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Note 1. Summary of Significant Accounting Policies
Principles of Consolidation and Financial Statement Presentation
Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its majority-owned subsidiaries that operate in the Cessna, Bell, Textron Systems and Industrial segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation (TFC), its consolidated subsidiaries and three other finance subsidiaries owned by Textron Inc. 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.
Our Finance group provides captive financing for retail purchases and leases for new and used aircraft and equipment manufactured by our Manufacturing group. In the Consolidated Statements of Cash Flows, cash received from customers or from the sale of receivables is reflected as operating activities when received from third parties. 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 and is financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. 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 in consolidation.
Collaborative Arrangements
Our Bell segment has a strategic alliance agreement with The Boeing Company (Boeing) to provide engineering, development and test services related to the V-22 aircraft, as well as to produce the V-22 aircraft, under a number of separate contracts with the U.S. Government (V-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity interest. We account for this alliance as a collaborative arrangement with Bell and Boeing reporting costs incurred and revenues generated from transactions with the U.S. Government in each company’s respective income statement. Neither Bell nor Boeing is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are allocated between Bell and Boeing on a 50%-50% basis. Negotiated profits on fixed-price contracts are also allocated 50%-50%; however, Bell and Boeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. Based on the contractual arrangement established under the alliance, Bell accounts for its rights and obligations under the specific requirements of the V-22 Contracts allocated to Bell under the work breakdown structure. We account for all of our rights and obligations, including warranty, product and any contingent liabilities, under the specific requirements of the V-22 Contracts allocated to us under the agreement. Revenues and cost of sales reflect our performance under the V-22 Contracts with revenues recognized using the units-of-delivery method. We include all assets used in performance of the V-22 Contracts that we own, including inventory and unpaid receivables and all liabilities arising from our obligations under the V-22 Contracts in our Consolidated Balance Sheets.
Use of Estimates
We prepare our financial statements in conformity with generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated Statements of Operations in the period that they are determined.
During 2012, 2011 and 2010, we changed our estimates of revenues and costs on certain long-term contracts that are accounted for under the percentage-of-completion method of accounting. These changes in estimates increased income from continuing operations before income taxes in 2012, 2011 and 2010 by $15 million, $54 million and $78 million, respectively, ($9 million, $34 million and $49 million after tax, or $0.03, $0.11 and $0.16 per diluted share, respectively). For 2012, 2011 and 2010, the gross favorable program profit adjustments totaled $88 million, $83 million and $98 million, respectively. For 2012, 2011 and 2010, the gross unfavorable program profit adjustments totaled $73 million, $29 million and $20 million, respectively.
Cash and Equivalents
Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less.
Revenue Recognition
We generally recognize revenue for the sale of products, which are not under long-term contracts, upon delivery. For commercial aircraft, delivery is upon completion of manufacturing, customer acceptance, and the transfer of the risk and rewards of ownership. Taxes collected from customers and remitted to government authorities are recorded on a net basis.
When a sale arrangement involves multiple deliverables, such as sales of products that include customization and other services, we evaluate the arrangement to determine whether there are separate items that are required to be delivered under the arrangement that qualify as separate units of accounting. These arrangements typically involve the customization services we offer to customers who purchase Bell helicopters, and the services generally are provided within the first six months after the customer accepts the aircraft and assumes risk of loss. We consider the aircraft and the customization services to be separate units of accounting and allocate contract price between the two on a relative selling price basis using the best evidence of selling price for each of the arrangement deliverables, typically by reference to the price charged when the same or similar items are sold separately by us, taking into consideration any performance, cancellation, termination or refund-type provisions. We recognize revenue when the recognition criteria for each unit of accounting are met.
Long-Term Contracts — Revenues under long-term contracts are accounted for under the percentage-of-completion method of accounting. Under this method, we estimate profit as the difference between the total estimated revenues and cost of a contract. We then recognize that estimated profit over the contract term based on either the units-of-delivery method or the cost-to-cost method (which typically is used for development effort as costs are incurred), as appropriate under the circumstances. Revenues under fixed-price contracts generally are recorded using the units-of-delivery method. Revenues under cost-reimbursement contracts are recorded using the cost-to-cost method.
Long-term contract profits are based on estimates of total contract cost and revenues utilizing current contract specifications, expected engineering requirements, the achievement of contract milestones and product deliveries. Certain contracts are awarded with fixed-price incentive fees that also are considered when estimating revenues and profit rates. Contract costs typically are incurred over a period of several years, and the estimation of these costs requires substantial judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We update our projections of costs at least semiannually or when circumstances significantly change. When adjustments are required, any changes from prior estimates are recognized using the cumulative catch-up method with the impact of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.
Finance Revenues — Finance revenues include interest on finance receivables, direct loan origination costs and fees received, and capital and leveraged lease earnings, as well as portfolio gains/losses. Portfolio gains/losses include impairment charges related to repossessed assets and properties and gains/losses on the sale or early termination of finance assets. Revenues on direct loan origination costs and fees received are deferred and amortized to finance revenues over the contractual lives of the respective receivables and credit lines using the interest method. When receivables are sold or prepaid, unamortized amounts are recognized in finance revenues.
We recognize interest using the interest method, which provides a constant rate of return over the terms of the receivables. Accrual of interest income is suspended if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically suspend the accrual of interest income for accounts that are contractually delinquent by more than three months unless collection is not doubtful. Cash payments on nonaccrual accounts, including finance charges, generally are applied to reduce the net investment balance. We resume the accrual of interest when the loan becomes contractually current through payment according to the original terms of the loan or, if a loan has been modified, following a period of performance under the terms of the modification, provided we conclude that collection of all principal and interest is no longer doubtful. Previously suspended interest income is recognized at that time.
Finance Receivables Held for Investment and Allowance for Losses
Finance receivables are classified as held for investment when we have the intent and the ability to hold the receivable for the foreseeable future or until maturity or payoff. Finance receivables held for investment are generally recorded at the amount of outstanding principal less allowance for losses.
We maintain the allowance for losses on finance receivables held for investment at a level considered adequate to cover inherent losses in the portfolio based on management’s evaluation. For larger balance accounts specifically identified as impaired, including large accounts in homogeneous portfolios, a reserve is established based on comparing the carrying value with either a) the expected future cash flows, discounted at the finance receivable’s effective interest rate; or b) the fair value of the underlying collateral, if the finance receivable is collateral dependent. The expected future cash flows consider collateral value; financial performance and liquidity of our borrower; existence and financial strength of guarantors; estimated recovery costs, including legal expenses; and costs associated with the repossession/foreclosure and eventual disposal of collateral. When there is a range of potential outcomes, we perform multiple discounted cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results. While our analysis is specific to each individual account, critical factors included in this analysis for the Captive product line include industry valuation guides, age and physical condition of the collateral, payment history and existence and financial strength of guarantors.
We also establish an allowance for losses to cover probable but specifically unknown losses existing in the portfolio. For the Captive product line, the allowance is established as a percentage of non-recourse finance receivables, which have not been identified as requiring specific reserves. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values and both general economic and specific industry trends.
Finance receivables held for investment are charged off at the earlier of the date the collateral is repossessed or when no payment has been received for six months, unless management deems the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell.
Finance Receivables Held for Sale
Finance receivables are classified as held for sale based on the determination that we no longer intend to hold the receivables for the foreseeable future, until maturity or payoff, or we no longer have the ability to hold to maturity. Our decision to classify certain finance receivables as held for sale is based on a number of factors, including, but not limited to, contractual duration, type of collateral, credit strength of the borrowers, interest rates and perceived marketability of the receivables.
Finance receivables held for sale are carried at the lower of cost or fair value. At the time of transfer to the held for sale classification, we establish a valuation allowance for any shortfall between the carrying value and fair value. In addition, any allowance for loan losses previously allocated to these finance receivables is transferred to the valuation allowance account, which is netted with finance receivables held for sale on the balance sheet. This valuation allowance is adjusted quarterly. Fair value changes can occur based on market interest rates, market liquidity, and changes in the credit quality of the borrower and value of underlying loan collateral.
Inventories
Inventories are stated at the lower of cost or estimated net realizable value. We value our inventories generally using the first-in, first-out (FIFO) method or the last-in, first-out (LIFO) method for certain qualifying inventories where LIFO provides a better matching of costs and revenues. We determine costs for our commercial helicopters on an average cost basis by model considering the expended and estimated costs for the current production release. Inventoried costs related to long-term contracts are stated at actual production costs, including allocable operating overhead, advances to suppliers, and, in the case of contracts with the U.S. Government, allocable research and development and general and administrative expenses. Since our inventoried costs include amounts related to contracts with long production cycles, a portion of these costs is not expected to be realized within one year. Pursuant to contract provisions, agencies of the U.S. Government have title to, or security interest in, inventories related to such contracts as a result of advances, performance-based payments and progress payments. Such advances and payments are reflected as an offset against the related inventory balances. Customer deposits are recorded against inventory when the right of offset exists. All other customer deposits are recorded in accrued liabilities.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. We capitalize expenditures for improvements that increase asset values and extend useful lives.
Intangible and Other Long-Lived Assets
At acquisition, we estimate and record the fair value of purchased intangible assets primarily using a discounted cash flow analysis of anticipated cash flows reflecting incremental revenues and/or cost savings resulting from the acquired intangible asset using market participant assumptions. Amortization of intangible assets with finite lives is recognized over their estimated useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. Approximately 37% of our gross intangible assets are amortized using the straight-line method, with the remaining assets, primarily customer agreements, amortized based on the cash flow streams used to value the asset. Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying value of the asset held for use exceeds the sum of the undiscounted expected future cash flows, the carrying value of the asset generally is written down to fair value. Long-lived assets held for sale are stated at the lower of cost or fair value less cost to sell. Fair value is determined using pertinent market information, including estimated future discounted cash flows.
Goodwill
We evaluate the recoverability of goodwill annually in the fourth quarter or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value of a reporting unit might be impaired. The reporting unit represents the operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment, in which case such component is the reporting unit. In certain instances, we have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics.
We may perform a qualitative assessment based on economic, industry and company-specific factors as the initial step in our annual goodwill impairment test for selected reporting units. If we determine that it is more likely than not that a reporting unit’s fair value exceeds its carrying value, we do not perform a quantitative assessment. For all other reporting units, we calculate the fair value of each reporting unit, primarily using discounted cash flows. The discounted cash flows incorporate assumptions for the unit’s short- and long-term revenue growth rates, operating margins and discount rates, which represent our best estimates of current and forecasted market conditions, cost structure, anticipated net cost reductions, and the implied rate of return that we believe a market participant would require for an investment in a business having similar risks and business characteristics to the reporting unit being assessed. If the reporting unit’s estimated fair value exceeds its carrying value, the reporting unit is not impaired, and no further analysis is performed. Otherwise, the amount of the impairment must be determined by comparing the carrying amount of the reporting unit goodwill to the implied fair value of that goodwill. The implied fair value of goodwill is determined by assigning a fair value to all of the reporting unit’s assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination at fair value. If the carrying amount of the reporting unit goodwill exceeds the implied fair value, an impairment loss would be recognized in an amount equal to that excess.
Pension and Postretirement Benefit Obligations
We maintain various pension and postretirement plans for our employees globally. These plans include significant pension and postretirement benefit obligations, which are calculated based on actuarial valuations. Key assumptions used in determining these obligations and related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. We evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases. We recognize the overfunded or underfunded status of our pension and postretirement plans in the Consolidated Balance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income in the year in which they occur. Actuarial gains and losses that are not immediately recognized as net periodic pension cost are recognized as a component of other comprehensive (loss) income (OCI) and are amortized into net periodic pension cost in future periods.
Derivative Financial Instruments
We are exposed to market risk primarily from changes in interest rates and currency exchange rates. We do not hold or issue derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. All derivative instruments are reported at fair value in the Consolidated Balance Sheets. Designation to support hedge accounting is performed on a specific exposure basis. For financial instruments qualifying as fair value hedges, we record changes in fair value in earnings, offset, in part or in whole, by corresponding changes in the fair value of the underlying exposures being hedged. For cash flow hedges, we record changes in the fair value of derivatives (to the extent they are effective as hedges) in OCI, net of deferred taxes. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings.
Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or substantially liquidated. We use foreign currency financing transactions to effectively hedge long-term investments in foreign operations with the same corresponding currency. Foreign currency gains and losses on the hedge of the long-term investments are recorded in the cumulative translation adjustment account with the offset recorded as an adjustment to debt.
Product Liabilities
We accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. Our estimates are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience.
Environmental Liabilities and Asset Retirement Obligations
Liabilities for environmental matters are recorded on a site-by-site basis when it is probable that an obligation has been incurred and the cost can be reasonably estimated. We estimate our accrued environmental liabilities using currently available facts, existing technology, and presently enacted laws and regulations, all of which are subject to a number of factors and uncertainties. Our environmental liabilities are not discounted and do not take into consideration possible future insurance proceeds or significant amounts from claims against other third parties.
We have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and asbestos materials used in insulation, adhesive fillers and floor tiles. There is no legal requirement to remove these items, and there currently is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset retirement obligations are not estimable, there is no related liability recorded in the Consolidated Balance Sheets.
Warranty and Product Maintenance Contracts
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 revenues are 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. Additionally, we may establish warranty liabilities related to the issuance of aircraft service bulletins for aircraft no longer covered under the limited warranty programs.
Research and Development Costs
Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. Government contracts. In accordance with government regulations, we recover a portion of company-funded research and development costs through overhead rate charges on our U.S. Government contracts. Research and development costs that are not reimbursable under a contract with the U.S. Government or another customer are charged to expense as incurred. Company-funded research and development costs were $584 million, $525 million, and $403 million in 2012, 2011 and 2010, respectively, and are included in cost of sales.
Income Taxes
Deferred income tax balances reflect the effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and their tax bases, as well as from net operating losses and tax credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including the future reversal of existing taxable temporary differences, taxable income in carryback years, available tax planning strategies and estimated future taxable income. We recognize net tax-related interest and penalties for continuing operations in income tax expense.
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Note 2. Discontinued Operations
In pursuing our business strategies, we have periodically divested certain non-core businesses. For several previously-disposed businesses, we have retained certain assets and liabilities. All residual activity relating to our previously-disposed businesses that meet the appropriate criteria is included in discontinued operations.
In connection with the 2008 sale of the Fluid & Power business unit, we received a six-year note with a face value of $28 million and a five-year note with a face value of $30 million, which were both recorded in the Consolidated Balance Sheet net of a valuation allowance. In the fourth quarter of 2011, we received full payment of both of these notes plus interest, resulting in a gain of $52 million that was recorded in Other losses, net.
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Note 3. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by segment are as follows:
(In millions) |
|
Cessna |
|
Bell |
|
Textron |
|
Industrial |
|
Total |
| |||||
Balance at January 2, 2010 |
|
$ |
322 |
|
$ |
30 |
|
$ |
958 |
|
$ |
312 |
|
$ |
1,622 |
|
Acquisitions |
|
— |
|
1 |
|
16 |
|
5 |
|
22 |
| |||||
Foreign currency translation |
|
— |
|
— |
|
— |
|
(12 |
) |
(12 |
) | |||||
Balance at January 1, 2011 |
|
322 |
|
31 |
|
974 |
|
305 |
|
1,632 |
| |||||
Acquisitions |
|
— |
|
— |
|
— |
|
5 |
|
5 |
| |||||
Foreign currency translation |
|
— |
|
— |
|
— |
|
(2 |
) |
(2 |
) | |||||
Balance at December 31, 2011 |
|
322 |
|
31 |
|
974 |
|
308 |
|
1,635 |
| |||||
Acquisitions |
|
4 |
|
— |
|
— |
|
6 |
|
10 |
| |||||
Foreign currency translation |
|
— |
|
— |
|
— |
|
4 |
|
4 |
| |||||
Balance at December 29, 2012 |
|
$ |
326 |
|
$ |
31 |
|
$ |
974 |
|
$ |
318 |
|
$ |
1,649 |
|
Our intangible assets are summarized below:
|
|
|
|
|
December 29, 2012 |
|
|
December 31, 2011 |
| ||||||||||||||
(Dollars in millions) |
|
Weighted-Average |
|
|
Gross |
|
Accumulated |
|
Net |
|
|
Gross |
|
Accumulated |
|
Net |
| ||||||
Customer agreements and contractual relationships |
|
15 |
|
|
$ |
330 |
|
$ |
(139) |
|
$ |
191 |
|
|
$ |
330 |
|
$ |
(112) |
|
$ |
218 |
|
Patents and technology |
|
10 |
|
|
84 |
|
(55) |
|
29 |
|
|
95 |
|
(59) |
|
36 |
| ||||||
Trademarks |
|
18 |
|
|
36 |
|
(22) |
|
14 |
|
|
36 |
|
(19) |
|
17 |
| ||||||
Other |
|
9 |
|
|
20 |
|
(16) |
|
4 |
|
|
22 |
|
(16) |
|
6 |
| ||||||
Total |
|
|
|
|
$ |
470 |
|
$ |
(232) |
|
$ |
238 |
|
|
$ |
483 |
|
$ |
(206) |
|
$ |
277 |
|
In the fourth quarter of 2011, we recorded a $41 million impairment charge to write down $37 million in customer agreements and contractual relationships and $4 million in patents and technology. See Note 9 for more information on this charge.
