excluding
Excluded Stock but including the shares of Common Stock deemed to have
been issued pursuant to subdivision (2) of this division (A)) immediately
after the sale of such Common Stock;
provided, however, that such adjustment shall be made only if and to the
extent that the aforesaid quotient shall be less than the Conversion Price
in effect immediately prior to such sale.
For the purposes of any adjustment of the Conversion Price pursuant to this
subparagraph (c), the following provisions shall be applicable:
(1) In the case of the sale of Common Stock (or convertible or
exchangeable securities referred to in subdivision (2) of this division
(A)), the consideration shall be deemed to be the amount of cash paid
therefor without deduction for any discounts, commissions or other
expenses allowed, paid or incurred by the Corporation for any
underwriting or otherwise in connection with the issuance and sale
thereof.
(2) In the case of the sale of any securities (other than shares of
Series A or Series B) by their terms convertible into or exchangeable for
Common Stock:
(i) the aggregate number of shares of Common Stock initially deliverable
upon conversion of or in exchange for any such convertible or
exchangeable securities shall be considered to have been issued at the
time such securities were issued and for a consideration equal to the
consideration received by the Corporation for any such securities, plus
the additional consideration, if any, to be received by the Corporation
upon the conversion or exchange thereof (the consideration in each case
to be determined in the same manner as provided in subdivision (1),
above;
<PAGE>
(ii) in the event that, after the sale of any such securities, (x) a
change shall be made in the price or rate at which such securities which
remain outstanding shall be convertible or exchangeable so that the
aggregate number of shares of Common Stock thereafter deliverable shall
decrease and (y) such increase in price or decrease in shares deliverable
is in accordance with the provisions of such securities (other than
provisions designed to protect against dilution such as this subparagraph
(c)), the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained if such decreased number of
shares had been the number of shares of Common Stock initially
deliverable upon the conversion or exchange of such outstanding
securities; and
(iii) on the termination of such right to convert or exchange, the
Conversion Price shall forthwith be readjusted to such Conversion Price
as would have been obtained had the adjustment made upon the sale of such
securities been made upon the basis of the issuance or sale of only the
number of shares of Common Stock actually issued upon the conversion or
exchange of such securities.
(B) "Excluded Stock" shall mean:
(1) Common Stock or stock convertible into Common Stock sold pursuant to
any present or future stock option plan, stock purchase plan, or other
benefit plan for employees (including officers) of the Corporation or of
its subsidiaries or present or future agreement to substitute options for
stock of the Corporation for existing stock options of a business
acquired by or merged into or consolidated with the Corporation;
(2) Shares of Common Stock sold upon exercise of warrants issued pursuant
to the terms of the Warrant Agreement, dated as of May 1, 1959, between
the Corporation and Morgan Guaranty Trust Company.
(C) If the number of shares of Common Stock outstanding at any time is
increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then, on the day
following the date fixed for the determination of holders of Common Stock
entitled to receive such stock dividend, subdivision or split-up, the
number of shares of Common Stock issuable on conversion of each share of
Series B shall be increased in proportion to such increase in outstanding
shares of Common Stock and the Conversion Price shall be correspondingly
decreased.
(D) If the number of shares of Common Stock outstanding at any time is
decreased by a combination of the outstanding shares of Common Stock, then,
on the day following the effective date of such combination, the number of
shares issuable on conversion of each share of Series B shall be decreased
in proportion to such decrease in outstanding shares and the Conversion
Price shall be correspondingly increased.
(E) In the case this Corporation shall be recapitalized or shall be
consolidated with or merged into, or shall sell or transfer its property
and assets as, or substantially as, an entirety, proper provisions shall be
made as part of the terms of such recapitalization, consolidation, merger,
sale or transfer whereby the holder of any shares of the Series B stock
convertible into Common Stock outstanding immediately prior to such event
shall thereafter be entitled to such conversion rights with respect to
securities of the Corporation resulting from such recapitalization,
consolidation or merger, or to which such sale or transfer shall be made,
as shall be substantially equivalent to the conversion rights provided for
with respect to such Series B stock; provided, however, that no such
provisions with respect to conversion rights need be made if (i) provision
is made for the redemption of such Series B stock in accordance with
redemption provisions then applicable to such Series B stock, and (ii) the
effect of such redemption is to terminate such conversion rights prior to
such recapitalization, consolidation, merger, sale or transfer.
(F) All calculations under this paragraph (6) shall be made to the nearest
cent or to the nearest one one hundredth (1/100) of a share, as the case
may be.
(G) Whenever the Conversion Price shall be adjusted as in this subparagraph
(c) provided, the Corporation shall forthwith file, at each office
designated for the conversion of shares of Series B as provided in this
paragraph (6), a statement, signed by the Chairman of the Board, President
or any Vice President of the Corporation, and by its Treasurer, Assistant
Treasurer, Secretary or an Assistant Secretary, showing in detail the facts
requiring such adjustment and the Conversion Price that shall be in effect
after such adjustment. The Corporation shall also cause a notice setting
forth any such adjustment to be sent by mail, first class, postage prepaid,
to each registered holder of shares of Series B at his address appearing on
the stock register.
(H) Irrespective of any adjustments in the Conversion Price, certificates
representing shares of Series B theretofore or thereafter issued which
express the initial Conversion Price shall nevertheless be valid for all
purposes.
<PAGE>
(I) No fraction of a share of Common Stock shall be issued upon any
conversion but, in lieu thereof, there shall be paid an amount in cash
equal to the same fraction of the market value of a full share of Common
Stock. For such purpose, the market value of a share of Common Stock shall
be the last recorded sale price of such a share on the New York Stock
Exchange on the day immediately preceding the date upon which such shares
are surrendered for conversion or, if there be no such recorded sale price
on such day, the last quoted bid price per share on the Common Stock on
such Exchange on the close of trading on such date. If the Common Stock
shall not at the time be dealt in on the New York Stock Exchange, such
market value shall be the prevailing market value of the Common Stock on
any other securities exchange, or in the open market, as determined by this
Corporation, which determination shall be conclusive.
(J) The Corporation shall at all times reserve and keep available, out of
its treasury stock or authorized and unissued stock, or both, solely for
the purpose of effecting the conversion of shares of Series B, such number
of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all shares of Series B from time to time
outstanding.
(K) Anything in this paragraph (6) to the contrary notwithstanding, the
Corporation shall not be required to make any adjustment of the Conversion
Price in any case in which the amount by which such Conversion Price would
be reduced in accordance with the foregoing provisions would be less than
$1.00 per share of Common Stock, but in such case any adjustment that would
otherwise be required then to be made will be carried forward and made at
the time and together with the next subsequent adjustment which, together
with any and all such adjustments so carried forward, shall amount to $1.00
or more per share of Common Stock. In the event of any stock dividend,
subdivision, split-up or combination of shares of Common Stock, said amount
of $1.00 (as theretofore decreased or increased) shall be proportionately
decreased or increased.
(L) No adjustment of the conversion rate shall be made by reason of the
issuance of Common Stock or stock convertible into Common Stock in exchange
for property or services. Any Common Stock or stock convertible into Common
Stock issued in a tax free reorganization shall be deemed to be issued
solely for property.
(7) Voting. Subject to the provisions of any applicable law, or of the
By-laws of the Corporation as from time to time amended, with respect to
the fixing of a record date for the determination of stockholders entitled
to vote, at each meeting of stockholders each holder of record of shares of
Series B shall be entitled to one vote per share on each matter on which
the holders of record of the Common Stock shall be entitled to vote, voting
together with the holders of record of the Common Stock and any other
series of Preferred Stock entitled to vote with the Common Stock and not by
classes, and each such record holder of shares of Series B shall be
entitled to notice of any such meeting of stockholders. However, so long as
any shares of Series B are outstanding, if at the time of any annual
meeting of stockholders for the election of directors a default in
preferred dividends (as defined in this paragraph (7)) shall exist, the
holders of shares of Preferred Stock voting separately as a class without
regard to series (with each share of Preferred Stock being entitled to one
vote), shall have the right to elect two members of the Board of Directors
of the Corporation. The holders of Common Stock shall not be entitled to
vote in the election of the two directors so to be elected by the holders
of shares of Preferred Stock. Any director elected by the holders of shares
of Preferred Stock, voting as a class as aforesaid, shall continue to serve
as such director for the full term for which he shall have been elected
notwithstanding that prior to the end of such term a default in preferred
dividends shall cease to exist. If, prior to the end of the term of any
director elected by the holders of the Preferred Stock, voting as a class
as aforesaid, a vacancy in the office of such director shall occur by
reason of death, resignation, removal or disability, or for any other
cause, such vacancy shall be filled for the unexpired term in the manner
provided in the By-laws of the Corporation, provided that, if such vacancy
shall be filled by election by the stockholders at a meeting thereof, the
right to fill such vacancy shall be vested in the holders of Preferred
Stock, voting as a class as aforesaid, unless, in any such case, no default
in preferred dividends shall exist at the time of such election.
For the purposes of this paragraph (7), a default in preferred dividends
shall be deemed to have occurred whenever the amount of dividends in
arrears upon any series of Preferred Stock shall be equivalent to six full
quarter-yearly dividends or more and, having so occurred, such default in
preferred dividends shall be deemed to exist thereafter until all accrued
dividends on all shares of Preferred Stock then outstanding shall have been
paid to the end of the last preceding quarterly dividend period. Nothing
herein contained shall be deemed to prevent an amendment of the By-laws of
the Corporation, in the manner therein provided, which shall increase the
number of directors so as to provide as additional places on the Board of
Directors either of or both the directorships to be filled by the two
directors so to be elected by the holders of the Preferred Stock or to
prevent any other change in the number of directors of the Corporation.
(8) Reacquired Shares. Shares of Series B which have been issued and
reacquired by the Corporation through redemption or purchase, or which have
been converted into shares of any other class or classes of stock of the
Corporation, shall upon compliance with any applicable provision of the
General Corporation Law of the State of Delaware have the status of
authorized and unissued
<PAGE>
shares of Preferred Stock and may be reissued as
part of the Series B or as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors.
(9) Restricted Activities. (a) So long as any shares of Series B are
outstanding,
(A) without the written consent or affirmative vote of the holders of at
least two-thirds of the aggregate number of shares of Series B at the time
outstanding given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class, the Corporation shall not
amend, alter or repeal the preferences, special rights or other powers of
the Series B shares so as to affect the rights of the holders of Series B
shares adversely (and the authorization and issuance of any class of stock
prior to the Series B shares as to dividend preference shall be deemed to
affect the Series B shares adversely);
(B) without the written consent or affirmative vote of the holders of at
least a majority of the aggregate number of shares of Preferred Stock at
the time outstanding given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class, without regard to
series, the Corporation will not (i) increase the authorized amount of
Preferred Stock beyond the 15,000,000 shares presently authorized or (ii)
create any other class or classes of stock ranking on a parity with the
Preferred Stock as to dividend preference; and
(C) except as expressly set forth in division (B) of this subparagraph (a),
nothing in this paragraph (9) shall be deemed to restrict the issuance of
any additional shares of Series B or of any series of Preferred Stock which
may be issued in the future.
(b) For the purposes of this paragraph (9) any class or classes of stock
of the Corporation shall be deemed to rank,
(A) prior to the Series B shares as to dividends, if the holders of such
class or classes shall be entitled to the receipt of dividends in
preference or priority to the holders of the Series B shares;
(B) on a parity with the Series B shares as to dividends whether or not the
dividend rates or dividend payment dates thereof be different from those of
the Series B, if the holders of such class or classes of stock shall be
entitled to the receipt of dividends in proportion to their respective
dividend rates without preference or priority one over the other as between
the holders of such class or classes of stock and the holders of the Series
B shares; and
(C) junior to the Series B shares as to dividends if the rights of the
holders of such class or classes shall be subject or subordinate to the
rights of the holders of the Series B shares in respect of the receipt of
dividends.
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the
Corporation be and it hereby is created, and that the designation and
amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such
series, and the qualifications, limitations or restrictions thereof are as
follows:
(1) Designation and Amount. The shares of such series shall be
designated as "Series C Junior Participating Preferred Stock" ("Series C
Stock") and the number of shares constituting such series shall be
2,000,000.
(2) Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares
of Series C Stock with respect to dividends, the holders of shares of
Series C Stock shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of January, April,
July and October in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of a
share of Series C Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $10.00 or (b) subject to the provision
for adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock, par value $.125 per share, of the Corporation
(the "Common Stock") since the immediately preceding Quarterly Dividend
Payment Date, or,
<PAGE>
with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of
Series C Stock. In the event the Corporation shall at any time after
September 27, 1995 (the "Rights Declaration Date") (i) declare any dividend
on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the amount to which
holders of shares of Series C Stock were entitled immediately prior to such
event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series C Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share
on the Series C Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series C Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series C Stock, unless the
date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or unless the
date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series C Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on the shares
of Series C Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series C Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no
more than 30 days prior to the date fixed for the payment thereof.
(3) Voting Rights. The holders of shares of Series C Stock shall have
the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series C Stock shall entitle the holder thereof to 100 votes on
all matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the number of votes per share to which holders of shares of Series C
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares
of Series C Stock and the holders of shares of Common Stock and any other
series of Preferred Stock entitled to vote with the Common Stock shall vote
together as one class on all matters submitted to a vote of stockholders of
the Corporation.
