thirdq.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 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 29, 2007
|
|
OR
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Commission
file number 1-5480
_______________
TEXTRON
INC.
(Exact
name of registrant as specified in its charter)
_______________
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
|
05-0315468
(I.R.S.
Employer Identification 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 ü No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer
ü Accelerated
filer ___ Non-accelerated filer ___
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
__ No ü
Common
stock outstanding at October 20, 2007 – 249,249,973 shares
TEXTRON
INC.
INDEX
|
|
Page
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
Item
1. |
|
3
|
|
|
4
|
|
|
5
|
|
|
7
|
Item
2.
|
|
14
|
Item
3.
|
|
24
|
Item
4.
|
|
25
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
|
Legal
Proceedings
|
26
|
Item
2.
|
|
26
|
Item
5.
|
|
27
|
Item
6.
|
|
28
|
|
|
29
|
|
|
|
PART
I. FINANCIAL INFORMATION
Item
1. FINANCIAL STATEMENTS
Consolidated
Statements of Operations (Unaudited)
(In
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
revenues
|
|
$ |
3,049
|
|
|
$ |
2,625
|
|
|
$ |
8,799
|
|
|
$ |
7,703
|
|
Finance
revenues
|
|
|
214
|
|
|
|
212
|
|
|
|
663
|
|
|
|
586
|
|
Total
revenues
|
|
|
3,263
|
|
|
|
2,837
|
|
|
|
9,462
|
|
|
|
8,289
|
|
Costs,
expenses and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
2,390
|
|
|
|
2,099
|
|
|
|
6,945
|
|
|
|
6,135
|
|
Selling
and administrative
|
|
|
397
|
|
|
|
369
|
|
|
|
1,197
|
|
|
|
1,106
|
|
Interest
expense, net
|
|
|
117
|
|
|
|
117
|
|
|
|
364
|
|
|
|
320
|
|
Provision
for losses on finance receivables
|
|
|
6
|
|
|
|
10
|
|
|
|
22
|
|
|
|
18
|
|
Total
costs, expenses and
other
|
|
|
2,910
|
|
|
|
2,595
|
|
|
|
8,528
|
|
|
|
7,579
|
|
Income
from continuing operations before income taxes
|
|
|
353
|
|
|
|
242
|
|
|
|
934
|
|
|
|
710
|
|
Income
taxes
|
|
|
(111 |
) |
|
|
(67 |
) |
|
|
(279 |
) |
|
|
(200 |
) |
Income
from continuing operations
|
|
|
242
|
|
|
|
175
|
|
|
|
655
|
|
|
|
510
|
|
Income
(loss) from discontinued operations, net of income
taxes
|
|
|
13
|
|
|
|
(6 |
) |
|
|
6
|
|
|
|
(104 |
) |
Net
income
|
|
$ |
255
|
|
|
$ |
169
|
|
|
$ |
661
|
|
|
$ |
406
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
0.97
|
|
|
$ |
0.70
|
|
|
$ |
2.62
|
|
|
$ |
1.99
|
|
Discontinued
operations, net of
income taxes
|
|
|
0.05
|
|
|
|
(0.03 |
) |
|
|
0.03
|
|
|
|
(0.41 |
) |
Basic
earnings per share
|
|
$ |
1.02
|
|
|
$ |
0.67
|
|
|
$ |
2.65
|
|
|
$ |
1.58
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
0.95
|
|
|
$ |
0.68
|
|
|
$ |
2.57
|
|
|
$ |
1.95
|
|
Discontinued
operations, net of
income taxes
|
|
|
0.05
|
|
|
|
(0.02 |
) |
|
|
0.03
|
|
|
|
(0.40 |
) |
Diluted
earnings per share
|
|
$ |
1.00
|
|
|
$ |
0.66
|
|
|
$ |
2.60
|
|
|
$ |
1.55
|
|
Dividends
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.08
Preferred stock, Series
A
|
|
$ |
0.52
|
|
|
$ |
0.52
|
|
|
$ |
1.56
|
|
|
$ |
1.56
|
|
$1.40
Preferred stock, Series
B
|
|
$ |
0.35
|
|
|
$ |
0.35
|
|
|
$ |
1.05
|
|
|
$ |
1.05
|
|
Common
stock
|
|
$ |
0.23
|
|
|
$ |
0.19
|
|
|
$ |
0.62
|
|
|
$ |
0.58
|
|
See
Notes to the consolidated financial statements.
3.
Consolidated
Balance Sheets (Unaudited)
(Dollars
in millions)
|
|
September
29,
2007
|
|
|
December
30,
2006
|
|
Assets
|
|
|
|
|
|
|
Manufacturing
group
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
901
|
|
|
$ |
733
|
|
Accounts
receivable, less allowance for doubtful accounts of $35 and
$34
|
|
|
1,082
|
|
|
|
964
|
|
Inventories
|
|
|
2,634
|
|
|
|
2,069
|
|
Other
current assets
|
|
|
567
|
|
|
|
521
|
|
Total
current
assets
|
|
|
5,184
|
|
|
|
4,287
|
|
Property,
plant and equipment, less accumulated
depreciation
and amortization
of $2,335 and $2,147
|
|
|
1,832
|
|
|
|
1,773
|
|
Goodwill
|
|
|
1,273
|
|
|
|
1,257
|
|
Other
assets
|
|
|
1,278
|
|
|
|
1,233
|
|
Total
Manufacturing group
assets
|
|
|
9,567
|
|
|
|
8,550
|
|
Finance
group
|
|
|
|
|
|
|
|
|
Cash
|
|
|
41
|
|
|
|
47
|
|
Finance
receivables, less allowance for losses of $91 and $93
|
|
|
8,084
|
|
|
|
8,217
|
|
Goodwill
|
|
|
169
|
|
|
|
169
|
|
Other
assets
|
|
|
575
|
|
|
|
567
|
|
Total
Finance group
assets
|
|
|
8,869
|
|
|
|
9,000
|
|
Total
assets
|
|
$ |
18,436
|
|
|
$ |
17,550
|
|
Liabilities
and shareholders’ equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Manufacturing
group
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt and short-term debt
|
|
$ |
93
|
|
|
$ |
80
|
|
Accounts
payable
|
|
|
998
|
|
|
|
814
|
|
Accrued
liabilities
|
|
|
2,336
|
|
|
|
2,100
|
|
Total
current
liabilities
|
|
|
3,427
|
|
|
|
2,994
|
|
Other
liabilities
|
|
|
2,366
|
|
|
|
2,329
|
|
Long-term
debt
|
|
|
1,730
|
|
|
|
1,720
|
|
Total
Manufacturing group
liabilities
|
|
|
7,523
|
|
|
|
7,043
|
|
Finance
group
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
552
|
|
|
|
499
|
|
Deferred
income taxes
|
|
|
495
|
|
|
|
497
|
|
Debt
|
|
|
6,721
|
|
|
|
6,862
|
|
Total
Finance group
liabilities
|
|
|
7,768
|
|
|
|
7,858
|
|
Total
liabilities
|
|
|
15,291
|
|
|
|
14,901
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
Capital
stock:
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
2
|
|
|
|
10
|
|
Common
stock
|
|
|
16
|
|
|
|
26
|
|
Capital
surplus
|
|
|
1,151
|
|
|
|
1,786
|
|
Retained
earnings
|
|
|
2,584
|
|
|
|
6,211
|
|
Accumulated
other comprehensive loss
|
|
|
(511 |
) |
|
|
(644 |
) |
|
|
|
3,242
|
|
|
|
7,389
|
|
Less
cost of treasury shares
|
|
|
97
|
|
|
|
4,740
|
|
Total
shareholders’ equity
|
|
|
3,145
|
|
|
|
2,649
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
18,436
|
|
|
$ |
17,550
|
|
Common
shares outstanding (in thousands)
|
|
|
249,096
|
|
|
|
251,192
|
|
|
See
Notes to the consolidated financial
statements
|
Page
4
Consolidated
Statements of Cash Flows (Unaudited)
For
the
Nine Months Ended September 29, 2007 and September 30, 2006,
respectively
(In
millions)
|
|
Consolidated
|
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
661
|
|
|
$ |
406
|
|
(Loss)
income from discontinued operations
|
|
|
(6 |
) |
|
|
104
|
|
Income
from continuing operations
|
|
|
655
|
|
|
|
510
|
|
Adjustments
to reconcile income from continuing operations to net cash provided
by
operating activities:
|
|
|
|
|
|
|
|
|
Earnings
of Finance group, net
of distributions
|
|
|
-
|
|
|
|
-
|
|
Depreciation
and
amortization
|
|
|
238
|
|
|
|
210
|
|
Provision
for losses on
finance receivables
|
|
|
22
|
|
|
|
18
|
|
Share-based
compensation
|
|
|
30
|
|
|
|
22
|
|
Deferred
income
taxes
|
|
|
12
|
|
|
|
12
|
|
Changes
in assets and
liabilities excluding those related to acquisitions and
divestitures:
|
|
|
|
|
|
|
|
|
Accounts
receivable,
net
|
|
|
(98 |
) |
|
|
(40 |
) |
Inventories
|
|
|
(557 |
) |
|
|
(456 |
) |
Other
assets
|
|
|
30
|
|
|
|
97
|
|
Accounts
payable
|
|
|
172
|
|
|
|
170
|
|
Accrued
and other
liabilities
|
|
|
229
|
|
|
|
205
|
|
Captive
finance receivables,
net
|
|
|
(157 |
) |
|
|
(263 |
) |
Other
operating activities,
net
|
|
|
23
|
|
|
|
50
|
|
Net
cash provided by operating
activities of continuing operations
|
|
|
599
|
|
|
|
535
|
|
Net
cash provided by (used in)
operating activities of discontinued operations
|
|
|
5
|
|
|
|
(8 |
) |
Net
cash provided by operating
activities
|
|
|
604
|
|
|
|
527
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Finance
receivables:
|
|
|
|
|
|
|
|
|
Originated
or
purchased
|
|
|
(8,915 |
) |
|
|
(8,557 |
) |
Repaid
|
|
|
8,491
|
|
|
|
7,158
|
|
Proceeds
on receivables sales
and securitization sales
|
|
|
791
|
|
|
|
185
|
|
Capital
expenditures
|
|
|
(230 |
) |
|
|
(224 |
) |
Proceeds
on sale of property, plant and equipment
|
|
|
23
|
|
|
|
4
|
|
Other
investing activities, net
|
|
|
17
|
|
|
|
50
|
|
Net
cash provided by (used in)
investing activities of continuing operations
|
|
|
177
|
|
|
|
(1,384 |
) |
Net
cash provided by investing
activities of discontinued operations
|
|
|
48
|
|
|
|
624
|
|
Net
cash provided by (used in)
investing activities
|
|
|
225
|
|
|
|
(760 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
(Decrease)
increase in short-term debt
|
|
|
(692 |
) |
|
|
153
|
|
Proceeds
from issuance of long-term debt
|
|
|
1,430
|
|
|
|
1,656
|
|
Principal
payments and retirements of long-term debt
|
|
|
(1,121 |
) |
|
|
(805 |
) |
Proceeds
from employee stock ownership plans
|
|
|
81
|
|
|
|
153
|
|
Purchases
of Textron common stock
|
|
|
(304 |
) |
|
|
(749 |
) |
Dividends
paid
|
|
|
(97 |
) |
|
|
(195 |
) |
Dividends
paid to Manufacturing group
|
|
|
-
|
|
|
|
-
|
|
Capital
contributions paid to Finance group
|
|
|
-
|
|
|
|
-
|
|
Excess
tax benefits related to stock option exercises
|
|
|
16
|
|
|
|
27
|
|
Net
cash (used in) provided by
financing activities of continuing operations
|
|
|
(687 |
) |
|
|
240
|
|
Net
cash provided by financing
activities of discontinued operations
|
|
|
-
|
|
|
|
2
|
|
Net
cash (used in) provided by
financing activities
|
|
|
(687 |
) |
|
|
242
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
20
|
|
|
|
17
|
|
Net
increase in cash and cash equivalents
|
|
|
162
|
|
|
|
26
|
|
Cash
and cash equivalents at beginning of period
|
|
|
780
|
|
|
|
796
|
|
Cash
and cash equivalents at end of period
|
|
$ |
942
|
|
|
$ |
822
|
|
Supplemental
schedule of non-cash investing and financing activities from continuing
operations:
|
|
|
|
|
|
|
|
|
Capital
expenditures financed through capital leases
|
|
$ |
22
|
|
|
$ |
14
|
|
See
Notes to the consolidated financial statements.
