SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _______________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended June 29, 1996 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. X Yes No Common stock outstanding at July 27, 1996 - 83,613,000 shares *************************************************************************** <TABLE>
2. Item 1.FINANCIAL STATEMENTS TEXTRON INC. Consolidated Statement of Income (unaudited) (Dollars in millions except per share amounts) Three Months Ended Six Months Ended June July 1, June July 29, 1995 29, 1, 1996 1996 1995 <S> <C> <C> <C> <C> Revenues Manufacturing sales $ 1,867 $ 1,651 $ 3,567 $ 3,205 Finance revenues 517 487 1,031 962 Total revenues 2,384 2,138 4,598 4,167 Costs and expenses Cost of sales 1,520 1,351 2,913 2,629 Selling and administrative 342 306 673 608 Interest 183 209 366 411 Provision for losses on collection of finance receivables, less recoveries 54 39 107 78 Other 69 56 139 107 Total costs and expenses 2,168 1,961 4,198 3,833 Income from continuing operations before income taxes and distributions on preferred securities of subsidiary trust 216 177 400 334 subsidiary trust Income taxes (84) (70) (156) (132) Distributions on preferred securities of subsidiary trust, net of income taxes (7) - (10) - Income from continuing operations 125 107 234 202 Discontinued operation, net of income taxes: Income from operations - 14 16 28 Estimated loss on disposal - - (90) - - 14 (74) 28 Net income $ 125 $ 121 $ 160 $ 230 Per common share: Income from continuing operations $ 1.44 $ 1.23 $ 2.70 $ 2.33 Discontinued operation - 0.17 (0.85) 0.32 Net income $ 1.44 $ 1.40 $ 1.85 $ 2.65 Average shares outstanding* 86,575,000 86,679,000 86,597,000 86,862,000 Dividends per share: $2.08 Preferred stock, Series A $ .52 $ .52 $ 1.04 $ 1.04 $1.40 Preferred stock, Series B $ .35 $ .35 $ .70 $ .70 Common stock $ .44 $ .39 $ .88 $ .78 *Average shares outstanding assume full conversion of preferred stock and exercise of options. See notes to consolidated financial statements. </TABLE> ***************************************************************************
3. <TABLE> Item 1. FINANCIAL STATEMENTS (Continued) TEXTRON INC. Consolidated Balance Sheet (unaudited) <S> <C> <C> (In million) June 29, December 30, 1996 1995 Assets Cash and cash equivalent $ 184 $ 84 Investments 779 778 Receivables - net: Finance 9,524 9,362 Commercial and U.S. Government 887 777 10,411 10,139 Inventories 1,471 1,284 Property, plant and equipment, less accumulated depreciation of $1,700 and $1,585 1,468 1,373 Goodwill, less accumulated amortization of $376 and $347 1,599 1,491 Investment in discontinued operation, less estimated net loss on disposal in 1996 962 1,161 Other (including net prepaid income taxes) 1,480 1,384 Total assets $ 18,354 $ 17,694 Liabilities and shareholders' equity Liabilities Accounts payable $ 765 $ 684 Accrued postretirement benefits other than pensions 919 919 Other accrued liabilities (including income taxes) 2,628 2,468 Debt: Textron Parent Company Borrowing Group 1,715 1,774 Finance subsidiaries 8,563 8,437 10,278 10,211 Total liabilities 14,590 14,282 Textron-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Textron junior subordinated debt securities 483 - Shareholders' equity Capital stock: Preferred stock 15 15 Common stock * 12 12 Capital surplus 770 750 Retained earnings 2,950 2,864 Other (primarily currency translation and securities valuation adjustments) (3) 129 3,744 3,770 Less cost of treasury shares 463 358 Total shareholders' equity 3,281 3,412 Total liabilities and shareholders equity $ 18,354 $ 17,694 *Common shares outstanding 84,175,000 84,935,000 See notes to consolidated financial statements. </TABLE> ***************************************************************************** <TABLE> Item 1. FINANCIAL STATEMENTS (Continued)
4. TEXTRON INC. Consolidated Statement of Cash Flows (unaudited) (In millions) Six Months Ended June 29, July 1, 1996 1995 <S> <C> <C> Cash flows from operating activities: Income from continuing operations $ 234 $ 202 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization 189 166 Provision for losses on receivables 109 81 Changes in assets and liabilities excluding those related to acquisitions and divestitures: Increase in commercial and U.S. Government receivables (1) (65) Increase in inventories (113) (48) Increase in other assets (49) (10) Decrease in accounts payable (11) (7) Increase (decrease) in accrued liabilities 84 (147) Other - net (31) 38 Cash provided by operating activities of continuing operations 411 210 Cash provided by operating activities of discontinued operation 247 247 Net cash provided by operating activities 658 457 Cash flows from investing activities: Purchases of investments (71) (99) Proceeds from disposition of investments 30 