Amortization expense totaled $40 million, $51 million and $52 million in 2012, 2011 and 2010, respectively. Amortization expense is estimated to be approximately $36 million, $35 million, $34 million, $28 million and $24 million in 2013, 2014, 2015, 2016 and 2017, respectively.
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Note 4. Accounts Receivable and Finance Receivables
Accounts Receivable
Accounts receivable is composed of the following:
(In millions) |
|
December 29, |
|
|
December 31, |
| ||
Commercial |
|
$ |
534 |
|
|
$ |
528 |
|
U.S. Government contracts |
|
314 |
|
|
346 |
| ||
|
|
848 |
|
|
874 |
| ||
Allowance for doubtful accounts |
|
(19 |
) |
|
(18 |
) | ||
Total |
|
$ |
829 |
|
|
$ |
856 |
|
We have unbillable receivables primarily on U.S. Government contracts that arise when the revenues we have appropriately recognized based on performance cannot be billed yet under terms of the contract. Unbillable receivables within accounts receivable totaled $149 million at December 29, 2012 and $192 million at December 31, 2011.
Finance Receivables
Finance receivables by product line, which includes both finance receivables held for investment and finance receivables held for sale, are presented in the following table.
(In millions) |
|
December 29, |
|
|
December 31, |
| ||
Captive |
|
$ |
1,704 |
|
|
$ |
1,945 |
|
Non-captive: |
|
|
|
|
|
| ||
Golf Mortgage |
|
140 |
|
|
381 |
| ||
Structured Capital |
|
122 |
|
|
208 |
| ||
Timeshare |
|
100 |
|
|
318 |
| ||
Other liquidating |
|
8 |
|
|
43 |
| ||
Total finance receivables |
|
2,074 |
|
|
2,895 |
| ||
Less: Allowance for losses |
|
84 |
|
|
156 |
| ||
Less: Finance receivables held for sale |
|
140 |
|
|
418 |
| ||
Total finance receivables held for investment, net |
|
$ |
1,850 |
|
|
$ |
2,321 |
|
Captive primarily includes loans and finance leases provided to purchasers of new and used Cessna aircraft and Bell helicopters and also includes loans and finance leases secured by used aircraft produced by other manufacturers. These agreements typically have initial terms ranging from five to ten years and amortization terms ranging from eight to fifteen years. The average balance of loans and finance leases in Captive was $1 million at December 29, 2012. Loans generally require the customer to pay a significant down payment, along with periodic scheduled principal payments that reduce the outstanding balance through the term of the loan. Finance leases with no significant residual value at the end of the contractual term are classified as loans, as their legal and economic substance is more equivalent to a secured borrowing than a finance lease with a significant residual value. Captive also includes, to a limited extent, finance leases provided to purchasers of new E-Z-GO and Jacobsen golf and turf-care equipment.
Golf Mortgage primarily includes golf course mortgages and also includes mortgages secured by hotels and marinas, which are secured by real property and are generally limited to 75% or less of the property’s appraised market value at loan origination. These mortgages typically have initial terms ranging from five to ten years with amortization periods from twenty to thirty years. As of December 29, 2012, loans in Golf Mortgage had an average balance of $7 million and a weighted-average contractual maturity of two years. All loans in this portfolio are classified as held for sale. Structured Capital primarily includes leveraged leases secured by the ownership of the leased equipment and real property. Timeshare includes pools of timeshare interval resort notes that typically have terms of ten to twenty years, as well as term loans secured by timeshare interval inventory.
Our finance receivables are diversified across geographic region and borrower industry. At December 29, 2012, 45% of our finance receivables were distributed throughout the U.S. compared with 54% at the end of 2011. Finance receivables held for investment are composed primarily of loans. At December 29, 2012 and December 31, 2011, these finance receivables included $341 million and $559 million, respectively, of receivables, primarily in the Captive product line, that have been legally sold to special purpose entities (SPEs), which are consolidated subsidiaries of TFC. The assets of the SPEs are pledged as collateral for their debt, which is reflected as securitized on-balance sheet debt in Note 8. Third-party investors have no legal recourse to TFC beyond the credit enhancement provided by the assets of the SPEs.
We received total proceeds of $116 million and $476 million from the sale of finance receivables in 2012 and 2011, respectively. Total gains resulting from these sales were not material for 2012 and 2011.
Credit Quality Indicators and Nonaccrual Finance Receivables
We internally assess the quality of our finance receivables held for investment portfolio based on a number of key credit quality indicators and statistics such as delinquency, loan balance to estimated collateral value and the financial strength of individual borrowers and guarantors. Because many of these indicators are difficult to apply across an entire class of receivables, we evaluate individual loans on a quarterly basis and classify these loans into three categories based on the key credit quality indicators for the individual loan. These three categories are performing, watchlist and nonaccrual.
We classify finance receivables held for investment as nonaccrual if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three months unless collection of principal and interest is not doubtful. Cash payments on nonaccrual accounts, including finance charges, generally are applied to reduce the net investment balance. We resume the accrual of interest when the loan becomes contractually current through payment according to the original terms of the loan or, if a loan has been modified, following a period of performance under the terms of the modification, provided we conclude that collection of all principal and interest is no longer doubtful. Previously suspended interest income is recognized at that time.
Accounts are classified as watchlist when credit quality indicators have deteriorated as compared with typical underwriting criteria, and we believe collection of full principal and interest is probable but not certain. All other finance receivables held for investment that do not meet the watchlist or nonaccrual categories are classified as performing.
A summary of finance receivables held for investment categorized based on the credit quality indicators discussed above is as follows:
|
|
December 29, 2012 |
|
|
December 31, 2011 |
| ||||||||||||||||||||
(In millions) |
|
Performing |
|
Watchlist |
|
Nonaccrual |
|
Total |
|
|
Performing |
|
Watchlist |
|
Nonaccrual |
|
Total |
| ||||||||
Captive |
|
$ |
1,476 |
|
$ |
130 |
|
$ |
98 |
|
$ |
1,704 |
|
|
$ |
1,558 |
|
$ |
251 |
|
$ |
136 |
|
$ |
1,945 |
|
Non-captive* |
|
185 |
|
— |
|
45 |
|
230 |
|
|
317 |
|
30 |
|
185 |
|
532 |
| ||||||||
Total |
|
$ |
1,661 |
|
$ |
130 |
|
$ |
143 |
|
$ |
1,934 |
|
|
$ |
1,875 |
|
$ |
281 |
|
$ |
321 |
|
$ |
2,477 |
|
% of Total |
|
85.9% |
|
6.7% |
|
7.4% |
|
|
|
|
75.7% |
|
11.3% |
|
13.0% |
|
|
|
*Non-captive nonaccrual finance receivables are primarily related to the Timeshare portfolio.
We measure delinquency based on the contractual payment terms of our loans and leases. In determining the delinquency aging category of an account, any/all principal and interest received is applied to the most past-due principal and/or interest amounts due. If a significant portion of the contractually due payment is delinquent, the entire finance receivable balance is reported in accordance with the most past-due delinquency aging category.
Finance receivables held for investment by delinquency aging category is summarized in the table below:
|
|
December 29, 2012 |
|
|
December 31, 2011 |
| ||||||||||||||||||||||||||
(In millions) |
|
Less Than |
|
31-60 |
|
61-90 |
|
Over |
|
Total |
|
|
Less Than |
|
31-60 |
|
61-90 |
|
Over |
|
Total |
| ||||||||||
Captive |
|
$ |
1,531 |
|
$ |
87 |
|
$ |
55 |
|
$ |
31 |
|
$ |
1,704 |
|
|
$ |
1,758 |
|
$ |
69 |
|
$ |
43 |
|
$ |
75 |
|
$ |
1,945 |
|
Non-captive |
|
226 |
|
— |
|
1 |
|
3 |
|
230 |
|
|
481 |
|
3 |
|
— |
|
48 |
|
532 |
| ||||||||||
Total |
|
$ |
1,757 |
|
$ |
87 |
|
$ |
56 |
|
$ |
34 |
|
$ |
1,934 |
|
|
$ |
2,239 |
|
$ |
72 |
|
$ |
43 |
|
$ |
123 |
|
$ |
2,477 |
|
We had no accrual status loans that were greater than 90 days past due at December 29, 2012 or December 31, 2011. At December 29, 2012 and December 31, 2011, 60+ days contractual delinquency as a percentage of finance receivables held for investment was 4.65% and 6.70%, respectively.
Loan Modifications
Troubled debt restructurings occur when we have either modified the contract terms of finance receivables held for investment for borrowers experiencing financial difficulties or accepted a transfer of assets in full or partial satisfaction of the loan balance. The types of modifications we typically make include extensions of the original maturity date of the contract, extensions of revolving borrowing periods, delays in the timing of required principal payments, deferrals of interest payments, advances to protect the value of our collateral and principal reductions contingent on full repayment prior to the maturity date. The changes effected by modifications made during 2012 and 2011 to finance receivables held for investment were not material.
Impaired Loans
We evaluate individual finance receivables held for investment in non-homogeneous portfolios and larger accounts in homogeneous loan portfolios for impairment on a quarterly basis. Finance receivables classified as held for sale are reflected at the lower of cost or fair value and are excluded from these evaluations. A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators discussed above. Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified. If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification. There was no significant interest income recognized on impaired loans in 2012 or 2011.
A summary of impaired finance receivables, excluding leveraged leases, at year end and the average recorded investment for the year is provided below:
|
|
|
Recorded Investment |
|
|
|
|
|
|
|
| ||||||||||
(In millions) |
|
Impaired |
|
Impaired |
|
Total |
|
Unpaid |
|
Allowance |
|
Average |
| ||||||||
December 29, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Captive |
|
$ |
61 |
|
$ |
66 |
|
$ |
127 |
|
$ |
128 |
|
$ |
15 |
|
$ |
121 |
| ||
Non-captive |
|
11 |
|
33 |
|
44 |
|
59 |
|
12 |
|
149 |
| ||||||||
Total |
|
$ |
72 |
|
$ |
99 |
|
$ |
171 |
|
$ |
187 |
|
$ |
27 |
|
$ |
270 |
| ||
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Captive |
|
$ |
47 |
|
$ |
94 |
|
$ |
141 |
|
$ |
144 |
|
$ |
40 |
|
$ |
149 |
| ||
Non-captive |
|
173 |
|
69 |
|
242 |
|
347 |
|
47 |
|
577 |
| ||||||||
Total |
|
$ |
220 |
|
$ |
163 |
|
$ |
383 |
|
$ |
491 |
|
$ |
87 |
|
$ |
726 |
|
*Non-captive impaired loans are primarily related to the Timeshare portfolio.
A summary of the allowance for losses on finance receivables that are evaluated on an individual and on a collective basis is provided below. The finance receivables reported in this table specifically exclude $122 million and $208 million of leveraged leases at December 29, 2012 and December 31, 2011, respectively, in accordance with authoritative accounting standards.
|
|
December 29, 2012 |
|
|
December 31, 2011 |
| ||||||||||||||||||||
|
|
Finance |
|
Allowance |
|
Allowance |
|
|
Finance |
|
Allowance |
|
Allowance |
| ||||||||||||
(In millions) |
|
Individually |
|
Collectively |
|
Evaluation |
|
Evaluation |
|
|
Individually |
|
Collectively |
|
Evaluation |
|
Evaluation |
| ||||||||
Captive |
|
$ |
127 |
|
$ |
1,577 |
|
$ |
15 |
|
$ |
55 |
|
|
$ |
141 |
|
$ |
1,804 |
|
$ |
40 |
|
$ |
61 |
|
Non-captive |
|
44 |
|
64 |
|
12 |
|
2 |
|
|
242 |
|
82 |
|
47 |
|
8 |
| ||||||||
Total |
|
$ |
171 |
|
$ |
1,641 |
|
$ |
27 |
|
$ |
57 |
|
|
$ |
383 |
|
$ |
1,886 |
|
$ |
87 |
|
$ |
69 |
|
Allowance for Losses
A rollforward of the allowance for losses on finance receivables held for investment is provided below:
(In millions) |
|
Captive |
|
Golf |
|
Timeshare |
|
Other |
|
Total |
| |||||
Balance at January 1, 2011 |
|
$ |
123 |
|
$ |
79 |
|
$ |
106 |
|
$ |
34 |
|
$ |
342 |
|
Provision for losses |
|
15 |
|
25 |
|
(26 |
) |
(2 |
) |
12 |
| |||||
Charge-offs |
|
(43 |
) |
(27 |
) |
(40 |
) |
(14 |
) |
(124 |
) | |||||
Recoveries |
|
9 |
|
3 |
|
— |
|
10 |
|
22 |
| |||||
Transfers |
|
(3 |
) |
(80 |
) |
— |
|
(13 |
) |
(96 |
) | |||||
Balance at December 31, 2011 |
|
$ |
101 |
|
$ |
— |
|
$ |
40 |
|
$ |
15 |
|
$ |
156 |
|
Provision for losses |
|
1 |
|
— |
|
2 |
|
(6 |
) |
(3 |
) | |||||
Charge-offs |
|
(42 |
) |
— |
|
(32 |
) |
(10 |
) |
(84 |
) | |||||
Recoveries |
|
10 |
|
— |
|
1 |
|
4 |
|
15 |
| |||||
Balance at December 29, 2012 |
|
$ |
70 |
|
$ |
— |
|
$ |
11 |
|
$ |
3 |
|
$ |
84 |
|
Captive and Other Intercompany Financing
Our Finance group provides financing for retail purchases and leases for new and used aircraft and equipment manufactured by our Manufacturing group. The captive finance receivables for these inventory sales that are included in the Finance group’s balance sheets are summarized below:
(In millions) |
|
December 29, |
|
|
December 31, |
| ||
Loans |
|
$ |
1,389 |
|
|
$ |
1,496 |
|
Finance leases |
|
107 |
|
|
121 |
| ||
Total |
|
$ |
1,496 |
|
|
$ |
1,617 |
|
In 2012, 2011 and 2010, our Finance group paid our Manufacturing group $309 million, $284 million and $416 million, respectively, related to the sale of Textron-manufactured products to third parties that were financed by the Finance group. Our Cessna and Industrial segments also received proceeds in those years of $19 million, $2 million and $10 million, respectively, from the sale of equipment from their manufacturing operations to our Finance group for use under operating lease agreements. Operating agreements specify that our Finance group has recourse to our Manufacturing group for certain uncollected amounts related to these transactions. At December 29, 2012 and December 31, 2011, finance receivables and operating leases subject to recourse to the Manufacturing group totaled $83 million and $88 million, respectively. Our Manufacturing group has established reserves for losses on its balance sheet within accrued and other liabilities for the amounts it guarantees.
Textron lends TFC funds to pay down maturing debt. The average interest rate on these borrowings was 4.3% and 5.0% during 2012 and 2011, respectively. At December 29, 2012, there was no outstanding balance due to Textron under this arrangement, and at December 31, 2011, the outstanding balance due to Textron was $490 million. These amounts are included in other current assets for the Manufacturing group and Due to Manufacturing group for the Finance group in the Consolidated Balance Sheets.