(C) (i) If at the time of any annual meeting of stockholders for the
election of directors a default in preferred dividends (as hereinafter
defined) shall exist, the holders of shares of Preferred Stock voting
separately as a class without regard to series (with each share of
Preferred Stock being entitled to that number of votes to which it is
entitled on matters submitted to stockholders generally, or, if it is not
entitled to vote with respect to such matters, to one vote), shall have
the right to elect two members of the Board of Directors of the
Corporation. The holders of Common Stock shall not be entitled to vote in
the election of the two directors so to be elected by the holders of
shares of Preferred Stock. Any director elected by the holders of shares
of Preferred Stock, voting as a class as aforesaid, shall continue to
serve as such director for the full term for which he shall have been
elected notwithstanding that prior to the end of such term a default in
preferred dividends shall cease to exist. If, prior to the end of the
term of any director elected by the holders of the Preferred Stock,
voting as a class as aforesaid, a vacancy in the office of such director
shall occur by reason of death, resignation, removal or disability, or
for any other cause, such vacancy shall be filled for the unexpired term
in the manner provided in the By-laws of the Corporation, provided that,
if such vacancy shall be filled by election by the stockholders at a
meeting thereof, the right to fill such vacancy shall be vested in the
holders of Preferred Stock, voting as a class as aforesaid, unless, in
any such case, no default in preferred dividends shall exist at the time
of such election.
<PAGE>
(ii) For the purposes of paragraph (C)(i) of this Section 3, a default
in preferred dividends shall be deemed to have occurred whenever the
amount of dividends in arrears upon any series of Preferred Stock shall
be equivalent to six full quarterly dividends or more and, having so
occurred, such default in preferred dividends shall be deemed to exist
thereafter until all accrued dividends on all shares of Preferred Stock
then outstanding shall have been paid to the end of the last preceding
quarterly dividend period. Nothing herein contained shall be deemed to
prevent an amendment of the By-laws of the Corporation, in the manner
therein provided, which shall increase the number of directors so as to
provide as additional places on the Board of Directors either or both the
directorships to be filled by the two directors so to be elected by the
holders of the Preferred Stock or to prevent any other change in the
number of directors of the Corporation.
(D) Except as set forth herein or required by law, holders of Series C
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
(4) Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series C Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Series C Stock outstanding shall have
been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Stock;
(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C Stock, except
dividends paid ratably on the Series C Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C Stock, provided
that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series C Stock;
(iv) purchase or otherwise acquire for consideration any shares of
Series C Stock, or any shares of stock ranking on a parity with the
Series C Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment
among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
(5) Reacquired Shares. Any shares of Series C Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares
of Preferred Stock and may be reissued as part of a new series of Preferred
Stock to be created by resolution or resolutions of the Board of Directors,
subject to the conditions and restrictions on issuance set forth herein.
(6) Liquidation, Dissolution or Winding Up. (A) Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to
the Series C Stock unless, prior thereto, the holders of shares of Series C
Stock shall have received $100.00 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series C Liquidation
Preference"). Following the payment of the full amount of the Series C
Liquidation Preference, no additional distributions shall be made to the
holders of shares of Series C Stock unless, prior thereto, the holders of
shares of Common Stock (which expression shall include, for the purposes
only of this Section 6, any series of the Corporation's Preferred Stock
ranking on a parity with the Common Stock upon liquidation, dissolution or
winding up) shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series C
Liquidation Preference by
<PAGE>
(ii) 100 (as appropriately adjusted as set forth
in subparagraph C below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of
the full amount of the Series C Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series C Stock and
Common Stock, respectively, holders of Series C Stock and holders of shares
of Common Stock shall receive their ratable and proportionate share of the
remaining assets to be distributed in the ratio of the Adjustment Number to
one (1) with respect to such Series C Stock and Common Stock, on a per
share basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series C Liquidation Preference and the
liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series C Stock, then such remaining assets
shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment
in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then
in each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(7) Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the
shares of Series C Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then
in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series C Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(8) Redemption. The shares of Series C Stock may be purchased by the
Corporation at such times and on such terms as may be agreed to between the
Corporation and the selling stockholder, subject to any limitations which
may be imposed by law or this Certificate of Incorporation.
(9) Ranking. The Series C Stock shall rank junior to all other series of
the Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets, unless the terms of any such series shall provide
otherwise. Notwithstanding the foregoing, upon liquidation, dissolution or
winding up, the Series C Stock shall rank senior in accordance with Section
6 hereof to any series of the Corporation's Preferred Stock ranking on a
parity with the Common Stock upon liquidation, dissolution or winding up.
(10) Amendment. The Certificate of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or change
the powers, preferences or special rights of the Series C Stock so as to
affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding shares of Series C Stock, voting
separately as a class.
(11) Fractional Shares. Series C Stock may be issued in fractions of a
share which shall entitle the holder, in proportion to such holder's
fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series C Stock.
<PAGE>
SERIES D CUMULATIVE PREFERRED STOCK
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the
Corporation be and it hereby is created, and that the designation and
amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such
series, and the qualifications, limitations or restrictions thereof are as
follows:
(1) Designation and Amount. The shares of such series shall be
designated as Series D Cumulative Preferred Stock ("Series D") and the
number of shares constituting such series shall be 3,000.
(2) Dividend Rate. The dividend rate of the shares of Series D shall be
$5,920 per share per annum, cumulative (entitled to "full cumulative
dividends," as defined in the Certificate of Incorporation) from the date
shares of Series D are first issued, payable quarterly on the first days of
January, April, July and October in each year. Holders of shares of Series
D shall not be entitled to any dividends, whether payable in cash, property
or stock, in excess of the "full cumulative dividends" at said rate.
(3) Optional Redemption. On and after December 31, 2017, shares of
Series D may be redeemed at the election of the Corporation or at the
election of any holder of shares of Series D (with respect to Series D
shares owned by such holder) in all cases at a price of $100,000 per share
plus an amount equal to "accrued dividends" (as defined in the Certificate
of Incorporation) (i) in the case of a redemption at the election of the
Corporation, upon not less than 40 days (but not more than 90 days) notice
by the Corporation to the holders of Series D shares and subject to the
terms and conditions specified in paragraph (g) of Article Fourth of the
Certificate of Incorporation or (ii) in the case of a redemption at the
election of a holder of shares of Series D, upon not less than 40 days (but
not more than 90 days) notice by such holder to the Corporation, subject to
any limitations which may be imposed by law or the Certificate of
Incorporation.
(4) Rights on Liquidation, Dissolution, Winding Up. In the event of any
liquidation, dissolution or winding up of the Corporation, the holders of
shares of Series D then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders an
amount equal to $100,000 per share plus an amount equal to "accrued
dividends" (as defined in the Certificate of Incorporation).
(5) Sinking Fund. Shares of Series D are not subject or entitled to the
benefit of a sinking fund.
(6) No Conversion Rights. Shares of Series D shall not be convertible
into shares of Common Stock.
(7) Voting. Subject to the provisions of any applicable law, the holders
of record of shares of Series D shall have no voting rights except as set
forth in this paragraph (7) or in paragraph (9). If at the time of any
annual meeting of stockholders for the election of directors a default in
preferred dividends (as hereinafter defined), shall exist, the holders of
shares of Preferred Stock voting separately as a class without regard to
series (with each share of Preferred Stock being entitled to one vote),
shall have the right to elect two members of the Board of Directors of the
Corporation. The holders of Common Stock shall not be entitled to vote in
the election of the two directors so to be elected by the holders of shares
of Preferred Stock. Any director elected by the holders of shares of
Preferred Stock, voting as a class as aforesaid, shall continue to serve as
such director for the full term for which he shall have been elected
notwithstanding that prior to the end of such term a default in preferred
dividends shall cease to exist. If, prior to the end of the term of any
director elected by the holders of the Preferred Stock, voting as a class
as aforesaid, a vacancy in the office of such director shall occur by
reason of death, resignation, removal or disability, or for any other
cause, such vacancy shall be filled for the unexpired term in the manner
provided in the By-laws of the Corporation, provided that, if such vacancy
shall be filled by election by the stockholders at a meeting thereof, the
right to fill such vacancy shall be vested in the holders of Preferred
Stock, voting as a class as aforesaid, unless, in any such case, no default
in preferred dividends shall exist at the time of such election.
For the purposes of this paragraph (7), a default in preferred dividends
shall be deemed to have occurred whenever the amount of dividends in
arrears upon any series of Preferred Stock shall be equivalent to six full
quarter-yearly dividends or more and, having so occurred, such default in
preferred dividends shall be deemed to exist thereafter until all accrued
dividends on all shares of Preferred Stock then outstanding shall have been
paid to the end of the last preceding quarterly dividend period. Nothing
herein contained shall be deemed to prevent an amendment of the By-laws of
the Corporation, in the manner therein provided, which shall increase the
number of directors so as to provide as additional places on the Board of
Directors either of or both the directorships to be filled by the two
directors so to be elected by the holders of the Preferred Stock or to
prevent any other change in the number of directors of the Corporation.
<PAGE>
(8) Reacquired Shares. Any shares of Series D which have been purchased,
redeemed or otherwise reacquired by the Corporation in any manner
whatsoever, shall upon compliance with any applicable provision of the
General Corporation Law of the State of Delaware have the status of
authorized and unissued shares of Preferred Stock and may be reissued as
part of Series D or as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors.
(9) Restricted Activities. (a) So long as any shares of Series D are
outstanding, (A) without the written consent or affirmative vote of the
holders of at least two-thirds of the aggregate number of shares of Series
D at the time outstanding given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class, the
Corporation shall not amend, alter or repeal the preferences, special
rights or other powers of the Series D shares so as to affect the rights of
the holders of Series D shares adversely (and the authorization and
issuance of any class of stock prior to the Series D shares as to dividend
preference shall be deemed to affect the Series D shares adversely);
(B) without the written consent or affirmative vote of the holders of at
least a majority of the aggregate number of shares of Preferred Stock at
the time outstanding given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class, without regard to
series, the Corporation will not (i) increase the authorized amount of
Preferred Stock beyond the 15,000,000 shares presently authorized or (ii)
create any other class or classes of stock ranking on a parity with the
Preferred Stock as to dividend preference; and
(C) except as expressly set forth in division (B) of this subparagraph
(a), nothing in this paragraph (9) shall be deemed to restrict the issuance
of any additional shares of Series D or of any series of Preferred Stock
which may be issued in the future.
(b) For the purposes of this paragraph (9) any class or classes of
stock of the Corporation shall be deemed to rank,
(A) prior to the Series D shares as to dividends, if the holders of such
class or classes shall be entitled to the receipt of dividends in
preference or priority to the holders of the Series D shares; and
(B) on a parity with the Series D shares as to dividends whether or not
the dividend rates or dividend payment dates thereof be different from
those of Series D, if the holders of such class or classes of stock shall
be entitled to the receipt of dividends in proportion to their respective
dividend rates without preferences or priority one over the other as
between the holders of such class or classes of stock and the holders of
the Series D shares.
(10) Fractional Shares. Series D may be issued in fractions of a share
which shall entitle the holder, in proportion to such holder's fractional
shares, to receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Series D.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The private property of the stockholders of the Corporation shall
not be subject to the payment of corporate debts to any extent whatsoever.
SEVENTH: Notwithstanding any other provisions of this Certificate of
Incorporation or the By-laws of the Corporation to the contrary, no action
required to be taken or which may be taken at any annual or special meeting
of stockholders of the Corporation may be taken by written consent without
a meeting, except:
(a) any action which may be taken solely upon the vote or consent of
holders of Preferred Stock or any series thereof, or
(b) any action taken upon the signing of a consent in writing, setting
forth the action so taken, by all the stockholders of the Corporation
entitled to vote thereon.
EIGHTH: The Board of Directors shall have power, without stockholder
action:
1. To make By-laws for the Corporation, and to amend, alter or repeal
any By-laws.
2. To set apart out of any of the funds of the Corporation available
for dividends a reserve or reserves for any proper purpose and to abolish
any such reserve or reserves.
<PAGE>
The powers and authorities herein conferred upon the Board of Directors
are in furtherance and not in limitation of those conferred by the laws of
the State of Delaware. In addition to the powers and authorities herein or
by statute expressly conferred upon it, the Board of Directors may exercise
all such powers and do all such acts and things as may be exercised or done
by the Corporation, subject, nevertheless, to the provisions of the laws of
the State of Delaware, of this Certificate of Incorporation and of the By-
laws of the Corporation.
NINTH: The Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws
of the State of Delaware at the time in force may be added or inserted in
this Certificate of Incorporation, in the manner now or hereafter
prescribed by law; and all rights, preferences and privileges of whatsoever
nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the right
reserved in this Article NINTH.
TENTH: (a) The number of directors constituting the whole Board shall be
as fixed from time to time by vote of a majority of the whole Board,
provided, however, that the number of directors shall not be less than
three and that the number shall not be reduced so as to shorten the term of
any director at the time in office. The number of directors constituting
the whole Board shall hereafter be fourteen until otherwise fixed by a
majority of the whole Board in accordance with the preceding sentence.
(b) The Board of Directors shall be divided into three classes,
designated Class I, Class II and Class III, as nearly equal in number as
the then total number of directors constituting the whole Board permits,
with the term of office of one class expiring each year. At the annual
meeting of stockholders in 1984, directors of Class I shall be elected to
hold office for a term expiring at the next succeeding annual meeting,
directors of Class II shall be elected to hold office for a term expiring
at the second succeeding annual meeting, and directors of Class III shall
be elected to hold office for a term expiring at the third succeeding
annual meeting. At each annual meeting of stockholders the successors to
the class of directors whose term shall then expire shall be elected to
hold office for a term expiring at the third succeeding annual meeting. Any
vacancies in the Board of Directors for any reasons, and any newly created
directorships resulting from any increase in the directors, may be filled
by the Board of Directors, acting by a majority of the directors then in
office, or by a sole remaining director. Any directors so chosen shall hold
office until the next election of the class for which such directors shall
have been chosen and until their successors shall be elected and qualified,
subject, however, to prior death, resignation, retirement, disqualification
or removal from office. Any newly created or eliminated directorships
resulting from an increase or decrease in the authorized number of
directors shall be apportioned by the Board of Directors among the three
classes of directors so as to maintain such classes as nearly equal as
possible. Notwithstanding any other provision of this Article TENTH, and
except as otherwise required by law, whenever the holders of any one or
more series of Preferred Stock shall have the right, voting separately as a
class, to elect one or more directors of the Corporation, the term of
office, the filling of vacancies and other features of such directorships
shall be governed by the terms of this Certificate of Incorporation
applicable thereto.
