SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _______________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Commission file number 1-5480 _______________ TEXTRON INC. (Exact name of registrant as specified in its charter) _______________ Delaware 05-0315468 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 40 Westminster Street, Providence, RI 02903 401-421-2800 (Address and telephone number of principal executive offices) _______________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Common stock outstanding at October 28, 1995 - 84,821,000 shares PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS <TABLE> TEXTRON INC. Consolidated Statement of Income (unaudited) (Dollars in millions except per share amounts) <CAPTION> Three months ended Nine months ended September 30, October 1, September 30, October 1, 1995 1994 1995 1994 Revenues <S> <C> <C> <C> <C> Sales $ 1,558 $ 1,621 $ 4,763 $ 5,084 Interest, discount and service charges 397 332 1,165 981 Insurance premiums 357 315 1,036 908 Investment income (including net realized investment gains) 113 113 350 333 Total revenues 2,425 2,381 7,314 7,306 Costs and expenses Cost of sales 1,276 1,330 3,905 4,241 Selling and administrative 384 376 1,137 1,115 Interest 198 168 609 489 Provision for losses on collection of finance receivables, less recoveries 42 37 120 117 Insurance benefits and increase in policy liabilities 283 256 844 724 Amortization of insurance policy acquisition costs 34 29 101 81 Total costs and expenses 2,217 2,196 6,716 6,767 Income before income taxes 208 185 598 539 Income taxes (82) (71) (236) (207) Elimination of minority interest in net income of Paul Revere (4) (3) (10) (11) Net income $ 122 $ 111 $ 352 $ 321 Net income per common share $ 1.41 $ 1.23 $ 4.05 $ 3.54 Average shares outstanding* 86,692,000 90,577,000 86,857,000 90,567,000 Dividends per share: $2.08 Preferred stock, Series A $ .52 $ .52 $1.56 $1.56 $1.40 Preferred stock, Series B $ .35 $ .35 $1.05 $1.05 Common stock $ .39 $ .35 $1.17 $1.05 * Average shares outstanding assume full conversion of preferred stock and exercise of options. See notes to consolidated financial statements. </TABLE> Item 1. FINANCIAL STATEMENTS (Continued) <TABLE> TEXTRON INC. Consolidated Balance Sheet (unaudited) (In millions) <CAPTION> September 30, December 31, 1995 1994 Assets <S> <C> <C> Cash $ 78 $ 49 Investments 5,626 5,294 Receivables - net: Finance 9,438 8,583 Commercial and U.S. Government 787 702 10,225 9,285 Inventories 1,244 1,211 Property, plant and equipment, less accumulated depreciation of $1,646 and $1,450 1,288 1,253 Insurance policy acquisition costs 998 911 Goodwill, less accumulated amortization of $424 and $381 1,480 1,512 Other assets (including net prepaid income taxes) 1,773 1,410 Total assets $ 22,712 $ 20,925 Liabilities and shareholders' equity Liabilities Accounts payable $ 651 $ 619 Accrued postretirement benefits other than pensions 945 951 Other accrued liabilities (including income taxes) 2,534 2,424 Insurance reserves and claims 5,151 4,685 Debt: Textron Parent Company Borrowing Group 1,669 1,582 Finance and insurance subsidiaries 8,536 7,782 10,205 9,364 Total liabilities 19,486 18,043 Shareholders' equity Capital stock: Preferred stock 15 16 Common stock* 12 12 Capital surplus 738 702 Retained earnings 2,771 2,518 Other 42 (108) 3,578 3,140 Less cost of treasury shares 352 258 Total shareholders' equity 3,226 2,882 Total liabilities and shareholders' equity $ 22,712 $ 20,925 *Common shares outstanding 84,761,000 85,497,000 See notes to consolidated financial statements. </TABLE> Item 1. FINANCIAL STATEMENTS (Continued) <TABLE> TEXTRON INC. Consolidated Statement of Cash Flows (unaudited) (In millions) <CAPTION> Nine Months Ended September 30, October 1, 1995 1994 <S> <C> <C> Cash flows from operating activities: Net income $ 352 $ 321 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 308 303 Provision for losses on receivables 151 144 Increase in insurance policy liabilities 409 305 Deferred income taxes 61 39 Changes in assets and liabilities excluding those related to acquisitions and divestitures: Increase in commercial and U.S. Government receivables (89) (173) Decrease (increase) in inventories (32) 27 Additions to insurance policy acquisition costs (196) (166) Decrease (increase) in other assets 17 (43) Increase in accounts payable 33 12 