Finance Receivables Held for Sale
At the end of 2012 and 2011, $140 million and $418 million of finance receivables were classified as held for sale. At December 29, 2012, finance receivables held for sale included the entire Golf Mortgage portfolio. In 2011, we transferred $458 million of the remaining Golf Mortgage portfolio, net of an $80 million allowance for loan losses, from the held for investment classification to the held for sale classification. These finance receivables were recorded at fair value at the time of the transfer, resulting in a $186 million charge recorded to Valuation allowance on transfer of Golf Mortgage portfolio to held for sale. Also, in 2011, we transferred a total of $125 million of Timeshare finance receivables to the held for sale classification, based on an agreement to sell a portion of the portfolio that was sold in the fourth quarter of 2011 and interest in other portions of the portfolio. We received proceeds of $109 million and $383 million in 2012 and 2011, respectively, from the sale of finance receivables held for sale and $207 million and $10 million, respectively, from payoffs and collections.
|
Note 5. Inventories
Inventories are composed of the following:
(In millions) |
|
December 29, |
|
|
December 31, |
| ||
Finished goods |
|
$ |
1,329 |
|
|
$ |
1,012 |
|
Work in process |
|
2,247 |
|
|
2,202 |
| ||
Raw materials and components |
|
437 |
|
|
399 |
| ||
|
|
4,013 |
|
|
3,613 |
| ||
Progress/milestone payments |
|
(1,301 |
) |
|
(1,211 |
) | ||
Total |
|
$ |
2,712 |
|
|
$ |
2,402 |
|
Inventories valued by the LIFO method totaled $1.1 billion and $1.0 billion at the end of 2012 and 2011, respectively, and the carrying values of these inventories would have been higher by approximately $435 million and $422 million, respectively, had our LIFO inventories been valued at current costs. Inventories related to long-term contracts, net of progress/milestone payments, were $382 million and $414 million at the end of 2012 and 2011, respectively.
|
Note 6. Property, Plant and Equipment, Net
Our Manufacturing group’s property, plant and equipment, net are composed of the following:
(Dollars in millions) |
|
Useful Lives |
|
|
December 29, |
|
|
December 31, |
| ||
Land and buildings |
|
4 - 40 |
|
|
$ |
1,604 |
|
|
$ |
1,502 |
|
Machinery and equipment |
|
1 - 15 |
|
|
3,822 |
|
|
3,591 |
| ||
|
|
|
|
|
5,426 |
|
|
5,093 |
| ||
Accumulated depreciation and amortization |
|
|
|
|
(3,277 |
) |
|
(3,097 |
) | ||
Total |
|
|
|
|
$ |
2,149 |
|
|
$ |
1,996 |
|
At the end of 2012 and 2011, assets under capital leases totaled $251 million and had accumulated amortization of $51 million and $47 million, respectively. The Manufacturing group’s depreciation expense, which included amortization expense on capital leases, totaled $315 million, $317 million and $308 million in 2012, 2011 and 2010, respectively.
|
Note 7. Accrued Liabilities
The accrued liabilities of our Manufacturing group are summarized below:
(In millions) |
|
|
|
|
December 29, |
|
|
December 31, |
| ||
Customer deposits |
|
|
|
|
$ |
725 |
|
|
$ |
729 |
|
Salaries, wages and employer taxes |
|
|
|
|
282 |
|
|
282 |
| ||
Current portion of warranty and product maintenance contracts |
|
|
|
|
180 |
|
|
198 |
| ||
Deferred revenues |
|
|
|
|
115 |
|
|
169 |
| ||
Retirement plans |
|
|
|
|
80 |
|
|
80 |
| ||
Other |
|
|
|
|
574 |
|
|
494 |
| ||
Total |
|
|
|
|
$ |
1,956 |
|
|
$ |
1,952 |
|
Changes in our warranty and product maintenance contract liability are as follows:
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
| |||
Accrual at beginning of year |
|
$ |
224 |
|
|
$ |
242 |
|
$ |
263 |
|
Provision |
|
255 |
|
|
223 |
|
189 |
| |||
Settlements |
|
(250 |
) |
|
(223 |
) |
(231 |
) | |||
Adjustments to prior accrual estimates* |
|
(7 |
) |
|
(18 |
) |
21 |
| |||
Accrual at end of year |
|
$ |
222 |
|
|
$ |
224 |
|
$ |
242 |
|
* Adjustments include changes to prior year estimates, new issues on prior year sales and currency translation adjustments.
|
Note 8. Debt and Credit Facilities
Our debt is summarized in the table below:
(In millions) |
|
|
December 29, |
|
|
December 31, |
| ||
Manufacturing group |
|
|
|
|
|
|
| ||
Long-term senior debt: |
|
|
|
|
|
|
| ||
6.50% due 2012 |
|
|
$ |
— |
|
|
$ |
139 |
|
3.875% due 2013 |
|
|
318 |
|
|
308 |
| ||
4.50% convertible senior notes due 2013 |
|
|
210 |
|
|
195 |
| ||
6.20% due 2015 |
|
|
350 |
|
|
350 |
| ||
4.625% due 2016 |
|
|
250 |
|
|
250 |
| ||
5.60% due 2017 |
|
|
350 |
|
|
350 |
| ||
7.25% due 2019 |
|
|
250 |
|
|
250 |
| ||
6.625% due 2020 |
|
|
242 |
|
|
231 |
| ||
5.95% due 2021 |
|
|
250 |
|
|
250 |
| ||
Other (weighted-average rate of 1.52% and 3.72%, respectively) |
|
|
81 |
|
|
136 |
| ||
|
|
|
2,301 |
|
|
2,459 |
| ||
Less: Current portion of long-term debt |
|
|
(535 |
) |
|
(146 |
) | ||
Total Long-term debt |
|
|
1,766 |
|
|
2,313 |
| ||
Total Manufacturing group debt |
|
|
$ |
2,301 |
|
|
$ |
2,459 |
|
Finance group |
|
|
|
|
|
|
| ||
Fixed-rate notes due 2013 (weighted-average rate of 5.28%) |
|
|
$ |
400 |
|
|
$ |
400 |
|
Variable-rate note due 2013 (weighted-average rate of 1.21% and 1.41%, respectively) |
|
|
48 |
|
|
100 |
| ||
Fixed-rate note due 2014 (5.13%) |
|
|
100 |
|
|
100 |
| ||
Fixed-rate notes due 2012-2017* (weighted-average rate of 4.88% and 4.48%, respectively) |
|
|
102 |
|
|
147 |
| ||
Fixed-rate notes due 2015-2022* (weighted-average rate of 2.70% and 2.76%, respectively) |
|
|
382 |
|
|
364 |
| ||
Variable-rate notes due 2015-2020* (weighted-average rate of 1.09% and 1.12%, respectively) |
|
|
64 |
|
|
62 |
| ||
Securitized debt (weighted-average rate of 1.55% and 2.08%, respectively) |
|
|
282 |
|
|
469 |
| ||
6% Fixed-to-Floating Rate Junior Subordinated Notes |
|
|
300 |
|
|
300 |
| ||
Fixed-rate note due 2037 (6.20%) |
|
|
— |
|
|
10 |
| ||
Fair value adjustments and unamortized discount |
|
|
8 |
|
|
22 |
| ||
Total Finance group debt |
|
|
$ |
1,686 |
|
|
$ |
1,974 |
|
* Notes amortize on a quarterly or semi-annual basis.
Textron Inc. has a senior unsecured revolving credit facility that expires in March 2015 for an aggregate principal amount of $1.0 billion, up to $200 million of which is available for the issuance of letters of credit. At December 29, 2012, there were no amounts borrowed against the facility, and there were $37 million of letters of credits issued against it.
The following table shows required payments during the next five years on debt outstanding at December 29, 2012:
(In millions) |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
| |||||
Manufacturing group |
|
$ |
535 |
|
$ |
7 |
|
$ |
357 |
|
$ |
257 |
|
$ |
357 |
|
Finance group |
|
637 |
|
228 |
|
159 |
|
104 |
|
94 |
| |||||
Total |
|
$ |
1,172 |
|
$ |
235 |
|
$ |
516 |
|
$ |
361 |
|
$ |
451 |
|
4.50% Convertible Senior Notes and Related Transactions
On May 5, 2009, we issued $600 million of convertible senior notes with a maturity date of May 1, 2013 and interest payable semiannually. The convertible notes are accounted for in accordance with generally accepted accounting principles, which require us to separately account for the liability (debt) and the equity (conversion option) components of the convertible notes in a manner that reflected our non-convertible debt borrowing rate at time of issuance. Accordingly, we recorded a debt discount and corresponding increase to additional paid-in capital of $134 million at the issuance date. We are amortizing the debt discount utilizing the effective interest method over the life of the notes, which increases the effective interest rate of the convertible notes from its coupon rate of 4.50% to 11.72%. We incurred cash and non-cash interest expense of $25 million in 2012, $58 million in 2011 and $60 million in 2010 for these notes.
At December 29, 2012, the face value of our convertible notes outstanding was $215 million and the unamortized discount totaled $5 million. Under the terms of the Indenture that governs the notes, the notes are currently convertible at the holder’s option through April 29, 2013, the second day preceding their May 1, 2013 maturity. The notes are convertible into shares of our common stock at an initial conversion rate of 76.1905 shares of common stock per $1,000 principal amount of convertible notes, which is equivalent to an initial conversion price of approximately $13.125 per share. Upon conversion, we have the right to settle the conversion of each $1,000 principal amount of convertible notes with any of the three following alternatives: (1) cash, (2) shares of our common stock or (3) a combination of cash and shares of our common stock. We intend to settle the face value of the convertible notes in cash. Based on a December 29, 2012 stock price of $24.12, the “if converted value” exceeded the face amount of the notes by $180 million; however, after giving effect to the exercise of the call options and warrants described below, the incremental cash or share settlement in excess of the face amount would result in either a cash payment of $137 million, a 5.7 million net share issuance, or a combination of cash and stock, at our option.
At December 31, 2011, the face value of the notes totaled $216 million, and the unamortized discount totaled $21 million. In September 2011, we announced a cash tender offer for any and all of the outstanding convertible notes. In the aggregate, the holders validly tendered $225 million principal amount of the convertible notes. Subsequent to the tender offer, we also purchased $151 million principal amount of the convertible notes in a small number of privately negotiated transactions and retired another $8 million related to a holder-initiated conversion in 2011. We paid approximately $580 million in cash related to these transactions. In accordance with the applicable authoritative accounting guidance, we determined the fair value of the liability component of the convertible notes purchased in the tender offer and subsequent transactions to be $398 million, with the balance of $182 million representing the equity component. The carrying value of these convertible notes, including unamortized issuance costs, was $343 million, which resulted in a pretax loss of $55 million that was recorded in Other losses, net in 2011, along with a $182 million reduction to shareholders’ equity.
Call Option and Warrant Transactions
Concurrently with the pricing of the convertible notes in May 2009, we entered into transactions with two counterparties, including an underwriter and an affiliate of an underwriter of the convertible notes, pursuant to which we purchased from the counterparties call options to acquire our common stock and sold to the counterparties warrants to purchase our common stock. We entered into these transactions for the purposes of reducing the cash outflow and/or the potential dilutive effect to our shareholders upon the conversion of the convertible notes.
On October 25, 2011, we entered into separate agreements with each of the counterparties to the call option and warrant transactions to adjust the number of shares of common stock covered by these instruments to reflect the results of the tender offer. Accordingly, we reduced the number of common shares covered under the call options from 45.7 million shares to 28.6 million shares. In addition, the warrants were amended to reduce the number of shares covered by the warrants to 28.0 million and to change the expiration dates specified in the original agreement to correspond with the final settlement period for the call options. Pursuant to these amendments, we received $135 million for the call option transaction and paid $133 million for the warrant transaction, and the net amount was recorded within shareholders’ equity. Subsequently, due to the additional repurchases of convertible notes, we entered into amendments with each of the counterparties to further reduce the number of shares of common stock covered by these instruments. Accordingly, we reduced the number of common shares covered under the call options from 28.6 million shares to 16.5 million shares and reduced the number of shares covered by the warrants from 28.0 million shares to 16.5 million shares. The net value of $20 million related to these amendments was used to increase our capped call position as discussed further below. In the aggregate, the reductions in the number of shares subject to the call options and warrants equated to the number of shares of common stock into which the principal amount of all the notes repurchased in the fourth quarter of 2011 would have been convertible.
At the end of 2012, the outstanding purchased call options gave us the right to acquire from the counterparties 16.4 million shares of our common stock (the number of shares into which all of the remaining notes are convertible) at an exercise price of $13.125 per share (the same as the initial conversion price of the notes), subject to adjustments that mirror the terms of the convertible notes. The call options will terminate at the earlier of the maturity date of the related convertible notes or the last day on which any of the related notes remain outstanding. The warrants give the counterparties the right to acquire, subject to anti-dilution adjustments, an aggregate of 16.4 million shares of common stock at an exercise price of $15.75 per share. We may settle these transactions in cash, shares or a combination of cash and shares, at our option. When evaluated in aggregate, the call options and warrants have the effect of increasing the effective conversion price of the convertible notes from $13.125 to $15.75. Accordingly, we will not incur the cash outflow or the dilution that would be experienced due to the increase of the share price from $13.125 per share to $15.75 per share because we are entitled to receive from the counterparties the difference between our sale to the counterparties of 16.4 million shares at $15.75 per share and our purchase of shares from the counterparties at $13.125 per share.
Based on the structure of the call options and warrants, these contracts meet all of the applicable accounting criteria for equity classification under the applicable accounting standards and, as such, are classified in shareholders’ equity in the Consolidated Balance Sheet. In addition, since these contracts are classified in shareholders’ equity and indexed to our common stock, they are not accounted for as derivatives, and, accordingly, we do not recognize changes in their fair value.
Capped Call Transactions
On October 25, 2011, we entered into capped call transactions with the counterparties for a cost of $32 million, which covered 17.1 million shares of our common stock. We subsequently amended the capped call transactions to cover an additional 11.5 million shares of our common stock in lieu of $20 million we would have received from the counterparties related to the amendment of the option and warrant transactions discussed above. At December 29, 2012, the capped calls covered an aggregate of 28.7 million shares of our common stock (the number of shares into which all of the repurchased notes would have been convertible). We purchased the capped calls in order to retain the potential value of the original call option and warrant transactions which we would otherwise have given up upon the downsizing of those instruments. The capped calls have a strike price of $13.125 per share and a cap price of $15.75 per share, which entitles us to receive at the May 2013 expiration date the per share value of our stock price in excess of $13.125 up to a maximum stock price of $15.75. If the market price of our common stock at the expiration date is less than $13.125, the capped call will expire with no value. The maximum value of the capped calls, in the event that our stock price is at least $15.75 at the expiration date, is approximately $75 million. We may elect for the settlement of the capped call transactions, if any, to be paid to us in shares of our common stock or cash or in a combination of cash and shares of common stock. Based on the structure of the capped call, the transactions meet all of the applicable accounting criteria for equity classification and will be classified within shareholders’ equity.
6% Fixed-to-Floating Rate Junior Subordinated Notes
The Finance group’s $300 million of 6% Fixed-to-Floating Rate Junior Subordinated Notes are unsecured and rank junior to all of its existing and future senior debt. The notes mature on February 15, 2067; however, we have the right to redeem the notes at par on or after February 15, 2017 and are obligated to redeem the notes beginning on February 15, 2042. The Finance group has agreed in a replacement capital covenant that it will not redeem the notes on or before February 15, 2047 unless it receives a capital contribution from the Manufacturing group and/or net proceeds from the sale of certain replacement capital securities at specified amounts. Interest on the notes is fixed at 6% until February 15, 2017 and floats at the three-month London Interbank Offered Rate + 1.735% thereafter.
Support Agreement
Under a Support Agreement, Textron Inc. is required to ensure that TFC maintains fixed charge coverage of no less than 125% and consolidated shareholder’s equity of no less than $200 million. In 2012, 2011 and 2010, cash payments of $240 million, $182 million and $383 million, respectively, were paid to TFC to maintain compliance with the fixed charge coverage ratio.
|
Note 9. Derivative Instruments and Fair Value Measurements
We measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We prioritize the assumptions that market participants would use in pricing the asset or liability into a three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exist, requiring companies to develop their own assumptions. Observable inputs that do not meet the criteria of Level 1, which include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect our estimates about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. Valuation techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are utilized only to the extent that observable inputs are not available or cost-effective to obtain.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The assets and liabilities that are recorded at fair value on a recurring basis consist primarily of our derivative financial instruments, which are categorized as Level 2 in the fair value hierarchy. The fair value amounts of these instruments that are designated as hedging instruments are provided below:
|
|
|
|
|
|
Asset (Liability) |
| ||||||
(In millions) |
|
Borrowing Group |
|
Balance Sheet Location |
|
|
December 29, |
|
|
December 31, |
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
| ||
Interest rate exchange contracts* |
|
Finance |
|
Other assets |
|
|
$ |
8 |
|
|
$ |
22 |
|
Foreign currency exchange contracts |
|
Manufacturing |
|
Other current assets |
|
|
9 |
|
|
9 |
| ||
Total |
|
|
|
|
|
|
$ |
17 |
|
|
$ |
31 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
| ||
Interest rate exchange contracts* |
|
Finance |
|
Other liabilities |
|
|
$ |
(8 |
) |
|
$ |
(7 |
) |
Foreign currency exchange contracts |
|
Manufacturing |
|
Accrued liabilities |
|
|
(5 |
) |
|
(5 |
) | ||
Total |
|
|
|
|
|
|
$ |
(13 |
) |
|
$ |
(12 |
) |
*Interest rate exchange contracts represent fair value hedges.