ELEVENTH: 1. The affirmative vote of the holders of not less than two-
thirds of the outstanding shares of "Voting Stock" (as hereinafter defined)
shall be required for the approval or authorization of any "Business
Combination" (as hereinafter defined) of the Corporation or any subsidiary
of the Corporation with any "Related Person" (as hereinafter defined),
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified by law, in any agreement with any national
securities exchange or otherwise; provided, however, that the two-thirds
voting requirement shall not be applicable and such Business Combination
shall require only such affirmative vote as is required by law, any
agreement with any national securities exchange or otherwise if:
(a) The "Continuing Directors" (as hereinafter defined) of the
Corporation by at least a majority vote have expressly approved such
Business Combination either in advance of or subsequent to such
Related Person becoming a Related Person; or
(b) All of the following conditions are met:
(i) The cash or "Fair Market Value" (as hereinafter defined) as of the
date of the consummation of the Business Combination (the "Combination
Date") of the property, securities or other consideration to be received
per share by holders of a particular class or series of capital stock, as
the case may be, of the Corporation in the Business Combination is not
less than the highest of:
(A) the highest per share price (including brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by or on behalf of the
Related Person in acquiring beneficial ownership of any of its holdings
of such class or series of capital stock of the Corporation (i) within
the two-year period immediately prior to the Combination Date or (ii) in
the transaction or series of transactions in which the Related Person
became a Related Person, whichever is higher; or
<PAGE>
(B) the Fair Market Value per share of the shares of capital stock
being acquired in the Business Combination (i) as at the Combination Date
or (ii) the date on which the Related Person became a Related Person,
whichever is higher; or
(C) in the case of Common Stock, the per share book value of the Common
Stock as reported at the end of the fiscal quarter immediately prior to
the Combination Date, and in the case of Preferred Stock, the highest
preferential amount per share to which the holders of shares of such
class or series of Preferred Stock would be entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, regardless of whether the Business
Combination to be consummated constitutes such an event.
The provisions of this paragraph 1(b)(i) shall be required to be met
with respect to every class or series of outstanding capital stock,
whether or not the Related Person has previously acquired any shares of a
particular class or series of capital stock. In all above instances,
appropriate adjustments shall be made for recapitalizations and for stock
dividends, stock splits and like distributions; and
(ii) The consideration to be received by holders of a particular class
or series of capital stock shall be in cash or in the same form as
previously has been paid by or on behalf of the Related Person in
connection with its direct or indirect acquisition of beneficial
ownership of shares of such class or series of stock. If the
consideration so paid for any such share varies as to form, the form of
consideration for such shares shall be either cash or the form used to
acquire beneficial ownership of the largest number of shares of such
class or series of capital stock previously acquired by the Related
Person.
2. For purposes of this Article ELEVENTH:
(a) The term "Business Combination" shall mean any (i) merger or
consolidation of the Corporation or a subsidiary of the Corporation with
a Related Person or any other corporation which is or after such merger
or consolidation would be an "Affiliate" or "Associate" (as hereinafter
defined) of a Related Person, (ii) sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one transaction or a series of
transactions) with any Related Person or any affiliate of any Related
Person, of all or any "Substantial Part" (as hereinafter defined) of the
assets of the Corporation or of a subsidiary of the Corporation to a
Related Person or any Affiliate or Associate of any Related Person, (iii)
adoption of any plan or proposal for the liquidation or dissolution of
the Corporation proposed by or on behalf of a Related Person or any
Affiliate or Associate of any Related Person, (iv) sale, lease, exchange
or other disposition, including without limitation a mortgage or other
security device, of all or any Substantial Part of the assets of a
Related Person or any Affiliate or Associate of any Related Person to the
Corporation or a subsidiary of the Corporation, (v) issuance or pledge of
securities of the Corporation or a subsidiary of the Corporation to or
with a Related Person or any Affiliate or Associate of any Related
Person, (vi) reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation or any other transaction
that would have the effect, either directly or indirectly, of increasing
the proportionate share of any class of equity or convertible securities
of the Corporation or any subsidiary of the Corporation which is directly
or indirectly beneficially owned by any Related Person or any Affiliate
or Associate of any Related Person, and (vii) agreement, contract or
other arrangement providing for any of the transactions described in this
definition of Business Combination.
(b) The term "person" shall mean any individual, firm, corporation or
other entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of
Voting Stock of the Corporation.
(c) The term "Related Person" shall mean any person (other than the
Corporation, or any Subsidiary and other than any profit-sharing,
employee stock ownership or other employee benefit plan of the
Corporation or any Subsidiary or any trustee of or fiduciary with respect
to any such plan when acting in such capacity) who or which:
(i) is the beneficial owner (as hereinafter defined) of ten percent
(10%) or more of the Voting Stock;
(ii) is an Affiliate or Associate of the Corporation and at any time
within the two-year period immediately prior to the date in question
was the beneficial owner of ten percent (10%) or more of the Voting
Stock; or
(iii) is at such time an assignee of or has otherwise succeeded to
the beneficial ownership of any shares of Voting Stock which were at
any time within the two-year period immediately prior to such time
beneficially owned by any Related Person, if
<PAGE>
such assignment or
succession shall have occurred in the course of a transaction or series
of transactions not involving a public offering within the meaning of
the Securities Act of 1933.
(d) A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly;
(ii) which such person or any of its Affiliates or Associates has,
directly or indirectly, (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (b) the right to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
(e) For the purposes of determining whether a person is a Related
Person pursuant to sub-paragraph (c) of this paragraph 2, the number of
shares of Voting Stock deemed to be outstanding shall include shares
deemed owned through application of subparagraph (d) of this paragraph 2
but shall not include any other shares of Voting Stock which may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(f) The terms "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
January 1, 1984.
(g) The term "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition
of Related Person set forth in subparagraph (c) of this paragraph 2, the
term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.
(h) The term "Continuing Director" means any member of the Board of
Directors, while such person is a member of the Board of Directors, who
is not an Affiliate, Associate or a representative of the Related Person
and was a member of the Board of Directors prior to the time that the
Related Person became a Related Person, and any successor of a Continuing
Director, while such successor is a member of the Board of Directors, who
is not an Affiliate, Associate or a representative of the Related Person
and is recommended or elected to succeed a Continuing Director by a
majority of Continuing Directors.
(i) The term "Substantial Part" shall mean more than twenty percent
(20%) of the Fair Market Value, as determined by a majority of the
Continuing Directors, of the total consolidated assets of the Corporation
and its Subsidiaries taken as a whole as of the end of its most recent
fiscal year ended prior to the time the determination is being made.
(j) For the purposes of paragraph 1(b)(i) of this Article ELEVENTH, the
term "other consideration to be received" shall include, without
limitation, capital stock retained by the stockholders.
(k) The term "Voting Stock" shall mean all of the outstanding shares of
Common Stock and the outstanding shares of Preferred Stock entitled to
vote on each matter on which the holders of record of Common Stock shall
be entitled to vote, and each reference to a proportion of shares of
Voting Stock shall refer to such proportion of the votes entitled to be
cast by such shares voting as one class.
(l) The term "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the Composite Tape for
the New York Stock Exchange - Listed Stocks, or, if such stock is not
quoted on the Composite Tape, on the New York Stock Exchange, or, if such
stock is not listed on such Exchange, on the principal United States
securities exchange registered under the Securities Exchange Act of 1934
on which such stock is listed, or, if such stock is not listed on any
such stock exchange, the highest closing bid quotation with respect to a
share of such stock during the 30-day period preceding the date in
question on the National Association of Securities Dealers, Inc.
Automated Quotations System or any successor system then in use, or if no
such quotations are available, the fair market value on the date in
question of a share of such stock as determined in good faith by a
majority of the Continuing Directors;
<PAGE>
and (ii) in the case of property
other than cash or stock, the fair market value of such property on the
date in question as determined in good faith by a majority of the
Continuing Directors.
(m) A Related Person shall be deemed to have acquired a share of the
Voting Stock of the Corporation at the time when such Related Person
became the beneficial owner thereof. If a majority of the Continuing
Directors is not able to determine the price at which a Related Person
has acquired a share of Voting Stock of the Corporation, such price shall
be deemed to be the Fair Market Value of the shares in question at the
time when the Related Person became the beneficial owner thereof. With
respect to shares owned by Affiliates, Associates or other persons whose
ownership is attributed to a Related Person under the foregoing
definition of Related Person, the price deemed to be paid therefor by
such Related Person shall be the price paid upon the acquisition thereof
by such Affiliate, Associate or other person, or, if such price is not
determinable by a majority of the Continuing Directors, the Fair Market
Value of the shares in question at the time when the Affiliate, Associate
or other such person became the beneficial owner thereof.
3. The fact that any Business Combination complies with the provisions
of paragraph 1(b) of this Article ELEVENTH shall not be construed to impose
any fiduciary duty, obligation or responsibility on the Board of Directors,
or any member thereof, to approve such Business Combination or recommend
its adoption or approval to the stockholders of the Corporation, nor shall
such compliance limit, prohibit or otherwise restrict in any manner the
Board of Directors, or any member thereof, with respect to evaluations of
or actions and responses taken with respect to such Business Combination.
TWELFTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director; provided, however, that this Article TWELFTH
shall not eliminate or limit the liability of a director to the extent
provided by applicable law (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of
Delaware (as in effect and as hereafter amended), or (iv) for any
transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law is amended after approval by the
stockholders of this Article TWELFTH to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of each director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation
Law, as so amended. Neither the amendment nor repeal of this Article
TWELFTH nor the adoption of any provision of this Certificate of
Incorporation inconsistent with this Article TWELFTH shall eliminate or
reduce the effect of this Article TWELFTH in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article
TWELFTH, would accrue or arise, prior to such amendment, repeal or adoption
of an inconsistent provision.
IN WITNESS WHEREOF, said TEXTRON INC. has caused this certificate to be
signed and attested and the corporate seal to be hereunto affixed this 27th
day of January, 1998.
[SEAL]
WAYNE W. JUCHATZ
Executive Vice President
and General Counsel
Attest:
FREDERICK K. BUTLER
Vice President and Secretary
Exhibit 10.17
12/13/96
HERBERT L. HENKEL
Retention Award
At its December 12, 1996 meeting, the Organization and Compensation
Committee of the Board of Directors approved a 15,000 share retention
award for Herbert L. Henkel (the "Executive"). The terms of the award
are as follows:
The Executive will receive the cash equivalent of 15,000 shares
of Textron common stock provided he remains in Textron's employment
through January 1, 2002.
The cash payment will equal 15,000 times the average of the
composite closing prices (as reported on the New York Stock Exchange
consolidated tape) of Textron's common stock for the first ten trading
days following January 1, 2002. Such award shall be paid to the
Executive in a lump sum or in annual installments as may be determined
by the Organization and Compensation Committee of the Board of
Directors.
Except as otherwise provided herein, the Executive shall not be
entitled to receive such award if his employment with Textron ends for
any reason prior to January 1, 2002, provided that if the Executive's
employment ends prior to such date because of his disability or death,
the Executive or the Executive's estate may receive a pro-rata
portion of the award in the discretion of Textron's CEO.
Notwithstanding the above, if the Executive's employment
terminates at any time after a "change in control" (as defined in the
Textron 1994 Long-Term Incentive Plan), Textron shall, in lieu of the
above award, award to the Executive (or to the Executive's estate in
the event of his death prior to payment) upon such termination of
employment, a cash amount equal to 15,000 times the highest closing
price per share of Textron's common stock (as reported on the New York
Stock Exchange consolidated tape) during the 30 day period ending on
the date of such change in control.
Effective January 1, 1997, dividend equivalents shall be credited
to the Executive and such dividend equivalents are to be accounted for
as if reinvested in actual Textron common stock. Such dividend shares
shall be paid at the same time as the retention shares are paid only
if the retention shares are paid.
The number of retention shares awarded to the Executive hereunder
shall be proportionately adjusted for any increase of decrease in the
number of issued shares of Textron's common stock resulting from a
stock split, stock dividend or any other increase or decrease in such
shares effective without receipt of consideration by Textron.
Approved by the Organization and Compensation Committee of the Board
of Directors December 12, 1996.
/s/W. F. Wayland 12/13/96
W. F. Wayland
/s/Herbert L. Henkel 12/13/96
H. L. Henkel
EXHIBIT 10.19B
Description of Modified Pension Arrangement
Under an arrangement with Textron, Wayne W. Juchatz will be
credited with an additional 12 years of Textron service
under the Textron pension plan upon completing five years of
employment with Textron.
EXHIBIT 10.20B
Description of Stock Equivalent Grant
Under an arrangement with Textron, Stephen L. Key will be
paid the cash equivalent of 40,000 (on a post-split basis)
shares of Textron Common Stock following his retirement,
provided he retires from Textron at or after age 65.
Exhibit 10.21B
May 1, 1997
William F. Wayland
Executive Vice President Administration
and Chief Human Resource Officer
Textron Inc.
40 Westminster Street
Providence, RI 02903-2525
Dear Bill:
The purpose of this letter is to confirm our agreement
concerning your employment relationship with Textron and
your Employment Agreement dated January 1, 1989.
1. Effective July 1, 1997, your employment status
shall be converted into that of an employee-consultant
through the term of your Employment Agreement, which will
expire on December 31, 1999. Your rights and obligations as
an employee-consultant shall be as set forth in the
Employment Agreement except as specifically set forth
herein.
2. Pursuant to your Employment Agreement, your
compensation as an employee-consultant will be as follows:
(a) Base Pay: At the rate of $425,000 per annum.
(b) Annual Incentive Compensation: Your annual
incentive bonus will be $345,000 per
year.
(c) Performance Share Units: You will continue to be
eligible for payouts for the three-year cycles ending
December 31, 1997, 1998, and 1999. The discretionary
portion of your payout for each of these years will be
commensurate with payouts received by other Executive Vice
presidents at Textron; provided that the total amount of
your payout for any such year shall not exceed $631,000.