5.
TEXTRON
INC.
Consolidated
Statements of Cash Flows (Unaudited) (Continued)
For
the
Nine Months Ended September 29, 2007 and September 30, 2006,
respectively
(In
millions)
|
|
Manufacturing
Group*
|
|
|
Finance
Group*
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
661
|
|
|
$ |
406
|
|
|
$ |
108
|
|
|
$ |
113
|
|
(Loss)
income from discontinued operations
|
|
|
(6 |
) |
|
|
104
|
|
|
|
-
|
|
|
|
-
|
|
Income
from continuing operations
|
|
|
655
|
|
|
|
510
|
|
|
|
108
|
|
|
|
113
|
|
Adjustments
to reconcile income from continuing operations to net cash provided
by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
of Finance group, net
of distributions
|
|
|
27
|
|
|
|
(33 |
) |
|
|
-
|
|
|
|
-
|
|
Depreciation
and
amortization
|
|
|
208
|
|
|
|
181
|
|
|
|
30
|
|
|
|
29
|
|
Provision
for losses on
finance receivables
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
|
|
18
|
|
Share-based
compensation
|
|
|
30
|
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
Deferred
income
taxes
|
|
|
(4 |
) |
|
|
(6 |
) |
|
|
16
|
|
|
|
18
|
|
Changes
in assets and
liabilities excluding those related to acquisitions and
divestitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable,
net
|
|
|
(98 |
) |
|
|
(40 |
) |
|
|
-
|
|
|
|
-
|
|
Inventories
|
|
|
(548 |
) |
|
|
(418 |
) |
|
|
-
|
|
|
|
-
|
|
Other
assets
|
|
|
1
|
|
|
|
80
|
|
|
|
22
|
|
|
|
7
|
|
Accounts
payable
|
|
|
172
|
|
|
|
170
|
|
|
|
-
|
|
|
|
-
|
|
Accrued
and other
liabilities
|
|
|
186
|
|
|
|
126
|
|
|
|
43
|
|
|
|
79
|
|
Captive
finance receivables,
net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
operating activities,
net
|
|
|
25
|
|
|
|
44
|
|
|
|
(2 |
) |
|
|
6
|
|
Net
cash provided by operating
activities of continuing operations
|
|
|
654
|
|
|
|
636
|
|
|
|
239
|
|
|
|
270
|
|
Net
cash provided by (used in)
operating activities of discontinued operations
|
|
|
5
|
|
|
|
(4 |
) |
|
|
-
|
|
|
|
(4 |
) |
Net
cash provided by operating
activities
|
|
|
659
|
|
|
|
632
|
|
|
|
239
|
|
|
|
266
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originated
or
purchased
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,690 |
) |
|
|
(9,298 |
) |
Repaid
|
|
|
-
|
|
|
|
-
|
|
|
|
9,070
|
|
|
|
7,636
|
|
Proceeds
on receivables sales
and securitization sales
|
|
|
-
|
|
|
|
-
|
|
|
|
830
|
|
|
|
185
|
|
Capital
expenditures
|
|
|
(223 |
) |
|
|
(216 |
) |
|
|
(7 |
) |
|
|
(8 |
) |
Proceeds
on sale of property, plant and equipment
|
|
|
23
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
Other
investing activities, net
|
|
|
(3 |
) |
|
|
-
|
|
|
|
18
|
|
|
|
22
|
|
Net
cash (used in) provided by
investing activities of continuing operations
|
|
|
(203 |
) |
|
|
(212 |
) |
|
|
221
|
|
|
|
(1,463 |
) |
Net
cash provided by investing
activities of discontinued operations
|
|
|
48
|
|
|
|
624
|
|
|
|
-
|
|
|
|
-
|
|
Net
cash (used in) provided by
investing activities
|
|
|
(155 |
) |
|
|
412
|
|
|
|
221
|
|
|
|
(1,463 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
increase in short-term debt
|
|
|
(37 |
) |
|
|
(280 |
) |
|
|
(655 |
) |
|
|
433
|
|
Proceeds
from issuance of long-term debt
|
|
|
1
|
|
|
|
-
|
|
|
|
1,429
|
|
|
|
1,656
|
|
Principal
payments and retirements of long-term debt
|
|
|
(13 |
) |
|
|
(15 |
) |
|
|
(1,108 |
) |
|
|
(790 |
) |
Proceeds
from employee stock ownership plans
|
|
|
81
|
|
|
|
153
|
|
|
|
-
|
|
|
|
-
|
|
Purchases
of Textron common stock
|
|
|
(304 |
) |
|
|
(749 |
) |
|
|
-
|
|
|
|
-
|
|
Dividends
paid
|
|
|
(97 |
) |
|
|
(195 |
) |
|
|
-
|
|
|
|
-
|
|
Dividends
paid to Manufacturing group
|
|
|
-
|
|
|
|
-
|
|
|
|
(135 |
) |
|
|
(80 |
) |
Capital
contributions paid to Finance Group
|
|
|
-
|
|
|
|
(18 |
) |
|
|
-
|
|
|
|
18
|
|
Excess
tax benefits related to stock option exercises
|
|
|
16
|
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
Net
cash (used in) provided by
financing activities of continuing operations
|
|
|
(353 |
) |
|
|
(1,077 |
) |
|
|
(469 |
) |
|
|
1,237
|
|
Net
cash provided by financing
activities of discontinued operations
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
Net
cash (used in) provided by
financing activities
|
|
|
(353 |
) |
|
|
(1,075 |
) |
|
|
(469 |
) |
|
|
1,237
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
17
|
|
|
|
16
|
|
|
|
3
|
|
|
|
1
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
168
|
|
|
|
(15 |
) |
|
|
(6 |
) |
|
|
41
|
|
Cash
and cash equivalents at beginning of period
|
|
|
733
|
|
|
|
786
|
|
|
|
47
|
|
|
|
10
|
|
Cash
and cash equivalents at end of period
|
|
$ |
901
|
|
|
$ |
771
|
|
|
$ |
41
|
|
|
$ |
51
|
|
Supplemental
schedule of non-cash investing and financing activities from continuing
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures financed through capital leases
|
|
$ |
22
|
|
|
$ |
14
|
|
|
$ |
-
|
|
|
$ |
-
|
|
*Textron
is segregated into a Manufacturing group and a Finance group, as described
in
Note 1 to the consolidated financial statements. The Finance group’s pre-tax
income in excess of dividends paid is excluded from the Manufacturing group’s
cash flows. All significant transactions between the borrowing groups have
been
eliminated from the consolidated column provided on page 5.
See
Notes to the consolidated financial statements.
6.
Notes
to the Consolidated Financial Statements (Unaudited)
Note
1: Basis of Presentation
The
consolidated interim financial statements included in this quarterly report
should be read in conjunction with the consolidated financial statements
included in our Annual Report on Form 10-K for the year ended December 30,
2006. In the opinion of management, the interim financial statements
reflect all adjustments (consisting only of normal recurring adjustments) that
are necessary for the fair presentation of our consolidated financial position,
results of operations and cash flows for the interim periods
presented. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full
year.
Our
financings are conducted through two separate borrowing groups. The
Manufacturing group consists of Textron Inc., consolidated with the entities
that operate in the Bell, Cessna and Industrial segments, while the Finance
group consists of the Finance segment, comprised of Textron Financial
Corporation and its subsidiaries. We designed this framework to enhance our
borrowing power by separating the Finance group. Our Manufacturing group
operations include the development, production and delivery of tangible goods
and services, while our Finance group provides financial services. Due to the
fundamental differences between each borrowing group’s activities, investors,
rating agencies and analysts use different measures to evaluate each group’s
performance. To support those evaluations, we present balance sheet and cash
flow information for each borrowing group within the consolidated financial
statements. All significant intercompany transactions are eliminated
from the consolidated financial statements, including retail and wholesale
financing activities for inventory sold by our Manufacturing group that is
financed by our Finance group.
Note
2: Inventories
(In
millions)
|
|
September
29,
2007
|
|
|
December
30,
2006
|
|
Finished
goods
|
|
$ |
929
|
|
|
$ |
665
|
|
Work
in process
|
|
|
1,712
|
|
|
|
1,562
|
|
Raw
materials
|
|
|
527
|
|
|
|
435
|
|
|
|
|
3,168
|
|
|
|
2,662
|
|
Less
progress/milestone payments
|
|
|
534
|
|
|
|
593
|
|
|
|
$ |
2,634
|
|
|
$ |
2,069
|
|
Note
3: Finance Receivables
In
the
first quarter of 2007, we adopted Financial Accounting Standards Board (“FASB”)
Staff Position No. 13-2 “Accounting for a Change or Projected Change in the
Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease
Transaction” (“FSP 13-2”). FSP 13-2 requires a recalculation of
returns on leveraged leases if there is a change or projected change in the
timing of cash flows related to income taxes generated by the leveraged
leases. The impact of any estimated change in projected cash flows
must be reported as an adjustment to the net leveraged lease investment and
retained earnings at the date of adoption. Our Finance group has
leveraged leases with an initial investment balance of $209 million that we
estimate could be impacted by changes in the timing of cash flows related to
income taxes. Upon the adoption, we reduced retained earnings for the
$33 million cumulative effect of a change in accounting principle, and reduced
our investment in these leveraged leases by $50 million and deferred income
tax
liabilities by $17 million.
7.
Note
4: Earnings per Share
We
calculate basic and diluted earnings per share based on income available to
common shareholders, which approximates net income for each
period. We use the weighted-average number of common shares
outstanding during the period for the computation of basic earnings per share.
Diluted earnings per share includes the dilutive effect of convertible preferred
shares, stock options and restricted stock in the weighted-average number of
common shares outstanding.