Increase (decrease) in accrued liabilities (101) 95 Increase in unearned insurance premiums and reserves for insurance losses and adjustment expenses 43 18 Other - net (2) 7 Net cash provided by operating activities 954 889 Cash flows from investing activities: Purchases of investments (1,258) (1,696) Proceeds from disposition of securities: Sales of: Securities available for sale 627 737 Securities held to maturity 9 10 Maturities and calls 167 490 Proceeds from disposition of other investments 29 53 Finance receivables: Originated or purchased (4,703) (4,246) Repaid or sold 4,173 3,635 Cash used in acquisition of business (40) - Net proceeds from sale of business - 118 Capital expenditures (197) (198) Other investing activities - net 15 43 Net cash used by investing activities (1,178) (1,054) Cash flows from financing activities: Decrease in short-term debt (46) (33) Proceeds from issuance of long-term debt 2,347 1,854 Principal payments on long-term debt (1,927) (1,619) Interest-sensitive insurance products: Receipts 231 198 Return of account balances (193) (92) Proceeds from exercise of stock options 32 11 Purchases of Textron common stock (93) - Dividends paid (100) (94) Net cash provided by financing activities 251 225 Effect of foreign exchange rate changes on cash 2 1 Net increase in cash 29 61 Cash at beginning of period 49 26 Cash at end of period $ 78 $ 87 See notes to consolidated financial statements. </TABLE> Item 1. FINANCIAL STATEMENTS (Continued) TEXTRON INC. Notes to Consolidated Financial Statements (unaudited) Note 1: Summary of significant accounting policies The financial statements should be read in conjunction with the financial statements included in Textron's Form 10-K for the year ended December 31, 1994. The financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of Textron's consolidated financial position at September 30, 1995 and December 31, 1994 and its consolidated results of operations for each of the respective three and nine month periods ended September 30, 1995 and October 1, 1994 and consolidated cash flows for each of the nine month periods ended September 30, 1995 and October 1, 1994. The results of operations for the nine months ended September 30, 1995 are not necessarily indicative of results for the full year. Note 2: Acquisition In October 1995, Textron acquired Elco Industries, Inc., a manufacturer and distributor of fastening products and systems, for an aggregate cost of approximately $230 million ($180 million paid in cash, plus debt of Elco and expenses). Note 3: Investments <TABLE> <CAPTION> September 30, December 31, 1995 1994 (In millions) <C> <C> <C> Debt and marketable equity securities available for sale, at estimated fair value (amortized cost: $2,512 and $2,610) $2,640 $2,511 Debt securities to be held to maturity, at amortized cost (estimated fair value: $2,758 and $2,294) 2,606 2,470 Other 380 313 $5,626 $5,294 </TABLE> In the third quarter of 1995, an investment in the held to maturity category with an amortized cost of $8 million was sold due to a significant deterioration in the issuer's creditworthiness. Note 4: Finance receivables - net <TABLE> <CAPTION> September 30, December 31, 1995 1994 (In millions) <S> <C> <C> Finance receivables $9,971 $9,084 Less allowance for credit losses 272 250 Less finance-related insurance reserves and claims 261 251 $9,438 $8,583 </TABLE> Note 5: Inventories <TABLE> <CAPTION> September 30, December 31, 1995 1994 (In millions) <S> <C> <C> Finished goods $ 370 $288 Work in process 901 948 Raw materials 192 212 1,463 1,448 Less progress and advance payments 219 237 $1,244 $1,211 </TABLE> Note 6: Insurance reserves and claims <TABLE> <CAPTION> September 30, December 31, 1995 1994 (In millions) <S> <C> <C> Paul Revere: Future policy benefits $1,289 $1,193 Unpaid claims and claim expenses 1,794 1,576 Other policyholder funds 1,833 1,714 Other 235 202 $5,151 $4,685 </TABLE> Note 7: Contingencies There are pending or threatened against Textron and its subsidiaries lawsuits and other proceedings, some of which allege violations of federal government procurement regulations, involve environmental matters, or are or purport to be class actions. Among these suits and proceedings are some which seek compensatory, treble or punitive damages in substantial amounts; fines, penalties or restitution; the cleanup of allegedly hazardous