The Finance group’s interest rate exchange contracts are not exchange traded and are measured at fair value utilizing widely accepted, third-party developed valuation models. The actual terms of each individual contract are entered into a valuation model, along with interest rate and foreign exchange rate data, which is based on readily observable market data published by third-party leading financial news and data providers. Credit risk is factored into the fair value of these assets and liabilities based on the differential between both our credit default swap spread for liabilities and the counterparty’s credit default swap spread for assets as compared with a standard AA-rated counterparty; however, this had no significant impact on the valuation at December 29, 2012. At December 29, 2012 and December 31, 2011, we had interest rate exchange contracts with notional amounts upon which the contracts were based of $671 million and $848 million, respectively.
Foreign currency exchange contracts are measured at fair value using the market method valuation technique. The inputs to this technique utilize current foreign currency exchange forward market rates published by third-party leading financial news and data providers. These are observable data that represent the rates that the financial institution uses for contracts entered into at that date; however, they are not based on actual transactions so they are classified as Level 2. At December 29, 2012 and December 31, 2011, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $664 million and $645 million, respectively.
Fair Value Hedges
Our Finance group enters into interest rate exchange contracts to mitigate exposure to changes in the fair value of its fixed-rate receivables and debt due to fluctuations in interest rates. By using these contracts, we are able to convert our fixed-rate cash flows to floating-rate cash flows. The amount of ineffectiveness on our fair value hedges and the gain (loss) recorded in the Consolidated Statements of Operations were both insignificant in 2012 and 2011.
Cash Flow Hedges
We manufacture and sell our products in a number of countries throughout the world, and, therefore, we are exposed to movements in foreign currency exchange rates. The primary purpose of our foreign currency hedging activities is to manage the volatility associated with foreign currency purchases of materials, foreign currency sales of products, and other assets and liabilities in the normal course of business. We primarily utilize forward exchange contracts and purchased options with maturities of no more than three years that qualify as cash flow hedges and are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and overhead expenses. At December 29, 2012, we had a net deferred gain of $5 million in Accumulated other comprehensive loss related to these cash flow hedges. Net gains and losses recognized in earnings and Accumulated other comprehensive loss on these cash flow hedges, including gains and losses related to hedge ineffectiveness, were not material in 2012 and 2011. We do not expect the amount of gains and losses in Accumulated other comprehensive loss that will be reclassified to earnings in the next twelve months to be material.
We hedge our net investment position in major currencies and generate foreign currency interest payments that offset other transactional exposures in these currencies. To accomplish this, we borrow directly in foreign currency and designate a portion of foreign currency debt as a hedge of net investments. We also may utilize currency forwards as hedges of our related foreign net investments. We record changes in the fair value of these contracts in other comprehensive income to the extent they are effective as cash flow hedges. If a contract does not qualify for hedge accounting or is designated as a fair value hedge, changes in the fair value of the contract are recorded in earnings. Currency effects on the effective portion of these hedges, which are reflected in the foreign currency translation adjustment account within other comprehensive income, produced a $14 million after-tax loss in 2012, resulting in an accumulated net gain balance of $4 million at December 29, 2012. The ineffective portion of these hedges was insignificant.
Counterparty Credit Risk
Our exposure to loss from nonperformance by the counterparties to our derivative agreements at the end of 2012 was minimal. We do not anticipate nonperformance by counterparties in the periodic settlements of amounts due. We historically have minimized this potential for risk by entering into contracts exclusively with major, financially sound counterparties having no less than a long-term bond rating of A. The credit risk generally is limited to the amount by which the counterparties’ contractual obligations exceed our obligations to the counterparty. We continuously monitor our exposures to ensure that we limit our risks.
Assets Recorded at Fair Value on a Nonrecurring Basis
During 2012 and 2011, certain assets were measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). The table below sets forth the balance of those assets at the end of the year in which a fair value adjustment was taken.
(In millions) |
|
|
December 29, |
|
|
December 31, |
| ||
Finance group |
|
|
|
|
|
|
| ||
Finance receivables held for sale |
|
|
$ |
140 |
|
|
$ |
418 |
|
Impaired finance receivables |
|
|
72 |
|
|
81 |
| ||
Other assets |
|
|
76 |
|
|
128 |
| ||
Manufacturing Group |
|
|
|
|
|
|
| ||
Intangible assets |
|
|
— |
|
|
15 |
| ||
The following table provides the fair value adjustments recorded for the assets measured at fair value on a non-recurring basis during 2012 and 2011.
|
|
|
Gain (Loss) |
| |||||
(In millions) |
|
|
2012 |
|
|
2011 |
| ||
Finance group |
|
|
|
|
|
|
| ||
Finance receivables held for sale |
|
|
$ |
76 |
|
|
$ |
(206 |
) |
Impaired finance receivables |
|
|
(11 |
) |
|
(82 |
) | ||
Other assets |
|
|
(51 |
) |
|
(49 |
) | ||
Manufacturing Group |
|
|
|
|
|
|
| ||
Intangible assets |
|
|
— |
|
|
(41 |
) | ||
Finance receivables held for sale — Finance receivables held for sale are recorded at fair value on a nonrecurring basis during periods in which the fair value is lower than the cost value. There are no active, quoted market prices for these finance receivables. At December 29, 2012, our finance receivables held for sale included the entire Golf Mortgage portfolio. Fair value of this portfolio was determined based on the use of discounted cash flow models to estimate the price we expect to receive in the principal market for each pool of similar loans, in an orderly transaction. The discount rates utilized in these models are derived from prevailing interest rate indices and are based on the nature of the assets, discussions with market participants and our experience in the actual disposition of similar assets. The cash flow models also include the use of qualitative assumptions regarding the borrower’s ability to pay and the period of time that will likely be required to restructure and/or exit the account through acquisition of the underlying collateral. We utilize revenue and earnings multiples to determine the expected value of the loan collateral. The range of multiples used is based on bids from prospective buyers, inputs from market participants and prices at which sales have been transacted for similar properties. The gains on finance receivables held for sale during 2012 were primarily the result of the payoff of loans in amounts, and sale of loans at prices, in excess of the values established in previous periods.
Based on our qualitative assumptions, we separate the loans into three categories for the cash flow models. In the first category, we include loans that we assume will be paid in accordance with the contractual terms of the loan. In the second category, we include loans where we perceive that the borrower has less of an ability to pay, and we assume that the loan will be restructured and resolved typically over a period of one to four years. For the third category, we assume that the borrower will default on the loan and that it will be resolved within an average of 24 months. The fair values of these finance receivables are sensitive to variability in both the quantitative and qualitative assumptions. Changes in the borrower’s ability to pay or the period of time required to restructure and/or exit accounts may significantly increase or decrease the fair value of these finance receivables, and, to a lesser extent, fluctuations in discount rates and/or revenue and earnings multiples could also change the fair value of these finance receivables.
Impaired finance receivables — Impaired nonaccrual finance receivables represent assets recorded at fair value on a nonrecurring basis since the measurement of required reserves on our impaired finance receivables is significantly dependent on the fair value of the underlying collateral. For Captive impaired nonaccrual finance receivables, the fair values of collateral are determined primarily based on the use of industry pricing guides. Timeshare impaired nonaccrual finance receivables largely consist of pools of timeshare interval resort notes receivable. Fair values of collateral are estimated using cash flow models incorporating estimates of credit losses in the consumer notes pools. Fair value measurements recorded on impaired finance receivables resulted in charges to provision for loan losses and primarily related to initial fair value adjustments.
Other assets — Other assets in the table above primarily include repossessed golf and hotel properties and aviation assets. The fair value of our golf and hotel properties is determined based on the use of discounted cash flow models, bids from prospective buyers or inputs from market participants. The fair value of our aviation assets is largely determined based on the use of industry pricing guides. If the carrying amount of these assets is higher than their estimated fair value, we record a corresponding charge to income for the difference.
Intangible assets — In 2011, we recorded a $41 million pre-tax impairment charge to write down intangible assets in our Systems segment primarily related to customer agreements and contractual relationships associated with AAI-Logistics & Technical Services and AAI-Test & Training businesses. We determined the fair value of these assets using discounted cash flows related to each asset group and a weighted-average cost of capital of approximately 10%. The impairment charge was recorded in cost of sales within segment profit.
Assets and Liabilities Not Recorded at Fair Value
The carrying value and estimated fair values of our financial instruments that are not reflected in the financial statements at fair value are as follows:
|
|
|
December 29, 2012 |
|
|
December 31, 2011 |
| ||||||||
(In millions) |
|
|
Carrying |
|
Estimated |
|
|
Carrying |
|
Estimated |
| ||||
Manufacturing group |
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt, excluding leases |
|
|
$ |
(2,225 |
) |
$ |
(2,636 |
) |
|
$ |
(2,328 |
) |
$ |
(2,561 |
) |
Finance group |
|
|
|
|
|
|
|
|
|
|
| ||||
Finance receivables held for investment, excluding leases |
|
|
1,625 |
|
1,653 |
|
|
1,997 |
|
1,848 |
| ||||
Debt |
|
|
(1,686 |
) |
(1,678 |
) |
|
(1,974 |
) |
(1,854 |
) | ||||
Fair value for the Manufacturing group debt is determined using market observable data for similar transactions or Level 2 inputs. At December 29, 2012 and December 31, 2011, approximately 46% and 53%, respectively, of the fair value of term debt for the Finance group was determined based on observable market transactions (Level 1). The remaining Finance group debt was determined based on discounted cash flow analyses using observable market inputs from debt with similar duration, subordination and credit default expectations (Level 2). Fair value estimates for finance receivables held for investment were determined based on internally developed discounted cash flow models primarily utilizing significant unobservable inputs (Level 3), which include estimates of the rate of return, financing cost, capital structure and/or discount rate expectations of current market participants combined with estimated loan cash flows based on credit losses, payment rates and expectations of borrowers’ ability to make payments on a timely basis.
|
Note 11. Special Charges
There were no amounts recorded within special charges in 2012 and 2011. In 2010, special charges included restructuring charges related to a global restructuring program that totaled $99 million, including $76 million of severance costs. In 2008, we initiated a global restructuring program to reduce overhead costs and improve productivity across the company and announced the exit of portions of our commercial finance business. We record restructuring costs in special charges as these costs are generally of a nonrecurring nature and are not included in segment profit, which is our measure used for evaluating performance and for decision-making purposes.
In 2010, we substantially liquidated the assets held by a Canadian entity within the Finance segment. Accordingly, we recorded a non-cash charge of $91 million ($74 million after-tax) within special charges to reclassify the entity’s cumulative currency translation adjustment amount within other comprehensive income to the Statement of Operations. The reclassification of this amount had no impact on shareholders’ equity.
An analysis of our restructuring reserve activity is summarized below:
(In millions) |
|
Severance Costs |
|
Asset Impairment |
|
Contract Terminations |
|
Total |
| ||||
Balance at January 2, 2010 |
|
$ |
48 |
|
$ |
— |
|
$ |
3 |
|
$ |
51 |
|
Provision in 2010 |
|
79 |
|
16 |
|
7 |
|
102 |
| ||||
Reversals |
|
(3 |
) |
— |
|
— |
|
(3 |
) | ||||
Non-cash settlement |
|
— |
|
(16 |
) |
— |
|
(16 |
) | ||||
Cash paid |
|
(67 |
) |
— |
|
(5 |
) |
(72 |
) | ||||
Balance at January 1, 2011 |
|
57 |
|
— |
|
5 |
|
62 |
| ||||
Cash paid |
|
(42 |
) |
— |
|
(2 |
) |
(44 |
) | ||||
Balance at December 31, 2011 |
|
15 |
|
— |
|
3 |
|
18 |
| ||||
Cash paid |
|
(10 |
) |
— |
|
(1 |
) |
(11 |
) | ||||
Balance at December 29, 2012 |
|
$ |
5 |
|
$ |
— |
|
$ |
2 |
|
$ |
7 |
|
|
Note 13. Retirement Plans
Our defined benefit and defined contribution plans cover substantially all of our employees. A significant number of our U.S.-based employees participate in the Textron Retirement Plan, which is designed to be a “floor-offset” arrangement with both a defined benefit component and a defined contribution component. The defined benefit component of the arrangement includes the Textron Master Retirement Plan (TMRP) and the Bell Helicopter Textron Master Retirement Plan (BHTMRP), and the defined contribution component is the Retirement Account Plan (RAP). The defined benefit component provides a minimum guaranteed benefit (or “floor” benefit). Under the RAP, participants are eligible to receive contributions from Textron of 2% of their eligible compensation but may not make contributions to the plan. Upon retirement, participants receive the greater of the floor benefit or the value of the RAP. Both the TMRP and the BHTMRP are subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Effective on January 1, 2010, the Textron Retirement Plan was closed to new participants, and employees hired after that date receive an additional 4% annual cash contribution to their Textron Savings Plan account based on their eligible compensation.
We also have domestic and foreign funded and unfunded defined benefit pension plans that cover certain of our U.S. and foreign employees. In addition, several defined contribution plans are sponsored by our various businesses. The largest such plan is the Textron Savings Plan, which is a qualified 401(k) plan subject to ERISA in which a significant number of our U.S.-based employees participate. Our defined contribution plans cost approximately $88 million, $85 million and $88 million in 2012, 2011 and 2010, respectively; these amounts include $21 million, $23 million and $25 million, respectively, in contributions to the RAP. We also provide postretirement benefits other than pensions for certain retired employees in the U.S., which include healthcare, dental care, Medicare Part B reimbursement and life insurance benefits.