The
weighted-average shares outstanding for basic and diluted earnings per share
are
as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(In
thousands)
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
Basic
weighted-average shares outstanding
|
|
|
249,332
|
|
|
|
251,618
|
|
|
|
249,779
|
|
|
|
256,256
|
|
Dilutive
effect of convertible preferred shares,
stock
options and restricted
stock
|
|
|
4,989
|
|
|
|
5,141
|
|
|
|
4,818
|
|
|
|
5,442
|
|
Diluted
weighted-average shares outstanding
|
|
|
254,321
|
|
|
|
256,759
|
|
|
|
254,597
|
|
|
|
261,698
|
|
Note
5: Shareholders’ Equity
On
July
18, 2007, our Board of Directors approved a two-for-one split of our common
stock to be effected in the form of a 100% stock dividend. The
additional shares resulting from the stock split were distributed on August
24,
2007 to shareholders of record on August 3, 2007. All historical
shares and per share data have been restated to reflect the stock
split. Also on July 18, 2007, the Board of Directors approved the
retirement of 85 million shares of treasury stock to reduce annual exchange
listing costs.
Changes
in our shareholders’ equity for the nine months ended September 29, 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
Capital
Stock
|
|
|
Capital
Surplus
|
|
|
Retained
Earnings
|
|
|
Treasury
Shares
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Total
Shareholders’
Equity
|
|
Balance
at December 30, 2006
|
|
$ |
36
|
|
|
$ |
1,786
|
|
|
$ |
6,211
|
|
|
$ |
(4,740 |
) |
|
$ |
(644 |
) |
|
$ |
2,649
|
|
Cumulative
effect of
change
in
accounting - FSP
13-2
|
|
|
-
|
|
|
|
-
|
|
|
|
(33 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
(33 |
) |
Cumulative
effect
of change
in
accounting - FIN
48
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
661
|
|
|
|
-
|
|
|
|
-
|
|
|
|
661
|
|
Currency
translation
adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
54
|
|
|
|
54
|
|
Deferred
losses on hedge
contracts
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
|
|
35
|
|
Recognition
of prior service
cost and
unrealized
losses on pension
and
postretirement
benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44
|
|
|
|
44
|
|
Retirement
of treasury
shares
|
|
|
(18 |
) |
|
|
(770 |
) |
|
|
(4,123 |
) |
|
|
4,911
|
|
|
|
-
|
|
|
|
-
|
|
Dividends
declared
|
|
|
-
|
|
|
|
-
|
|
|
|
(154 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
(154 |
) |
Exercise
of stock options and
share-
based
compensation
|
|
|
-
|
|
|
|
120
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
123
|
|
Purchases
of common
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(295 |
) |
|
|
-
|
|
|
|
(295 |
) |
Issuance
of common
stock
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
|
24
|
|
|
|
-
|
|
|
|
39
|
|
Balance
at September 29, 2007
|
|
$ |
18
|
|
|
$ |
1,151
|
|
|
$ |
2,584
|
|
|
$ |
(97 |
) |
|
$ |
(511 |
) |
|
$ |
3,145
|
|
8.
Our
comprehensive income for the periods is provided below:
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(In
millions)
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
Net
income
|
|
$ |
255
|
|
|
$ |
169
|
|
|
$ |
661
|
|
|
$ |
406
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation
adjustment
|
|
|
25
|
|
|
|
27
|
|
|
|
54
|
|
|
|
24
|
|
Net
deferred gain (loss) on
hedge contracts
|
|
|
13
|
|
|
|
(8 |
) |
|
|
35
|
|
|
|
6
|
|
Recognition
of prior service
cost and unrealized
losses
on pension and
postretirement benefits
|
|
|
15
|
|
|
|
-
|
|
|
|
44
|
|
|
|
-
|
|
Reclassifications
due to the
sale of Fastening
Systems:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation
adjustment
|
|
|
-
|
|
|
|
(71 |
) |
|
|
-
|
|
|
|
(71 |
) |
Pension
liability
adjustment
|
|
|
-
|
|
|
|
39
|
|
|
|
-
|
|
|
|
39
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2 |
) |
Comprehensive
income
|
|
$ |
308
|
|
|
$ |
156
|
|
|
$ |
794
|
|
|
$ |
402
|
|
Note
6: Share-Based Compensation
The
compensation expense we recorded in net income for our share-based compensation
plans is as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(In
millions)
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
Compensation
expense, net of hedge income or
expense
|
|
$ |
26
|
|
|
$ |
12
|
|
|
$ |
67
|
|
|
$ |
52
|
|
Income
tax benefit
|
|
|
(14 |
) |
|
|
(2 |
) |
|
|
(33 |
) |
|
|
(20 |
) |
Total
net compensation costs included in net income
|
|
$ |
12
|
|
|
$ |
10
|
|
|
$ |
34
|
|
|
$ |
32
|
|
Net
compensation costs included in discontinued
operations
|
|
$ |
-
|
|
|
$ |
(4 |
) |
|
$ |
-
|
|
|
$ |
(2 |
) |
Net
compensation costs included in continuing
operations
|
|
$ |
12
|
|
|
$ |
14
|
|
|
$ |
34
|
|
|
$ |
34
|
|
Stock
option activity under the 1999 Long-Term Incentive Plan for the nine months
ended September 29, 2007 is as follows:
|
|
Number
of
Options
(In
thousands)
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life
(In
years)
|
|
|
Aggregate
Intrinsic
Value
(In
millions)
|
|
Outstanding
at beginning of year
|
|
|
10,840
|
|
|
$ |
31.88
|
|
|
|
|
|
|
|
Granted
|
|
|
1,858
|
|
|
|
45.85
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,731 |
) |
|
|
29.91
|
|
|
|
|
|
|
|
Canceled,
expired or forfeited
|
|
|
(159 |
) |
|
|
39.13
|
|
|
|
|
|
|
|
Outstanding
at end of period
|
|
|
9,808
|
|
|
$ |
34.95
|
|
|
|
6.36
|
|
|
$ |
248
|
|
Exercisable
at end of period
|
|
|
6,147
|
|
|
$ |
29.63
|
|
|
|
4.94
|
|
|
$ |
188
|
|
There
were no significant issuances of stock options in the third quarter of 2007
or
2006.
9.
Note
7: Retirement Plans
We
provide defined benefit pension plans and other postretirement benefits to
eligible employees. The components of net periodic benefit cost for
these plans for the three months ended September 29, 2007 and September 30,
2006
are as follows:
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
Other
Than Pensions
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
cost
|
|
$ |
33
|
|
|
$ |
35
|
|
|
$ |
3
|
|
|
$ |
2
|
|
Interest
cost
|
|
|
73
|
|
|
|
73
|
|
|
|
10
|
|
|
|
10
|
|
Expected
return on plan assets
|
|
|
(99 |
) |
|
|
(96 |
) |
|
|
-
|
|
|
|
-
|
|
Amortization
of prior service cost (credit)
|
|
|
4
|
|
|
|
5
|
|
|
|
(2 |
) |
|
|
(1 |
) |
Amortization
of net loss
|
|
|
12
|
|
|
|
8
|
|
|
|
5
|
|
|
|
4
|
|
Net
periodic benefit cost
|
|
$ |
23
|
|
|
$ |
25
|
|
|
$ |
16
|
|
|
$ |
15
|
|
The
components of net periodic benefit cost for the nine months ended September
29,
2007 and September 30, 2006 are as follows:
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
Other
Than Pensions
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
cost
|
|
$ |
100
|
|
|
$ |
106
|
|
|
$ |
7
|
|
|
$ |
7
|
|
Interest
cost
|
|
|
219
|
|
|
|
211
|
|
|
|
31
|
|
|
|
30
|
|
Expected
return on plan assets
|
|
|
(297 |
) |
|
|
(288 |
) |
|
|
-
|
|
|
|
-
|
|
Amortization
of prior service cost (credit)
|
|
|
13
|
|
|
|
14
|
|
|
|
(4 |
) |
|
|
(4 |
) |
Amortization
of net loss
|
|
|
37
|
|
|
|
32
|
|
|
|
16
|
|
|
|
15
|
|
Net
periodic benefit cost
|
|
$ |
72
|
|
|
$ |
75
|
|
|
$ |
50
|
|
|
$ |
48
|
|
Note
8: Income Taxes
We
adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109” (“FIN
48”) at the beginning of fiscal 2007, which resulted in an increase of
approximately $22 million to our December 31, 2006 retained earnings
balance. FIN 48 provides a comprehensive model for the financial
statement recognition, measurement, presentation and disclosure of uncertain
tax
positions taken or expected to be taken in income tax
returns. Unrecognized tax benefits represent tax positions for which
reserves have been established.
As
of the
date of adoption, our unrecognized tax benefits totaled approximately $356
million, of which $225 million in benefits, if recognized, would favorably
affect our effective tax rate in any future period. The remaining
$131 million in unrecognized tax benefits are related to discontinued
operations. We do not believe that it is reasonably possible that our
estimates of unrecognized tax benefits will change significantly in the next
12
months.
We
conduct business globally and, as a result, file numerous consolidated and
separate income tax returns in the U.S. federal jurisdiction and various state
and foreign jurisdictions. In the normal course of business, we are
subject to examination by taxing authorities throughout the world, including
such major jurisdictions as Belgium, Canada, Germany, the United Kingdom and
the
U.S. With few exceptions, we are no longer subject to U.S. federal,
state and local, or non-U.S. income tax examinations for years before 1997
in
these major jurisdictions.
We
recognize interest and penalties related to unrecognized tax benefits in income
tax expense in our consolidated statements of operations. At the date
of adoption, we had $77 million of accrued interest included in other
liabilities on our consolidated balance sheet.
10.
Note
9: Commitments and Contingencies
We
are
subject to legal proceedings and other claims arising out of the conduct of
our
business, including proceedings and claims relating to private sector
transactions; government contracts; compliance with applicable laws and
regulations; production partners; product liability; employment; and
environmental, safety and health matters. Some of these legal proceedings and
claims seek damages, fines or penalties in substantial amounts or remediation
of
environmental contamination. As a government contractor, we are subject to
audits, reviews and investigations to determine whether our operations are
being
conducted in accordance with applicable regulatory
requirements. Under federal government procurement regulations,
certain claims brought by the U.S. Government could result in our being
suspended or debarred from U.S. Government contracting for a period of time.
On
the basis of information presently available, we do not believe that existing
proceedings and claims will have a material effect on our financial position
or
results of operations.
In
connection with the 2002 recall of certain of our Lycoming turbocharged airplane
engines, a former third-party supplier filed a lawsuit against Lycoming claiming
that the former supplier had been wrongly blamed for aircraft engine failures
resulting from its crankshaft forging process and that Lycoming’s design was the
cause of the engine failures. In February 2005, a jury returned a verdict
against Lycoming for $86 million in punitive damages, $2.7 million in expert
fees and $1.7 million in increased insurance costs. The jury also found that
the
former supplier’s claim that it had incurred $5.3 million in attorneys’ fees was
reasonable. Judgment was entered on the verdict on March 29, 2005,
awarding the former supplier $9.7 million in alleged compensatory damages and
attorneys’ fees and $86 million in alleged punitive damages. While
the ultimate outcome of the litigation cannot be assured, management strongly
disagrees with the verdict and believes that it is probable that the verdict
will be reversed through the appellate process.