You will not be eligible to receive any additional
performance share unit awards.
(d) You will not be eligible to receive any
additional stock option awards.
3. You agree to assist in the identification and
recruitment of your successor and, upon the retention of
your successor, to use your best efforts to facilitate a
smooth and orderly transition of your responsibilities.
4. Unless otherwise agreed, you shall continue to
occupy your current office and perform your current duties
and responsibilities on a full-time basis until July 1,
1997. You shall relinquish your current titles and
responsibilities effective on such date. You will, as is
customary, be entitled to any or all of your office
furnishings should you so desire.
5. We agree that any internal or external
announcement concerning your change of status will be
coordinated and that no public announcement by either party
shall be made without the other party's consent, unless
required by law. It is, however, understood that an
announcement will be made as soon as practicable after both
parties have signed this letter.
6. Pursuant to your Employment Agreement, you will be
entitled to the following benefits:
(a) financial and tax planning (at Management
Committee rates);
(b) use of your current company car through the
term of the present lease; use of a new
company car thereafter; and eligibility to
purchase that car at the end of its lease at
the regular price and terms available to members
of the Management Committee;
(c) continued payment by Textron of dues for the
Hope Club and Rhode Island Country Club;
(d) annual physical examination;
(e) professional association dues, fees and
expenses held in your name, at company
expense, at current levels (to the extent
that such memberships do not preclude your
successor's membership in any such
organization);
(f) eligibility to participate in Textron's
matching gift program;
(g) office space and clerical support for consulting
duties;
(h) you will continue to be eligible to participate in the
Deferred Income Plan and the survivor Benefit Plan at the
three-times base salary level. Your retirement at the end
of 1999 shall be considered a "separation" as defined in
each of those plans.
7. Pursuant to Section 3.03 of the Supplemental Retirement
Plan and subject to the to the performance of your
obligations hereunder, the Company hereby agrees that you
will receive 100% of the benefit you would otherwise have
been entitled to under such plan had you reached the age of
65 on January 1, 2000.
8. During the term of your Employment Agreement, you agree
that:
(i) You will not, directly or indirectly, recruit any
employee of the Company or any affiliate of the
Company:
(ii) you will not, directly or indirectly, provide any
services (as an employee or otherwise) for any person,
firm or corporation that competes directly with the
Company or any affiliate of the Company; and
(iii) you will refrain from taking any action or making
any statements, written or oral, which disparage the
goodwill or reputation of the Company. Likewise, the
Company will refrain from taking any action or making any
statements, written or oral, which disparage you or
your reputation.
9. In consideration of paragraph 7 above, you agree not to
file against the Company or any affiliate of the Company,
their respective directors, officers, or employees, and you
release the same from, any and all claims and lawsuits
arising from your employment or termination including any
claim or lawsuit alleging (i) breach of contract, (ii)
wrongful termination, (iii) any unlawful or tortious acts,
or (iv) discrimination, including discrimination under the
Age Discrimination in Employment Act of 1967 or other
federal, state or local laws regarding employment
discrimination. This release shall not waive rights or
claims that may arise after the date of execution of this
letter.
10. You acknowledge that your acceptance of the terms of
this special arrangement is completely voluntary and you
have been offered no other inducements, promises, or
representations other than those included herein. You also
acknowledge that, as required by Law, you have been advised
to seek the advice of legal counsel prior to accepting this
agreement. You may accept the terms of this agreement any
time on or before May 22, 1997. You may withdraw your
acceptance within seven calendar days after the execution of
this agreement by providing written notification of such
withdrawal to Wayne Juchatz, and this acceptance shall not
be effective or enforceable until the seven day revocation
period has expired.
11. Your Employment Agreement as modified by this letter
constitutes the entire agreement of the parties on the
subject matter hereof, is intended to be binding on both
parties and supersedes any prior agreements or
understandings. All required approvals have been obtained.
Please indicate your agreement with the above by
signing and returning the enclosed copy of this letter.
Sincerely,
/s/James F. Hardymon
AGREED:
/s/William F. Wayland
(Signature)
Date: May 1, 1997
EXHIBIT 12.1
PARENT GROUP
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
(Unaudited)
(In millions except ratios)
<TABLE>
<CAPTION>
Year
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense (1) $ 129 $ 148 $178 $192 $218
Distributions on preferred securities of
subsidiary trust, net of income taxes 26 23 - - -
Estimated interest portion of rents 21 17 17 20 21
Total fixed charges $ 176 $ 188 $195 $212 $239
Income:
Income from continuing operations
before income taxes and distributions
on preferred securities of subsidiary
trust $ 948 $ 827 $690 $623 $470
Fixed charges (2) 150 165 195 212 239
Eliminate equity in undistributed pretax
income of finance subsidiaries (188) (259) (248) (225) (195)
Adjusted income $ 910 $ 733 $637 $610 $514
Ratio of income to fixed charges 5.17 3.90 3.27 2.88 2.15
</TABLE>
________________________
(1) Includes interest unrelated to borrowings of $12 million in 1997, $11
million in 1996, $23 million in 1995, $27 million in 1994 and $25 million
in 1993.
(2) Adjusted to exclude distributions on preferred securities of subsidiary
trust, net of income taxes in 1997 and 1996.
EXHIBIT 12.2
TEXTRON INC. INCLUDING ALL MAJORITY-OWNED SUBSIDIARIES
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
(Unaudited)
(In millions except ratios)
<TABLE>
<CAPTION>
Year
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense (1) $ 726 $ 731 $ 791 $ 651 $ 650
Distributions on preferred securities of
subsidiary trust, net of income taxes 26 23 - - -
Estimated interest portion of rents 39 35 34 36 38
Total fixed charges $ 791 $ 789 $ 825 $ 687 $ 688
Income:
Income from continuing operations
before income taxes and distributions
on preferred securities of subsidiary
trust $ 948 $ 827 $ 690 $ 623 $ 470
Fixed charges (2) 765 766 825 687 688
Adjusted income $1,713 $1,593 $1,515 $1,310 $1,158
Ratio of income to fixed charges 2.17 2.02 1.84 1.91 1.68
</TABLE>
________________________
(1) Includes interest unrelated to borrowings of $12 million in 1997, $11
million in 1996, $23 million in 1995, $27 million in 1994 and $25 million
in 1993.
(2) Adjusted to exclude distributions on preferred securities of subsidiary
trust, net of income taxes in 1997 and 1996.
<PAGE>
1997 TEXTRON ANNUAL REPORT
Business Segment Data
For a description of the businesses comprising each segment, see pages 58 and
59.
<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 $ 3,135 $2,703 $2,519 $ 325 $ 271 $ 245 10.4% 10.0% 9.7%
Automotive 2,127 1,627 1,534 150 146 135 7.1 9.0 8.8
Industrial 3,071 2,849 2,415 334 290 242 10.9 10.2 10.0
Finance 2,211 2,095 1,985 409 383 365 18.5 18.3 18.4
- ------------------------------------------------------------------------------------------------------------------------------
$10,544 $9,274 $8,453 1,218 1,090 987 11.6 11.8 11.7
============================================================------------------------------------------------------------------
Corporate expenses and other - net (141) (115) (119)
Interest expense - net (129) (148) (178)
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes* $ 948 $ 827 $ 690
=============================================================================================
</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 25.
<TABLE>
<CAPTION>
1997 REVENUES - $10.5 BILLION 1997 OPERATING INCOME - $1.2 BILLION
- -------------------------------------- ------------------------------------
[PIE CHART] [PIE CHART]
<S> <C> <C> <C>
AIRCRAFT 30% AIRCRAFT 27%
FINANCE 21% FINANCE 34%
AUTOMOTIVE 20% AUTOMOTIVE 12%
INDUSTRIAL 29% INDUSTRIAL 27%
</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 $ 2,007 $ 1,896 $ 1,782 $110 $119 $ 75 $ 71 $ 55 $ 50
Automotive 1,515 1,020 861 103 60 78 69 41 39
Industrial 2,530 2,415 2,335 150 127 99 99 102 81
Finance 11,910 11,409 10,816 46 34 23 23 21 20
- ------------------------------------------------------------------------------------------------------------------------------
Corporate, including investment
in discontinued operation
in 1996 and 1995 1,105 1,742 1,932 3 3 4 4 4 5
Eliminations (457) (247) (75) - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
$18,610 $18,235 $17,651 $412 $343 $279 $266 $223 $195
=============================================================================================================================
</TABLE>
Prior year amounts have been reclassified to conform to the current year's
segment presentation as more fully described on page 25.
24
<PAGE>
1997 TEXTRON ANNUAL REPORT
Management's Discussion and Analysis
Results of Operations Textron Inc.
1997 vs. 1996
REVENUES - Diluted earnings per share from continuing
operations in 1997 were $3.29, up 17% from the 1996
95 + 1% $ 8,453 amount of $2.81. Income from continuing operations in
96 +10% $ 9,274 1997 of $558 million was up 16% from $482 million for
97 +14% $10,544 1996. Revenues increased 14% to $10.5 billion in 1997
from $9.3 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.
- Operating income of Textron's four business
segments aggregated $1.2 billion in 1997, up 12% 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 11.6% in 1997
from 11.8% in 1996, due primarily to lower margins
95 +18% $2.40 associated with the Kautex acquisition.
96 +17% $2.81
97 +17% $3.29 - Corporate expenses and other - net increased in
1997 by $26 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.
1996 vs. 1995
- Diluted earnings per share from continuing
operations in 1996 were $2.81, up 17% from the 1995
amount of $2.40. Income from continuing operations in
1996 of $482 million was up 16% from $416 million for
1995. Revenues increased 10% to $9.3 billion in 1996
from $8.5 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.
- Operating income aggregated $1.1 billion in 1996,
up 10% 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.
25
<PAGE>
1997 TEXTRON ANNUAL REPORT
AIRCRAFT
1997 vs. 1996
AIRCRAFT
REVENUES The Aircraft segment's revenues and income increased
$432 million (16%) and $54 million (20%),
95 +10% $2,519 respectively, due primarily to higher results at
96 + 7% $2,703 Cessna Aircraft.
97 +16% $3,135
- 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 +24% $245 million), partially offset by lower revenues on the
96 +11% $271 V-22 program ($80 million) and lower foreign military
97 +20% $325 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
$184 million (7%) and $26 million (11%),
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.
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.
26
<PAGE>
1997 TEXTRON ANNUAL REPORT
INDUSTRIAL
INUSTRIAL 1997 vs. 1996
REVENUES
The Industrial segment's revenues increased $222
95 (16)% $2,415 million (8%). Income increased $44 million (15%),
96 +18 % $2,849 reflecting higher sales from both acquisitions and
97 + 8 % $3,071 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 $434 million (18%) and $48 million (20%),
respectively. These increases were due primarily to
95 (1)% $242 higher sales in the fastening systems business ($558
96 +20 % $290 million), reflecting the fourth quarter 1995
97 +15 % $334 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.
FINANCE
1997 vs. 1996
The Finance segment's revenues increased $116 million
FINANCE (6%), while income increased $26 million (7%).
REVENUES
- Avco Financial Services' (AFS) revenues and income
95 +19% $1,985 increased $93 million and $13 million, respectively.
96 + 6% $2,095 Revenues in its finance and related insurance
97 + 6% $2,211 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
OPERATING receivables ($186 million). The increase in
INCOME investment and other income was primarily
attributable to a $22 million gain on the sale of
95 +10% $365 certain underperforming branches in 1997, offset in
96 + 5% $383 part by a $7 million gain on the sale of its U.S.
97 + 7% $409 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).
27
<PAGE>
1997 TEXTRON ANNUAL REPORT
The proliferation of credit cards continues to
provide the consumer with an alternative source of
funds, and as a result, the increase in consumer debt
has continued to burden the consumer finance
customer, resulting in higher delinquencies and
charge-offs. This has been particularly true in the
U.S. where charge-offs have increased and receivables
outstanding have decreased. In order to make better
use of its capital resources, AFS has undertaken a
strategic review of its U.S. operations. This review,
which encompasses underperforming branches, started
in June 1997 and should be completed by year-end
1998. Each underperforming branch is being reviewed,
and when it is determined that a branch will not meet
certain profitability standards, it will be sold. It
is not anticipated that these actions will result in
any losses. Although the strategic review resulted in
47 branches being sold in 1997, AFS as part of its
normal operations opened 47 new branches in the U.S.
while closing 38 branches. At December 31, 1997, AFS
had 1,199 branches, of which 715 were in the U.S.
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.
- Textron Financial Corporation's (TFC) revenues
increased $23 million, due to a higher level of
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
fee income. Its income increased $13 million, due to
the higher revenues and a lower provision for loan
losses related to the real estate portfolio,
partially offset by growth in businesses with higher
operating expense ratios.
1996 vs. 1995
The Finance segment's revenues increased $110 million
(6%), while income increased $18 million (5%).
- 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).
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.
- TFC's revenues increased $14 million, 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 $7 million, due to
the higher revenues, partially offset by a higher
provision for loan losses, principally due to
charge-offs of nonperforming equipment loans.
28
<PAGE>
1997 TEXTRON ANNUAL REPORT
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 businesses involve consumer and
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
38. 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 46. In addition, at the end of
1997, the Parent Group and Finance Group have $311
million and $1.0 billion, respectively, available
for unsecured debt securities under shelf
registration statements with the Securities and
Exchange Commission, and for the Finance Group,
Canadian Provincial Security Exchanges. The
Finance Group also 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 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 23
companies for an aggregate cost of $1.3 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
29
<PAGE>
1997 TEXTRON ANNUAL REPORT
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 $69
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.
In 1997, Textron repurchased 5 million shares of
common stock, and there are approximately 8 million
shares remaining to be repurchased 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.
INTEREST RATE RISKS
FINANCIAL RISK
MANAGEMENT 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.