Periodic Benefit Cost
The components of our net periodic benefit cost and other amounts recognized in OCI are as follows:
|
|
Pension Benefits |
|
Postretirement Benefits | |||||||||||||||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
|
2012 |
|
|
2011 |
|
2010 |
| ||||||
Net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Service cost |
|
$ |
119 |
|
|
$ |
129 |
|
$ |
124 |
|
$ |
6 |
|
|
$ |
8 |
|
$ |
8 |
|
Interest cost |
|
305 |
|
|
327 |
|
328 |
|
25 |
|
|
33 |
|
34 |
| ||||||
Expected return on plan assets |
|
(407 |
) |
|
(393 |
) |
(385 |
) |
— |
|
|
— |
|
— |
| ||||||
Amortization of prior service cost (credit) |
|
16 |
|
|
16 |
|
16 |
|
(11 |
) |
|
(8 |
) |
(4 |
) | ||||||
Amortization of net actuarial loss |
|
118 |
|
|
75 |
|
41 |
|
7 |
|
|
11 |
|
11 |
| ||||||
Curtailment and special termination charges |
|
— |
|
|
(1 |
) |
2 |
|
— |
|
|
— |
|
— |
| ||||||
Net periodic benefit cost |
|
$ |
151 |
|
|
$ |
153 |
|
$ |
126 |
|
$ |
27 |
|
|
$ |
44 |
|
$ |
49 |
|
Other changes in plan assets and benefit obligations recognized in OCI, including foreign exchange |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current year actuarial loss (gain) |
|
$ |
402 |
|
|
$ |
556 |
|
$ |
171 |
|
$ |
15 |
|
|
$ |
(17 |
) |
$ |
— |
|
Current year prior service cost (credit) |
|
— |
|
|
7 |
|
5 |
|
(2 |
) |
|
(23 |
) |
(16 |
) | ||||||
Amortization of net actuarial loss |
|
(118 |
) |
|
(75 |
) |
(41 |
) |
(7 |
) |
|
(11 |
) |
(11 |
) | ||||||
Amortization of prior service credit (cost) |
|
(16 |
) |
|
(16 |
) |
(16 |
) |
11 |
|
|
8 |
|
4 |
| ||||||
Curtailments and settlements |
|
— |
|
|
1 |
|
(1 |
) |
— |
|
|
— |
|
— |
| ||||||
Total recognized in OCI, before taxes |
|
$ |
268 |
|
|
$ |
473 |
|
$ |
118 |
|
$ |
17 |
|
|
$ |
(43 |
) |
$ |
(23 |
) |
Total recognized in net periodic benefit cost and OCI |
|
$ |
419 |
|
|
$ |
626 |
|
$ |
244 |
|
$ |
44 |
|
|
$ |
1 |
|
$ |
26 |
|
The estimated amount that will be amortized from Accumulated other comprehensive loss into net periodic pension costs in 2013 is as follows:
(In millions) |
|
Pension |
|
Postretirement |
| ||
Net actuarial loss |
|
$ |
184 |
|
$ |
7 |
|
Prior service cost (credit) |
|
15 |
|
(11 |
) | ||
|
|
$ |
199 |
|
$ |
(4 |
) |
Obligations and Funded Status
All of our plans are measured as of our fiscal year-end. The changes in the projected benefit obligation and in the fair value of plan assets, along with our funded status, are as follows:
|
|
Pension Benefits |
|
Postretirement Benefits | |||||||||||
(In millions) |
|
2012 |
|
|
2011 |
|
2012 |
|
|
2011 |
| ||||
Change in benefit obligation |
|
|
|
|
|
|
|
|
|
|
| ||||
Benefit obligation at beginning of year |
|
$ |
6,325 |
|
|
$ |
5,877 |
|
$ |
561 |
|
|
$ |
614 |
|
Service cost |
|
119 |
|
|
129 |
|
6 |
|
|
8 |
| ||||
Interest cost |
|
305 |
|
|
327 |
|
25 |
|
|
33 |
| ||||
Amendments |
|
— |
|
|
7 |
|
(2 |
) |
|
(23 |
) | ||||
Plan participants’ contributions |
|
— |
|
|
— |
|
5 |
|
|
5 |
| ||||
Actuarial losses (gains) |
|
644 |
|
|
331 |
|
15 |
|
|
(17 |
) | ||||
Benefits paid |
|
(360 |
) |
|
(339 |
) |
(52 |
) |
|
(59 |
) | ||||
Foreign exchange rate changes |
|
29 |
|
|
(7 |
) |
— |
|
|
— |
| ||||
Other |
|
(9 |
) |
|
— |
|
6 |
|
|
— |
| ||||
Benefit obligation at end of year |
|
$ |
7,053 |
|
|
$ |
6,325 |
|
$ |
564 |
|
|
$ |
561 |
|
Change in fair value of plan assets |
|
|
|
|
|
|
|
|
|
|
| ||||
Fair value of plan assets at beginning of year |
|
$ |
5,013 |
|
|
$ |
4,559 |
|
|
|
|
|
| ||
Actual return on plan assets |
|
649 |
|
|
167 |
|
|
|
|
|
| ||||
Employer contributions |
|
389 |
|
|
628 |
|
|
|
|
|
| ||||
Benefits paid |
|
(360 |
) |
|
(339 |
) |
|
|
|
|
| ||||
Foreign exchange rate changes |
|
24 |
|
|
(3 |
) |
|
|
|
|
| ||||
Settlements and disbursements |
|
— |
|
|
1 |
|
|
|
|
|
| ||||
Fair value of plan assets at end of year |
|
$ |
5,715 |
|
|
$ |
5,013 |
|
|
|
|
|
| ||
Funded status at end of year |
|
$ |
(1,338 |
) |
|
$ |
(1,312 |
) |
$ |
(564 |
) |
|
$ |
(561 |
) |
Amounts recognized in our balance sheets are as follows:
|
|
Pension Benefits |
|
Postretirement Benefits | |||||||||||
(In millions) |
|
2012 |
|
|
2011 |
|
2012 |
|
|
2011 |
| ||||
Non-current assets |
|
$ |
61 |
|
|
$ |
54 |
|
$ |
— |
|
|
$ |
— |
|
Current liabilities |
|
(26 |
) |
|
(23 |
) |
(52 |
) |
|
(56 |
) | ||||
Non-current liabilities |
|
(1,373 |
) |
|
(1,343 |
) |
(512 |
) |
|
(505 |
) | ||||
Recognized in Accumulated other comprehensive loss, pre-tax: |
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
|
2,750 |
|
|
2,455 |
|
99 |
|
|
91 |
| ||||
Prior service cost (credit) |
|
113 |
|
|
129 |
|
(41 |
) |
|
(50 |
) | ||||
The accumulated benefit obligation for all defined benefit pension plans was $6.6 billion and $6.0 billion at December 29, 2012 and December 31, 2011, respectively, which included $388 million and $360 million, respectively, in accumulated benefit obligations for unfunded plans where funding is not permitted or in foreign environments where funding is not feasible.
Pension plans with accumulated benefit obligations exceeding the fair value of plan assets are as follows:
|
|
|
|
|
|
| ||
(In millions) |
|
2012 |
|
|
2011 |
| ||
Projected benefit obligation |
|
$ |
6,869 |
|
|
$ |
6,153 |
|
Accumulated benefit obligation |
|
6,404 |
|
|
5,784 |
| ||
Fair value of plan assets |
|
5,470 |
|
|
4,786 |
| ||
Assumptions
The weighted-average assumptions we use for our pension and postretirement plans are as follows:
|
|
Pension Benefits |
|
Postretirement Benefits | |||||||||||
|
|
2012 |
|
|
2011 |
|
2010 |
|
2012 |
|
|
2011 |
|
2010 |
|
Net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
4.94% |
|
|
5.71% |
|
6.20% |
|
4.75% |
|
|
5.50% |
|
5.50% |
|
Expected long-term rate of return on assets |
|
7.58% |
|
|
7.84% |
|
8.26% |
|
|
|
|
|
|
|
|
Rate of compensation increase |
|
3.49% |
|
|
3.99% |
|
4.00% |
|
|
|
|
|
|
|
|
Benefit obligations at year-end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
4.23% |
|
|
4.95% |
|
5.71% |
|
3.75% |
|
|
4.75% |
|
5.50% |
|
Rate of compensation increases |
|
3.48% |
|
|
3.49% |
|
3.99% |
|
|
|
|
|
|
|
|
Assumed healthcare cost trend rates are as follows:
|
|
2012 |
|
|
2011 |
|
Medical cost trend rate |
|
8.4% |
|
|
9.0% |
|
Prescription drug cost trend rate |
|
8.4% |
|
|
9.0% |
|
Rate to which medical and prescription drug cost trend rates will gradually decline |
|
5.0% |
|
|
5.0% |
|
Year that the rates reach the rate where we assume they will remain |
|
2021 |
|
|
2021 |
|
These assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement benefits other than pensions. A one-percentage-point change in these assumed healthcare cost trend rates would have the following effects:
(In millions) |
|
One- |
|
One- |
| ||
Effect on total of service and interest cost components |
|
$ |
3 |
|
$ |
(2 |
) |
Effect on postretirement benefit obligations other than pensions |
|
41 |
|
(36 |
) | ||
Pension Assets
The expected long-term rate of return on plan assets is determined based on a variety of considerations, including the established asset allocation targets and expectations for those asset classes, historical returns of the plans’ assets and other market considerations. We invest our pension assets with the objective of achieving a total rate of return, over the long term, sufficient to fund future pension obligations and to minimize future pension contributions. We are willing to tolerate a commensurate level of risk to achieve this objective based on the funded status of the plans and the long-term nature of our pension liability. Risk is controlled by maintaining a portfolio of assets that is diversified across a variety of asset classes, investment styles and investment managers. All of the assets are managed by external investment managers, and the majority of the assets are actively managed. Where possible, investment managers are prohibited from owning our stock in the portfolios that they manage on our behalf.
For U.S. plan assets, which represent the majority of our plan assets, asset allocation target ranges are established consistent with our investment objectives, and the assets are rebalanced periodically. For foreign plan assets, allocations are based on expected cash flow needs and assessments of the local practices and markets. Our target allocation ranges are as follows:
U.S. Plan Assets |
|
|
|
Domestic equity securities |
|
26% to 40% |
|
International equity securities |
|
11% to 22% |
|
Debt securities |
|
26% to 34% |
|
Private equity partnerships |
|
5% to 11% |
|
Real estate |
|
7% to 13% |
|
Hedge funds |
|
0% to 5% |
|
Foreign Plan Assets |
|
|
|
Equity securities |
|
36% to 70% |
|
Debt securities |
|
30% to 60% |
|
Real estate |
|
3% to 17% |
|
The fair value of total pension plan assets by major category and level in the fair value hierarchy as defined in Note 9 is as follows:
|
|
December 29, 2012 |
|
|
December 31, 2011 | |||||||||||||||
(In millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||||
Cash and equivalents |
|
$ |
16 |
|
$ |
157 |
|
$ |
— |
|
|
$ |
14 |
|
$ |
183 |
|
$ |
— |
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Domestic |
|
1,149 |
|
560 |
|
— |
|
|
1,017 |
|
482 |
|
— |
| ||||||
International |
|
981 |
|
268 |
|
— |
|
|
777 |
|
233 |
|
— |
| ||||||
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
National, state and local governments |
|
594 |
|
318 |
|
— |
|
|
630 |
|
254 |
|
— |
| ||||||
Corporate debt |
|
13 |
|
647 |
|
— |
|
|
34 |
|
494 |
|
— |
| ||||||
Asset-backed securities |
|
1 |
|
91 |
|
— |
|
|
3 |
|
74 |
|
— |
| ||||||
Private equity partnerships |
|
— |
|
— |
|
308 |
|
|
— |
|
— |
|
314 |
| ||||||
Real estate |
|
— |
|
— |
|
508 |
|
|
— |
|
— |
|
407 |
| ||||||
Hedge funds |
|
— |
|
— |
|
104 |
|
|
— |
|
— |
|
97 |
| ||||||
Total |
|
$ |
2,754 |
|
$ |
2,041 |
|
$ |
920 |
|
|
$ |
2,475 |
|
$ |
1,720 |
|
$ |
818 |
|
Cash equivalents and equity and debt securities include comingled funds, which represent investments in funds offered to institutional investors that are similar to mutual funds in that they provide diversification by holding various equity and debt securities. Since these comingled funds are not quoted on any active market, they are priced based on the relative value of the underlying equity and debt investments and their individual prices at any given time; accordingly, they are classified as Level 2. Debt securities are valued based on same day actual trading prices, if available. If such prices are not available, we use a matrix pricing model with historical prices, trends and other factors.
Private equity partnerships represent investments in funds, which, in turn, invest in stocks and debt securities of companies that, in most cases, are not publicly traded. These partnerships are valued using income and market methods that include cash flow projections and market multiples for various comparable companies. Real estate includes owned properties and investments in partnerships. Owned properties are valued using certified appraisals at least every three years, which then are updated at least annually by the real estate investment manager, who considers current market trends and other available information. These appraisals generally use the standard methods for valuing real estate, including forecasting income and identifying current transactions for comparable real estate to arrive at a fair value. Real estate partnerships are valued similar to private equity partnerships, with the general partner using standard real estate valuation methods to value the real estate properties and securities held within their fund portfolios. We believe these assumptions are consistent with assumptions that market participants would use in valuing these investments.
Hedge funds represent an investment in a diversified fund of hedge funds of which we are the sole investor. The fund invests in portfolio funds that are not publicly traded and are managed by various portfolio managers. Investments in portfolio funds are typically valued on the basis of the most recent price or valuation provided by the relevant fund’s administrator. The administrator for the fund aggregates these valuations with the other assets and liabilities to calculate the net asset value of the fund.
The table below presents a reconciliation of the beginning and ending balances for fair value measurements that use significant unobservable inputs (Level 3) by major category:
(In millions) |
|
Hedge Funds |
|
Private Equity |
|
Real Estate |
| |||
Balance at beginning of year |
|
$ |
97 |
|
$ |
314 |
|
$ |
407 |
|
Actual return on plan assets: |
|
|
|
|
|
|
| |||
Related to assets still held at reporting date |
|
7 |
|
(7 |
) |
26 |
| |||
Related to assets sold during the period |
|
— |
|
34 |
|
3 |
| |||
Purchases, sales and settlements, net |
|
— |
|
(33 |
) |
72 |
| |||
Balance at end of year |
|
$ |
104 |
|
$ |
308 |
|
$ |
508 |
|
Estimated Future Cash Flow Impact
Defined benefits under salaried plans are based on salary and years of service. Hourly plans generally provide benefits based on stated amounts for each year of service. Our funding policy is consistent with applicable laws and regulations. In 2013, we expect to contribute approximately $180 million to fund our qualified pension plans, non-qualified plans and foreign plans. Additionally, we expect to contribute $22 million to the RAP. We do not expect to contribute to our other postretirement benefit plans. Benefit payments provided below reflect expected future employee service, as appropriate, are expected to be paid, net of estimated participant contributions. These payments are based on the same assumptions used to measure our benefit obligation at the end of fiscal 2012. While pension benefit payments primarily will be paid out of qualified pension trusts, we will pay postretirement benefits other than pensions out of our general corporate assets. Benefit payments that we expect to pay are as follows:
(In millions) |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018-2022 |
| ||||||
Pension benefits |
|
$ |
353 |
|
$ |
356 |
|
$ |
360 |
|
$ |
367 |
|
$ |
373 |
|
$ |
2,003 |
|
Post-retirement benefits other than pensions |
|
54 |
|
52 |
|
50 |
|
49 |
|
46 |
|
191 |
| ||||||
|
Note 14. Income Taxes
We conduct business globally and, as a result, file numerous consolidated and separate income tax returns within and outside the U.S. For all of our U.S. subsidiaries, we file a consolidated federal income tax return. Income from continuing operations before income taxes is as follows:
|
|
|
|
|
|
|
| ||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
| |||
U.S. |
|
$ |
644 |
|
|
$ |
137 |
|
$ |
(63 |
) |
Non-U.S. |
|
197 |
|
|
200 |
|
149 |
| |||
Total income from continuing operations before income taxes |
|
$ |
841 |
|
|
$ |
337 |
|
$ |
86 |
|
Income tax expense (benefit) for continuing operations is summarized as follows:
|
|
|
|
|
|
|
| ||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
| |||
Current: |
|
|
|
|
|
|
|
| |||
Federal |
|
$ |
40 |
|
|
$ |
(23 |
) |
$ |
(79 |
) |
State |
|
9 |
|
|
15 |
|
3 |
| |||
Non-U.S. |
|
29 |
|
|
29 |
|
19 |
| |||
|
|
78 |
|
|
21 |
|
(57 |
) | |||
Deferred: |
|
|
|
|
|
|
|
| |||
Federal |
|
169 |
|
|
67 |
|
59 |
| |||
State |
|
23 |
|
|
1 |
|
(5 |
) | |||
Non-U.S. |
|
(10 |
) |
|
6 |
|
(3 |
) | |||
|
|
182 |
|
|
74 |
|
51 |
| |||
Income tax expense (benefit) |
|
$ |
260 |
|
|
$ |
95 |
|
$ |
(6 |
) |
The current federal and state provisions for 2012 and 2011 included $25 million and $37 million, respectively, of tax related to the sale of certain leveraged leases in the Finance segment for which we had previously recorded significant deferred tax liabilities.
The following table reconciles the federal statutory income tax rate to our effective income tax rate for continuing operations:
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
2011 |
2010 | |||
Federal statutory income tax rate |
|
35.0% |
|
35.0% |
35.0% | |||
Increase (decrease) in taxes resulting from: |
|
|
|
|
| |||
State income taxes |
|
2.2 |
|
3.1 |
(2.7) | |||
Non-U.S. tax rate differential and foreign tax credits |
|
(5.4) |
|
(9.4) |
(60.5) | |||
Unrecognized tax benefits and interest |
|
0.2 |
|
1.2 |
17.5 | |||
Cash surrender value of life insurance |
|
(0.5) |
|
(1.5) |
(5.1) | |||
Nondeductible healthcare claims |
|
— |
|
— |
12.7 | |||
Change in status of subsidiaries |
|
— |
|
— |
12.0 | |||
Research credit |
|
— |
|
(2.5) |
(5.4) | |||
Valuation allowance on contingent receipts |
|
— |
|
— |
(2.0) | |||
Other, net |
|
(0.6) |
|
2.2 |
(7.9) | |||
Effective rate |
|
30.9% |
|
28.1% |
(6.4)% |
The amount of income taxes we pay is subject to ongoing audits by U.S. federal, state and non-U.S. tax authorities, which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting date. For those tax positions for which it is more likely than not that a tax benefit will be sustained, we record the largest amount of tax benefit with a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. Interest and penalties are accrued, where applicable. If we do not believe that it is not more likely than not that a tax benefit will be sustained, no tax benefit is recognized.
Our future results may include favorable or unfavorable adjustments to our estimated tax liabilities due to settlement of income tax examinations, new regulatory or judicial pronouncements, expiration of statutes of limitations or other relevant events. As a result, our effective tax rate may fluctuate significantly on a quarterly and annual basis.