The
Internal Revenue Service (“IRS”) has challenged both the ability to accelerate
the timing of tax deductions and the amounts of those deductions related to
certain leveraged lease transactions within the Finance
segment. These transactions, along with other transactions with
similar characteristics, have an initial investment of approximately $209
million. Resolution of these issues may result in an adjustment to
the timing of taxable income and deductions that reduce the effective yield
of
the leveraged lease transactions. In addition, resolution of these issues could
result in the acceleration of cash payments to the IRS. Deferred tax
liabilities of $176 million are recorded on our consolidated balance sheet
related to these leases at September 29, 2007. We believe that the proposed
IRS
adjustments are inconsistent with the tax law in existence at the time the
leases were originated and intend to vigorously defend our
position.
Armed
Reconnaissance Helicopter Program
Bell
Helicopter is performing under a U.S. Government contract for System Development
and Demonstration (“SDD”) of the Armed Reconnaissance Helicopter
(“ARH”). In March 2007, we received correspondence from the U.S.
Government that created doubt about whether the U.S. Government would proceed
into the production phase of the ARH program. Accordingly, we
provided for losses of $18 million in supplier obligations for long-lead
component production incurred at our own risk to support anticipated ARH
low-rate initial production (“LRIP”) contract awards.
In
the
second quarter of 2007, the Army agreed to re-plan the ARH program and we
reached a non-binding memorandum of understanding related to aircraft
specifications, pricing methodology and delivery schedules for initial LRIP
aircraft. We also agreed to conduct additional SDD activities on a
funded-basis. Based on the plan at that time and our related
estimates of aircraft production costs, including costs related to risks
associated with achieving learning curve and schedule assumptions, we expected
to lose approximately $73 million on the production of the proposed initial
LRIP
aircraft. Accordingly, an additional charge of $55 million was taken
in the second quarter of 2007 for LRIP-related costs. We continue to
work with the U.S. Government to finalize details of the re-plan, and continue
to believe that the reserves established for this program are adequate. We
anticipate that the initial LRIP contract awards will be finalized in
2008.
The
U.S.
Government continues to have an option related to production of 18 to 36
aircraft under the original ARH program. However, it is unlikely that the option
would be exercised before its term expires in December 2007 due to certain
additional development requirements under the SDD contract that must be met
before the option can be
11.
exercised. We
continue to expect that the U.S. Government will incorporate the units under
this option within the initial LRIP contracts.
Note
10: Guarantees and Indemnifications
As
disclosed under the caption “Guarantees and Indemnifications” in Note 17 to the
consolidated financial statements in our 2006 Annual Report on Form 10-K, we
have issued or are party to certain guarantees. As of September 29,
2007, there has been no material change to these guarantees.
We
provide limited warranty and product maintenance programs, including parts
and
labor, for certain products for periods ranging from one to five
years. We estimate the costs that may be incurred under warranty
programs and record a liability in the amount of such costs at the time product
revenue is recognized. Factors that affect this liability include the
number of products sold, historical and anticipated rates of warranty claims,
and cost per claim. We assess the adequacy of our recorded warranty
and product maintenance liabilities periodically and adjust the amounts as
necessary.
Changes
in our warranty and product maintenance liability are as follows:
|
|
Nine
Months Ended
|
|
(In
millions)
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
Accrual
at the beginning of period
|
|
$ |
315
|
|
|
$ |
318
|
|
Provision
|
|
|
139
|
|
|
|
141
|
|
Settlements
|
|
|
(136 |
) |
|
|
(113 |
) |
Adjustments
to prior accrual estimates
|
|
|
(5 |
) |
|
|
(29 |
) |
Accrual
at the end of period
|
|
$ |
313
|
|
|
$ |
317
|
|
Note
11: Recently Announced Accounting
Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements.” SFAS 157 replaces multiple existing
definitions of fair value with a single definition, establishes a consistent
framework for measuring fair value and expands financial statement disclosures
regarding fair value measurements. This Statement applies only to fair value
measurements that already are required or permitted by other accounting
standards and does not require any new fair value measurements. SFAS No. 157
is
effective in the first quarter of 2008, and we do not expect the adoption will
have a material impact on our financial position or results of
operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment to FASB
Statement No. 115.” SFAS 159 allows companies to choose to measure
eligible assets and liabilities at fair value with changes in value recognized
in earnings. Fair value treatment for eligible assets and liabilities
may be elected either prospectively upon initial recognition, or if an event
triggers a new basis of accounting for an existing asset or
liability. SFAS 159 is effective in the first quarter of 2008, and we
do not expect to elect to re-measure any of our existing financial assets or
liabilities under the provisions of SFAS 159.
Note
12: Segment Information
Our
four
reportable segments are: Bell, Cessna, Industrial and Finance. These
segments reflect the manner in which we manage our operations. Segment profit
is
an important measure used to evaluate performance and for decision-making
purposes. Segment profit for the manufacturing segments excludes
interest expense and certain corporate expenses. The measurement for
the Finance segment includes interest income and expense. Provisions
for losses on finance receivables involving the sale or lease of our products
are recorded by the selling manufacturing division when our Finance group has
recourse to the Manufacturing group.
12.
A
summary
of continuing operations by segment is provided below:
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(In
millions)
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
MANUFACTURING:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell
|
|
$ |
976
|
|
|
$ |
855
|
|
|
$ |
2,830
|
|
|
$ |
2,443
|
|
Cessna
|
|
|
1,268
|
|
|
|
1,050
|
|
|
|
3,439
|
|
|
|
2,924
|
|
Industrial
|
|
|
805
|
|
|
|
720
|
|
|
|
2,530
|
|
|
|
2,336
|
|
|
|
|
3,049
|
|
|
|
2,625
|
|
|
|
8,799
|
|
|
|
7,703
|
|
FINANCE
|
|
|
214
|
|
|
|
212
|
|
|
|
663
|
|
|
|
586
|
|
Total
revenues
|
|
$ |
3,263
|
|
|
$ |
2,837
|
|
|
$ |
9,462
|
|
|
$ |
8,289
|
|
SEGMENT
OPERATING PROFIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MANUFACTURING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bell
|
|
$ |
101
|
|
|
$ |
67
|
|
|
$ |
251
|
|
|
$ |
201
|
|
Cessna
|
|
|
222
|
|
|
|
162
|
|
|
|
577
|
|
|
|
432
|
|
Industrial
|
|
|
46
|
|
|
|
28
|
|
|
|
165
|
|
|
|
131
|
|
|
|
|
369
|
|
|
|
257
|
|
|
|
993
|
|
|
|
764
|
|
FINANCE
|
|
|
54
|
|
|
|
53
|
|
|
|
174
|
|
|
|
158
|
|
Segment
profit
|
|
|
423
|
|
|
|
310
|
|
|
|
1,167
|
|
|
|
922
|
|
Corporate
expenses and other, net
|
|
|
(51 |
) |
|
|
(45 |
) |
|
|
(167 |
) |
|
|
(142 |
) |
Interest
expense, net
|
|
|
(19 |
) |
|
|
(23 |
) |
|
|
(66 |
) |
|
|
(70 |
) |
Income
from continuing operations before
income
taxes
|
|
$ |
353
|
|
|
$ |
242
|
|
|
$ |
934
|
|
|
$ |
710
|
|
Note
13: Subsequent Event
On
October 7, 2007, we entered into an Agreement and Plan of Merger to acquire
United Industrial Corporation (“UIC”), a publicly held company (NYSE: UIC), in a
cash transaction valued at approximately $1.1 billion. UIC operates
through its wholly-owned subsidiary, AAI Corporation. AAI is a leading
provider of intelligent aerospace and defense systems including unmanned
aircraft and ground control stations, aircraft and satellite test equipment,
training systems and countersniper devices. We plan to integrate this
business into our Bell segment.
The
acquisition will be conducted by means of a tender offer for all of the
outstanding shares of UIC’s common stock, followed by a merger of UIC with our
merger subsidiary that will result in UIC becoming a wholly-owned subsidiary
of
Textron. Pursuant to the terms of agreement, we commenced a tender
offer (the “Offer”) on October 16, 2007 to purchase all of the outstanding
shares of UIC’s common stock at a price of $81.00 per share. Completion of
the Offer is subject to various conditions, including that at least a majority
of the shares of UIC common stock then outstanding on a fully diluted basis
be
tendered in the Offer. The Offer will expire at midnight on November 13,
2007, unless extended in accordance with the terms of the Offer and the
applicable rules and regulations of the SEC. The consummation of the
Offer is subject to certain other closing conditions and regulatory
requirements, but is not subject to a financing condition. Following
the completion of the Offer, the merger will occur. The closing of
the merger is subject to additional conditions, including, if required under
Delaware law, approval of the merger by UIC’s stockholders. We expect
to close this transaction in the fourth quarter of 2007.
13.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Consolidated
Results of Operations
Recent
Developments
We
delivered another solid quarter, with many indications that our growth will
continue into the future. We achieved a 40% increase in earnings per share
from
continuing operations on a 15% increase in revenues compared to the third
quarter of 2006. Backlog in our Cessna and Bell Helicopter businesses grew
by $4 billion to $15.6 billion at the end of third quarter of 2007, compared
with the end of 2006, with approximately $3.5 billion of this increase at Cessna
and $525 million at Bell Helicopter.
In
a move
to extend core capabilities in our aerospace and defense business, on October
7,
2007, we entered into an Agreement and Plan of Merger to acquire United
Industrial Corporation (“UIC”), a publicly held company, in a cash transaction
valued at approximately $1.1 billion. UIC operates through its
wholly-owned subsidiary, AAI Corporation. AAI is a leading provider of
intelligent aerospace and defense systems including unmanned aircraft and ground
control stations, aircraft and satellite test equipment, training systems and
countersniper devices. The acquisition is subject to the completion of a tender
offer for a majority of the shares of UIC, as disclosed in more detail in Note
13 of the consolidated financial statements, and certain other closing
conditions and regulatory requirements. We expect to close this transaction
in
the fourth quarter of 2007 and plan to integrate this business into the Bell
segment.
During
the third quarter, we also had a two-for-one split of our common stock in the
form of a 100% stock dividend, and we increased our quarterly dividend by 19%
to
an annualized common stock dividend rate of $0.92 per share. All
historical shares and per share data have been restated to reflect the stock
split.
Revenues
and Segment Profit
Third
Quarter of 2007
Revenues
increased $426 million, or 15%, to $3.3 billion in the third quarter of 2007,
compared with the corresponding quarter in 2006. This increase is
primarily due to higher manufacturing volume and product mix of $290 million,
higher pricing of $80 million, a favorable foreign exchange impact of $33
million in the Industrial segment and the benefit from acquisitions in the
Bell
segment of $25 million.
Segment
profit increased $113 million, or 36%, to $423 million in the third quarter
of
2007, compared with the corresponding period in 2006. This increase
is primarily due to higher pricing of $80 million, a net benefit from higher
volume and product mix of $55 million, favorable cost performance of $52 million
(including $9 million of the total $17 million insurance settlement gain
discussed below), and a gain on the sale of land in the Industrial segment
of $15 million. These increases were partially offset by inflation of
$67 million.