Not all interest sensitive assets and liabilities are
matched. Management continuously monitors this
situation to ensure that the net unmatched position
is within acceptable limits. If the unmatched
positions were to exceed the acceptable limits, then
corrective action would be implemented. 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 $19 million in 1997, $19 million
in 1996 and $13 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 61% at year-end 1997
(51% 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,
30
<PAGE>
1997 TEXTRON ANNUAL REPORT
Canadian dollar and French franc. The Finance Group's
primary exposures are the Canadian dollar, Australian
dollar, French franc, British pound and Hong Kong
dollar.
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.
The Finance Group funds non-U.S. dollar
receivables with debt denominated in the same
currency. However, the amount of the Finance Group's
non-U.S. dollar receivables generally exceed the
amount of debt denominated in that same currency. As
such, the effect of changing exchange rates on
foreign denominated assets and liabilities is
reflected within the translation adjustment in
stockholder's equity and is not part of income.
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, investments, 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.
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.
31
<PAGE>
1997 TEXTRON ANNUAL REPORT
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 $35 million - $45 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 3.4% of Textron's consolidated revenues
in 1997 and 4.7% 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, (iv) the
successful integration of companies acquired by
Textron and (v) changes in consumer debt levels. 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.
32
<PAGE>
1997 TEXTRON ANNUAL REPORT
REPORT OF
MANAGEMENT Management is responsible for the integrity and
objectivity of the financial data presented in this
annual report. The consolidated financial statements
have been prepared in conformity with generally
accepted accounting principles and include amounts
based on Management's best estimates and judgments.
The independent auditors, Ernst & Young LLP, have
audited the consolidated financial statements and
have considered the internal control structure to the
extent they believed necessary to support their
report, which appears below.
We conduct our business in accordance with the
standards outlined in the Textron Business Conduct
Guidelines which is communicated to all employees.
Honesty, integrity and high ethical standards are the
core values of how we conduct business. Every Textron
division prepares and carries out an annual
Compliance Plan to ensure these values and standards
are maintained. Our internal control structure is
designed to provide reasonable assurance, at
appropriate cost, that assets are safeguarded and
that transactions are properly executed and recorded.
The internal control structure includes, among other
things, established policies and procedures, an
internal audit function, and the selection and
training of qualified personnel. Textron financial
managers are responsible for implementing effective
internal control systems and monitoring their
effectiveness, as well as developing and executing an
annual internal control plan.
The Audit Committee of our Board of Directors,
on behalf of the stockholders, oversees management's
financial reporting responsibilities. The Audit
Committee, comprised of five directors who are not
officers or employees of the Company, meets
regularly with the independent auditors, management
and our internal auditors to review matters relating
to financial reporting, internal accounting controls
and auditing. Both the independent auditors and the
internal auditors have free and full access to
senior management and the Audit Committee.
/s/ James F. Hardymon /s/ Lewis B. Campbell
James F. Hardymon Lewis B. Campbell
Chairman and Chief President and Chief
Executive Officer Operating Officer
/s/ Stephen L. Key
Executive Vice President and Chief Financial Officer
January 27, 1998
- --------------------------------------------------------------------------------
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
33
<PAGE>
1997 TEXTRON ANNUAL REPORT
<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 $6,468
Finance revenues 2,211 2,095 1,985
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues 10,544 9,274 8,453
- ------------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 6,836 5,837 5,294
Selling and administrative 1,499 1,374 1,274
Interest 726 731 791
Provision for losses on collection of finance receivables 256 230 169
Other 279 275 235
- ------------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 9,596 8,447 7,763
- ------------------------------------------------------------------------------------------------------------------------------------
948 827 690
Pretax income of the Finance Group - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes and
distributions on preferred securities of subsidiary trust 948 827 690
Income taxes (364) (322) (274)
Distributions on preferred securities of subsidiary trust,
net of income taxes (26) (23) -
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 558 482 416
Discontinued operation, net of income taxes:
Income from operations - 16 63
Loss on disposal - (245) -
- ------------------------------------------------------------------------------------------------------------------------------------
- (229) 63
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 558 $ 253 $ 479
====================================================================================================================================
PER COMMON SHARE**:
BASIC:
INCOME FROM CONTINUING OPERATIONS $ 3.38 $ 2.87 $ 2.45
Discontinued operation - (1.36) .37
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 3.38 $ 1.51 $ 2.82
==========================================================================================================================
DILUTED:
INCOME FROM CONTINUING OPERATIONS $ 3.29 $ 2.81 $ 2.40
Discontinued operation - (1.34) .37
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 3.29 $ 1.47 $ 2.77
==========================================================================================================================
</TABLE>
*"Parent Group" includes all entities of Textron (primarily manufacturing) other
than its finance subsidiaries. The Parent Group's investment in Textron's
finance subsidiaries is reflected on a one-line basis under the equity method of
accounting. "Finance Group" consists of Textron's wholly-owned finance
subsidiaries, AFS and 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.
The fiscal year-end for the Finance Group is December 31 for all periods
presented.
See notes to the consolidated financial statements.
34
<PAGE>
1997 TEXTRON ANNUAL REPORT
<TABLE>
<CAPTION>
PARENT GROUP* FINANCE GROUP
- --------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Manufacturing sales $8,333 $7,179 $6,468 $ - $ - $ -
Finance revenues - - - 2,211 2,095 1,985
- --------------------------------------------------------------------------------------------------------------------------
Total revenues 8,333 7,179 6,468 2,211 2,095 1,985
- --------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 6,836 5,837 5,294 - - -
Selling and administrative 829 750 671 670 624 603
Interest 129 148 178 597 583 613
Provision for losses on collection of finance receivables - - - 256 230 169
Other - - - 279 275 235
- --------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 7,794 6,735 6,143 1,802 1,712 1,620
- ---------------------------------------------------------------------------------------------------------------------------
539 444 325 409 383 365
Pretax income of the Finance Group 409 383 365 - - -
- ----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes and
distributions on preferred securities of subsidiary trust 948 827 690 409 383 365
Income taxes (364) (322) (274) (156) (149) (142)
Distributions on preferred securities of subsidiary trust,
net of income taxes (26) (23) - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 558 482 416 253 234 223
Discontinued operation, net of income taxes:
Income from operations - 16 63 - - -
Loss on disposal - (245) - - - -
- ---------------------------------------------------------------------------------------------------------------------------
- (229) 63 - - -
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 558 $ 253 $ 479 $ 253 $ 234 $ 223
===========================================================================================================================
</TABLE>
*"Parent Group" includes all entities of Textron (primarily manufacturing) other
than its finance subsidiaries. The Parent Group's investment in Textron's
finance subsidiaries is reflected on a one-line basis under the equity method of
accounting. "Finance Group" consists of Textron's wholly-owned finance
subsidiaries, AFS and 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.
The fiscal year-end for the Finance Group is December 31 for all periods
presented.
See notes to the consolidated financial statements.
35
<PAGE>
1997 TEXTRON ANNUAL REPORT
<TABLE>
<CAPTION>
BALANCE SHEET
As of January 3, 1998 and December 28, 1996 CONSOLIDATED
-----------------------
(Dollars in millions) 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 87 $ 47
Investments 844 820
Receivables - net:
Finance 10,226 9,856
Commercial and U.S. government 920 882
- ---------------------------------------------------------------------------------------------------------
11,146 10,738
Inventories 1,349 1,192
Investments in Finance Group - -
Investment in discontinued operation - 770
Property, plant, and equipment - net 1,860 1,539
Goodwill - net 1,753 1,609
Other (including net prepaid income taxes) 1,571 1,520
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS $18,610 $18,235
=========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 963 $ 850
Accrued postretirement benefits other than pensions 799 817
Other accrued liabilities (including income taxes) 2,641 2,556
Debt 10,496 10,346
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 14,899 14,569
- ---------------------------------------------------------------------------------------------------------
TEXTRON - OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF SUBSIDIARY TRUST HOLDING SOLELY TEXTRON
JUNIOR SUBORDINATED DEBT SECURITIES 483 483
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock:
$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 $18,610 $18,235
=========================================================================================================
</TABLE>
*"Parent Group" includes all entities of Textron (primarily manufacturing) other
than its finance subsidiaries. The Parent Group's investment in Textron's
finance subsidiaries is reflected on a one-line basis under the equity method of
accounting. "Finance Group" consists of Textron's wholly-owned finance
subsidiaries, AFS and 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.
The fiscal year-end for the Finance Group is December 31 for all periods
presented.
See notes to the consolidated financial statements.
36
<PAGE>
1997 TEXTRON ANNUAL REPORT
<TABLE>
<CAPTION>
PARENT GROUP* FINANCE GROUP
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 30 $ 24 $ 57 $ 23
Investments - 6 844 814
Receivables - net:
Finance - - 10,226 9,860
Commercial and U.S. government 920 882 - -
- ------------------------------------------------------------------------------------------------------------------------------
920 882 10,226 9,860
Inventories 1,349 1,192 - -
Investments in Finance Group 1,620 1,600 - -
Investment in discontinued operation - 770 - -
Property, plant, and equipment - net 1,761 1,454 99 85
Goodwill - net 1,567 1,466 186 143
Other (including net prepaid income taxes) 1,311 1,263 498 484
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $8,558 $8,657 $11,910 $11,409
================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 812 $ 724 $ 152 $ 130
Accured postretirement benefits other than pensions 766 782 33 35
Other accrued liabilities (including income taxes) 2,048 1,978 830 805
Debt 1,221 1,507 9,275 8,839
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,847 4,991 10,290 9,809
- --------------------------------------------------------------------------------------------------------------------------------
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 1 1
Capital surplus 830 793 843 800
Retained earnings 3,362 2,969 819 787
Other (62) 7 (43) 12
- --------------------------------------------------------------------------------------------------------------------------------
4,167 3,795 1,620 1,600
Less cost of treasury shares 939 612 - -
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 3,228 3,183 1,620 1,600
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,558 $8,657 $11,910 $11,409
=================================================================================================================================
</TABLE>
*"Parent Group" includes all entities of Textron (primarily manufacturing) other
than its finance subsidiaries. The Parent Group's investment in Textron's
finance subsidiaries is reflected on a one-line basis under the equity method of
accounting. "Finance Group" consists of Textron's wholly-owned finance
subsidiaries, AFS and 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.
The fiscal year-end for the Finance Group is December 31 for all periods
presented.
See notes to the consolidated financial statements.
37
<PAGE>
1997 TEXTRON ANNUAL REPORT
<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 $ 558 $ 482 $ 416
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities:
Undistributed earnings of Finance Group - - -
Depreciation 266 223 195
Amortization 169 164 147
Provision for losses on receivables 258 233 172
Deferred income taxes 76 11 28
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 (95) (125) 25
Increase (decrease) in accounts payable 30 79 54
Increase (decrease) in accrued liabilities (86) 57 (96)
Other - net (68) (82) 35
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,063 976 908
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (288) (293) (188)
Proceeds from disposition of investments 402 204 96
Maturities and calls of investments 90 50 55
Finance receivables:
Originated or purchased (8,394) (6,890) (6,237)
Repaid or sold 7,708 6,310 5,731
Proceeds on sales of securitized assets 373 - -
Cash used in acquisitions (449) (224) (252)
Proceeds from sales of businesses 549 180 -
Capital expenditures (412) (343) (279)
Other investing activities - net 45 25 30
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (376) (981) (1,044)
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt 131 240 (253)
Proceeds from issuance of long-term debt 2,730 2,089 2,984
Principal payments on long-term debt (3,016) (2,438) (2,347)
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 - - -
Capital contributions to Finance Group - - -
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (647) (32) 171
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 40 (37) 35
Cash at beginning of year 47 84 49
- ----------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 87 $ 47 $ 84
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 735 $ 723 $ 765
Cash paid during the year for income taxes 266 278 276
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*"Parent Group" includes all entities of Textron (primarily manufacturing) other
than its finance subsidiaries. The Parent Group's investment in Textron's
finance subsidiaries is reflected on a one-line basis under the equity method of
accounting. "Finance Group" consists of Textron's wholly-owned finance
subsidiaries, AFS and 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.
The fiscal year-end for the Finance Group is December 31 for all periods
presented.
See notes to the consolidated financial statements.
38
<PAGE>
1997 TEXTRON ANNUAL REPORT
<TABLE>
<CAPTION>
PARENT GROUP* FINANCE GROUP
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 558 $ 482 $ 416 $ 253 $ 234 $ 223
Adjustment to reconcile income from continuing operations to
net cash provided by operating activities:
Undistributed earnings of Finance Group (32) (110) (106) - - -
Depreciation 243 202 175 23 21 20
Amortization 56 54 46 113 110 101
Provision for losses on receivables 2 3 3 256 230 169
Deferred income taxes 61 5 18 15 6 10
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 (29) (11) (1)
Increase (decrease) in accounts payable 70 66 58 (54) 20 (28)
Increase (decrease) in accrued liabilities (98) 70 (116) 12 (15) (9)
Other - net 8 (7) 61 (78) (75) (27)
- --------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 769 576 536 511 520 458
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments - (5) (9) (288) (288) (179)
Proceeds from disposition of investments 251 6 30 151 198 66
Maturities and calls of investments - - - 90 50 55
Finance receivables:
Originated or purchased - - - (8,394) (6,890) (6,237)
Repaid or sold - - - 7,712 6,314 5,762
Proceeds on sales of securitized assets - - - 373 - -
Cash used in acquisitions (364) (216) (212) (85) (8) (40)
Proceeds from sales of businesses 549 180 - - - -
Capital expenditures (366) (309) (256) (46) (34) (23)
Other investing activities - net 34 28 10 11 (3) 20
- --------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 104 (316) (437) (476) (661) (576)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt 4 (48) (15) 127 288 (238)
Proceeds from issuance of long-term debt 1,612 905 1,147 1,118 1,184 1,837
Principal payments on long-term debt (1,951) (1,226) (982) (1,065) (1,212) (1,365)
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 - - - (221) (124) (117)
Capital contributions to Finance Group (40) - - 40 - -
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (867) (292) (63) (1) 136 117
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 6 (32) 36 34 (5) (1)
Cash at beginning of year 24 56 20 23 28 29
- --------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 30 $ 24 $ 56 $ 57 $ 23 $ 28
==========================================================================================================================
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 140 $ 140 $ 161 $ 595 $ 583 $ 604
Cash paid during the year for income taxes 112 142 131 154 136 145
==========================================================================================================================
</TABLE>
*"Parent Group" includes all entities of Textron (primarily manufacturing) other
than its finance subsidiaries. The Parent Group's investment in Textron's
finance subsidiaries is reflected on a one-line basis under the equity method of
accounting. "Finance Group" consists of Textron's wholly-owned finance
subsidiaries, AFS and 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.