wastes; or, under federal government procurement regulations, could result in suspension or debarment of Textron or its subsidiaries from U.S. Government contracting for a period of time. These suits and proceedings are being defended or contested on behalf of Textron and its subsidiaries. On the basis of information presently available, Textron believes that any such liability or the impact of the application of relevant government regulations would not have a material effect on Textron's net income or financial condition. Note 8: Financial information by borrowing group Textron consists of two borrowing groups - the Textron Parent Company Borrowing Group and its finance and insurance subsidiaries. The Textron Parent Company Borrowing Group is comprised of all entities of Textron other than its finance and insurance subsidiaries. The financial statements of this group as set forth below reflect Textron's investments in its finance and insurance subsidiaries on the equity basis. Its sources of cash flow include dividends paid by the finance and insurance subsidiaries, as well as cash generated by other operating units. The finance and insurance subsidiaries finance their respective operations by borrowing from their own group of external creditors. Item 1 FINANCIAL STATEMENTS (Continued) Note 8: Financial information by borrowing group (continued) <TABLE> TEXTRON PARENT COMPANY BORROWING GROUP (unaudited) (In millions) <CAPTION> Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Statement of Income 1995 1994 1995 1994 <S> <C> <C> <C> <C> Revenues $1,558 $1,622 $4,763 $5,086 Costs and expenses Cost of sales 1,276 1,330 3,905 4,241 Selling and administrative 159 169 474 500 Interest 46 52 148 160 Total costs and expenses 1,481 1,551 4,527 4,901 77 71 236 185 Pretax income of finance and insurance subsidiaries 131 114 362 354 Income before income taxes 208 185 598 539 Income taxes (82) (71) (236) (207) Elimination of minority interest in net income of Paul Revere (4) (3) (10) (11) Net income $ 122 $ 111 $ 352 $ 321 </TABLE> <TABLE> <CAPTION> September 30, December 31, Balance Sheet 1995 1994 <S> <C> <C> Assets Cash $ 57 $ 20 Receivables - net 787 702 Inventories 1,244 1,211 Investments in finance and insurance subsidiaries 2,506 2,246 Property, plant and equipment - net 1,181 1,146 Goodwill, less accumulated amortization of $222 and $194 1,207 1,231 Other assets (including net prepaid income taxes) 1,200 1,262 Total assets $8,182 $7,818 Liabilities and shareholders' equity Accounts payable and accrued liabilities (including income taxes) $3,287 $3,354 Debt 1,669 1,582 Shareholders' equity 3,226 2,882 Total liabilities and shareholders' equity $8,182 $7,818 </TABLE> Item 1. FINANCIAL STATEMENTS (Continued) Note 8: Financial information by borrowing group (continued) <TABLE> TEXTRON PARENT COMPANY BORROWING GROUP (continued) (unaudited) (In millions) <CAPTION> Nine Months Ended September 30, October 1, Statement of Cash Flows 1995 1994 <S> <C> <C> Cash flows from operating activities: Net income $352 $321 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of finance and insurance subsidiaries (117) (121) Depreciation and amortization 165 182 Deferred income taxes 24 8 Changes in assets and liabilities excluding those related to acquisitions and divestitures: Increase in receivables (89) (156) Decrease (increase) in inventories (32) 27 Decrease (increase) in other assets 41 (82) Increase (decrease) in accounts payable and accrued liabilities (64) 148 Other - net 46 30 Net cash provided by operating activities 326 357 Cash flows from investing activities: Net proceeds from sale of business - 118 Capital expenditures (180) (176) Other investing activities - net (13) 43 Net cash used by investing activities (193) (15) Cash flows from financing activities: Decrease in short-term debt (1) (31) Proceeds from issuance of long-term debt 810 560 Principal payments on long-term debt (722) (714) Proceeds from exercise of stock options 32 11 Purchases of Textron common stock (93) - Purchases of Textron common stock from Paul Revere (22) (25) Dividends paid (100) (94) Net cash used by financing activities (96) (293) Effect of foreign exchange rates on cash - 2 Net increase in cash 37 51 Cash at beginning of period 20 12 Cash at end of period $ 57 $ 63 </TABLE> Item 1 FINANCIAL STATEMENTS (Continued) Note 8: Financial information by borrowing