45 Maturities and calls of investments 27 27 Finance receivables: Originated or purchased (3,221) (3,072) Repaid or sold 3,027 2,827 Cash used in acquisitions (111) (40) Capital expenditures (128) (131) Other investing activities - net (25) (11) Cash used by investing activities of continuing operations (472) (454) Cash used by investing activities of discontinued operation (274) (304) Net cash used by investing activities (746) (758) Cash flows from financing activities: Increase in short-term debt 463 54 Proceeds from issuance of long-term debt 867 1,719 Principal payments on long-term debt (1,452) (1,294) 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 25 18 Purchases of Textron common stock (117) (93) Purchases of Textron common stock from Paul Revere (34) (22) Dividends paid (74) (67) Cash provided by financing activities of continuing operations 161 315 Cash provided by financing activities of discontinued operation 12 57 Net cash provided by financing activities 173 372 Net increase in cash 85 71 Elimination of cash flow of discontinued operation 15 - Cash at beginning of period 84 49 Cash and cash equivalent at end of period $ 184 $ 120 See notes to consolidated financial statements. </TABLE> *************************************************************************** Item 1. FINANCIAL STATEMENTS (Continued)
5. TEXTRON INC. Notes to Consolidated Financial Statements (unaudited) Note 1: Basis of Presentation The financial statements should be read in conjunction with the financial statements included in Textron's Annual Report on Form 10-K for the year ended December 30, 1995 and Current Report on Form 8-K/A dated May 17, 1996. The financial statements reflect all adjustments (consisting only of normal recurring adjustments, except for recording the estimated loss on disposal of Paul Revere -- see below for additional information on the discontinued operation) which are, in the opinion of management, necessary for a fair presentation of Textron's consolidated financial position at June 29, 1996, and its consolidated results of operations for each of the respective three and six month periods ended June 29, 1996 and July 1, 1995 and consolidated cash flows for each of the six month periods ended June 29, 1996 and July 1, 1995. The results of operations for the six months ended June 29, 1996 are not necessarily indicative of results for the full year. Textron has restated its financial statements for prior periods as presented herein to treat Paul Revere as a discontinued operation. Discontinued operation Discontinued operations relates to the sale of Paul Revere, an 83.3% owned subsidiary. Textron has entered into an agreement with Provident Companies, Inc. whereby Provident will acquire all of the outstanding shares of Paul Revere's common stock for approximately $26 per share. The transaction has received Federal Trade Commission clearance and is subject to state regulatory approvals and the consent of Provident and Paul Revere shareholders. Paul Revere's revenues for the three month periods ended June 30, 1996 and June 30, 1995 were $383 million and $364 million, respectively, and for the six month periods ended on those dates were $766 million and $722 million, respectively. Note 2: Inventories June 29, December 30, 1996 1995 (In millions) Finished goods $ 394 $ 352 Work in process 1,020 911 Raw materials 261 217 1,675 1,480 Less progress payments and customer deposits 204 196 $1,471 $1,284 ***************************************************************************
6. Item 1. FINANCIAL STATEMENTS (Continued) Note 3: Textron-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Textron junior subordinated debt securities On February 9, 1996, a trust sponsored and wholly-owned by Textron issued preferred securities to the public (for $500 million) and shares of its common securities to Textron (for $15.5 million), the proceeds of which were invested by the trust in $515.5 million aggregate principal amount of Textron's newly issued 7.92% Junior Subordinated Deferrable Interest Debentures, due 2045. The debentures are the sole asset of the trust. The amounts due to the trust under the debentures and the related income statement amounts have been eliminated in Textron's consolidated financial statements. The preferred securities accrue and pay cash distributions quarterly at a rate of 7.92% per annum. Textron has guaranteed, on a subordinated basis, distributions and other payments due on the preferred securities. The guarantee, when taken together with Textron's obligations under the debentures and in the indenture pursuant to which the debentures were issued and Textron's obligations under the Amended and Restated Declaration of Trust governing the trust, provides a full and unconditional guarantee of amounts due on the preferred securities. The