The fiscal year-end for the Finance Group is December 31 for all periods
presented.
See notes to the consolidated financial statements.
39
<PAGE>
1997 TEXTRON ANNUAL REPORT
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.
40
<PAGE>
1997 TEXTRON ANNUAL REPORT
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. See pages 58
and 59 for a description of Textron's principal
products. 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 - Consumer loans - North America
- Commercial loans - Asia/Pacific
- Western Europe
-----------------------------------------------------------------------------------------------------
</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.
Textron consists of two borrowing groups - the
Textron Parent Company Borrowing Group (Parent Group)
and Textron's finance subsidiaries (Finance Group).
The Parent Group consists of all entities of Textron
(primarily manufacturing) other than its wholly-owned
finance subsidiaries, which are included on a
one-line basis under the equity method of accounting.
The Finance Group consists of Avco Financial Services
(AFS) and 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 $170 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.
41
<PAGE>
1997 TEXTRON ANNUAL REPORT
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,
Friedr. Boesner GmbH and the stock of HFC of
Australia Ltd. for an aggregate of approximately $300
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. INVESTMENTS SECURITIES CLASSIFIED AS AVAILABLE FOR SALE ARE
REPORTED AT ESTIMATED FAIR VALUE. UNREALIZED GAINS
AND LOSSES RELATED TO THESE SECURITIES, NET OF
APPLICABLE INCOME TAXES, ARE REPORTED AS A SEPARATE
COMPONENT OF SHAREHOLDERS' EQUITY. NET REALIZED GAINS
OR LOSSES RESULTING FROM SALES OR CALLS OF
INVESTMENTS ARE INCLUDED IN REVENUES AND ARE NOT
SIGNIFICANT FOR ALL YEARS PRESENTED. THE COST OF
SECURITIES SOLD IS DETERMINED PRIMARILY USING THE
SPECIFIC IDENTIFICATION METHOD.
The amortized cost and estimated fair value of
investments at the end of 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
(In millions) COST GAINS LOSSES FAIR VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JANUARY 3, 1998
Securities available for sale:
Obligations of U.S. and foreign governments
and government agencies $240 $10 $1 $249
Public utility securities 41 1 - 42
Corporate securities 330 7 1 336
Mortgage-backed securities 195 2 - 197
Marketable equity securities 18 1 - 19
---------------------------------------------------------------------------------------------------
$824 $21 $2 843
====================================================================================
Other investments, at cost (estimated fair value: $1) 1
---------------------------------------------------------------------------------------------------
$844
===================================================================================================
December 28, 1996
Securities available for sale:
Obligations of U.S. and foreign governments
and government agencies $227 $10 $1 $236
Public utility securities 53 1 - 54
Corporate securities 315 4 2 317
Mortgage-backed securities 180 1 1 180
Marketable equity securities 23 2 - 25
---------------------------------------------------------------------------------------------------
$798 $18 $4 812
====================================================================================
Other investments, at cost (estimated fair value: $8) 8
---------------------------------------------------------------------------------------------------
$820
===================================================================================================
</TABLE>
42
<PAGE>
1997 TEXTRON ANNUAL REPORT
The amortized cost and estimated fair value of
debt securities at the end of 1997, grouped
by contractual maturity date, were as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
(In millions) COST FAIR VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in 1998 $143 $144
Due 1999 to 2002 254 259
Due 2003 to 2007 137 143
Due after 2007 77 81
- -----------------------------------------------------------------------------------------------------------------------------
611 627
--------------------------------------------------------------------------------------------------
Mortgage-backed securities 195 197
--------------------------------------------------------------------------------------------------
$806 $824
============================================================================================================================
</TABLE>
4. 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 (COMMERCIAL) OR THREE PAYMENTS (CONSUMER).
ACCRUAL OF INTEREST ON COMMERCIAL LOANS RESUMES
AND SUSPENDED INTEREST INCOME IS RECOGNIZED WHEN
LOANS BECOME CONTRACTUALLY CURRENT. INTEREST
INCOME ON DELINQUENT CONSUMER LOANS IS RECOGNIZED
WHEN COLLECTED.
FINANCE RECEIVABLES ARE WRITTEN OFF WHEN THEY ARE
DETERMINED TO BE UNCOLLECTIBLE, BUT IN ANY EVENT, ALL
CONSUMER RECEIVABLES FOR WHICH AN AMOUNT AGGREGATING
A FULL CONTRACTUAL PAYMENT HAS NOT BEEN RECEIVED FOR
SIX CONSECUTIVE MONTHS ARE WRITTEN OFF. FINANCE
RECEIVABLES, PRIMARILY COMMERCIAL FINANCE RECEIVABLES
AND CONSUMER REAL ESTATE LOANS, ARE WRITTEN DOWN TO
THE FAIR VALUE OF THE RELATED COLLATERAL (LESS
ESTIMATED COSTS TO SELL) WHEN THE COLLATERAL IS
REPOSSESSED OR WHEN NO PAYMENT HAS BEEN RECEIVED FOR
SIX MONTHS, UNLESS MANAGEMENT DEEMS THE LOANS
COLLECTIBLE. FORECLOSED REAL ESTATE LOANS 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.
The maximum term of consumer loans and retail
installment contracts is ten years, but approximately
90% of the contracts have terms of four years or
less. Consumer real estate loans have a maximum term
of 15 years. Nonearning consumer loans were $132
million at the end of 1997 ($141 million at the end
of 1996).
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 $92 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 $7.3 billion and $6.3 billion in 1997
and 1996, respectively. In the same periods, the
ratio of cash collections to average net receivables
was approximately 73% and 65%, respectively.
43
<PAGE>
1997 TEXTRON ANNUAL REPORT
<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>
CONSUMER:
Consumer loans $1,728 $1,193 $1,303 $1,202 $ 3,022 $ 3,206
Real estate loans 599 488 3,509 2,201 2,395 2,547
Retail installment contracts 1,074 434 425 511 1,422 1,209
- -----------------------------------------------------------------------------------------------------------------------------
3,401 2,115 5,237 3,914 6,839 6,962
--------------------------------------------------------------------------------------------------
COMMERCIAL:
Installment contracts 360 244 734 158 1,180 1,211
Real estate loans 57 54 236 2 345 402
Finance leases 291 245 517 130 923 847
Leveraged leases 10 33 570 283 330 327
Floorplan and other
receivables 820 157 284 66 1,195 673
- -----------------------------------------------------------------------------------------------------------------------------
1,538 733 2,341 639 3,973 3,460
--------------------------------------------------------------------------------------------------
$4,939 $2,848 $7,578 $4,553 10,812 10,422
===================================================================================================
Less allowance for credit
losses 315 293
Less finance-related
insurance reserves and claims 271 273
- -----------------------------------------------------------------------------------------------------------------------------
$10,226 $ 9,856
=============================================================================================================================
</TABLE>
Textron had both fixed-rate and variable-rate
loan commitments totaling $735 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.
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.
5. 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.
44
<PAGE>
1997 TEXTRON ANNUAL REPORT
6. 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.
7. 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 $ 844 $ 753
Machinery and equipment 2,843 2,450
- -------------------------------------------------------------------------------------------------------------------------------
3,687 3,203
Less accumulated depreciation 1,827 1,664
- -------------------------------------------------------------------------------------------------------------------------------
$1,860 $1,539
===============================================================================================================================
</TABLE>
8.GOODWILL GOODWILL IS AMORTIZED ON THE STRAIGHT-LINE
METHOD. GOODWILL RELATED TO MANUFACTURING
OPERATIONS IS AMORTIZED OVER 20 TO 40 YEARS AND
GOODWILL RELATED TO FINANCE SUBSIDIARIES GENERALLY
IS AMORTIZED OVER 25 YEARS. Accumulated amortization
of goodwill totaled $465 million at January 3, 1998
and $404 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.
45
<PAGE>
1997 TEXTRON ANNUAL REPORT
9. 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** 4,248 3,781
3.74% - 5.92%; due 1998 to 2002 1,917 1,181
6.00% - 6.99%; due 1998 to 2002 579 1,330
7.00% - 8.96%; due 1998 to 2001 1,603 1,595
9.01% - 10.86%; due 1998 28 29
Variable rate notes; due 1998 to 2001 (average rate - 6.11%) 900 923
- -----------------------------------------------------------------------------------------------------------------------------
Total Finance Group 9,275 8,839
- -----------------------------------------------------------------------------------------------------------------------------
Total debt $10,496 $10,346
=============================================================================================================================
</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 5.7%, 5.5%, and 6.3% at
year-end 1997, 1996, and 1995, respectively.
Comparable rates during the years 1997, 1996, and
1995 were 5.5%, 5.8%, and 6.4%, 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 1,300 1,321 1,701 420 285
- --------------------------------------------------------------------------------------------------------
$1,397 $1,379 $1,754 $558 $314
========================================================================================================
</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.
The Finance Group has lines of credit with
various banks aggregating $5.2 billion at year-end
1997, of which $374 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 $475
million of the Finance Group's net assets of $1.6
billion 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.
46
<PAGE>
1997 TEXTRON ANNUAL REPORT
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.
10. 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 $640 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 1.4 years and 1.2 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 1,575*** 6.96 1,443 7.50
- ------------------------------------------------------------------------------------------------------------------------------
$1,850 7.27 $1,896 7.75
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* During 1997, the Parent Group and Finance
Group also entered into variable-pay interest
rate exhange agreements for $200 million and
$150 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 4.8% from 5.5% 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.
*** $450 million of the Finance Group's interest
rate exchange agreements were designated
against specific long-term variable-rate notes
and the balance against existing short-term
variable-rate borrowings or their anticipated
replacements. These agreements effectively
adjusted the average rate of interest on
long-term variable-rate notes to 6.3% from
6.1% and on short-term variable-rate
borrowings to 5.8% from 5.6%. The fixed-pay
interest rate exchange agreements in effect
at the end of 1997 expire as follows: $563
million (7.3%) in 1998; $708 million (6.7%) in
1999; $268 million (6.9%) in 2000; $10 million
(6.7%) in 2001; and $26 million (6.9%)
thereafter.
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
47
<PAGE>
1997 TEXTRON ANNUAL REPORT
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 18).
11. 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.
12. 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.
48
<PAGE>
1997 TEXTRON ANNUAL REPORT
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>
49
<PAGE>
1997 TEXTRON ANNUAL REPORT
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 $558 $482 $416
--------------------------------------------------------------------------------------------------
Less: Preferred stock dividends (1) (1) (1)
--------------------------------------------------------------------------------------------------
BASIC
Available to common shareholders 557 164,830 481 167,453 415 169,848
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 $558 169,503 $482 171,652 $416 173,252
==================================================================================================
</TABLE>
13. LEASES Rental expense approximated $116 million, $106 million, and
$104 million in 1997, 1996, and 1995, respectively. Future
minimum rental commitments for noncancellable operating
leases in effect at year-end 1997 approximated $91 million
for 1998; $75 million for 1999; $55 million for 2000; $43
million for 2001; $37 million for 2002; and a total of $229
million thereafter.
50
<PAGE>
1997 TEXTRON ANNUAL REPORT
14. 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>
15. 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 $56 million, $49 million, and
$32 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 $ 73 $ 70 $ 56
Interest cost on projected benefit obligation 224 208 210
Actual return on plan assets (721) (495) (747)
Amortization of unrecognized transition net asset (17) (17) (17)
Net amortization and deferral of actuarial gains 438 230 483
-----------------------------------------------------------------------------------------------------------
Net pension income $ (3) $ (4) $ (15)
===========================================================================================================
</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 $4,091 $ 61 $3,534 $ 124
Actuarial present value of:
Vested benefit obligation 2,633 161 2,410 197
Nonvested benefit obligation 73 17 67 19
--------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 2,706 178 2,477 216
Effect of projected pay increases 307 35 254 35
--------------------------------------------------------------------------------------------------------
Projected benefit obligation 3,013 213 2,731 251
Plan funded status 1,078 (152) 803 (127)
Unrecognized net actuarial (gains) losses (719) 20 (472) 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 $ 339 $(122) $ 304 $ (95)
========================================================================================================
</TABLE>
51
<PAGE>
1997 TEXTRON ANNUAL REPORT
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>
16. 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 47 53 58
Net amortization (15) (13) (14)
-----------------------------------------------------------------------------------------------------------
Postretirement benefit costs $ 37 $ 45 $ 49
===========================================================================================================
</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 $507 $522
Fully eligible active plan participants 68 66
Other active plan participants 88 85
-----------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 663 673
Unrecognized net actuarial gains 110 114
Unrecognized prior service cost benefit 26 30
-----------------------------------------------------------------------------------------------------------
Postretirement benefit liability recognized on the consolidated balance sheet $799 $817
===========================================================================================================
</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 $60 million and the
aggregate of the service and interest cost components of
postretirement benefit costs for 1997 by $5 million.