group (continued) <TABLE> FINANCE AND INSURANCE SUBSIDIARIES (unaudited) (In millions) <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, Statement of Income 1995 1994 1995 1994 <S> <C> <C> <C> <C> Revenues Interest, discount and service charges $ 397 $ 332 $1,165 $ 981 Credit life, credit disability and casualty insurance premiums 87 75 250 208 Non-cancellable disability income, life and group insurance premiums 270 240 786 700 Investment income (including net realized investment gains) 113 112 350 331 Total revenues 867 759 2,551 2,220 Costs and expenses Selling and administrative 225 207 663 615 Interest 152 116 461 329 Provision for losses on collection of finance receivables, less recoveries 42 37 120 117 Credit life, credit disability and casualty insurance losses and adjustment expenses, less recoveries 39 33 109 95 Death and other insurance benefits 112 114 355 332 Increase in insurance policy liabilities 132 109 380 297 Amortization of insurance policy acquisition costs 34 29 101 81 Total costs and expenses 736 645 2,189 1,866 Income before income taxes 131 114 362 354 Income taxes (51) (44) (141) (138) Net income 80 70 221 216 Minority interest in net income (4) (3) (10) (11) Textron's equity in net income $ 76 $ 67 $ 211 $ 205 </TABLE> Item 1. FINANCIAL STATEMENTS (Continued) Note 8: Financial information by borrowing group (continued) <TABLE> FINANCE AND INSURANCE SUBSIDIARIES (unaudited) (In millions) <CAPTION> September 30, December 31, Balance Sheet 1995 1994 <S> <C> <C> Assets Cash $ 21 $ 29 Investments 5,589* 5,265 Finance receivables - net 9,472 8,622 Property, plant and equipment - net 107 107 Insurance policy acquisition costs 998 911 Goodwill, less accumulated amortization of $202 and $187 273 281 Other assets 1,206* 633 Total assets $17,666 $15,848 Liabilities and equity Accounts payable and accrued liabilities (including income taxes) $1,260 $ 953 Insurance reserves and claims 5,151 4,685 Debt 8,536 7,782 Equity: Textron 2,506 2,246 Minority interest in Paul Revere 213 182 Total liabilities and equity $17,666 $15,848 * In the third quarter of 1995, Paul Revere transferred $561 million of investments into a trust fund in connection with a reinsurance transaction. </TABLE> Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS <TABLE> TEXTRON INC. Revenues and Income by Business Segment (In millions) <CAPTION> Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, 1995 1994 1995 1994 REVENUES <S> <C> <C> <C> <C> MANUFACTURING: Aircraft $ 609 $ 549 $1,786 $1,589 Automotive 349 341 1,171 1,152 Industrial 324 339 1,026 1,078 Systems and Components 276 392 780 1,265 1,558 1,621 4,763 5,084 FINANCIAL SERVICES: Finance 499 421 1,461 1,227 Paul Revere 368 338 1,090 993 867 759 2,551 2,220 Total revenues $2,425 $2,380 $7,314 $7,304 INCOME MANUFACTURING: Aircraft $ 66 $ 56 $ 171 $ 131 Automotive 26 23 99 101 Industrial 36 37 120 113 Systems and Components 24 30 66 56 152 146 456 401 FINANCIAL SERVICES: Finance 96 86 272 247 Paul Revere 35 28 90 107 131 114 362 354 Segment operating income 283 260 818 755 Corporate expenses and other - net (29) (24)* (72) (58)* Interest expense - net (46) (51) (148) (158) Income before income taxes $ 208 $ 185 $ 598 $ 539 * Includes a pretax charge of $9 million related to the early redemption of debt. </TABLE> Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Financial Condition Textron Parent Company Borrowing Group: During the nine months ended September 30, 1995, the Textron Parent Company Borrowing Group's operating activities provided cash of $326 million versus $357 million during the corresponding period of 1994, the detail of which is presented on page 9. Cash outflows for 1995 were affected by an increase in receivables and inventory due principally to increased business and a decrease in accrued liabilities due to increased tax payments, partially offset by reductions of cash value of company- owned life insurance (approximately $90 million). The group's debt increased by $87 million principally as a result of cash used for capital expenditures, purchases of Textron common stock and payments of dividends over the $326 million of cash provided by operations. Its ratio of debt to total capital was 34% at September 30, 1995, down from 35% at December 31, 1994. During the nine months ended October 1, 1994, the Group's operating activities provided cash of $357 