Included
in income from continuing operations is a $17 million net gain from an insurance
settlement reached in the quarter, of which we allocated $9 million to the
manufacturing segments and $8 million to corporate expenses. The settlement
was
negotiated with certain insurers to release them from a small portion of our
excess layers of coverage under insurance policies written between the years
1959 through 1992 in exchange for a payment to be made to us in the fourth
quarter of 2007. There have been no significant claims against any of
these insurance policies to date and we believe that we do not need to establish
additional reserves with the termination of this coverage.
14.
First
Nine Months of 2007
Revenues
increased $1.2 billion, or 14%, to $9.5 billion in the first nine months of
2007, compared with the corresponding period in 2006. This increase
is primarily due to higher manufacturing volume and product mix of $687 million,
higher pricing of $234 million, favorable foreign exchange impact of $98 million
in the Industrial segment, the benefit from acquisitions of $84 million in
the
Bell segment, a $65 million impact from higher average finance receivables
and
the reimbursement of costs related to Hurricane Katrina of $28
million. These increases were partially offset by the 2006
divestiture of non-core product lines of $37 million in the Industrial
segment.
Segment
profit increased $245 million, or 27%, to $1.2 billion in the
first nine months of 2007, compared with the corresponding period in
2006. This increase is primarily due to higher pricing of $234
million, a net benefit from higher volume and product mix of $103 million and
favorable cost performance of $75 million, largely in the Industrial
segment. These increases were partially offset by inflation of $177
million. Our favorable cost performance includes 2007 charges
for the Armed Reconnaissance Helicopter (“ARH”) program of $73 million,
partially offset by the reimbursement of costs related to Hurricane Katrina
of
$28 million, the $22 million favorable impact of the recovery of
ARH System Development and Demonstration (“SDD”) launch-related costs
written off in 2006 and the insurance settlement gain of $17
million.
Corporate
Expenses and Other, net
Corporate
expenses and other, net increased $6 million in the third quarter of 2007,
compared with the corresponding quarter in 2006, primarily due to $12 million
of
higher compensation expenses, largely as a result of our stock price
appreciation, partially offset by an $8 million gain representing a portion
of
the insurance settlement.
Corporate
expenses and other, net increased $25 million in the first nine months of 2007,
compared with the corresponding period in 2006, primarily due to $18 million
of
higher compensation expenses, $8 million of higher professional fees and $5
million of increased costs for divested operations, partially offset by
an $8 million gain representing a portion of the insurance
settlement.
Income
Taxes
A
reconciliation of the federal statutory income tax rate to the effective income
tax rate is provided below:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
Federal
statutory income tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Increase
(decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
income
taxes
|
|
|
0.8
|
|
|
|
2.5
|
|
|
|
1.1
|
|
|
|
1.8
|
|
Foreign
tax rate
differential
|
|
|
(0.1 |
) |
|
|
(3.1 |
) |
|
|
(1.0 |
) |
|
|
(3.1 |
) |
Manufacturing
deduction
|
|
|
(1.6 |
) |
|
|
(0.5 |
) |
|
|
(1.6 |
) |
|
|
(0.5 |
) |
Equity
hedge
income
|
|
|
(1.5 |
) |
|
|
(0.8 |
) |
|
|
(1.2 |
) |
|
|
(0.8 |
) |
Canadian
functional
currency
|
|
|
-
|
|
|
|
(4.8 |
) |
|
|
(0.2 |
) |
|
|
(1.6 |
) |
Favorable
tax
settlements
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.0 |
) |
|
|
(1.7 |
) |
Other,
net
|
|
|
(1.2 |
) |
|
|
(0.6 |
) |
|
|
(1.2 |
) |
|
|
(0.9 |
) |
Effective
income tax rate
|
|
|
31.4 |
% |
|
|
27.7 |
% |
|
|
29.9 |
% |
|
|
28.2 |
% |
The
effective tax rate for the full year is expected to be in the low end of the
range of 31% to 32%.
15.
Segment
Analysis
Our
four
reportable segments are: Bell, Cessna, Industrial and Finance. These
segments reflect the manner in which we manage our operations. Segment profit
is
an important measure used to evaluate performance and for decision-making
purposes. Segment profit for the manufacturing segments excludes
interest expense and certain corporate expenses. The measurement for
the Finance segment includes interest income and expense.
Bell
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(In
millions)
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
Revenues
|
|
$ |
976
|
|
|
$ |
855
|
|
|
$ |
2,830
|
|
|
$ |
2,443
|
|
Segment
profit
|
|
|
101
|
|
|
|
67
|
|
|
|
251
|
|
|
|
201
|
|
U.S.
Government Business
In
the
third quarter of 2007, revenues increased $108 million, compared with the
corresponding quarter of 2006, primarily due to higher volume of $91 million
and
the benefit from acquisitions of $19 million. The volume increase is
primarily due to higher V-22 deliveries of $49 million, additional H-1 sales
of
$35 million, higher Intelligent Battlefield Systems (“IBS”) volume of $19
million and more ASV deliveries of $18 million, partially offset by
lower volume for Joint Direct Attack Munitions (“JDAM”) of $24 million and
lower helicopter spares and service sales of $11 million.
In
the
third quarter of 2007, profit in our U.S. Government business increased $24
million, compared with the corresponding quarter of 2006, primarily due to
favorable performance of $36 million, partially offset by inflation of $7
million. The favorable performance reflects $11 million in lower
charges for the H-1 low-rate initial production (“LRIP”) contracts, primarily
due to charges recorded in the third quarter of 2006; $8 million in favorable
ASV performance; a $6 million write-off in the third quarter of 2006 of ARH
SDD
launch-related costs and the recovery of $8 million in the third quarter of
2007
of launch-related costs previously written off. This quarter’s SDD
cost recovery reflects an agreement we reached with our customer under which
we
recovered $13 million in previously un-reimbursed launch-related costs of which
$8 million benefited our U.S. Government business and the remaining $5 million
is reflected in our Commercial business as a recovery of overhead.
In
the
first nine months of 2007, revenues increased $307 million, compared with the
corresponding period of 2006, primarily due to higher volume and mix of $228
million, the benefit from acquisitions of $57 million and the reimbursement
of costs related to Hurricane Katrina of $28 million. The volume increase is
primarily due to more ASV deliveries of $113 million, higher H-1 deliveries
of
$95 million, higher V-22 revenue of $88 million and higher IBS volume of $45
million, partially offset by lower volume for JDAM of $55 million and lower
helicopter spares and service sales of $53 million.
In
the
first nine months of 2007, profit in our U.S. Government business decreased
$4
million, compared with the corresponding period of 2006. The decrease was
primarily due to the net impact from inflation and pricing of $21 million,
partially offset by higher net volume and mix of $15 million. Cost
performance was unfavorable reflecting LRIP-related charges for the ARH
program of $73 million, as discussed in more detail below, and lower V-22
profitability of $22 million; partially offset by the Hurricane Katrina cost
reimbursement of $28 million; favorable ASV performance of $20 million; the
impact of lower charges on the H-1 LRIP program of $20 million; a $14 million
write-off of ARH SDD launch-related costs in 2006 and the $8 million impact
of
the subsequent partial recovery of these costs. The lower V-22
profitability is primarily due to a $13 million impact from the shift in the
mix
to lower margin lots, which have been unfavorably impacted by higher overhead
costs associated with increasing production capacity, and a $6 million award
fee
recognized in 2006 based on achieving non-recurring milestone
objectives. The favorable ASV performance is due to improved
productivity and lower indirect costs.
16.
ARH
Program - Bell Helicopter is performing under a U.S.
Government contract for SDD of the ARH. In March 2007, we received
correspondence from the U.S. Government that created doubt about whether the
U.S. Government would proceed into the production phase of the ARH
program. Accordingly, we provided for losses of $18 million in
supplier obligations for long-lead component production incurred at our own
risk
to support anticipated ARH LRIP contract awards.
In
the
second quarter of 2007, the Army agreed to re-plan the ARH program and we
reached a non-binding memorandum of understanding (“MOU”) related to aircraft
specifications, pricing methodology and delivery schedules for initial LRIP
aircraft. We also agreed to conduct additional SDD activities on a
funded-basis. Based on the plan at that time and our related
estimates of aircraft production costs, including costs related to risks
associated with achieving learning curve and schedule assumptions, we expected
to lose approximately $73 million on the production of the proposed initial
LRIP
aircraft. Accordingly, an additional charge of $55 million was taken
in the second quarter of 2007 for LRIP-related costs. We continue to
work with the U.S. Government to finalize details of the re-plan, and continue
to believe that the reserves established for this program are adequate. We
anticipate that the initial LRIP contract awards will be finalized in
2008.
The
U.S.
Government continues to have an option related to production of 18 to 36
aircraft under the original ARH program. However, it is unlikely that the
option would be exercised before its term expires in December 2007 due to
certain additional development requirements under the SDD contract that must
be
met before the option can be exercised. We continue to expect that
the U.S. Government will incorporate the units under this option within the
initial LRIP contracts.
Commercial
Business
In
the
third quarter of 2007, commercial revenues and profit increased $13 million
and
$10 million, respectively, compared with the corresponding quarter of
2006. Commercial
revenues increased primarily due to higher pricing of $19 million and the
benefit from acquisitions of $6 million, partially offset by an unfavorable
product mix of delivered helicopters of $10 million and lower spares and service
volume of $6 million. Commercial profit increased primarily due to higher
pricing of $19 million, partially offset by inflation of $11
million. Cost performance was relatively unchanged as higher costs
related to certain commercial programs of $14 million were partially offset
by
lower overhead expense of $17 million, including the $5 million recovery
discussed above related to the ARH program.
In
the
first nine months of 2007, commercial revenues and profit increased $80 million
and $54 million, respectively, compared with the corresponding period of
2006. Revenues increased primarily due to higher pricing of $59 million and
the benefit from acquisitions of $27 million, partially offset by lower volume
of $7 million. Volume decreased as higher helicopter deliveries of $42
million were more than offset by lower Huey II kit deliveries of $37 million
and
lower spares and service volume of $16 million. Commercial profit
increased primarily due to higher pricing of $59 million; lower
engineering, research and development expense of $20 million and favorable
cost performance of $19 million; partially offset by inflation of $30 million
and the net impact of unfavorable product mix of $13 million. The
favorable cost performance included $34 million of lower overhead expense,
including the $5 million recovery discussed above related to the ARH program,
partially offset by higher costs related to certain commercial programs of
$27
million.
17.
Cessna
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(In
millions)
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
Revenues
|
|
$ |
1,268
|
|
|
$ |
1,050
|
|
|
$ |
3,439
|
|
|
$ |
2,924
|
|
Segment
profit
|
|
|
222
|
|
|
|
162
|
|
|
|
577
|
|
|
|
432
|
|
Cessna
has continued to grow its revenues and segment profit due, in part, to its
increased international deliveries. Approximately half of our 103
Citation business jet deliveries in the third quarter of 2007 went to
international customers, primarily from Europe, compared to approximately 40%
in
the corresponding quarter of 2006, when we delivered a total of 73
jets.