<PAGE>
1997 TEXTRON ANNUAL REPORT
17. 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 $566 $528 $476
Foreign 382 299 214
--------------------------------------------------------------------------------------------------
Total $948 $827 $690
==================================================================================================
</TABLE>
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $109 $169 $137
Deferred 81 11 31
State 38 31 32
Foreign 136 111 74
--------------------------------------------------------------------------------------------------
Income tax expense $364 $322 $274
==================================================================================================
</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 2.2 2.4 2.9
Goodwill 2.3 2.3 2.5
Other - net (1.1) (.8) (.7)
--------------------------------------------------------------------------------------------------
Effective income tax rate 38.4% 38.9% 39.7%
==================================================================================================
</TABLE>
Textron's net deferred tax asset consisted of gross
deferred tax assets and gross deferred tax liabilities of
$1,696 million and $1,453 million, respectively, at the end
of 1997 and $1,467 million and $1,140 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 $(329) $(324)
Obligation for postretirement benefits other than pensions 319 321
Fixed assets, principally depreciation (156) (146)
Self insured liabilities 147 152
Deferred compensation 116 103
Allowance for credit losses 81 86
Other, principally timing of other expense deductions 65 135
---------------------------------------------------------------------------------------------------
$ 243 $ 327
===================================================================================================
</TABLE>
Deferred income taxes have not been provided for the
undistributed earnings of foreign subsidiaries, which
approximated $936 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 $51 million, primarily because of foreign
withholding taxes.
53
<PAGE>
1997 TEXTRON ANNUAL REPORT
18. 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:
INVESTMENTS $ 844 $ 844 $ 820 $ 820
FINANCE RECEIVABLES:
Consumer loans 6,364 6,288 6,471 6,451
Commercial loans 2,652 2,741 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 9,275 9,309 8,839 8,882
Interest rate exchange agreements - 12 - 18
FOREIGN CURRENCY EXCHANGE CONTRACTS (4) - - 2
===================================================================================================
</TABLE>
NOTES:
(i) Investments - The estimated fair values of investment
securities were based on available quoted market prices,
appraisals, prices from independent brokers, or discounted
cash flow analyses.
(ii) Finance receivables - The estimated fair values of
fixed-rate consumer loans, real estate loans and commercial
installment contracts were based on discounted cash flow
analyses. The estimated fair values of variable-rate
receivables and fixed-rate retail installment contracts
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.
(iii) 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.
19. 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.
54
<PAGE>
1997 TEXTRON ANNUAL REPORT
20. 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 $ 7,495 $7,000 $6,841 $ 836 $ 791 $ 773
Europe 1,394 767 393 158 99 61
Other North America 1,179 1,043 807 139 125 87
Australia/New Zealand 299 292 267 73 66 59
Other (primarily Asia/Pacific) 177 172 145 12 9 7
---------------------------------------------------------------------------------------------------
$10,544 $9,274 $8,453 1,218 1,090 987
=================================================================== -------------------------------
Corporate expenses and other - net (141) (115) (119)
Interest expense - net (129) (148) (178)
---------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and distributions
on preferred securities of subsidiary trust $ 948 $ 827 $ 690
===================================================================================================
<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 $12,126 $12,103 $12,080
Europe 2,268 1,662 1,077
Other North America 1,694 1,436 1,337
Australia/New Zealand 1,320 1,211 1,138
Other (primarily Asia/Pacific) 553 311 210
Corporate, including investment in discontinued
operation in 1996 and 1995 1,105 1,742 1,932
Eliminations (456) (230) (123)
----------------------------------------------------------------------------------------------------
$18,610 $18,235 $17,651
====================================================================================================
</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.
(iii) Assets in foreign locations relate principally to the
Finance segment.
55
1997 TEXTRON ANNUAL REPORT
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 $ 895 $ 752 $ 782 $ 706 $ 762 $ 638 $ 649 $ 654
Automotive 583 464 523 557 428 355 439 405
Industrial 767 734 812 758 700 729 779 641
Finance 573 558 550 530 538 526 517 514
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES $2,818 $2,508 $2,667 $2,551 $2,428 $2,248 $2,384 $2,214
==============================================================================================================================
INCOME
Aircraft $ 96 $ 84 $ 81 $ 64 $ 79 $ 69 $ 67 $ 56
Automotive 39 28 33 50 41 27 41 37
Industrial 82 82 92 78 68 77 80 65
Finance 108 104 101 96 98 98 95 92
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME 325 298 307 288 286 271 283 250
Corporate expenses and other - net (42) (36) (30) (33) (29) (28) (30) (28)
Interest expense - net (28) (32) (30) (39) (37) (36) (37) (38)
Income taxes (98) (86) (95) (85) (85) (81) (84) (72)
Distributions on preferred securities of
subsidiary trust, net of income taxes (7) (6) (7) (6) (7) (6) (7) (3)
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 150 138 145 125 128 120 125 109
Discontinued operation, net of income taxes:
Income from operations - - - - - - - 16
Loss on disposal - - - - - (155) - (90)
- ------------------------------------------------------------------------------------------------------------------------------
- - - - - (155) - (74)
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 150 $ 138 $ 145 $ 125 $ 128 $ (35) $ 125 $ 35
==============================================================================================================================
EARNINGS PER COMMON SHARE
BASIC:
Income from continuing operations $ .92 $ .83 $ .88 $ .75 $ .77 $ .72 $ .74 $ .64
Discontinued operation - - - - - (.93) - (.43)
- ------------------------------------------------------------------------------------------------------------------------------
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 $ .89 $ .81 $ .86 $ .73 $ .75 $ .70 $ .73 $ .63
Discontinued operation - - - - - (.90) - (.43)
- ------------------------------------------------------------------------------------------------------------------------------
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 10.7% 11.2% 10.4% 9.1% 10.4% 10.8% 10.3% 8.6%
Automotive 6.7 6.0 6.3 9.0 9.6 7.6 9.3 9.1
Industrial 10.7 11.2 11.3 10.3 9.7 10.6 10.3 10.1
Finance 18.8 18.6 18.4 18.1 18.2 18.6 18.4 17.9
OPERATING INCOME MARGIN 11.5 11.9 11.5 11.3 11.8 12.1 11.9 11.3
- ------------------------------------------------------------------------------------------------------------------------------
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.
56
1997 TEXTRON ANNUAL REPORT
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(Dollars in millions except per share amounts) 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Aircraft $ 3,135 $ 2,703 $ 2,519
Automotive 2,127 1,627 1,534
Industrial 3,071 2,849 2,415
Finance 2,211 2,095 1,985
- ----------------------------------------------------------------------------------
Total revenues $ 10,544 $ 9,274 $ 8,453
==================================================================================
INCOME
Aircraft $ 325 $ 271 $ 245
Automotive 150 146 135
Industrial 334 290 242
Finance 409 383 365
- ----------------------------------------------------------------------------------
TOTAL OPERATING INCOME 1,218 1,090 987
Corporate expenses and other - net (141) (115) (119)
Interest expense - net (129) (148) (178)
Income taxes (364) (322) (274)
Distributions on preferred securities of
subsidiary trust, net of income taxes (26) (23) -
- ----------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS* $ 558 $ 482 $ 416
==================================================================================
PER SHARE OF COMMON STOCK
Income from continuing operations - basic* $ 3.38 $ 2.87 $ 2.45
Income from continuing operations - diluted* $ 3.29 $ 2.81 $ 2.40
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 $ 18,610 $ 18,235 $ 17,651
Debt:
Parent Group $ 1,221 $ 1,507 $ 1,774
Finance Group $ 9,275 $ 8,839 $ 8,437
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 $ 412 $ 343 $ 279
Depreciation $ 266 $ 223 $ 195
Research and development $ 602 $ 576 $ 656
==================================================================================
OTHER DATA
Number of employees at year-end 64,000 57,000 54,000
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 $ 2,290 $ 2,077 $ 1,617 $ 1,352
Automotive 1,511 1,178 788 661
Industrial 2,877 3,016 3,211 3,197
Finance 1,672 1,610 1,622 1,548
- ----------------------------------------------------------------------------------------------
Total revenues $ 8,350 $ 7,881 $ 7,238 $ 6,758
==============================================================================================
INCOME
Aircraft $ 197 $ 162 $ 136 $ 121
Automotive 132 89 68 50
Industrial 245 247 277 303
Finance 331 289 250 226
- ---------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME 905 787 731 700
Corporate expenses and other - net (92) (103) (81) (89)
Interest expense - net (190) (214) (238) (213)
Income taxes (257) (171) (160) (160)
Distributions on preferred securities of
subsidiary trust, net of income taxes - - - -
- ---------------------------------------------------------------------------------------------
Income from continuing operations* $ 366 $ 299 $ 252 $ 238
=============================================================================================
PER SHARE OF COMMON STOCK
Income from continuing operations - basic* $ 2.07 $ 1.69 $ 1.45 $ 1.38
Income from continuing operations - diluted* $ 2.03 $ 1.66 $ 1.42 $ 1.36
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 $ 16,103 $ 15,372 $14,710 $12,283
Debt:
Parent Group $ 1,582 $ 2,025 $ 2,283 $ 1,820
Finance Group $ 7,760 $ 6,847 $ 6,440 $ 5,664
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 $ 294 $ 246 $ 215 $ 152
Depreciation $ 206 $ 201 $ 194 $ 177
Research and development $ 611 $ 514 $ 430 $ 457
=============================================================================================
OTHER DATA
Number of employees at year-end 50,000 53,000 51,000 49,000
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.
57
1997 TEXTRON ANNUAL REPORT
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
AIRCRAFT BELL HELICOPTER TEXTRON Webb F. Joiner Vertical takeoff and landing aircraft and spare
Chairman parts for the U.S. government, foreign governments
Terry D. Stinson and commercial markets.
President and CEO
THE CESSNA AIRCRAFT COMPANY Russell W. Meyer, Jr. Light and mid-size business jets, utility
Chairman and CEO turboprops and single-engine piston aircraft.
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE TEXTRON AUTOMOTIVE COMPANY John A. Janitz Automotive interior and exterior trim; functional
Chairman, President and CEO components and systems.
CWC CASTINGS TEXTRON John L. Kelly Gray iron and ductile iron castings, primarily
President camshafts for automobile and engine manufacturers.
KAUTEX TEXTRON Dr. Wolfgang Theis Blow-molded plastic fuel tank systems and other
GERMANY President automotive functional components.
MCCORD WINN TEXTRON George F. Daniels Automotive windshield and headlamp washing systems
President and electro-mechanical components; seating comfort
systems for automotive and non-automotive markets.
MICROMATIC TEXTRON Michael J. Brennan Proprietary machine tools, components and assembly
President systems for automotive and commercial markets.
RANDALL TEXTRON Jane L. Warner Fuel filler assemblies and fuel delivery systems
President for the automotive market.
TEXTRON AUTOMOTIVE Sam Licavoli Instrument panels, door panels, armrests, airbag
TRIM OPERATIONS President doors, center consoles, headliners, exterior trim
and lighting components.
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL Herbert L. Henkel Fastening systems, golf and turf care products,
President Textron industrial components, and fluid and power systems.
Industrial Products
TEXTRON FASTENING SYSTEMS Frank Gulden Fastening systems, synergistic assemblies,
President Textron components and installation tools serving the
Fastening Systems automotive, aerospace, electronics, construction,
do-it-yourself and transportation markets.
AVDEL CHERRY Donald J. Garbison TEXTRON FASTENING SYSTEMS Horst B. Homuth
General Manager GERMANY President
CAMCAR TEXTRON James R. MacGilvray TEXTRON FASTENING SYSTEMS Andrew R. Taylor
(INCLUDES BRAZIL-BASED President UNITED KINGDOM Managing Director
MAPRI INDUSTRIAS, S.A.)
58
ELCO TEXTRON John C. Lutz TEXTRON INDUSTIRES S.A Frank Gulden
President and CEO FRANCE Acting President
TEXTRON AEROSPACE FASTENERS Edmund W. Staple TEXTRON LOGISTICS COMPANY James R. Stenberg
President President
</TABLE>
1997 TEXTRON ANNUAL REPORT
<TABLE>
<S><C>
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL GOLF AND TURF CARE PRODUCTS Carl D. Burtner Golf cars, lawn and turf care products, and
(continued) President multi-purpose utility vehicles.
Golf and Turf Care Products
--------------------------------------------------------------------------------------------------------------------
E-Z-GO TEXTRON L.T. Walden, Jr. Electric- and gasoline-powered golf cars and
President multipurpose utility vehicles.
--------------------------------------------------------------------------------------------------------------------
JACOBSEN TEXTRON Philip J. Tralies Professional mowing and turf maintenance equipment.
President
--------------------------------------------------------------------------------------------------------------------
RANSOMES PLC Peter G. Wilson Turf care machinery for the golf, municipal and
UNITED KINGDOM President commercial markets, and multi-purpose utility
vehicles.
----------------------------------------------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS Carl D. Burtner Tools and accessories for the wire and cable
President industry; components for the commercial aerospace
Industrial Components and defense industries.
--------------------------------------------------------------------------------------------------------------------
FUEL SYSTEMS TEXTRON Michael Boston Fuel systems components for aircraft and industrial
President gas turbine engines.
--------------------------------------------------------------------------------------------------------------------
GREENLEE TEXTRON Barclay S. Olson Products for wire and cable installation and
(INCLUDES GERMANY-BASED President maintenance in residential, commercial and
KLAUKE) industrial facilities.
--------------------------------------------------------------------------------------------------------------------
TEXTRON LYCOMING* James A. Koerner Piston aircraft engines and replacement parts for
President the general aviation market.
--------------------------------------------------------------------------------------------------------------------
TEXTRON MARINE & John J. Kelly Air cushion amphibious landing craft, Coast Guard
LAND SYSTEMS President rescue craft, combat vehicles, lightweight
artillery systems and advanced suspension systems.
--------------------------------------------------------------------------------------------------------------------
TURBINE ENGINE G.L. (Topper) Long Air and land-based gas turbine engine components
COMPONENTS TEXTRON President for engine OEMs.
----------------------------------------------------------------------------------------------------------------------
FLUID AND POWER SYSTEMS Robert A. Geckle Mechanical power transmission and motion control
President components and systems; specialty fluid handling
Fluid and Power Systems pumps and systems; weapons and electronic systems.