million up from $299 million during the corresponding period of 1993. The improvement was due to (a) increased income, (b) higher payables due primarily to the timing of dividend payments in 1994 and (c) increased customer deposits, partially offset by higher receivables, due primarily to changed payment terms with certain customers. The Group's debt decreased by $174 million principally as a result of cash provided by operations and the proceeds from the sale of Homelite. Its ratio of debt to total capital was 38% at October 1, 1994, down from 42% at year end 1993. The Group's credit facilities not used or reserved as support for outstanding commercial paper or bank borrowings at September 30, 1995 were $827 million. Textron had $211 million available at September 30, 1995 for unsecured debt securities under its shelf registration statement filed with the Securities and Exchange Commission. In October 1995, Textron filed a shelf registration statement with the Securities and Exchange Commission for the issuance of up to an additional aggregate amount of $800 million of (a) debt issuable by Textron and (b) preferred securities issuable by entities formed by Textron as to which Textron would provide certain guarantees. In 1994, Textron reactivated its program to purchase up to five million shares of its common stock from time to time in the open market as conditions warrant. In February 1995, Textron announced that it may purchase up to an additional five million shares of its common stock under the program. In June 1995, Textron completed the purchase of the first five million shares under the program. No additional shares had been purchased as of October 28, 1995. Management believes that the Group will continue to have adequate access to credit markets and that its credit facilities and cash flows from operations - --including dividends received from Textron's finance and insurance operations-- will continue to be more than sufficient to meet its operating needs and to finance growth. Finance and insurance subsidiaries: The finance and insurance subsidiaries paid dividends of $94 million and $84 million to the Textron Parent Company Borrowing Group during the nine month periods ended September 30, 1995 and October 1, 1994, respectively. In June 1995, Avco Financial Services (AFS) filed a shelf registration statement with the Securities and Exchange Commission, increasing the amount of registered debt available for issuance by $1.5 billion. During the nine months ended September 30, 1995, AFS issued $1.2 billion of unsecured debt securities, including $892 million under its shelf registration statements. AFS had $1.5 billion and $423 million available at September 30, 1995 for unsecured debt securities under its shelf registration statements with the Securities and Exchange Commission and Canadian provincial security exchanges, respectively. During the nine months ended September 30, 1995, Textron Financial Corporation (TFC) issued $133 million of medium-term notes under a $500 million medium-term note facility under Rule 144A of the Securities Act of 1933, as amended. TFC had $367 million available under this facility at September 30, 1995. During the nine months ended September 30, 1995, the finance subsidiaries had $727 million of interest rate exchange agreements go into effect. Of these, $250 million expire in 1996 and had the effect of exchanging the indices used to determine interest expense under certain variable rate borrowings at September 30, 1995 for the purpose of better matching the rate of interest incurred on financing with the rate of interest earned on certain of their variable rate finance receivables. The balance of the agreements, which have a weighted average original term of 2.4 years and expire through 1999, had the effect of fixing the rate of interest at approximately 8.1% on $477 million of variable rate borrowings at September 30, 1995. Results of Operations - Three months ended September 30, 1995 vs. Three months ended October 1, 1994 Textron reported 1995 third quarter earnings per share of $1.41, up 15% from 1994 earnings per share of $1.23, reflecting higher net income and a decreased number of average shares outstanding. Net income in 1995 of $122 million was up from 1994 net income of $111 million. Revenues were unchanged at $2.4 billion, reflecting the impact of divestitures in 1994. Excluding