Cessna’s
revenues and segment profit increased $218 million and $60 million,
respectively, in the third quarter of 2007, compared with the corresponding
quarter of 2006. Revenues increased due to higher volume of $166
million, primarily related to Citation business jets, and higher pricing of
$53 million. Segment profit increased primarily due to the higher
pricing, along with the impact of the higher volume of $44 million and a $6
million gain representing a portion of the insurance settlement discussed on
page 14. These increases to segment profit were partially offset by
inflation of $26 million and increased product development expense of $13
million.
Cessna’s
revenues and segment profit increased $515 million and $145 million,
respectively, in the first nine months of 2007, compared with the corresponding
period of 2006. Revenues increased due to higher volume of $367
million, primarily related to Citation business jets, and higher pricing of
$148
million. Segment profit increased primarily due to the higher pricing, along
with the impact of the higher volume of $91 million, partially offset by
inflation of $70 million and increased product development expense of $29
million.
Industrial
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(In
millions)
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
Revenues
|
|
$ |
805
|
|
|
$ |
720
|
|
|
$ |
2,530
|
|
|
$ |
2,336
|
|
Segment
profit
|
|
|
46
|
|
|
|
28
|
|
|
|
165
|
|
|
|
131
|
|
Revenues
and segment profit in the Industrial segment increased $85 million and $18
million, respectively, in the third quarter of 2007, compared with the
corresponding quarter of 2006. Revenues increased primarily due to
higher volume of $47 million, favorable foreign exchange impact of $33 million
and higher pricing of $9 million. Segment profit increased mainly due to a
$15
million gain on the sale of land, improved cost performance of $12 million,
the
higher pricing and the impact of higher volume and mix of $7 million, partially
offset by inflation of $22 million.
Revenues
and segment profit in the Industrial segment increased $194 million and $34
million, respectively, in the first nine months of 2007, compared with the
corresponding period of 2006. Revenues increased primarily due to
higher volume of $99 million, favorable foreign exchange impact of $98 million
and higher pricing of $32 million, partially offset by the divestiture of
non-core product lines of $37 million. Segment profit increased
mainly due to improved cost performance of $38 million, the higher pricing,
a $15 million gain on the sale of land and a $9 million impact of higher volume
and mix, partially offset by inflation of $60 million.
18.
Finance
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(In
millions)
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
Revenues
|
|
$ |
214
|
|
|
$ |
212
|
|
|
$ |
663
|
|
|
$ |
586
|
|
Segment
profit
|
|
|
54
|
|
|
|
53
|
|
|
|
174
|
|
|
|
158
|
|
During
2007, the Finance segment experienced continued growth in its managed finance
receivable portfolio. Managed finance receivables grew by $374
million, or 4%, from year-end 2006, primarily in aviation finance, resort
finance and asset-based lending. We expect an increased growth rate
in the Finance segment’s core portfolios during the fourth quarter of 2007,
primarily due to seasonal increases in equipment dealer floorplan inventory
in
the distribution finance group.
The
disruption in the credit market during the third quarter of 2007 had minimal
impact on our Finance segment’s ability to access the capital markets as it has
been able to refinance its maturing commercial paper obligations and fund its
commitments to borrowers with only a slight deterioration in interest
margin.
Revenues
and segment profit in the Finance segment increased $2 million and $1 million,
respectively, in the third quarter of 2007, compared with the corresponding
quarter of 2006. Both revenues and segment profit for the quarter were affected
by a $10 million increase in securitization and other fee income, which was
partially offset by the recognition of $7 million of earnings on the sale of
an
option related to a leveraged lease asset in 2006. The increase in revenues
was
also due to the $5 million impact of higher average finance receivables,
primarily due to growth in the aviation and resort finance businesses, partially
offset by an increase in the level of distribution finance receivables sold,
and
a $4 million decrease in portfolio yields due to competitive pricing
pressures. Segment profit also increased due to $4 million in lower
provision for losses attributable to lower growth in the receivable portfolio
in
the third quarter of 2007, partially offset by the impact of higher selling
and
administrative expenses of $3 million.
Revenues
and segment profit in the Finance segment increased $77 million and $16 million,
respectively, in the first nine months of 2007, compared with the corresponding
period of 2006. Average finance receivables were higher due to growth in the
distribution, aviation and resort finance businesses, partially offset by an
increase in the level of distribution finance receivables sold, and accounted
for $65 million of the revenue increase and $30 million of the segment profit
increase. Both revenues and segment profit for the nine-month period were also
affected by a $21 million gain on the sale of a leveraged lease investment
and
$12 million in higher securitization gains, partially offset by $13 million
in
lower leveraged lease earnings due to an unfavorable cumulative earnings
adjustment attributable to the recognition of residual value impairments, a
$7
million reduction in leveraged lease earnings from the adoption of FSP 13-2
and
the recognition of $7 million in earnings on the sale of a option related to
a
leveraged lease asset in 2006. The revenue increase was also due to
the $15 million impact from the higher interest rate environment and $10 million
in other fee income, partially offset by an $18 million decrease in portfolio
yields related to competitive pricing pressures. The increases in
segment profit were partially offset by higher selling and administrative
expenses of $11 million.
The
following table presents information about the Finance segment’s portfolio
quality:
|
|
|
|
|
|
|
|
|
September
29,
|
|
|
December
30,
|
|
(Dollars
in millions)
|
|
2007
|
|
|
2006
|
|
Nonperforming
assets
|
|
$ |
119
|
|
|
$ |
113
|
|
Nonaccrual
finance receivables
|
|
$ |
75
|
|
|
$ |
75
|
|
Allowance
for losses
|
|
$ |
91
|
|
|
$ |
93
|
|
Ratio
of nonperforming assets to total finance assets
|
|
|
1.37 |
% |
|
|
1.28 |
% |
Ratio
of allowance for losses on receivables to nonaccrual finance
receivables
|
|
|
120.6 |
% |
|
|
123.1 |
% |
60+
days contractual delinquency as a percentage of finance
receivables
|
|
|
1.07 |
% |
|
|
0.77 |
% |
The
Finance segment has continued to maintain portfolio quality as indicated by
relatively low levels of delinquent and nonperforming assets. The
higher delinquency rate primarily reflects three accounts in the golf finance
business.
19.
Net
charge-offs as a percentage of average finance receivables remain low at 0.38%
for the first nine months of 2007 as compared with 0.37% for the corresponding
period of 2006.
Discontinued
Operations
Income
from discontinued operations for the three and nine months ended
September 29, 2007 is primarily related to income
taxes. Discontinued operations for the nine months ended
September 30, 2006 includes a $120 million after-tax impairment charge
taken in the second quarter related to the Fastening Systems
business.
Liquidity
and Capital Resources
Our
financings are conducted through two separate borrowing groups. The
Manufacturing group consists of Textron Inc., consolidated with the entities
that operate in the Bell, Cessna and Industrial segments, while the Finance
group consists of the Finance segment, comprised of Textron Financial
Corporation and its subsidiaries. We designed this framework to enhance our
borrowing power by separating the Finance group. Our Manufacturing group
operations include the development, production and delivery of tangible goods
and services, while our Finance group provides financial services. Due to the
fundamental differences between each borrowing group’s activities, investors,
rating agencies and analysts use different measures to evaluate each group’s
performance. To support those evaluations, we present balance sheet
and cash flow information for each borrowing group within the consolidated
financial statements.
Through
our Finance group, we provide diversified commercial financing to third
parties. In addition, this group finances retail purchases and leases
for new and used aircraft and equipment manufactured by our Manufacturing group,
otherwise known as captive financing. In the consolidated statements
of cash flows, cash received from customers or from securitizations is reflected
as operating activities when received. However, in the cash flow information
provided for the separate borrowing groups, cash flows related to captive
financing activities are reflected based on the operations of each group. For
example, when product is sold by our Manufacturing group to a customer that
is
financed by the Finance group, the origination of the finance receivable is
recorded within investing activities as a cash outflow on our Finance group’s
statement of cash flows. Meanwhile, the Manufacturing group records
the cash received from the Finance group on the customer’s behalf within
operating cash flows as a cash inflow on our Manufacturing group’s statement of
cash flows. Although cash is transferred between the two borrowing groups,
there
is no cash transaction reported in the consolidated cash flows at the time
of
the original financing. These captive financing activities, along with all
significant intercompany transactions, are reclassified or eliminated from
the
consolidated statements of cash flows, as detailed in the operating cash flows
of continuing operations section on page 21.
We
assess
liquidity for our Manufacturing group in terms of our ability to generate cash
to fund our operating, investing and financing activities. Our principal source
of liquidity is operating cash flows. Other significant factors that
affect our overall management of liquidity include: capital expenditures,
investments in businesses, dividends, common stock repurchases, adequacy of
available bank lines of credit and the ability to attract long-term capital
at
satisfactory terms.
Our
Finance group mitigates liquidity risk (i.e., the risk that we will be unable
to
fund maturing liabilities or the origination of new finance receivables) by
developing and preserving reliable sources of capital. We use a
variety of financial resources to meet these capital needs. Cash for
the Finance group is provided from finance receivable collections, sales and
securitizations, as well as the issuance of commercial paper and term debt
in
the public and private markets. This diversity of capital resources
enhances its funding flexibility, limits dependence on any one source of funds,
and results in cost-effective funding. The Finance group can also
borrow from the Manufacturing group when the availability of such borrowings
creates an economic advantage to Textron in comparison to borrowings from other
sources. In making particular funding decisions, management considers
market conditions, prevailing interest rates and credit spreads, and the
maturity profile of its assets and liabilities.
On
October 7, 2007, we entered into an Agreement and Plan of Merger to acquire
United Industrial Corporation (“UIC”), a publicly held company, in a cash
transaction valued at approximately $1.1 billion as disclosed in Note 13 to
the
consolidated financial statements. We expect to close this
transaction in the fourth quarter of 2007 and plan to fund the acquisition
with
available cash and commercial paper. We anticipate that a portion of
the commercial paper
20.
will
be
repaid through a public issuance of five to ten year notes to be effected
sometime prior to December 29, 2007. In connection with this
transaction, on October 26, 2007, we entered into an interim $750 million credit
facility that expires on September 30, 2008.
We
have a
policy of maintaining unused committed bank lines of credit in an amount not
less than outstanding commercial paper balances. These facilities are
in support of commercial paper and letters of credit issuances only, and neither
of these primary lines of credit was drawn at September 29, 2007 or December
30,
2006.
Our
primary committed credit facilities at September 29, 2007 included the
following:
(In
millions)
|
|
Facility
Amount
|
|
|
Commercial
Paper
Outstanding
|
|
|
Letters
of Credit
Outstanding
|
|
|
Amount
Not
Reserved
as
Support
for
Commercial
Paper
and Letters
of
Credit
|
|
Manufacturing
group – multi-year
facility
expiring in
2012*
|
|
$ |
1,250
|
|
|
$ |
-
|
|
|
$ |
20
|
|
|
$ |
1,230
|
|
Finance
group - multi-year
facility
expiring in 2012
|
|
$ |
1,750
|
|
|
$ |
1,114
|
|
|
$ |
12
|
|
|
$ |
624
|
|
*The
Finance group is permitted to borrow under this multi-year
facility.
At
September 29, 2007, our Finance group had $2.4 billion in debt and $489 million
in other liabilities that are payable within the next 12 months.