--------------------------------------------------------------------------------------------------------------------
CONE DRIVE TEXTRON John G. Melvin Double-enveloping worm gear speed reducers, gear
(INCLUDES ITALY-BASED President motors and gear sets.
MAAG ITALIA)
--------------------------------------------------------------------------------------------------------------------
HR TEXTRON George A. Andrews Motion control components and systems for
President industrial, defense and aerospace markets.
--------------------------------------------------------------------------------------------------------------------
MAAG PUMP SYSTEMS Dr. Frank Brinken Gear pumps and systems used for processing
TEXTRON AG SWITZERLAND President applications in the plastics, chemical and
pharmaceutical industries.
--------------------------------------------------------------------------------------------------------------------
TEXTRON SYSTEMS Richard J. Millman Weapon systems, sensing systems and advanced
President materials for defense and commercial markets.
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCE AVCO FINANCIAL SERVICES Warren R. Lyons Global consumer and commercial lending and credit,
Chairman property and casualty insurance.
--------------------------------------------------------------------------------------------------------------------
TEXTRON FINANCIAL CORPORATION Stephen A. Giliotti Commercial financing for the purchase and lease of
President Textron and independent products including:
equipment, aircraft, golf, and time share.
</TABLE>
*For financial reporting purposes, Textron Lycoming's results are included in
the Aircraft Segment.
59
Exhibit 21
TEXTRON INC. - Significant Subsidiaries
(as of 3/10/98)
Set forth below are the names of certain subsidiaries of Textron
Inc. Other subsidiaries, which considered in the aggregate, do
not constitute a significant subsidiary, are omitted from such
list.
Name Place of Incorporation
Avco Corporation Delaware
ARS Two Inc. Delaware
Avco Community Developers, Inc. California
Textron Pacific Limited Australia
Textron Systems Corporation Delaware
Turbine Engine Components Textron Inc. Delaware
Avco Financial Services, Inc. (refer to Schedule 1 hereto Delaware
for a list of the principal subsidiaries of AFS)
Avdel Cherry Textron Inc. New York
Bell Helicopter Services Inc. Delaware
Bell Helicopter Asia (Pte) Ltd. Singapore
Bell Helicopter Textron Inc. Delaware
Brazaco-Mapri Industrias Metalurgica S.A. Brazil
Burkland Textron Inc. Michigan
Cadillac Gage Textron Inc. Michigan
The Cessna Aircraft Company Kansas
Cone Drive Operations Inc. Delaware
Elco Textron Inc. Delaware
Fuel Systems Textron Inc. Delaware
Greenlee Textron Inc. Delaware
HR Textron Inc. Delaware
MAAG Pump Systems Textron Inc. North Carolina
McCord Corporation Michigan
Textron Automotive Functional Components Inc. - McCord Massachusetts
Winn Division
Textron Automotive Interiors Inc. Delaware
Textron Automotive Overseas Investment Inc. Delaware
Textron Automotive B.V. Netherlands
Micromatic Operations Inc. Delaware
Micro-Precision Operations Inc. Delaware
Textron Atlantic Inc. Delaware
Avdel plc United Kingdom
Bell Helicopter Supply Center B.V. Netherlands
Camcar Textron (Malaysia) Sdn. Bhd. Malaysia
Jacobsen E-Z-GO Textron A.G. Switzerland
Jacobsen E-Z-GO Textron A/S Denmark
Jacobsen E-Z-GO Textron B.V. Netherlands
Jacobsen E-Z-GO Textron S.A. France
Jacobsen E-Z-GO Textron S.R.L. Italy
Kautex Iberica S.A. Spain
Kautex do Brasil Ltda. Brazil
Kautex Argentina S.A. Argentina
Kautex Portugal, Produtos Plasticos Ldas. Portugal
Kautex Textron Benelux N.V. Belgium
Kautex Textron Bohemia spol. s.r.o. Czech Republic
Klauke Handels GmbH Austria
MAAG Pump Systems A.G. Switzerland
MAAG Pump Systems PTE Ltd. Singapore
Textron Acquisition Limited United Kingdom
Ransomes PLC (refer to Schedule 2 hereto for a list United Kingdom
of the subsidiaries of Ransomes)
Textron Golf & Turf PLC United Kingdom
Textron Atlantic France Inc. Delaware
Textron Atlantic Holding GmbH Germany
Gustav Klauke GmbH Germany
Gustav Klauke France S.A.R.L. France
Jacobsen E-Z-GO Textron GmbH Rasenpflegesysteme Germany
Kautex Textron Verwaltungs GmbH Germany
Kautex Textron GmbH & Co. KG Germany
Maag Pump Systems GmbH Germany
Textron Verbindungstechnik Beteiligungs GmbH Germany
Textron Verbindungstechnik GmbH & Co. OHG Germany
Textron France Inc. Delaware
Textron France S.N.C. (1) France
Textron France S.A. France
Textron Industries S.A.S. France
Textron Industrial SpA (2) Italy
Textron Limited United Kingdom
Kautex Textron Ltd. United Kingdom
Textron Automotive Company Limited United Kingdom
Textron Automotive Company Inc. Delaware
Kaywood Products Corporation Michigan
Textron Automotive Exteriors Inc. Delaware
Textron FSC Inc. Barbados
Textron Financial Corporation Delaware
Cessna Finance Corporation Kansas
Textron Holdings Inc. Delaware
Textron International Inc. Delaware
Textron Logistics Company Inc. Delaware
Textron Properties Inc. Delaware
Textron Canada Limited (3) Canada
Bell Helicopter Canada International Inc. Canada
Kautex Corporation Ontario
Textron Realty Corporation Delaware
Textron Realty Operations (Wheatfield) Inc. Delaware
Textron S.A. de C.V. Mexico
Kautex Textron de Mexico, S.A. de C.V. Mexico
Kautex Textron Management Services Company de Puebla, Mexico
S.A. de C.V.
Textron Automotive Company de Mexico, S.A. de C.V. Mexico
Textron Automotive Management Services Company de Mexico
Mexico, S.A. de C.V.
Turbine Engine Components Textron (Cleveland Operations) Delaware
Inc.
Turbine Engine Components Textron (Newington Operations) Connecticut
Inc.
Turbine Engine Components Textron (Santa Fe Springs California
Operations) Inc.
Wolverine Metal Specialties Inc. Michigan
Xact Textron Inc. Delaware
(1) 85% of the capital stock is held by Textron France Inc. and the
remaining 15% by Textron Atlantic France Inc.
(2) 85% of the capital stock is held by Textron Atlantic Inc. and the
remaining 15% by Textron International Inc.
(3) 64.5% of the capital stock is held by Textron Properties Inc. and
the remaining 35.5% by Textron Inc.
Schedule 1
Set forth below are the principal subsidiaries of Avco Financial
Services, Inc.:
Name Place of Incorporation
AFS Corporation (1) Delaware
Avco DC Corporation (2) Delaware
Avco Enterprises, Inc. (1) California
Avco Financial Services Canada Limited (3) Ontario
Avco Financial Services International, Inc. (4) Nebraska
Avco Financial Services Ltd. (5) Australian Capital
Territory
Avco Financial Services Limited (1) New Zealand
Avco Group Limited (2) United Kingdom
Avco National Bank (6) California
Balboa Insurance Company (7) California
Balboa Life Insurance Company (1) California
Family Insurance Corporation (1) Wisconsin
Meritplan Insurance Company (8) California
Newport Insurance Company (8) California
______________________________
(1) Owned by Avco Financial Services, Inc.
(2) Owned by Avco Financial Services International, Inc.
(3) Owned by AFS Corporation and Avco DC Corporation
(4) Owned by Avco Financial Services, Inc. and Balboa Life
Insurance Company
(5) Owned by Avco Australia Pty. Ltd.
(6) Owned by Avco Enterprises, Inc.
(7) Owned by Avco Financial Services International, Inc. and Balboa
Life Insurance Company
(8) Owned by Balboa Insurance Company
Schedule 2
Set forth below are the subsidiaries of Ransomes PLC:
Name Place of Incorporation
Ransomes PLC United Kingdom
Dorman Sprayers Limited United Kingdom
Laser Lawnmowers Limited United Kingdom
Livesey Nu-Dale Limited United Kingdom
Ransomes Consumer Limited United Kingdom
BTS Green SRL (in liquidation) Italy
GD Mountfield SA Luxembourg
Ransomes Investment Corporation United Kingdom
Ransomes American Corporation United States
Cushman Inc. United States
Ransomes Inc. United States
Steiner Turf Equipment United States
Ransomes No. 1 Limited United Kingdom
Ransomes Overseas Services Limited United Kingdom
Granja SA France
Granja Motoculture France
KK Ransomes Japan
Ransomes SA France
Ransomes GmbH Germany
Ransomes Park Limited United Kingdom
The Havens Management Limited United Kingdom
Ransomes Property Developments Limited United Kingdom
Ransomes Sims & Jefferies Limited United Kingdom
Ransomes Executive Pension Trustee Co. Limited United Kingdom
Ransomes Pensions Trustee Company Limited United Kingdom
Ransomes Works Pension Trustee Company Limited United Kingdom
Supreme Mowing Limited United Kingdom
Westwood Engineering Limited United Kingdom
CD Mountfield Limited United Kingdom
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Textron Inc. of our report dated January
27, 1998, included in the 1997 Annual Report to Shareholders of
Textron Inc.
Our audits also included the financial statement schedules of
Textron Inc. listed in the accompanying Index to Financial
Statements and Financial Statement Schedules. These schedules
are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the
Registration Statements (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. and in the
related Prospectuses and Prospectus Supplements of our report
dated January 27, 1998, with respect to the consolidated
financial statements and schedules of Textron Inc. included or
incorporated by reference in this Annual Report (Form 10-K) for
the year ended January 3, 1998.
/s/Ernst & Young
Boston, Massachusetts
March 13, 1998
POWER OF ATTORNEY
The undersigned, Textron Inc. ("Textron") a Delaware corporation,
and the undersigned directors and officers of Textron, do hereby
constitute and appoint Wayne W. Juchatz, Arnold M. Friedman,
Michael D. Cahn and Ann T. Willaman, and each of them, with full
powers of substitution, their true and lawful attorneys and agents
to do or cause to be done any and all acts and things and to
execute and deliver any and all instruments and documents which
said attorneys and agents, or any of them, may deem necessary or
advisable in order to enable Textron to comply with the Securities
and Exchange Act of 1934, as amended, and any requirements of the
Securities and Exchange Commission in respect thereof, in
connection with the filing of Textron's Annual Report on Form 10-K
for the fiscal year ended January 3, 1998, including specifically,
but without limitation, power and authority to sign the names of
the undersigned directors and officers in the capacities indicated
below and to sign the names of such officers on behalf of Textron
to such Annual Report filed with the Securities and Exchange
Commission, to any and all amendments to such Annual Report, to
any instruments or documents or other writings in which the
original or copies thereof are to be filed as a part of or in
connection with such Annual Report or amendments thereto, and to
file or cause to be filed the same with the Securities and
Exchange Commission; and each of the undersigned hereby ratifies
and confirms all that such attorneys and agents, and each of them,
shall do or cause to be done hereunder and such attorneys and
agents, and each of them, shall have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, Textron has caused this Power of Attorney
to be executed and delivered in its name and on its behalf by the
undersigned duly authorized officer and its corporate seal
affixed, and each of the undersigned has signed his or her name
thereto, on this 25th day of February, 1998.
TEXTRON INC.
By: /s/James F. Hardymon
James F. Hardymon
Chairman and Chief
Executive Officer
ATTEST:
/s/Frederick K. Butler
Frederick K. Butler
Vice President and Secretary
/s/James F. Hardymon /s/Barbara Scott Preiskel
James F. Hardymon Barbara Scott Preiskel
Chairman and Chief Director
Executive Officer, Director
(principal executive officer)
/s/Lewis B. Campbell /s/Brian H. Rowe
Lewis B. Campbell Brian H. Rowe
President and Chief Operating Director
Officer, Director
/s/H. Jesse Arnelle /s/Sam F. Segnar
H. Jesse Arnelle Sam F. Segnar
Director Director
/s/Teresa Beck /s/Jean Head Sisco
Teresa Beck Jean Head Sisco
Director Director
/s/R. Stuart Dickson /s/John W. Snow
R. Stuart Dickson John W. Snow
Director Director
/s/Paul E. Gagne /s/Martin D. Walker
Paul E. Gagne Martin D. Walker
Director Director
/s/John D. Macomber /s/Thomas B. Wheeler
John D. Macomber Thomas B. Wheeler
Director Director
/s/Dana G. Mead /s/Stephen L. Key
Dana G. Mead Stephen L. Key
Director Executive Vice President
and Chief Financial Officer
(principal financial officer)
/s/Richard L. Yates
Richard L. Yates
Vice President and Controller
(principal accounting officer)
Exhibit 24.2
TEXTRON INC.
Assistant Secretary's Certificate
I, ANN T. WILLAMAN, a duly elected Assistant Secretary of
TEXTRON INC., a Delaware corporation (hereinafter, the
"Corporation"), DO HEREBY CERTIFY that set forth below is a true
and correct copy of a resolution passed at a meeting of the
Corporation's Board of Directors held on February 25, 1998, at
which a quorum was present and voted throughout:
RESOLVED, that the officers of the Corporation be,
and they hereby are, authorized in the name and on
behalf of the Corporation to execute and deliver a power
of attorney appointing Wayne W. Juchatz, Arnold
M. Friedman, Michael D. Cahn and Ann T. Willaman, or any
of them, to act as attorneys-in-fact for the Corporation
for the purpose of executing and filing the
Corporation's Annual Report on Form 10-K for its fiscal
year ended January 3, 1998, and any and all amendments
thereto.
I DO HEREBY FURTHER CERTIFY that the foregoing resolution has
been neither amended nor modified, and remains in full force and
effect as of the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and caused
the Corporate seal of TEXTRON INC. to be affixed as of the 16th
day of March, 1998.
/s/Ann T. Willaman
CORPORATE SEAL Assistant Secretary