the revenues of these divested businesses, revenues in the third quarter increased 9% over 1994. The Aircraft segment's revenues and income increased $60 million (11%) and $10 million (18%), respectively, due to improvements at both Bell Helicopter and Cessna Aircraft. Bell Helicopter's revenues and income increased primarily as a result of higher international aircraft sales and higher revenues under the V-22 engineering and manufacturing development contract. Cessna's revenues and income increased due to stronger aircraft deliveries. Cessna's operating margin improved despite higher product development expenses related to two new Citation aircraft models. An announcement was made in June 1995 that the JPATS contract for a new U.S. military trainer would be awarded to a competitor. The award is the subject of pending protests filed by Textron and Rockwell International with the U.S. General Accounting Office. The Automotive segment's revenues and income increased $8 million (2%) and $3 million (13%), respectively, despite lower automotive production in North America, as a result of increased production of models which have Textron content. The Industrial segment's revenues decreased $15 million (4%) and income approximated last year's level, both reflecting the divestiture of the Homelite division in August 1994. Excluding the impact of Homelite, revenues increased 6% and income increased 11%, primarily due to higher sales in the fastening systems and contractor tool businesses. The Systems and Components segment's revenues decreased $116 million (30%) and income decreased $6 million (20%). The decrease in revenues and income was due primarily to the divestiture of the Textron Lycoming Turbine Engine division in October 1994 and to reduced shipments on certain commercial aerospace contracts at other divisions. The Finance segment's revenues increased $78 million (19%), while income increased $10 million (12%). AFS' revenues increased, due primarily to (a) a higher level of finance receivables outstanding, (b) an increase in earned insurance premiums, and (c) an increase in investment income, due to higher yields and a higher level of invested assets, partially offset by a decline in yields on finance receivables, reflecting an increase in the level of retail installment contracts outstanding. Its income increased due to those factors, partially offset by an increase in the average cost of borrowed funds. Revenues at TFC increased, due to a higher level of finance receivables outstanding and higher yields on finance receivables, reflecting the higher interest rate environment. Its income increased as the benefit of the higher revenues was partially offset by an increase in the average cost of borrowed funds. Paul Revere's revenues increased $30 million (9%), due to continued premium growth in its individual disability insurance and group insurance lines of business, partially offset by reduced net investment income, attributable to the transfer of investments in connection with a reinsurance transaction completed in the third quarter. Its income increased $7 million (25%), primarily as a result of the higher premium revenues and improved expense ratios across all business lines. The individual disability insurance benefit ratio improved in the third quarter of 1995 to 83.5%, from 85.3% in the third quarter of 1994 and 87.2% in the second quarter of 1995, due primarily to the reinsurance transaction. Without this transaction, the benefit ratio for the quarter would have been 87.5% as higher claims in the excess risk reinsurance line more than offset an improved benefit ratio in the core individual disability insurance line of business. Corporate expenses and other - net for the three months ended September 30, 1995 were higher than the corresponding level in 1994, as a result of (a) increased compensation expense due to appreciation in the market value of Textron's common stock and (b) expenses related to acquisition activities, partially offset by a pretax charge in 1994 related to the early redemption of debt. Lower interest expense of the Textron Parent Company Borrowing Group primarily reflected a lower level of average borrowing. The quarter's results reflected a slightly higher effective income tax rate than the corresponding prior year rate. Results of Operations - Nine months ended September 30, 1995 vs. Nine