Our unrecognized tax benefits represent tax positions for which reserves have been established. Unrecognized state tax benefits and interest related to unrecognized tax benefits are reflected net of applicable tax benefits. A reconciliation of our unrecognized tax benefits, excluding accrued interest, is as follows:
|
|
|
|
|
| |||
(In millions) |
|
December 29, |
|
|
December 31, 2011 |
| ||
Balance at beginning of year |
|
$ |
294 |
|
|
$ |
285 |
|
Additions for tax positions related to current year |
|
5 |
|
|
8 |
| ||
Additions for tax positions of prior years |
|
2 |
|
|
8 |
| ||
Reductions for tax positions of prior years |
|
(3 |
) |
|
(7 |
) | ||
Reductions for expiration of statute of limitations and settlements |
|
(8 |
) |
|
— |
| ||
Balance at end of year |
|
$ |
290 |
|
|
$ |
294 |
|
At December 29, 2012 and December 31, 2011, approximately $204 million and $206 million, respectively, of these unrecognized tax benefits, if recognized, would favorably affect our effective tax rate in a future period. The remaining $86 million in unrecognized tax benefits were related to discontinued operations. Based on the outcome of appeals proceedings and the expiration of statutes of limitations, it is possible that certain audit cycles for U.S. and foreign jurisdictions could be completed during the next 12 months, which could result in a change in our balance of unrecognized tax benefits with the aggregate tax effect of the differences between tax return positions and the benefits being recognized in our financial statements. Although the outcome of these matters cannot be determined, we believe adequate provision has been made for any potential unfavorable financial statement impact.
In the normal course of business, we are subject to examination by taxing authorities throughout the world, including major jurisdictions such as Canada, China, Germany, Japan and the U.S. With few exceptions, we no longer are subject to U.S. federal, state and local income tax examinations for years before 1997. We are no longer subject to non-U.S. income tax examinations in our major jurisdictions for years before 2005.
During 2012, 2011 and 2010, we recognized net tax-related interest expense totaling approximately $9 million, $10 million and $19 million, respectively, in the Consolidated Statements of Operations. At December 29, 2012 and December 31, 2011, we had a total of $134 million and $132 million, respectively, of net accrued interest expense included in our Consolidated Balance Sheets.
The tax effects of temporary differences that give rise to significant portions of our net deferred tax assets and liabilities are as follows:
(In millions) |
|
|
December 29, |
|
|
December 31, |
| ||
Deferred tax assets |
|
|
|
|
|
|
| ||
Obligation for pension and postretirement benefits |
|
|
$ |
643 |
|
|
$ |
635 |
|
Accrued expenses* |
|
|
205 |
|
|
193 |
| ||
Deferred compensation |
|
|
180 |
|
|
196 |
| ||
Loss carryforwards |
|
|
81 |
|
|
74 |
| ||
Valuation allowance on finance receivables held for sale |
|
|
40 |
|
|
130 |
| ||
Allowance for credit losses |
|
|
39 |
|
|
68 |
| ||
Inventory |
|
|
30 |
|
|
38 |
| ||
Deferred income |
|
|
29 |
|
|
52 |
| ||
Other, net |
|
|
168 |
|
|
172 |
| ||
Total deferred tax assets |
|
|
1,415 |
|
|
1,558 |
| ||
Valuation allowance for deferred tax assets |
|
|
(165 |
) |
|
(189 |
) | ||
|
|
|
$ |
1,250 |
|
|
$ |
1,369 |
|
Deferred tax liabilities |
|
|
|
|
|
|
| ||
Leasing transactions |
|
|
$ |
(217 |
) |
|
$ |
(285 |
) |
Property, plant and equipment, principally depreciation |
|
|
(138 |
) |
|
(145 |
) | ||
Amortization of goodwill and other intangibles |
|
|
(110 |
) |
|
(111 |
) | ||
Total deferred tax liabilities |
|
|
(465 |
) |
|
(541 |
) | ||
Net deferred tax asset |
|
|
$ |
785 |
|
|
$ |
828 |
|
* Accrued expenses includes warranty and product maintenance reserves, self-insured liabilities, interest and restructuring reserves.
We believe that our earnings during the periods when the temporary differences become deductible will be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not more than likely, a valuation allowance is provided.
The following table presents the breakdown between current and long-term net deferred tax assets:
|
|
|
|
|
| ||||
(In millions) |
|
|
December 29, |
|
|
December 31, |
| ||
Current |
|
|
$ |
256 |
|
|
$ |
288 |
|
Non-current |
|
|
591 |
|
|
532 |
| ||
|
|
|
847 |
|
|
820 |
| ||
Finance group’s net deferred tax asset (liability) |
|
|
(62 |
) |
|
8 |
| ||
Net deferred tax asset |
|
|
$ |
785 |
|
|
$ |
828 |
|
Our net operating loss and credit carryforwards at December 29, 2012 are as follows:
(In millions) |
|
|
| |
Non-U.S. net operating loss with no expiration |
|
$ |
94 |
|
Non-U.S. net operating loss expiring through 2032 |
|
50 |
| |
State net operating loss and tax credits, net of tax benefits, expiring through 2032 |
|
49 |
| |
U.S. federal tax credits beginning to expire in 2021 |
|
19 |
| |
The undistributed earnings of our non-U.S. subsidiaries approximated $604 million at December 29, 2012. We consider the undistributed earnings to be indefinitely reinvested; therefore, we have not provided a deferred tax liability for any residual U.S. tax that may be due upon repatriation of these earnings. Because of the effect of U.S. foreign tax credits, it is not practicable to estimate the amount of tax that might be payable on these earnings in the event they no longer are indefinitely reinvested.
|
Note 15. Contingencies and Commitments
We are subject to legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims relating to commercial and financial 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 the ordinary course of business, we enter into standby letter of credit agreements and surety bonds with financial institutions to meet various performance and other obligations. These outstanding letter of credit arrangements and surety bonds aggregated to approximately $323 million and $260 million at the end of 2012 and 2011, respectively.
Environmental Remediation
As with other industrial enterprises engaged in similar businesses, we are involved in a number of remedial actions under various federal and state laws and regulations relating to the environment that impose liability on companies to clean up, or contribute to the cost of cleaning up, sites on which hazardous wastes or materials were disposed or released. Our accrued environmental liabilities relate to installation of remediation systems, disposal costs, U.S. Environmental Protection Agency oversight costs, legal fees, and operating and maintenance costs for both currently and formerly owned or operated facilities. Circumstances that can affect the reliability and precision of the accruals include the identification of additional sites, environmental regulations, level of cleanup required, technologies available, number and financial condition of other contributors to remediation and the time period over which remediation may occur. We believe that any changes to the accruals that may result from these factors and uncertainties will not have a material effect on our financial position or results of operations.
Based upon information currently available, we estimate that our potential environmental liabilities are within the range of $44 million to $188 million. At December 29, 2012, environmental reserves of approximately $73 million have been established to address these specific estimated liabilities. We estimate that we will likely pay our accrued environmental remediation liabilities over the next five to 10 years and have classified $20 million as current liabilities. Expenditures to evaluate and remediate contaminated sites approximated $15 million, $9 million and $10 million in 2012, 2011 and 2010, respectively.
Leases
Rental expense approximated $97 million in 2012, $93 million in 2011 and $92 million in 2010. Future minimum rental commitments for noncancelable operating leases in effect at December 29, 2012 approximated $58 million for 2013, $46 million for 2014, $37 million for 2015, $31 million for 2016, $22 million for 2017 and a total of $150 million thereafter.
|
Note 16. Supplemental Cash Flow Information
We have made the following cash payments:
|
|
|
|
|
|
|
| ||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
| |||
Interest paid: |
|
|
|
|
|
|
|
| |||
Manufacturing group |
|
$ |
135 |
|
|
$ |
135 |
|
$ |
145 |
|
Finance group |
|
64 |
|
|
89 |
|
127 |
| |||
Taxes paid, net of refunds received: |
|
|
|
|
|
|
|
| |||
Manufacturing group |
|
(7 |
) |
|
30 |
|
59 |
| |||
Finance group |
|
43 |
|
|
(65 |
) |
101 |
| |||
Cash paid for interest by the Finance group included amounts paid to the Manufacturing group of $11 million, $26 million and $32 million in 2012, 2011 and 2010, respectively.
In 2012 and 2010, net taxes paid by the Finance group included payments of $111 million and $103 million primarily from settlements related to the IRS’s challenge of tax deductions claimed in prior years for certain leveraged lease transactions.
|
Note 17. Segment and Geographic Data
We operate in, and report financial information for, the following five business segments: Cessna, Bell, Textron Systems, Industrial and Finance. The accounting policies of the segments are the same as those described in Note 1.
Cessna products include Citation business jets, Caravan turboprops, single-engine piston aircraft, and aftermarket services sold to a diverse base of corporate and individual buyers.
Bell products include military and commercial helicopters, tiltrotor aircraft and related spare parts and services for U.S. and non-U.S. governments in the defense and aerospace industries and general aviation markets.
Textron Systems products include armored security vehicles, advanced marine craft, precision weapons, airborne and ground-based surveillance systems and services, Unmanned Aircraft Systems, training and simulation systems and countersniper devices, and intelligence and situational awareness software for U.S. and non-U.S. governments in the defense and aerospace industries and general aviation markets.
Industrial products and markets include the following:
· Kautex products include blow-molded plastic fuel systems, windshield and headlamp washer systems, selective catalytic reduction systems, engine camshafts and other parts that are marketed primarily to automobile original equipment manufacturers, as well as plastic bottles and containers for various uses;
· Greenlee products include powered equipment, electrical test and measurement instruments, hand and hydraulic powered tools, and electrical and fiber optic assemblies, principally used in the electrical construction and maintenance, plumbing, wiring, telecommunications and data communications industries; and
· E-Z-GO and Jacobsen products include golf cars; professional turf-maintenance equipment; and off-road, utility, light transportation and specialized turf-care vehicles that are marketed primarily to golf courses, resort communities, municipalities, sporting venues, and commercial and industrial users.
The Finance segment provides commercial loans and leases for new Cessna aircraft and Bell helicopters and, to a limited extent, for new E-Z-GO and Jacobsen equipment through our captive finance business.
Segment profit is an important measure used for evaluating performance and for decision-making purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses and special charges. The measurement for the Finance segment excludes special charges and includes interest income and expense along with intercompany interest 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.
Our revenues by segment, along with a reconciliation of segment profit (loss) to income from continuing operations before income taxes, are as follows:
|
|
Revenues |
|
Segment Profit (Loss) | |||||||||||||||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
|
2012 |
|
|
2011 |
|
2010 |
| ||||||
Cessna |
|
$ |
3,111 |
|
|
$ |
2,990 |
|
$ |
2,563 |
|
$ |
82 |
|
|
$ |
60 |
|
$ |
(29 |
) |
Bell |
|
4,274 |
|
|
3,525 |
|
3,241 |
|
639 |
|
|
521 |
|
427 |
| ||||||
Textron Systems |
|
1,737 |
|
|
1,872 |
|
1,979 |
|
132 |
|
|
141 |
|
230 |
| ||||||
Industrial |
|
2,900 |
|
|
2,785 |
|
2,524 |
|
215 |
|
|
202 |
|
162 |
| ||||||
Finance |
|
215 |
|
|
103 |
|
218 |
|
64 |
|
|
(333 |
) |
(237 |
) | ||||||
Total |
|
$ |
12,237 |
|
|
$ |
11,275 |
|
$ |
10,525 |
|
$ |
1,132 |
|
|
$ |
591 |
|
$ |
553 |
|
Special charges |
|
|
|
|
|
|
|
|
— |
|
|
— |
|
(190 |
) | ||||||
Corporate expenses and other, net |
|
|
|
|
|
|
|
|
(148 |
) |
|
(114 |
) |
(137 |
) | ||||||
Interest expense, net for Manufacturing group |
|
|
|
|
|
|
|
|
(143 |
) |
|
(140 |
) |
(140 |
) | ||||||
Income from continuing operations before income taxes |
|
|
|
|
|
|
|
|
$ |
841 |
|
|
$ |
337 |
|
$ |
86 |
|
Revenues by major product type are summarized below:
|
|
Revenues | |||||||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
| |||
Rotor aircraft |
|
$ |
4,274 |
|
|
$ |
3,525 |
|
$ |
3,241 |
|
Fixed-wing aircraft |
|
3,111 |
|
|
2,990 |
|
2,563 |
| |||
Unmanned aircraft systems, armored security vehicles, precision weapons and other |
|
1,737 |
|
|
1,872 |
|
1,979 |
| |||
Fuel systems and functional components |
|
1,842 |
|
|
1,823 |
|
1,640 |
| |||
Powered tools, testing and measurement equipment |
|
398 |
|
|
402 |
|
330 |
| |||
Golf, turf-care, and light transportation vehicles |
|
660 |
|
|
560 |
|
554 |
| |||
Finance |
|
215 |
|
|
103 |
|
218 |
| |||
Total |
|
$ |
12,237 |
|
|
$ |
11,275 |
|
$ |
10,525 |
|
Our revenues included sales to the U.S. Government of approximately $3.6 billion, $3.5 billion and $3.6 billion in 2012, 2011 and 2010, respectively, primarily in the Bell and Textron Systems segments.
Other information by segment is provided below:
|
|
Assets |
|
Capital Expenditures |
|
Depreciation and Amortization | ||||||||||||||||||||||
(In millions) |
|
December 29, |
|
|
December 31, |
|
2012 |
|
|
2011 |
|
2010 |
|
2012 |
|
|
2011 |
|
2010 |
| ||||||||
Cessna |
|
$ |
2,224 |
|
|
$ |
2,078 |
|
$ |
93 |
|
|
$ |
101 |
|
$ |
47 |
|
$ |
102 |
|
|
$ |
109 |
|
$ |
106 |
|
Bell |
|
2,399 |
|
|
2,247 |
|
172 |
|
|
184 |
|
123 |
|
102 |
|
|
95 |
|
92 |
| ||||||||
Textron Systems |
|
1,987 |
|
|
1,948 |
|
108 |
|
|
37 |
|
41 |
|
75 |
|
|
85 |
|
81 |
| ||||||||
Industrial |
|
1,755 |
|
|
1,664 |
|
97 |
|
|
94 |
|
51 |
|
70 |
|
|
72 |
|
72 |
| ||||||||
Finance |
|
2,322 |
|
|
3,213 |
|
— |
|
|
— |
|
— |
|
25 |
|
|
32 |
|
31 |
| ||||||||
Corporate |
|
2,346 |
|
|
2,465 |
|
10 |
|
|
7 |
|
8 |
|
9 |
|
|
10 |
|
11 |
| ||||||||
Total |
|
$ |
13,033 |
|
|
$ |
13,615 |
|
$ |
480 |
|
|
$ |
423 |
|
$ |
270 |
|
$ |
383 |
|
|
$ |
403 |
|
$ |
393 |
|
Geographic Data
Presented below is selected financial information of our continuing operations by geographic area:
|
|
Revenues* |
|
Property, Plant and Equipment, | |||||||||||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
|
December 29, |
|
|
December 31, | |||||
United States |
|
$ |
7,586 |
|
|
$ |
7,138 |
|
$ |
6,688 |
|
$ |
1,644 |
|
|
$ |
1,557 |
Europe |
|
1,655 |
|
|
1,577 |
|
1,448 |
|
275 |
|
|
236 | |||||
Canada |
|
447 |
|
|
289 |
|
347 |
|
106 |
|
|
100 | |||||
Latin America and Mexico |
|
893 |
|
|
820 |
|
815 |
|
43 |
|
|
36 | |||||
Asia and Australia |
|
1,264 |
|
|
1,032 |
|
776 |
|
82 |
|
|
76 | |||||
Middle East and Africa |
|
392 |
|
|
419 |
|
451 |
|
— |
|
|
— | |||||
Total |
|
$ |
12,237 |
|
|
$ |
11,275 |
|
$ |
10,525 |
|
$ |
2,150 |
|
|
$ |
2,005 |
* Revenues are attributed to countries based on the location of the customer.