preferred securities are mandatorily redeemable upon the maturity of the debentures on March 31, 2045, or earlier to the extent of any redemption by Textron of any debentures. The redemption price in either such case will be $25 per share plus accrued and unpaid distributions to the date fixed for redemption. Note 4: 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; or the remediation of allegedly hazardous wastes; or, which 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. On the basis of information presently available, Textron believes that any liability for these suits and proceedings, or the impact of the application of such government regulations, would not have a material effect on Textron's net income or financial condition. ***************************************************************************
7. Item 1. FINANCIAL STATEMENTS (Continued) Note 5: Financial information by borrowing group Textron consists of two borrowing groups - the Textron Parent Company Borrowing Group (comprised of all entities of Textron other than its finance subsidiaries) and its finance subsidiaries. ***************************************************************************
8. <TABLE> Item 1. FINANCIAL STATEMENTS (Continued) Note 5: Financial information by borrowing group (continued) TEXTRON PARENT COMPANY BORROWING GROUP (unaudited) (In millions) Three Months Ended Six Months Ended June 29, July 1, June 29, July 1, <S> <C> <C> <C> <C> Statement of Income 1996 1995 1996 1995 Sales $1,867 $1,651 $3,567 $3,205 Costs and expenses Cost of sales 1,520 1,351 2,913 2,629 Selling and administrative 189 158 366 315 Interest 37 52 75 102 Total costs and expenses 1,746 1,561 3,354 3,046 121 90 213 159 Pretax income of finance subsidiaries 95 87 187 175 Income from continuing operations before income taxes and distributions on preferred securities of subsidiary trust 216 177 400 334 Income taxes (84) (70) (156) (132) Distributions on preferred securities of subsidiary trust, trust, net of income taxes (7) - (10) - Income from continuing operations 125 107 234 202 Discontinued operation, net of income taxes: Income from operations - 14 16 28 Estimated loss on disposal - - (90) - - 14 (74) 28 Net income $ 125 $ 121 $ 160 $ 230 </TABLE> <TABLE> <S> <C> <C> June 29, December 30, Balance Sheet 1996 1995 Assets Cash and cash equivalent $ 160 * $ 56 Receivables - net 887 777 Inventories 1,471 1,284 Investments in finance subsidiaries 1,524 1,475 Property, plant and equipment - net 1,392 1,297 Goodwill, less accumulated amortization of $255 and $233 1,456 1,344 Investment in discontinued operation, less estimated net loss on disposal in 1996 962 1,161 Other (including net prepaid income taxes) 1,258 1,177 Total assets $9,110 $8,571 Liabilities and shareholders' equity Accounts payable and accrued liabilities (including income taxes) $3,631 $3,385 Debt 1,715 1,774 Textron-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Textron junior subordinated debt securities 483 - Shareholders' equity 3,281 3,412 Total liabilities and shareholders' equity $9,110 $8,571 </TABLE> * Includes a short-term investment of $50 million used for acquisitions shortly after the end of the month. *************************************************************************** Item 1. FINANCIAL STATEMENTS (Continued)
9. Note 5: Financial information by borrowing group (continued) <TABLE> TEXTRON PARENT COMPANY BORROWING GROUP (unaudited) (In millions) <S> <C> <C> Six Months Ended June 29 July 1, Statement of Cash Flows 1996 1995 Cash flows from operating activities: Income from continuing operations $ 234 $ 202 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Undistributed earnings of finance subsidiaries (49) (49) Depreciation and amortization 125 109 Changes in assets and liabilities excluding those related to acquisitions and divestitures: Increase in receivables (1) (65) Increase in inventories (113) (48) Decrease (increase) in other assets (55) 5 Increase (decrease) in accounts payable and accrued liabilities 91 (118) Other - net 13 63 Net cash provided by operating activites 245 99 Cash flows from investing activities: Capital expenditures (117) (121) Cash used in acquisitions (111) - Other investing activities - net (18) (33) Net cash used by investing activities (246) (154) Cash flows from financing activities: Increase (decrease) in short-term debt (38) 5 Proceeds from issuance of long-term debt 666 630 Principal payments on long-term debt (806) (347) Issuance of Textron-obligated mandatorily redeemable preferred securities of sub- sidiary trust holding solely Textron junior subordinated debt securities 483 - Proceeds from exercise of stock options 25 18 Purchases of Textron common stock (117) (93) Purchases of Textron common stock from Paul Revere (34) (22) Dividends paid (74) (67) Net cash provided by financing activities 105 124 Net increase in cash 104 69 Cash at beginning of period 56 20 Cash and cash equivalent at end of period $ 160 $ 89 </TABLE> *************************************************************************** Item 1. FINANCIAL STATEMENTS (Continued)