months ended October 1, 1994 Earnings per share for the first nine months of 1995 were $4.05, up 14% from the $3.54 reported for the corresponding period in 1994, reflecting higher net income and a decreased number of average shares outstanding. Net income in 1995 was $352 million, up from $321 million for 1994. Revenues were unchanged at $7.3 billion, reflecting the impact of divestitures in 1994. Excluding the revenues of these divested businesses, revenues for the first nine months increased 9% over 1994. The Aircraft segment's revenues and income increased $197 million (12%) and $40 million (30%), respectively, due to improvements at both Bell Helicopter and Cessna Aircraft. Bell Helicopter's revenues increased primarily as a result of higher international aircraft sales and higher revenues under the V-22 engineering and manufacturing development contract, partially offset by lower foreign military aircraft sales. Bell's income increased as a result of the higher revenues, partially offset by increased product development expenses related to new helicopter models. Cessna's income increased due to higher revenues, an improved operating margin and lower bid and proposal expenses for the JPATS competition for a new U.S. military trainer, partially offset by higher product development expenses, principally related to two new Citation aircraft models. The Automotive segment's revenues increased $19 million (2%), while income decreased $2 million (2%), due to higher start-up costs related to the launch of new products and facilities. The Industrial segment's revenues decreased $52 million (5%), while income increased $7 million (6%). Excluding the impact of the 1994 divestiture of the Homelite division, revenues and income increased 15% and 23%, respectively, as a result of higher fastening systems sales (including Avdel's results for nine months in 1995 compared with six months in 1994) and increased contractor tool sales. The Systems and Components segment's revenues decreased $485 million (38%), while income increased $10 million (18%). The decrease in revenues was due to the divestiture of the Textron Lycoming Turbine Engine division in October 1994 and to reduced shipments on certain U.S. Government contracts and commercial aerospace contracts at other divisions. Income for 1994 reflected provisions for the consolidation of certain manufacturing operations and legal matters and charges related to certain valuation adjustments at the Textron Lycoming Turbine Engine division. Excluding Lycoming Turbine Engine and these provisions from 1994, income decreased 11%, due primarily to lower revenues. The Finance segment's revenues increased $234 million (19%), while income increased $25 million (10%). AFS' revenues increased, due primarily to (a) a higher level of finance receivables outstanding, (b) an increase in earned insurance premiums, and (c) an increase in investment income, due to higher yields and a higher level of invested assets, partially offset by a decline in yields on finance receivables, reflecting an increase in the level of retail installment contracts outstanding. Its income increased due to those factors, a decrease in insurance losses and a decrease in the operating expense ratio, partially offset by an increase in the average cost of borrowed funds. Revenues at TFC increased, due to a higher level of finance receivables outstanding and higher yields on finance receivables, reflecting the higher interest rate environment, partially offset by higher leveraged lease income in 1994 and lower fee income in 1995. Its income increased due to those factors and a decrease in loan loss provisions, reflecting an improvement in equipment portfolios and a stabilization of nonperforming real estate loans, partially offset by an increase in the average cost of borrowed funds. Paul Revere's revenues increased $97 million (10%), due to continued premium growth in its individual disability insurance and group insurance lines of business and higher net investment income despite the reinsurance transaction described above, partially offset by lower net realized investment gains. Its income decreased $17 million (16%), primarily as a result of a higher individual disability insurance benefit ratio and lower net realized investment gains ($17 million in 1995 vs. $22 million in 1994), partially offset by a lower benefit