Operating Cash Flows
of Continuing Operations
|
|
|
|
|
|
Nine
Months Ended
|
|
(In
millions)
|
|
September
29, 2007
|
|
|
September
30, 2006
|
|
Manufacturing
group
|
|
$ |
654
|
|
|
$ |
636
|
|
Finance
group
|
|
|
239
|
|
|
|
270
|
|
Reclassifications
and elimination adjustments
|
|
|
(294 |
) |
|
|
(371 |
) |
Consolidated
|
|
$ |
599
|
|
|
$ |
535
|
|
Cash
and
cash equivalents for our Manufacturing group increased 23% to $901 million
at
September 29, 2007 from the end of 2006. Earnings growth from
continuing operations of the Manufacturing group and increased dividends from
the Finance group drove an increase in cash flows from operating activities
during the first nine months of 2007 compared to the corresponding period in
2006. This increase was partially offset by an increase in working capital
growth of $205 million. The working capital growth was primarily
related to a $130 million increase in inventories largely due to the
production ramp up at Cessna. The decrease in operating cash flows
for the Finance group is primarily related to the timing of accrued interest
and
other payments.
Reclassifications
between operating and investing cash flows and eliminations adjustments are
summarized below:
|
|
Nine
Months Ended
|
|
(In
millions)
|
|
September
29, 2007
|
|
|
September
30, 2006
|
|
Reclassifications
from investing activities:
|
|
|
|
|
|
|
Finance
receivable originations
for Manufacturing group
inventory
sales
|
|
$ |
(775 |
) |
|
$ |
(741 |
) |
Cash
received from customers and
securitizations for
captive
financing
|
|
|
618
|
|
|
|
478
|
|
Other
|
|
|
(2 |
) |
|
|
(28 |
) |
Total
reclassifications from investing activities
|
|
|
(159 |
) |
|
|
(291 |
) |
Dividends
paid by Finance group to Manufacturing group
|
|
|
(135 |
) |
|
|
(80 |
) |
Total
reclassifications and adjustments
|
|
$ |
(294 |
) |
|
$ |
(371 |
) |
21.
During
the first nine months of 2007, we received more cash from customers and
securitizations for captive financing than we originated in comparison to the
corresponding period of 2006. This increase was primarily due to
higher cash collections in the aircraft portfolio along with a portion of the
proceeds received upon the securitization of certain aircraft receivables in
the
third quarter of 2007.
In
2007,
the Finance group paid a $135 million dividend to the Manufacturing group
compared to $80 million paid in 2006, representing the distribution of its
retained earnings to achieve its targeted leverage ratio.
Investing Cash Flows
of Continuing Operations
|
|
|
|
|
|
Nine
Months Ended
|
|
(In
millions)
|
|
September
29, 2007
|
|
|
September
30, 2006
|
|
Manufacturing
group
|
|
$ |
(203 |
) |
|
$ |
(212 |
) |
Finance
group
|
|
|
221
|
|
|
|
(1,463 |
) |
Reclassifications
to operating activities
|
|
|
159
|
|
|
|
291
|
|
Consolidated
|
|
$ |
177
|
|
|
$ |
(1,384 |
) |
Consolidated
investing cash flows increased primarily due to $606 million increase in
proceeds from receivable sales and securitizations and higher collections of
finance receivables of $975 million, net of originations. Proceeds
from receivable sales and securitizations include the first quarter 2007 sale
of
$588 million of receivables into the distribution finance revolving
securitization.
Financing Cash Flows
of Continuing Operations
|
|
|
|
|
|
Nine
Months Ended
|
|
(In
millions)
|
|
September
29, 2007
|
|
|
September
30, 2006
|
|
Manufacturing
group
|
|
$ |
(353 |
) |
|
$ |
(1,077 |
) |
Finance
group
|
|
|
(469 |
) |
|
|
1,237
|
|
Dividends
paid by Finance group to Manufacturing group
|
|
|
135
|
|
|
|
80
|
|
Consolidated
|
|
$ |
(687 |
) |
|
$ |
240
|
|
For
the
Finance group, the decrease in cash flows was primarily attributable to the
use
of the distribution finance revolving securitization to fund receivable
portfolio growth during the first nine months of 2007, rather than debt
issuances, and due to lower receivable growth as compared to the first nine
months of 2006. During the first nine months of 2007 in comparison to
the corresponding period in 2006, the Finance group had lower net short-term
debt borrowings of $1.1 billion, made higher payments on long-term debt of
$318
million and decreased its issuances of long-term debt by $227
million. These decreases were partially offset by a $445 million
reduction in the cash used by the Manufacturing group to repurchase our stock
in
comparison to the corresponding period of 2006.
Stock
Repurchases
In
the
first nine months of 2007 and 2006, we repurchased 5,883,584 and 16,688,344
shares of our common stock, respectively, under Board-authorized share
repurchase programs for an aggregate cost of $295 million and $729 million,
respectively.
Dividends
On
July
18, 2007, our Board of Directors approved a two-for-one split of our common
stock to be effected in the form of a 100% stock dividend. The
additional shares resulting from the stock split were distributed on August
24,
2007 to shareholders of record on August 3, 2007.
We
paid a
quarterly dividend of $0.193 per share in the first and second quarters of
2007
and 2006. On July 18, 2007, the Board of Directors approved a 19%
increase in our annualized common stock dividend rate from $0.775 per share
to
$0.92 per share and authorized the repurchase of up to 24 million shares of
our
common stock.
Dividend
payments to shareholders totaled $97 million, representing only two quarterly
payments for the nine months ended September 29, 2007 as the third quarterly
payment was made on October 1, 2007. For the nine months ended
September 30, 2006, dividend payments totaled $195 million representing three
quarterly payments for 2006 along with the fourth quarter 2005 dividend that
was
paid in the first quarter of 2006.
22.
Discontinued
Operations Cash Flow
Investing
cash flows from discontinued operations decreased primarily due to cash proceeds
of $610 million received upon the sale of the Fastening Systems business in
the
third quarter of 2006. In the first nine months of 2007, investing
cash flows from discontinued operations consist primarily of the realization
of
cash tax benefits.
Capital
Resources
Under
a
shelf registration statement previously filed with the Securities and Exchange
Commission, our Manufacturing group may issue public debt and other securities
in one or more offerings up to a total maximum offering of $2.0
billion. At September 29, 2007, we had $1.6 billion available under
this registration statement.
The
debt
(net of cash)-to-capital ratio for our Manufacturing group as of September
29,
2007 was 23%, compared with 29% at December 30, 2006, and the gross
debt-to-capital ratio as of September 29, 2007 was 37%, compared with 40% at
December 30, 2006. Our Manufacturing group targets a gross
debt-to-capital ratio that is consistent with an A rated
company.
Under
a
previously filed registration statement, the Finance group may issue an
unlimited amount of public debt securities. Our Finance group issued
$925 million of term debt and CAD 220 million of term debt during the first
nine
months of 2007 under this registration statement. In addition, during
the first quarter of 2007, the Finance group issued $300 million of 6%
Fixed-to-Floating Rate Junior Subordinated Notes, which mature in
2067. The Finance group has the right to redeem the notes at par
beginning in 2017, and is obligated to redeem the notes beginning in
2042.
Foreign
Exchange Risks
Our
financial results are affected by changes in foreign currency exchange rates
and
economic conditions in the foreign markets in which our products are
manufactured and/or sold. For the first nine months of 2007, the
impact of foreign exchange rate changes from the first nine months of 2006
increased revenues by approximately $98 million (1.2%) and increased segment
profit by approximately $5 million (0.5%).
Recently
Announced Accounting
Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements.” SFAS 157 replaces multiple existing
definitions of fair value with a single definition, establishes a consistent
framework for measuring fair value and expands financial statement disclosures
regarding fair value measurements. This Statement applies only to fair value
measurements that already are required or permitted by other accounting
standards and does not require any new fair value measurements. SFAS No. 157
is
effective in the first quarter of 2008, and we do not expect the adoption will
have a material impact on our financial position or results of
operations.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment to FASB
Statement No. 115.” SFAS 159 allows companies to choose to measure
eligible assets and liabilities at fair value with changes in value recognized
in earnings. Fair value treatment for eligible assets and liabilities
may be elected either prospectively upon initial recognition, or if an event
triggers a new basis of accounting for an existing asset or
liability. SFAS 159 is effective in the first quarter of 2008, and we
do not expect to elect to re-measure any of our existing financial assets or
liabilities under the provisions of SFAS 159.
23.
Forward-Looking
Information
Certain
statements in this Quarterly Report on Form
10-Q 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
speak only as of the date on which they are made, and we undertake no obligation
to update or revise any forward-looking statements. These forward-looking
statements are subject to risks and uncertainties that may cause actual results
to differ materially from those contained in the statements, such as
the Risk Factors contained in our 2006 Annual Report on Form 10-K and
including the following: [a] changes in worldwide economic and political
conditions that impact demand for our products, interest rates and foreign
exchange rates; [b] the interruption of production at Textron facilities or
Textron’s customers or suppliers; [c]
Textron’s ability to perform as anticipated and to control
costs under contracts with the U.S. Government; [d] the U.S.
Government’s ability to unilaterally modify or terminate its
contracts with Textron for the U.S. Government’s convenience
or for Textron’s failure to perform, to change applicable
procurement and accounting policies, and, under certain circumstances, to
suspend or debar Textron as a contractor eligible to receive future contract
awards; [e] changes in national or international funding priorities and
government policies on the export and import of military and commercial
products; [f] the ability to control costs and successful
implementation of various cost-reduction programs;
[g] the timing of new product launches and certifications of new
aircraft products; [h] the occurrence of slowdowns or downturns in customer
markets in which Textron products are sold or supplied or where Textron
Financial Corporation offers financing; [i]
changes in aircraft delivery schedules or cancellation of orders; [j] the impact
of changes in tax legislation; [k] the extent to which Textron is able to pass
raw material price increases through to customers or offset such price increases
by reducing other costs; [l] Textron’s ability to offset,
through cost reductions, pricing pressure brought by original equipment
manufacturer customers; [m] Textron’s ability to realize full
value of receivables; [n] the availability and cost of insurance; [o] increases
in pension expenses and other postretirement employee costs; [p]
Textron Financial Corporation’s ability to maintain portfolio credit
quality; [q] Textron Financial Corporation’s access to debt
financing at competitive rates; [r] uncertainty in estimating contingent
liabilities and establishing reserves to address such contingencies; [s]
performance of acquisitions; [t] the efficacy of research and development
investments to develop new products; [u] the launching of significant new
products or programs which could result in unanticipated expenses; [v]
bankruptcy or other financial problems at major suppliers or customers that
could cause disruptions in Textron’s supply chain or
difficulty in collecting amounts owed by such customers; [w] the
occurrence of any event, change or other circumstance that could give rise
to
the termination of the UIC Agreement and Plan of Merger; [x] the
inability to complete the UIC transaction due to the failure to receive required
regulatory or other approvals or to satisfy other conditions to the transaction;
and [y] the risk that the proposed UIC transaction disrupts current
plans and operations.