10. Note 5: Financial information by borrowing group (continued) <TABLE> FINANCE SUBSIDIARIES (unaudited) (In millions) <S> <C> <C> <C> <C> Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, Statement of Income 1996 1995 1996 1995 Revenues $ 517 $ 487 $1,031 $ 962 Costs and expenses Selling and administrative 153 148 307 293 Interest 146 157 291 309 Provision for losses on collection of finance receivables, less recoveries 54 39 107 78 Other 69 56 139 107 Total costs and expenses 422 400 844 787 Income before income taxes 95 87 187 175 Income taxes (38) (33) (74) (68) Net income $ 57 $ 54 $ 113 $ 107 </TABLE> <TABLE> <S> <C> <C> June 30, December 31, Balance Sheet 1996 1995 Assets Cash $ 24 $ 28 Investments 773 771 Finance receivables - net 9,524 9,370 Other 678 657 Total assets $10,999 $10,826 Liabilities and equity Accounts payable and accrued liabilities (including income taxes) $ 912 $ 914 Debt 8,563 8,437 Equity 1,524 1,475 Total liabilities and equity $10,999 $10,826 </TABLE> **************************************************************************
11. 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) <S> <C> <C> <C> <C> Three Months Ended Six Months Ended June 29, July 1, June 29, July 1, 1996 1995 1996 1995 REVENUES MANUFACTURING: Aircraft $ 622 $ 635 $1,248 $1,177 Automotive 449 398 864 822 Industrial 564 353 1,003 702 Systems and Components 232 265 452 504 1,867 1,651 3,567 3,205 FINANCE 517 487 1,031 962 Total revenues $2,384 $2,138 $4,598 $4,167 INCOME MANUFACTURING: Aircraft $ 66 $ 64 $ 119 $ 105 Automotive 42 36 80 73 Industrial 60 41 109 84 Systems and Components 20 23 38 42 188 164 346 304 FINANCE 95 87 187 175 Segment operating income 283 251 533 479 Corporate expenses and other - net (30) (22) (58) (43) Interest expense - net (37) (52) (75) (102) Income from continuing operations before income taxes and distributions on preferred securities of subsidiary trust $ 216 $ 177 $ 400 $ 334 </TABLE> ***************************************************************************
12. Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Financial Condition Textron Parent Company Borrowing Group: During the six months ended June 29, 1996, the Textron Parent Company Borrowing Group's operating activities provided cash of $245 million versus $99 million during the corresponding period of 1995. Cash flows for 1996 were affected by income from continuing operations partially offset by inventory buildups at the Aircraft divisions related to the Citation X aircraft and certain helicopter models. The Group's debt decreased by $59 million principally due to the issuance of preferred securities ($500 million -- see below) and cash provided by operations ($245 million) which exceeded cash used for (a) financing acquisitions ($343 million), (b) purchases of 1.4 million shares of Textron common stock under its stock repurchase program ($117 million), (c) capital expenditures ($117 million), (d) payments of dividends ($74 million), and (e) purchases of Textron common stock from Paul Revere ($34 million). During the six months ended July 1, 1995, the Group's operating activities provided cash of $99 million versus $225 million during the corresponding period of 1994. The decrease in 1995 was principally due to increased tax payments in 1995 partially offset by increased income in 1995 and a larger increase in receivables in 1994, due primarily to changed payment terms with certain customers. On February 1, 1996, a new shelf registration statement became effective, covering, in addition to the remaining unused $211 million of unsecured debt securities previously registered, an aggregate amount of $800 million of (a) debt issuable by Textron and (b) preferred securities issuable by entities formed by Textron on behalf of which Textron would provide certain guarantees. On February 9, 1996, a trust sponsored by Textron issued $500 million of such preferred securities, the proceeds of which were invested by the trust in Textron's newly issued 7.92% Junior Subordinated Deferrable Interest Debentures, due 2045. The proceeds from the issuance of the debentures were initially used by Textron for the repayment of long-term borrowings. The Textron Parent Company Borrowing Group's credit facilities not used or reserved as support for outstanding commercial paper or bank borrowings at June 29, 1996 were $791 million. Textron had $511 million available at June 29, 1996 under its shelf registration statements filed with the Securities and Exchange Commission. In July 1996, Textron entered into a five year multi-currency credit agreement with 14 banks for $350 million to be used for its foreign operations. Of the Textron Parent Company Borrowing Group's $602 million principal notional amount of interest rate exchange agreements outstanding at December 30, 1995, $140 million subsequently expired through June 29, 1996. **************************************************************************
13. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In January 1996, Textron acquired Xact Products, Inc., a precision-formed metal parts manufacturer based in Michigan and in April 1996, it acquired Valois Industries (which has been re- named Textron Industries, S.A.), a Paris-based manufacturer of engineered fastening systems, for an aggregate of approximately $256 million. In early July 1996, Textron acquired Klauke, a German manufacturer of electrical connectors, sleeves, and battery- powered tools for the utility and electrical contracting markets and the UK-based washer systems business of Valeo Wiper Systems Ltd, a division of France-based Valeo S.A., for an aggregate of approximately $50 million. Management believes that the Textron Parent Company Borrowing 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 operations-- will continue to be more than sufficient to meet its operating needs and to finance growth. Finance subsidiaries: The finance subsidiaries paid dividends of $64 million and $58 million to the Textron Parent Company Borrowing Group during the six month periods ended June 29, 1996 and July 1, 1995, respectively. During the first half of 1996, the finance subsidiaries had $180 million of interest rate exchange agreements expire and $283 million of interest rate exchange agreements go into effect. These agreements, which have a weighted average original term of two years and expire through 1999, had the effect of fixing the rate of interest at approximately 7.7% on $283 million of variable rate borrowings at June 30, 1996. Results of Operations - Three months ended June 29, 1996 vs. Three months ended July 1, 1995 Textron reported second quarter 1996 earnings per share from continuing operations of $1.44 per share, up 17% from the 1995 amount of $1.23. Income from continuing operations in 1996 of $125 million was up from $107 million for 1995. Revenues increased 12% to $2.4 billion in 1996 from $2.1 billion in 1995. Net income was $125 million versus $121 million in 1995. The Aircraft segment's revenues decreased $13 million (2%), due to lower revenues at Bell Helicopter. However, income increased $2 million (3%), principally at Cessna Aircraft. Bell Helicopter's revenues decreased primarily as a result of lower sales of military helicopters to the U.S. Government ($62 million) and lower revenues on the V-22 EMD contract ($32 million). Bell's income decreased, slightly, as a result of the lower revenues and higher product development expenses related to new helicopter models ($2 million). Cessna's revenues increased primarily as a result of higher sales of business jets 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. ***************************************************************************
14. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Automotive segment's revenues and income increased $51 million (13%) and $6 million (17%), respectively. The revenue increase was due principally to higher North American automotive production, particularly from the improved volume of light trucks at Chrysler. Income increased on the higher volume and improved operating performance. The Industrial segment's revenues increased $211 million (60%) and income increased $19 million (46%). These increases were due principally to higher sales in the fastening systems business ($187 million), reflecting the acquisitions of Elco Industries, Friedr. Boesner GmbH, and Textron Industries S.A. In addition, income increased at E-Z-GO as a result of higher sales of golf cars and improved operating performance. The Systems and Components segment's revenues and income decreased $33 million (12%) and $3 million (13%), respectively. The decrease in revenues was principally due to reduced shipments on certain U.S. Government and commercial aerospace contracts. The Finance segment's revenues increased $30 million (6%), while income increased $8 million (9%). AFS' revenues increased $26 million, primarily as a result of an increase in yields on finance receivables and an increase in earned premiums in both the finance-related and the independent insurance operations. Its income increased $5 million due to those factors, a decrease in the average cost of borrowed funds and an increase in investment income due to a higher level of invested assets. This favorable impact was partially offset by an increase in the ratio of net credit losses to