** Property, plant and equipment, net are based on the location of the asset.
|
Quarterly Data
(Unaudited) |
|
|
2012 |
|
|
2011 |
| ||||||||||||||||||||
(Dollars in millions, except per share amounts) |
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
| ||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cessna |
|
|
$ |
669 |
|
$ |
763 |
|
$ |
778 |
|
$ |
901 |
|
|
$ |
556 |
|
$ |
652 |
|
$ |
771 |
|
$ |
1,011 |
|
Bell |
|
|
994 |
|
1,056 |
|
1,075 |
|
1,149 |
|
|
749 |
|
872 |
|
894 |
|
1,010 |
| ||||||||
Textron Systems |
|
|
377 |
|
389 |
|
400 |
|
571 |
|
|
445 |
|
452 |
|
462 |
|
513 |
| ||||||||
Industrial |
|
|
755 |
|
756 |
|
683 |
|
706 |
|
|
703 |
|
719 |
|
655 |
|
708 |
| ||||||||
Finance |
|
|
61 |
|
55 |
|
64 |
|
35 |
|
|
26 |
|
33 |
|
32 |
|
12 |
| ||||||||
Total revenues |
|
|
$ |
2,856 |
|
$ |
3,019 |
|
$ |
3,000 |
|
$ |
3,362 |
|
|
$ |
2,479 |
|
$ |
2,728 |
|
$ |
2,814 |
|
$ |
3,254 |
|
Segment profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cessna (a) |
|
|
$ |
(6 |
) |
$ |
35 |
|
$ |
30 |
|
$ |
23 |
|
|
$ |
(38 |
) |
$ |
5 |
|
$ |
33 |
|
$ |
60 |
|
Bell |
|
|
145 |
|
152 |
|
165 |
|
177 |
|
|
91 |
|
120 |
|
143 |
|
167 |
| ||||||||
Textron Systems (b) |
|
|
35 |
|
40 |
|
21 |
|
36 |
|
|
53 |
|
49 |
|
47 |
|
(8 |
) | ||||||||
Industrial |
|
|
73 |
|
61 |
|
38 |
|
43 |
|
|
61 |
|
55 |
|
37 |
|
49 |
| ||||||||
Finance (c) |
|
|
12 |
|
22 |
|
28 |
|
2 |
|
|
(44 |
) |
(33 |
) |
(24 |
) |
(232 |
) | ||||||||
Total segment profit |
|
|
259 |
|
310 |
|
282 |
|
281 |
|
|
123 |
|
196 |
|
236 |
|
36 |
| ||||||||
Corporate expenses and other, net |
|
|
(47 |
) |
(20 |
) |
(38 |
) |
(43 |
) |
|
(39 |
) |
(23 |
) |
(13 |
) |
(39 |
) | ||||||||
Interest expense, net for Manufacturing group |
|
|
(35 |
) |
(35 |
) |
(35 |
) |
(38 |
) |
|
(38 |
) |
(38 |
) |
(37 |
) |
(27 |
) | ||||||||
Income tax (expense) benefit |
|
|
(57 |
) |
(82 |
) |
(67 |
) |
(54 |
) |
|
(15 |
) |
(43 |
) |
(50 |
) |
13 |
| ||||||||
Income (loss) from continuing operations |
|
|
120 |
|
173 |
|
142 |
|
146 |
|
|
31 |
|
92 |
|
136 |
|
(17 |
) | ||||||||
Income (loss) from discontinued operations, net of income taxes |
|
|
(2 |
) |
(1 |
) |
9 |
|
2 |
|
|
(2 |
) |
(2 |
) |
6 |
|
(2 |
) | ||||||||
Net income (loss) |
|
|
$ |
118 |
|
$ |
172 |
|
$ |
151 |
|
$ |
148 |
|
|
$ |
29 |
|
$ |
90 |
|
$ |
142 |
|
$ |
(19 |
) |
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Continuing operations |
|
|
$ |
0.43 |
|
$ |
0.61 |
|
$ |
0.51 |
|
$ |
0.52 |
|
|
$ |
0.11 |
|
$ |
0.33 |
|
$ |
0.49 |
|
$ |
(0.06 |
) |
Discontinued operations |
|
|
(0.01 |
) |
— |
|
0.03 |
|
0.01 |
|
|
(0.01 |
) |
(0.01 |
) |
0.02 |
|
(0.01 |
) | ||||||||
Basic earnings per share |
|
|
$ |
0.42 |
|
$ |
0.61 |
|
$ |
0.54 |
|
$ |
0.53 |
|
|
$ |
0.10 |
|
$ |
0.32 |
|
$ |
0.51 |
|
$ |
(0.07 |
) |
Basic average shares outstanding(In thousands) |
|
|
280,022 |
|
281,114 |
|
281,813 |
|
277,780 |
|
|
276,358 |
|
277,406 |
|
278,090 |
|
278,881 |
| ||||||||
Diluted earnings per share (d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Continuing operations |
|
|
$ |
0.41 |
|
$ |
0.58 |
|
$ |
0.48 |
|
$ |
0.50 |
|
|
$ |
0.10 |
|
$ |
0.29 |
|
$ |
0.45 |
|
$ |
(0.06 |
) |
Discontinued operations |
|
|
(0.01 |
) |
— |
|
0.03 |
|
0.01 |
|
|
(0.01 |
) |
— |
|
0.02 |
|
(0.01 |
) | ||||||||
Diluted earnings per share |
|
|
$ |
0.40 |
|
$ |
0.58 |
|
$ |
0.51 |
|
$ |
0.51 |
|
|
$ |
0.09 |
|
$ |
0.29 |
|
$ |
0.47 |
|
$ |
(0.07 |
) |
Diluted average shares outstanding (In thousands) |
|
|
294,632 |
|
295,547 |
|
296,920 |
|
291,562 |
|
|
319,119 |
|
315,208 |
|
300,866 |
|
278,881 |
| ||||||||
Segment profit margins |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cessna |
|
|
(0.9)% |
|
4.6% |
|
3.9% |
|
2.6% |
|
|
(6.8)% |
|
0.8% |
|
4.3% |
|
5.9% |
| ||||||||
Bell |
|
|
14.6 |
|
14.4 |
|
15.3 |
|
15.4 |
|
|
12.1 |
|
13.8 |
|
16.0 |
|
16.5 |
| ||||||||
Textron Systems |
|
|
9.3 |
|
10.3 |
|
5.3 |
|
6.3 |
|
|
11.9 |
|
10.8 |
|
10.2 |
|
(1.6) |
| ||||||||
Industrial |
|
|
9.7 |
|
8.1 |
|
5.6 |
|
6.1 |
|
|
8.7 |
|
7.6 |
|
5.6 |
|
6.9 |
| ||||||||
Finance |
|
|
19.7 |
|
40.0 |
|
43.8 |
|
5.7 |
|
|
(169.2) |
|
(100.0) |
|
(75.0) |
|
(1,933.3) |
| ||||||||
Segment profit margin |
|
|
9.1% |
|
10.3% |
|
9.4% |
|
8.4% |
|
|
5.0% |
|
7.2% |
|
8.4% |
|
1.1% |
| ||||||||
Common stock information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Price range: High |
|
|
$ |
28.29 |
|
$ |
29.18 |
|
$ |
28.80 |
|
$ |
26.75 |
|
|
$ |
28.87 |
|
$ |
28.65 |
|
$ |
25.17 |
|
$ |
20.41 |
|
Low |
|
|
$ |
18.37 |
|
$ |
21.97 |
|
$ |
22.15 |
|
$ |
22.84 |
|
|
$ |
23.50 |
|
$ |
20.86 |
|
$ |
14.66 |
|
$ |
16.37 |
|
Dividends declared per share |
|
|
$ |
0.02 |
|
$ |
0.02 |
|
$ |
0.02 |
|
$ |
0.02 |
|
|
$ |
0.02 |
|
$ |
0.02 |
|
$ |
0.02 |
|
$ |
0.02 |
|
(a) The fourth quarter of 2012 included a $27 million charge related to an award against Cessna in an arbitration proceeding.
(b) The fourth quarter of 2011 included a $41 million impairment charge to write down certain intangible assets and approximately $19 million in severance costs related to a workforce reduction.
(c) The fourth quarter of 2011 included a $186 million initial mark-to-market adjustment for remaining finance receivables in the Golf Mortgage portfolio that were transferred to the held for sale classification.
(d) For the fourth quarter of 2011, the potential dilutive effect of stock options, restricted stock units and the shares that could be issued upon the conversion of our convertible senior notes and upon the exercise of the related warrants was excluded from the computation of diluted weighted-average shares outstanding as the shares would have an anti-dilutive effect on the loss from continuing operations.
|
Schedule II — Valuation and Qualifying Accounts
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
| |||
Allowance for doubtful accounts |
|
|
|
|
|
|
|
| |||
Balance at beginning of year |
|
$ |
18 |
|
|
$ |
20 |
|
$ |
23 |
|
Charged to costs and expenses |
|
4 |
|
|
7 |
|
2 |
| |||
Deductions from reserves* |
|
(3 |
) |
|
(9 |
) |
(5 |
) | |||
Balance at end of year |
|
$ |
19 |
|
|
$ |
18 |
|
$ |
20 |
|
Inventory FIFO reserves |
|
|
|
|
|
|
|
| |||
Balance at beginning of year |
|
$ |
134 |
|
|
$ |
133 |
|
$ |
158 |
|
Charged to costs and expenses |
|
42 |
|
|
35 |
|
54 |
| |||
Deductions from reserves* |
|
(40 |
) |
|
(34 |
) |
(79 |
) | |||
Balance at end of year |
|
$ |
136 |
|
|
$ |
134 |
|
$ |
133 |
|
* Deductions primarily include amounts written off on uncollectable accounts (less recoveries), inventory disposals and currency translation adjustments.
|
Principles of Consolidation and Financial Statement Presentation
Our Consolidated Financial Statements include the accounts of Textron Inc. and its majority-owned subsidiaries. Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with its majority-owned subsidiaries that operate in the Cessna, Bell, Textron Systems and Industrial segments. The Finance group, which also is the Finance segment, consists of Textron Financial Corporation (TFC), its consolidated subsidiaries and three other finance subsidiaries owned by Textron Inc. 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.
Our Finance group provides captive financing for retail purchases and leases for new and used aircraft and equipment manufactured by our Manufacturing group. In the Consolidated Statements of Cash Flows, cash received from customers or from the sale of receivables is reflected as operating activities when received from third parties. 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 and is financed by the Finance group, the origination of the finance receivable is recorded within investing activities as a cash outflow in the Finance group’s statement of cash flows. Meanwhile, in the Manufacturing group’s statement of cash flows, the cash received from the Finance group on the customer’s behalf is recorded within operating cash flows as a cash inflow. 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 in consolidation.
Collaborative Arrangements
Our Bell segment has a strategic alliance agreement with The Boeing Company (Boeing) to provide engineering, development and test services related to the V-22 aircraft, as well as to produce the V-22 aircraft, under a number of separate contracts with the U.S. Government (V-22 Contracts). The alliance created by this agreement is not a legal entity and has no employees, no assets and no true operations. This agreement creates contractual rights and does not represent an entity in which we have an equity interest. We account for this alliance as a collaborative arrangement with Bell and Boeing reporting costs incurred and revenues generated from transactions with the U.S. Government in each company’s respective income statement. Neither Bell nor Boeing is considered to be the principal participant for the transactions recorded under this agreement. Profits on cost-plus contracts are allocated between Bell and Boeing on a 50%-50% basis. Negotiated profits on fixed-price contracts are also allocated 50%-50%; however, Bell and Boeing are each responsible for their own cost overruns and are entitled to retain any cost underruns. Based on the contractual arrangement established under the alliance, Bell accounts for its rights and obligations under the specific requirements of the V-22 Contracts allocated to Bell under the work breakdown structure. We account for all of our rights and obligations, including warranty, product and any contingent liabilities, under the specific requirements of the V-22 Contracts allocated to us under the agreement. Revenues and cost of sales reflect our performance under the V-22 Contracts with revenues recognized using the units-of-delivery method. We include all assets used in performance of the V-22 Contracts that we own, including inventory and unpaid receivables and all liabilities arising from our obligations under the V-22 Contracts in our Consolidated Balance Sheets.
Use of Estimates
We prepare our financial statements in conformity with generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated Statements of Operations in the period that they are determined.
During 2012, 2011 and 2010, we changed our estimates of revenues and costs on certain long-term contracts that are accounted for under the percentage-of-completion method of accounting. These changes in estimates increased income from continuing operations before income taxes in 2012, 2011 and 2010 by $15 million, $54 million and $78 million, respectively, ($9 million, $34 million and $49 million after tax, or $0.03, $0.11 and $0.16 per diluted share, respectively). For 2012, 2011 and 2010, the gross favorable program profit adjustments totaled $88 million, $83 million and $98 million, respectively. For 2012, 2011 and 2010, the gross unfavorable program profit adjustments totaled $73 million, $29 million and $20 million, respectively.
Cash and Equivalents
Cash and equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less.
Revenue Recognition
We generally recognize revenue for the sale of products, which are not under long-term contracts, upon delivery. For commercial aircraft, delivery is upon completion of manufacturing, customer acceptance, and the transfer of the risk and rewards of ownership. Taxes collected from customers and remitted to government authorities are recorded on a net basis.
When a sale arrangement involves multiple deliverables, such as sales of products that include customization and other services, we evaluate the arrangement to determine whether there are separate items that are required to be delivered under the arrangement that qualify as separate units of accounting. These arrangements typically involve the customization services we offer to customers who purchase Bell helicopters, and the services generally are provided within the first six months after the customer accepts the aircraft and assumes risk of loss. We consider the aircraft and the customization services to be separate units of accounting and allocate contract price between the two on a relative selling price basis using the best evidence of selling price for each of the arrangement deliverables, typically by reference to the price charged when the same or similar items are sold separately by us, taking into consideration any performance, cancellation, termination or refund-type provisions. We recognize revenue when the recognition criteria for each unit of accounting are met.
Long-Term Contracts — Revenues under long-term contracts are accounted for under the percentage-of-completion method of accounting. Under this method, we estimate profit as the difference between the total estimated revenues and cost of a contract. We then recognize that estimated profit over the contract term based on either the units-of-delivery method or the cost-to-cost method (which typically is used for development effort as costs are incurred), as appropriate under the circumstances. Revenues under fixed-price contracts generally are recorded using the units-of-delivery method. Revenues under cost-reimbursement contracts are recorded using the cost-to-cost method.
Long-term contract profits are based on estimates of total contract cost and revenues utilizing current contract specifications, expected engineering requirements, the achievement of contract milestones and product deliveries. Certain contracts are awarded with fixed-price incentive fees that also are considered when estimating revenues and profit rates. Contract costs typically are incurred over a period of several years, and the estimation of these costs requires substantial judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We update our projections of costs at least semiannually or when circumstances significantly change. When adjustments are required, any changes from prior estimates are recognized using the cumulative catch-up method with the impact of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.
Finance Revenues — Finance revenues include interest on finance receivables, direct loan origination costs and fees received, and capital and leveraged lease earnings, as well as portfolio gains/losses. Portfolio gains/losses include impairment charges related to repossessed assets and properties and gains/losses on the sale or early termination of finance assets. Revenues on direct loan origination costs and fees received are deferred and amortized to finance revenues over the contractual lives of the respective receivables and credit lines using the interest method. When receivables are sold or prepaid, unamortized amounts are recognized in finance revenues.
We recognize interest using the interest method, which provides a constant rate of return over the terms of the receivables. Accrual of interest income is suspended if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically suspend the accrual of interest income for accounts that are contractually delinquent by more than three months unless collection is not doubtful. Cash payments on nonaccrual accounts, including finance charges, generally are applied to reduce the net investment balance. We resume the accrual of interest when the loan becomes contractually current through payment according to the original terms of the loan or, if a loan has been modified, following a period of performance under the terms of the modification, provided we conclude that collection of all principal and interest is no longer doubtful. Previously suspended interest income is recognized at that time.
Finance Receivables Held for Investment and Allowance for Losses
Finance receivables are classified as held for investment when we have the intent and the ability to hold the receivable for the foreseeable future or until maturity or payoff. Finance receivables held for investment are generally recorded at the amount of outstanding principal less allowance for losses.
We maintain the allowance for losses on finance receivables held for investment at a level considered adequate to cover inherent losses in the portfolio based on management’s evaluation. For larger balance accounts specifically identified as impaired, including large accounts in homogeneous portfolios, a reserve is established based on comparing the carrying value with either a) the expected future cash flows, discounted at the finance receivable’s effective interest rate; or b) the fair value of the underlying collateral, if the finance receivable is collateral dependent. The expected future cash flows consider collateral value; financial performance and liquidity of our borrower; existence and financial strength of guarantors; estimated recovery costs, including legal expenses; and costs associated with the repossession/foreclosure and eventual disposal of collateral. When there is a range of potential outcomes, we perform multiple discounted cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results. While our analysis is specific to each individual account, critical factors included in this analysis for the Captive product line include industry valuation guides, age and physical condition of the collateral, payment history and existence and financial strength of guarantors.
We also establish an allowance for losses to cover probable but specifically unknown losses existing in the portfolio. For the Captive product line, the allowance is established as a percentage of non-recourse finance receivables, which have not been identified as requiring specific reserves. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values and both general economic and specific industry trends.
Finance receivables held for investment are charged off at the earlier of the date the collateral is repossessed or when no payment has been received for six months, unless management deems the receivable collectible. Repossessed assets are recorded at their fair value, less estimated cost to sell.