Item
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
|
There
has been no significant change in our exposure to market risk during
the
nine months ended
September
29, 2007. For discussion of our exposure to market risk, refer
to Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
contained in our 2006 Annual Report on Form 10-K.
|
|
24.
|
|
|
|
CONTROLS
AND PROCEDURES
|
|
We
have carried out an evaluation, under the supervision and with the
participation of our management, including our Chairman, President
and
Chief Executive Officer (the “CEO”) and our Executive Vice President and
Chief Financial Officer (the “CFO”), of the effectiveness of the design
and operation of our disclosure controls and procedures (as defined
in
Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as
amended (the “Act”)) as of the end of the fiscal quarter covered by this
report. Based upon that evaluation, our CEO and CFO concluded
that our disclosure controls and procedures are effective in providing
reasonable assurance that (a) the information required to be disclosed
by
us in the reports that we file or submit under the Act is recorded,
processed, summarized and reported within the time periods specified
in
the Securities and Exchange Commission’s rules and forms, and (b) such
information is accumulated and communicated to our management, including
our CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure.
|
|
There
were no changes in our internal control over financial reporting
during
the fiscal quarter ended September 29, 2007 that have materially
affected,
or are reasonably likely to materially affect, our internal control
over
financial reporting.
|
|
25.
PART
II. OTHER INFORMATION
Item
1.
|
LEGAL
PROCEEDINGS
|
|
As
disclosed on our Current Report on Form 8-K filed on August 24, 2007, we have
resolved investigations by the U.S. Securities and Exchange Commission (“SEC”)
and U.S. Department of Justice (“DOJ”) relating to payments made by subsidiaries
in our Fluid & Power business unit and voluntarily reported to the two
agencies by us.
Most
of
the payments were “after sales service fees” paid to Iraq by our fifth-tier
French subsidiaries in connection with the United Nations’ Oil for Food
Program. A number of small Fluid & Power payments unrelated to
the Oil for Food Program were also investigated, reported to the agencies and
resolved as part of the settlements.
We
have
consented to the entry of a civil injunction in an action brought by the SEC
and
have entered into a letter agreement with the DOJ in which the DOJ has agreed
not to prosecute us or our subsidiaries or affiliates. Both
settlements call for remedial actions that are being implemented and that are
consistent with our longstanding policy against improper payments. In
addition, we agreed to pay a total of $4.685 million to the agencies in the
form
of disgorgement of profits, penalties and interest. This amount was
fully provided for in prior periods and was paid in the third quarter of
2007.
There
are
no criminal charges involved in the settlements and none of our officers were
involved. Disciplinary action has been taken with respect to certain
individuals involved in the matter, including in some cases, termination of
employment.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
|
ISSUER
REPURCHASES OF EQUITY
SECURITIES
|
|
|
Total
Number
of
Shares
Purchased
|
|
|
Average
Price
Paid
per
Share
(Excluding
Commissions)
|
|
|
Total
Number of
Shares
Purchased as
Part
of Publicly
Announced
Plan**
|
|
|
Maximum
Number
of Shares
that
May Yet Be
Purchased
Under
the Plan**
|
|
Month
1 (July 1, 2007 –
August
4, 2007)
|
|
|
631,726 |
* |
|
$ |
57.75
|
|
|
|
630,000 |
* |
|
|
23,460,000
|
|
Month
2 (August 5, 2007 -
September
1, 2007)
|
|
|
711,000
|
|
|
$ |
55.53
|
|
|
|
711,000
|
|
|
|
22,749,000
|
|
Month
3 (September 2, 2007 -
September
29,
2007)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,749,000
|
|
Total
|
|
|
1,342,726
|
|
|
$ |
56.57
|
|
|
|
1,341,000
|
|
|
|
|
|
*
|
During
the third quarter of 2007, we received a total of 1,726 shares as
payments
for the exercise price of employee stock options, which are not included
in the publicly announced repurchase plan.
|
|
|
**
|
On
July 18, 2007, our Board of Directors approved a new share repurchase
plan
under which we are authorized to repurchase up to 24 million shares
of
common stock. The new plan has no expiration date and
supercedes the existing repurchase plan, which was cancelled effective
July 18, 2007. Prior to July 18, 2007, 90,000 of the shares repurchased
in
the first month of the third quarter of 2007 were purchased pursuant
to a
plan authorizing the repurchase of up to 24 million shares of our
common
stock that had been announced on January 26, 2006, and had no expiration
date.
|
26.
Item
5.
|
OTHER
INFORMATION
|
|
Because
this Quarterly Report on Form 10-Q is being filed within four business days
from
the date of the reportable event, we have elected to make the following
disclosure in this Quarterly Report on Form 10-Q instead of in a Current Report
on Form 8-K under Item 1.01 Entry into a Material Definitive Agreement and
Item
2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
On
October 26, 2007, we entered into a senior unsecured revolving credit facility
for an aggregate principal amount of $750 million with Citibank, N.A., as lender
and administrative agent, Bank of America, N.A., as lender and syndication
agent, and Goldman Sachs Credit Partners, L.P., as lender and documentation
agent. The credit facility provides us with additional liquidity related to
the
acquisition of UIC described in Note 13 to the consolidated financial statements
and expires on September 30, 2008.
We
have
two interest rate options for borrowings under the credit
facility. The first option is to pay interest at rates that are based
on the London Interbank Offered Rate (“LIBOR”) plus a margin of 26 basis points
if the aggregate amount outstanding exceeds 50% of the lenders’ total commitment
under the credit facility, or 21 basis points if the aggregate amount
outstanding is not more than 50% of such commitment. Alternatively,
we may opt to pay interest at the higher of (i) the administrative agent’s
floating prime lending rate or (ii) the federal funds rate plus 0.50% per
annum. We may also request the administrative agent to solicit
competitive bids for borrowings from the lenders at a margin over LIBOR or
at an
absolute rate.
To
maintain the credit facility, we have agreed to pay quarterly fees of four
basis
points, regardless of borrowing activity.
The
credit facility agreement contains covenants that, among other things, restrict
our ability to engage in mergers or to incur liens without the approval of
the
lenders. In addition, our Manufacturing group is required to maintain
an adjusted debt-to-capital ratio, as defined in the agreement, not to exceed
65%. Upon the occurrence of an event of default, all loans
outstanding under the credit facility may be declared immediately due and
payable and all commitments under the credit facility may be
terminated.
The
credit facility requires borrowings to be prepaid and the availability of the
facility to be permanently reduced by amounts equal to 100% of the net cash
proceeds of any issuances of long-term debt securities by Textron Inc. in any
aggregate principal amount over $350 million.
A
conformed copy of the credit facility agreement is attached hereto as Exhibit
10.11.
27.
Item
6.
|
EXHIBITS
|
10.1
|
Amendment
No. 4 to Master Services Agreement between Textron Inc. and Computer
Services Corporation, dated July 1, 2007
|
10.2
|
Textron
Inc. Short-Term Incentive Plan (As amended and restated effective
July 25,
2007)
|
10.3
|
Textron
Inc. 1999 Long-Term Incentive Plan for Textron Employees (Amended
and
Restated Effective July 25, 2007)
|
10.4
|
Performance
Share Unit Plan for Textron Employees (July 25, 2007)
|
10.5
|
Survivor
Benefit Plan for Textron Key Executives (As amended and restated
effective
July 25, 2007)
|
10.6
|
Textron
Spillover Pension Plan, As Amended and Restated Effective January
1, 2008,
including Appendix A, Defined Benefit Provisions of the Supplemental
Benefits Plan for Textron Key Executives (As in effect before January
1,
2007)
|
10.7
|
Supplemental
Retirement Plan for Textron Key Executives, As Amended and Restated
Effective January 1, 2008, including Appendix A, Provisions of the
Supplemental Retirement Plan for Textron Key Executives (As in effect
before January 1, 2008)
|
10.8
|
Deferred
Income Plan for Textron Executives, Effective January 1, 2008, including
Appendix A, Provisions of the Deferred Income Plan for Textron Key
Executives (As in effect before January 1, 2008)
|
10.9
|
Severance
Plan for Textron Key Executives, As Amended and Restated Effective
January
1, 2008
|
10.10
|
Deferred
Income Plan for Non-Employee Directors, As Amended and Restated Effective
January 1, 2008, including Appendix A, Prior Plan Provisions (As
in effect
before January 1, 2008)
|
10.11
|
Credit
Agreement, dated as of October 26, 2007, among Textron, the Banks
listed
therein, Citibank, N.A., as Administrative Agent, and Bank of America,
N.A., as Syndication Agent, and Goldman Sachs Credit Partners, L.P.,
as
Documentation Agent
|
12.1
|
Computation
of ratio of income to fixed charges of Textron Inc. Manufacturing
Group
|
12.2
|
Computation
of ratio of income to fixed charges of Textron Inc. including all
majority-owned subsidiaries
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted
pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted
pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
|
28.
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:
|
October
29, 2007
|
|
/s/R.
L. Yates
|
|
|
|
R.
L. Yates
Senior
Vice President and Corporate Controller
(principal
accounting officer)
|
|
|
|
|
29.
LIST
OF EXHIBITS
The
following exhibits are filed as part of this report on Form 10-Q:
Name
of Exhibit
10.1
|
Amendment
No. 4 to Master Services Agreement between Textron Inc. and Computer
Services Corporation, dated July 1, 2007
|
10.2
|
Textron
Inc. Short-Term Incentive Plan (As amended and restated effective
July 25,
2007)
|
10.3
|
Textron
Inc. 1999 Long-Term Incentive Plan for Textron Employees (Amended
and
Restated Effective July 25, 2007)
|
10.4
|
Performance
Share Unit Plan for Textron Employees (July 25, 2007)
|
10.5
|
Survivor
Benefit Plan for Textron Key Executives (As amended and restated
effective
July 25, 2007)
|
10.6
|
Textron
Spillover Pension Plan, As Amended and Restated Effective January
1, 2008,
including Appendix A, Defined Benefit Provisions of the Supplemental
Benefits
Plan
for Textron Key Executives (As in effect before January 1,
2007)
|
10.7
|
Supplemental
Retirement Plan for Textron Key Executives, As Amended and Restated
Effective January 1, 2008, including Appendix A, Provisions of the
Supplemental Retirement Plan for Textron Key Executives (As in effect
before January 1, 2008)
|
10.8
|
Deferred
Income Plan for Textron Executives, Effective January 1, 2008, including
Appendix A, Provisions of the Deferred Income Plan for Textron Key
Executives (As in effect before January 1, 2008)
|
10.9
|
Severance
Plan for Textron Key Executives, As Amended and Restated Effective
January
1, 2008
|
10.10
|
Deferred
Income Plan for Non-Employee Directors, As Amended and Restated Effective
January 1, 2008, including Appendix A, Prior Plan Provisions (As
in effect
before January 1, 2008)
|
10.11
|
Credit
Agreement, dated as of October 26, 2007, among Textron, the Banks
listed
therein, Citibank, N.A., as Administrative Agent, and Bank of America,
N.A., as Syndication Agent, and Goldman Sachs Credit Partners, L.P.,
as
Documentation Agent
|
12.1
|
Computation
of ratio of income to fixed charges of Textron Inc. Manufacturing
Group
|
12.2
|
Computation
of ratio of income to fixed charges of Textron Inc. including all
majority-owned subsidiaries
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted
pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted
pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
|