average finance receivables and an increase in the ratio of insurance losses to earned insurance premiums in AFS' independent insurance operations. TFC's income increased $3 million on higher revenues of $4 million, due to a higher level of average finance receivables, higher fee income, principally due to increased arrangement fee income and late charges, and a decrease in the average cost of borrowed funds. These favorable factors were partially offset by a higher provision for loan losses, principally due to higher charge-offs in the equipment portfolio. Corporate expenses and other - net increased $8 million, due principally to the reclassification of certain nondebt related expense from the interest expense line ($5 million). Interest expense - net for the Textron Parent Company Borrowing Group decreased $15 million due to the reclassification and lower average debt, due principally to the payment of debt with the proceeds from the issuance of preferred securities in February 1996. Results of Operations - Six months ended June 29, 1996 vs. Six months ended July 1, 1995 Textron reported first half 1996 earnings per share from continuing operations of $2.70 per share, up 16% from the 1995 amount of $2.33. Income from continuing operations in 1996 of $234 million was up from $202 million for 1995. Revenues increased 10% to $4.6 billion in 1996 from $4.2 billion in 1995. Net income was $160 million versus $230 million in 1995. The Aircraft segment's revenues and income increased $71 million (6%) and $14 million (13%), respectively. Bell Helicopter's revenues decreased primarily as a result of lower sales of ***************************************************************************
15. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) military helicopters to the U.S. Government ($76 million) and lower revenues on the V-22 program ($12 million), partially offset by higher domestic and international helicopter sales, including increased deliveries on the Canadian Forces contract ($46 million). Bell's income increased as a result of lower product development expenses related to new helicopter models and additional income on the V-22 program, partially offset by lower income related to the decreased revenues. Cessna's revenues increased primarily as a result of the higher sales of business jets 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. The Automotive segment's revenues and income increased $42 million (5%) and $7 million (10%), respectively. Despite overall lower North American automotive production and the impact of a strike at certain General Motors' plants in the first quarter 1996, revenues increased as a result of improved volume of light trucks at Chrysler as well as a ramp-up in sales at Textron's Saltillo, Mexico facility. Income increased as a result of the higher revenues and improved operating performance. The Industrial segment's revenues and income increased $301 million (43%) and $25 million (30%), respectively. These increases were due principally to higher sales in the fastening systems business ($264 million), reflecting the acquisitions of Elco Industries, Friedr. Boesner GmbH, and Textron Industries S.A. In addition, income increased at E-Z-GO as a result of higher sales of golf cars and better operating performance, while revenues and income decreased at Speidel, due to lower retail demand for certain products. The Systems and Components segment's revenues and income decreased $52 million (10%) and $4 million (10%), respectively. The decrease in revenues was principally due to reduced shipments on certain U.S. Government and commercial aerospace contracts. The Finance segment's revenues increased $69 million (7%), while income increased $12 million (7%). AFS' revenues increased $61 million, primarily as a result of an increase in yields on finance receivables (18.59% in the first half 1996 vs. 17.88% in the first half 1995) and an increase in earned premiums in both the finance-related and the independent insurance operations. Its income increased $8 million due to those factors, a decrease in the average cost of borrowed funds (6.95% in the first half 1996 vs. 7.41% in the first half 1995) and an increase in investment income due to a higher level of invested assets. This favorable impact was partially offset by an increase in the ratio of net credit losses to average finance receivables (2.64% in the first half 1996 vs. 1.89% in the first half 1995) and an increase in the ratio of insurance losses to earned insurance premiums in AFS' independent insurance operations. Throughout the first six months of 1996, economic conditions have continued to burden the consumer finance customer and, as a result, receivable volume has been negatively affected and delinquencies and net credit losses have remained higher than historical norms. TFC's income increased $4 million on higher revenues of $8 million , due to a higher level of average finance receivables ($3.019 billion in the first half 1996 vs. $2.804 billion in the first half 1995), higher fee income, principally due to increased arrangement fee income and late charges, and a decrease ***************************************************************************
16. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) in the average cost of borrowed funds (6.24% in the first half 1996 vs. 6.68% in the first half 1995). These favorable factors were partially offset by a higher provision for loan losses, principally due to higher charge-offs in the equipment portfolio and reserve strengthening. Corporate expenses and other - net increased $15 million, due principally to the reclassification of certain nondebt related expense from the interest expense line ($11 million) and a pretax charge related to the early redemption of debt ($2 million). Interest expense - net for the Textron Parent Company Borrowing Group decreased $27 million due to the reclassification, a lower average cost of borrowing and lower average debt, due in part to the payment of debt from the proceeds from the sale of preferred securities in February 1996. ***************************************************************************
17. PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At Textron's annual meeting of shareholders held on April 24, 1996, the following items were voted upon: 1. The following persons were elected to serve as directors in Class III for three year terms expiring in 1999 and received the votes listed. There were no abstentions or broker non-votes applicable to the election of directors: Name For Withheld H. Jesse Arnelle 70,607,265 3,028,683 Brian H. Rowe 70,632,670 3,003,278 Sam F. Segnar 70,566,159 3,069,789 Jean H. Sisco 70,492,241 3,143,707 Martin D. Walker 70,673,894 2,962,054 The following directors have terms of office which continued after the meeting: Lewis B. Campbell, R. Stuart Dickson, Paul E. Gagne, James F. Hardymon, John D. Macomber, Barbara Scott Preiskel, John W. Snow and Thomas B. Wheeler. 2. The appointment of Ernst & Young LLP as Textron's independent auditors for 1996 was ratified by the following vote: For Against Abstain Broker Non-Votes 72,872,608 441,195 322,145 0 3. A shareholder resolution recommending that all future non-employee directors not be granted pension benefits and that current non-employee directors voluntarily relinquish their pension benefits was defeated by the following vote: For Against Abstain Broker Non-Votes 27,667,951 39,363,499 1,893,135 4,711,363 *****************************************************************************
18. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 12.1 Computation of ratio of income to combined fixed charges and preferred securities dividends of the Textron Parent Company Borrowing Group. 12.2 Computation of ratio of income to combined fixed charges and preferred securities dividends of Textron Inc. including all majority-owned subsidiaries. 27 Financial Data Schedule (filed electronically only) (b) Reports on Form 8-K During the quarter ended June 29, 1996, Textron filed the following reports on Form 8-K: (i) Current Report on Form 8-K filed with the Securities and Exchange Commission dated May 2, 1996, reporting, under Item 5 (Other Events) and Item 7 (Exhibits), (a) information regarding the proposed sale to Provident Companies, Inc. of all the outstanding shares of The Paul Revere Corporation, 83% of which are owned by Textron, and (b) that Textron had restated its financial statements for each of the previous three fiscal years to reflect The Paul Revere Corporation as a discontinued operation. (ii) Current Report on Form 8-K/A filed with the Securities and Exchange Commission dated May 17, 1996, amending the above mentioned Current Report on Form 8-K to revise certain financial data included therein. ***************************************************************************
19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TEXTRON INC. Date: August 12, 1996 s/R. L. Yates R. L. Yates Vice President and Controller (principal accounting officer) ***************************************************************************
LIST OF EXHIBITS The following exhibits are filed as part of this report on Form 10-Q: Name of Exhibit 12.1 Computation of ratio of income to combined fixed charges and preferred securities dividends of the Textron Parent Company Borrowing Group 12.2 Computation of ratio of income to combined fixed charges and preferred securities dividends of Textron Inc. including all majority-owned subsidiaries 27 Financial Data Schedule (filed electronically only) ***************************************************************************