ratio in the group disability insurance line of business, increased premium volume, and improved expense ratios across all lines of business. The higher benefit ratio (86.6% vs. 80.8%) in the individual disability insurance business was the result of adverse claims experience from the block of policies issued between 1985 and 1989, especially in Florida and California, partially offset by the favorable impact on the benefit ratio of a reinsurance transaction in the third quarter of 1995. The ratio would have been 88.0% without this transaction. In addition, business issued to physicians has performed below expectations. Corporate expenses and other - net for the nine months ended September 30, 1995 were higher than the corresponding level in 1994, primarily as a result of (a) increased compensation expense due to appreciation in the market value of Textron's common stock and (b) foreign exchange losses in 1995, partially offset by a pretax charge in 1994 related to the early redemption of debt. Lower interest expense of the Textron Parent Company Borrowing Group reflected a lower level of average borrowing, partially offset by an increased average cost of borrowing. Results for the nine months ended September 30, 1995 reflected a slightly higher effective income tax rate than the corresponding prior year rate. PART II. OTHER INFORMATION Item 5. OTHER INFORMATION On September 27, 1995, Textron's Board of Directors approved the renewal of Textron's existing Shareholder Rights Plan by adopting a Renewed Rights Agreement between the Company and First Chicago Trust Company of New York, as rights agent (the "Renewed Rights Agreement"). Pursuant to the Renewed Rights Agreement, one new right (a "Right") will be issued for each share of common stock, par value $0.125 per share, of the Company (the "Common Stock") outstanding upon the "Expiration Date" (as defined in the Company's existing rights agreement dated as of March 8, 1986 between Textron and Morgan Shareholder Services Trust Company [currently known as First Chicago Trust Company of New York], as amended and restated as of December 16, 1987) (the "Record Date") and for each share of Common Stock issued between the Record Date and the Distribution Date (as defined in the Renewed Rights Agreement). Each new Right will initially represent the right to purchase from Textron one one-hundredth of a share of Series C Junior Participating Preferred Stock, upon the terms and subject to the conditions set forth in the Renewed Rights Agreement. The new Rights are redeemable under certain circumstances at $.05 per Right and will expire on September 27, 2005, subject to extension or earlier redemption. The Shareholder Rights Plan is designed to deter coercive takeover tactics and to prevent an acquirer from gaining control of the Company without offering a fair price to all of Textron's shareholders. The plan is not aimed at preventing a takeover, but is intended to preserve the Board's bargaining power and flexibility to maximize value for all Textron shareholders. The description and terms of the new Rights are set forth in the Renewed Rights Agreement, a copy of which is filed herewith and is incorporated herein by reference. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 4 Renewed Rights Agreement dated as of September 27, 1995 between Textron Inc. and First Chicago Trust Company of New York. 12.1 Computation of ratio of income to fixed charges of the Textron Parent Company Borrowing Group. 12.2 Computation of ratio of income to fixed charges of Textron Inc. including all majority-owned subsidiaries. 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the third quarter ended September 30, 1995. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TEXTRON INC. Date: November 10, 1995 s/S. L. Key S. L. Key Executive Vice President and Chief Financial Officer (principal financial officer) LIST OF EXHIBITS The following exhibits are filed as part of this report on Form 10-Q: <TABLE> <CAPTION> Name of Exhibit <C> <S> 4 Renewed Rights Agreement dated as of September 27, 1995 between Textron Inc. and First Chicago Trust Company of New York 12.1 Computation of ratio of income to fixed charges of the Textron Parent Company Borrowing Group 12.2 Computation of ratio of income to fixed charges of Textron Inc. including all majority-owned subsidiaries 27 Financial Data Schedule </TABLE>