Finance Receivables Held for Sale
Finance receivables are classified as held for sale based on the determination that we no longer intend to hold the receivables for the foreseeable future, until maturity or payoff, or we no longer have the ability to hold to maturity. Our decision to classify certain finance receivables as held for sale is based on a number of factors, including, but not limited to, contractual duration, type of collateral, credit strength of the borrowers, interest rates and perceived marketability of the receivables.
Finance receivables held for sale are carried at the lower of cost or fair value. At the time of transfer to the held for sale classification, we establish a valuation allowance for any shortfall between the carrying value and fair value. In addition, any allowance for loan losses previously allocated to these finance receivables is transferred to the valuation allowance account, which is netted with finance receivables held for sale on the balance sheet. This valuation allowance is adjusted quarterly. Fair value changes can occur based on market interest rates, market liquidity, and changes in the credit quality of the borrower and value of underlying loan collateral.
Inventories
Inventories are stated at the lower of cost or estimated net realizable value. We value our inventories generally using the first-in, first-out (FIFO) method or the last-in, first-out (LIFO) method for certain qualifying inventories where LIFO provides a better matching of costs and revenues. We determine costs for our commercial helicopters on an average cost basis by model considering the expended and estimated costs for the current production release. Inventoried costs related to long-term contracts are stated at actual production costs, including allocable operating overhead, advances to suppliers, and, in the case of contracts with the U.S. Government, allocable research and development and general and administrative expenses. Since our inventoried costs include amounts related to contracts with long production cycles, a portion of these costs is not expected to be realized within one year. Pursuant to contract provisions, agencies of the U.S. Government have title to, or security interest in, inventories related to such contracts as a result of advances, performance-based payments and progress payments. Such advances and payments are reflected as an offset against the related inventory balances. Customer deposits are recorded against inventory when the right of offset exists. All other customer deposits are recorded in accrued liabilities.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. We capitalize expenditures for improvements that increase asset values and extend useful lives.
Intangible and Other Long-Lived Assets
At acquisition, we estimate and record the fair value of purchased intangible assets primarily using a discounted cash flow analysis of anticipated cash flows reflecting incremental revenues and/or cost savings resulting from the acquired intangible asset using market participant assumptions. Amortization of intangible assets with finite lives is recognized over their estimated useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. Approximately 37% of our gross intangible assets are amortized using the straight-line method, with the remaining assets, primarily customer agreements, amortized based on the cash flow streams used to value the asset. Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying value of the asset held for use exceeds the sum of the undiscounted expected future cash flows, the carrying value of the asset generally is written down to fair value. Long-lived assets held for sale are stated at the lower of cost or fair value less cost to sell. Fair value is determined using pertinent market information, including estimated future discounted cash flows.
Goodwill
We evaluate the recoverability of goodwill annually in the fourth quarter or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value of a reporting unit might be impaired. The reporting unit represents the operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment, in which case such component is the reporting unit. In certain instances, we have aggregated components of an operating segment into a single reporting unit based on similar economic characteristics.
We may perform a qualitative assessment based on economic, industry and company-specific factors as the initial step in our annual goodwill impairment test for selected reporting units. If we determine that it is more likely than not that a reporting unit’s fair value exceeds its carrying value, we do not perform a quantitative assessment. For all other reporting units, we calculate the fair value of each reporting unit, primarily using discounted cash flows. The discounted cash flows incorporate assumptions for the unit’s short- and long-term revenue growth rates, operating margins and discount rates, which represent our best estimates of current and forecasted market conditions, cost structure, anticipated net cost reductions, and the implied rate of return that we believe a market participant would require for an investment in a business having similar risks and business characteristics to the reporting unit being assessed. If the reporting unit’s estimated fair value exceeds its carrying value, the reporting unit is not impaired, and no further analysis is performed. Otherwise, the amount of the impairment must be determined by comparing the carrying amount of the reporting unit goodwill to the implied fair value of that goodwill. The implied fair value of goodwill is determined by assigning a fair value to all of the reporting unit’s assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination at fair value. If the carrying amount of the reporting unit goodwill exceeds the implied fair value, an impairment loss would be recognized in an amount equal to that excess.
Pension and Postretirement Benefit Obligations
We maintain various pension and postretirement plans for our employees globally. These plans include significant pension and postretirement benefit obligations, which are calculated based on actuarial valuations. Key assumptions used in determining these obligations and related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. We evaluate and update these assumptions annually in consultation with third-party actuaries and investment advisors. We also make assumptions regarding employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increases. We recognize the overfunded or underfunded status of our pension and postretirement plans in the Consolidated Balance Sheets and recognize changes in the funded status of our defined benefit plans in comprehensive income in the year in which they occur. Actuarial gains and losses that are not immediately recognized as net periodic pension cost are recognized as a component of other comprehensive (loss) income (OCI) and are amortized into net periodic pension cost in future periods.
Derivative Financial Instruments
We are exposed to market risk primarily from changes in interest rates and currency exchange rates. We do not hold or issue derivative financial instruments for trading or speculative purposes. To manage the volatility relating to our exposures, we net these exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, we enter into various derivative transactions pursuant to our policies in areas such as counterparty exposure and hedging practices. All derivative instruments are reported at fair value in the Consolidated Balance Sheets. Designation to support hedge accounting is performed on a specific exposure basis. For financial instruments qualifying as fair value hedges, we record changes in fair value in earnings, offset, in part or in whole, by corresponding changes in the fair value of the underlying exposures being hedged. For cash flow hedges, we record changes in the fair value of derivatives (to the extent they are effective as hedges) in OCI, net of deferred taxes. Changes in fair value of derivatives not qualifying as hedges are recorded in earnings.
Foreign currency denominated assets and liabilities are translated into U.S. dollars. Adjustments from currency rate changes are recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or substantially liquidated. We use foreign currency financing transactions to effectively hedge long-term investments in foreign operations with the same corresponding currency. Foreign currency gains and losses on the hedge of the long-term investments are recorded in the cumulative translation adjustment account with the offset recorded as an adjustment to debt.
Product Liabilities
We accrue for product liability claims and related defense costs when a loss is probable and reasonably estimable. Our estimates are generally based on the specifics of each claim or incident and our best estimate of the probable loss using historical experience.
Environmental Liabilities and Asset Retirement Obligations
Liabilities for environmental matters are recorded on a site-by-site basis when it is probable that an obligation has been incurred and the cost can be reasonably estimated. We estimate our accrued environmental liabilities using currently available facts, existing technology, and presently enacted laws and regulations, all of which are subject to a number of factors and uncertainties. Our environmental liabilities are not discounted and do not take into consideration possible future insurance proceeds or significant amounts from claims against other third parties.
We have incurred asset retirement obligations primarily related to costs to remove and dispose of underground storage tanks and asbestos materials used in insulation, adhesive fillers and floor tiles. There is no legal requirement to remove these items, and there currently is no plan to remodel the related facilities or otherwise cause the impacted items to require disposal. Since these asset retirement obligations are not estimable, there is no related liability recorded in the Consolidated Balance Sheets.
Warranty and Product Maintenance Contracts
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 revenues are 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. Additionally, we may establish warranty liabilities related to the issuance of aircraft service bulletins for aircraft no longer covered under the limited warranty programs.
Research and Development Costs
Our customer-funded research and development costs are charged directly to the related contracts, which primarily consist of U.S. Government contracts. In accordance with government regulations, we recover a portion of company-funded research and development costs through overhead rate charges on our U.S. Government contracts. Research and development costs that are not reimbursable under a contract with the U.S. Government or another customer are charged to expense as incurred. Company-funded research and development costs were $584 million, $525 million, and $403 million in 2012, 2011 and 2010, respectively, and are included in cost of sales.
Income Taxes
Deferred income tax balances reflect the effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and their tax bases, as well as from net operating losses and tax credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including the future reversal of existing taxable temporary differences, taxable income in carryback years, available tax planning strategies and estimated future taxable income. We recognize net tax-related interest and penalties for continuing operations in income tax expense.
|
(In millions) |
|
Cessna |
|
Bell |
|
Textron |
|
Industrial |
|
Total |
| |||||
Balance at January 2, 2010 |
|
$ |
322 |
|
$ |
30 |
|
$ |
958 |
|
$ |
312 |
|
$ |
1,622 |
|
Acquisitions |
|
— |
|
1 |
|
16 |
|
5 |
|
22 |
| |||||
Foreign currency translation |
|
— |
|
— |
|
— |
|
(12 |
) |
(12 |
) | |||||
Balance at January 1, 2011 |
|
322 |
|
31 |
|
974 |
|
305 |
|
1,632 |
| |||||
Acquisitions |
|
— |
|
— |
|
— |
|
5 |
|
5 |
| |||||
Foreign currency translation |
|
— |
|
— |
|
— |
|
(2 |
) |
(2 |
) | |||||
Balance at December 31, 2011 |
|
322 |
|
31 |
|
974 |
|
308 |
|
1,635 |
| |||||
Acquisitions |
|
4 |
|
— |
|
— |
|
6 |
|
10 |
| |||||
Foreign currency translation |
|
— |
|
— |
|
— |
|
4 |
|
4 |
| |||||
Balance at December 29, 2012 |
|
$ |
326 |
|
$ |
31 |
|
$ |
974 |
|
$ |
318 |
|
$ |
1,649 |
|
|
|
|
|
|
December 29, 2012 |
|
|
December 31, 2011 |
| ||||||||||||||
(Dollars in millions) |
|
Weighted-Average |
|
|
Gross |
|
Accumulated |
|
Net |
|
|
Gross |
|
Accumulated |
|
Net |
| ||||||
Customer agreements and contractual relationships |
|
15 |
|
|
$ |
330 |
|
$ |
(139) |
|
$ |
191 |
|
|
$ |
330 |
|
$ |
(112) |
|
$ |
218 |
|
Patents and technology |
|
10 |
|
|
84 |
|
(55) |
|
29 |
|
|
95 |
|
(59) |
|
36 |
| ||||||
Trademarks |
|
18 |
|
|
36 |
|
(22) |
|
14 |
|
|
36 |
|
(19) |
|
17 |
| ||||||
Other |
|
9 |
|
|
20 |
|
(16) |
|
4 |
|
|
22 |
|
(16) |
|
6 |
| ||||||
Total |
|
|
|
|
$ |
470 |
|
$ |
(232) |
|
$ |
238 |
|
|
$ |
483 |
|
$ |
(206) |
|
$ |
277 |
|
|
(In millions) |
|
December 29, |
|
|
December 31, |
| ||
Commercial |
|
$ |
534 |
|
|
$ |
528 |
|
U.S. Government contracts |
|
314 |
|
|
346 |
| ||
|
|
848 |
|
|
874 |
| ||
Allowance for doubtful accounts |
|
(19 |
) |
|
(18 |
) | ||
Total |
|
$ |
829 |
|
|
$ |
856 |
|
(In millions) |
|
December 29, |
|
|
December 31, |
| ||
Captive |
|
$ |
1,704 |
|
|
$ |
1,945 |
|
Non-captive: |
|
|
|
|
|
| ||
Golf Mortgage |
|
140 |
|
|
381 |
| ||
Structured Capital |
|
122 |
|
|
208 |
| ||
Timeshare |
|
100 |
|
|
318 |
| ||
Other liquidating |
|
8 |
|
|
43 |
| ||
Total finance receivables |
|
2,074 |
|
|
2,895 |
| ||
Less: Allowance for losses |
|
84 |
|
|
156 |
| ||
Less: Finance receivables held for sale |
|
140 |
|
|
418 |
| ||
Total finance receivables held for investment, net |
|
$ |
1,850 |
|
|
$ |
2,321 |
|
|
|
December 29, 2012 |
|
|
December 31, 2011 |
| ||||||||||||||||||||
(In millions) |
|
Performing |
|
Watchlist |
|
Nonaccrual |
|
Total |
|
|
Performing |
|
Watchlist |
|
Nonaccrual |
|
Total |
| ||||||||
Captive |
|
$ |
1,476 |
|
$ |
130 |
|
$ |
98 |
|
$ |
1,704 |
|
|
$ |
1,558 |
|
$ |
251 |
|
$ |
136 |
|
$ |
1,945 |
|
Non-captive* |
|
185 |
|
— |
|
45 |
|
230 |
|
|
317 |
|
30 |
|
185 |
|
532 |
| ||||||||
Total |
|
$ |
1,661 |
|
$ |
130 |
|
$ |
143 |
|
$ |
1,934 |
|
|
$ |
1,875 |
|
$ |
281 |
|
$ |
321 |
|
$ |
2,477 |
|
% of Total |
|
85.9% |
|
6.7% |
|
7.4% |
|
|
|
|
75.7% |
|
11.3% |
|
13.0% |
|
|
|
*Non-captive nonaccrual finance receivables are primarily related to the Timeshare portfolio.
|
|
December 29, 2012 |
|
|
December 31, 2011 |
| ||||||||||||||||||||||||||
(In millions) |
|
Less Than |
|
31-60 |
|
61-90 |
|
Over |
|
Total |
|
|
Less Than |
|
31-60 |
|
61-90 |
|
Over |
|
Total |
| ||||||||||
Captive |
|
$ |
1,531 |
|
$ |
87 |
|
$ |
55 |
|
$ |
31 |
|
$ |
1,704 |
|
|
$ |
1,758 |
|
$ |
69 |
|
$ |
43 |
|
$ |
75 |
|
$ |
1,945 |
|
Non-captive |
|
226 |
|
— |
|
1 |
|
3 |
|
230 |
|
|
481 |
|
3 |
|
— |
|
48 |
|
532 |
| ||||||||||
Total |
|
$ |
1,757 |
|
$ |
87 |
|
$ |
56 |
|
$ |
34 |
|
$ |
1,934 |
|
|
$ |
2,239 |
|
$ |
72 |
|
$ |
43 |
|
$ |
123 |
|
$ |
2,477 |
|
|
|
|
Recorded Investment |
|
|
|
|
|
|
|
| ||||||||||
(In millions) |
|
Impaired |
|
Impaired |
|
Total |
|
Unpaid |
|
Allowance |
|
Average |
| ||||||||
December 29, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Captive |
|
$ |
61 |
|
$ |
66 |
|
$ |
127 |
|
$ |
128 |
|
$ |
15 |
|
$ |
121 |
| ||
Non-captive |
|
11 |
|
33 |
|
44 |
|
59 |
|
12 |
|
149 |
| ||||||||
Total |
|
$ |
72 |
|
$ |
99 |
|
$ |
171 |
|
$ |
187 |
|
$ |
27 |
|
$ |
270 |
| ||
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Captive |
|
$ |
47 |
|
$ |
94 |
|
$ |
141 |
|
$ |
144 |
|
$ |
40 |
|
$ |
149 |
| ||
Non-captive |
|
173 |
|
69 |
|
242 |
|
347 |
|
47 |
|
577 |
| ||||||||
Total |
|
$ |
220 |
|
$ |
163 |
|
$ |
383 |
|
$ |
491 |
|
$ |
87 |
|
$ |
726 |
|
*Non-captive impaired loans are primarily related to the Timeshare portfolio.
|
|
December 29, 2012 |
|
|
December 31, 2011 |
| ||||||||||||||||||||
|
|
Finance |
|
Allowance |
|
Allowance |
|
|
Finance |
|
Allowance |
|
Allowance |
| ||||||||||||
(In millions) |
|
Individually |
|
Collectively |
|
Evaluation |
|
Evaluation |
|
|
Individually |
|
Collectively |
|
Evaluation |
|
Evaluation |
| ||||||||
Captive |
|
$ |
127 |
|
$ |
1,577 |
|
$ |
15 |
|
$ |
55 |
|
|
$ |
141 |
|
$ |
1,804 |
|
$ |
40 |
|
$ |
61 |
|
Non-captive |
|
44 |
|
64 |
|
12 |
|
2 |
|
|
242 |
|
82 |
|
47 |
|
8 |
| ||||||||
Total |
|
$ |
171 |
|
$ |
1,641 |
|
$ |
27 |
|
$ |
57 |
|
|
$ |
383 |
|
$ |
1,886 |
|
$ |
87 |
|
$ |
69 |
|
(In millions) |
|
Captive |
|
Golf |
|
Timeshare |
|
Other |
|
Total |
| |||||
Balance at January 1, 2011 |
|
$ |
123 |
|
$ |
79 |
|
$ |
106 |
|
$ |
34 |
|
$ |
342 |
|
Provision for losses |
|
15 |
|
25 |
|
(26 |
) |
(2 |
) |
12 |
| |||||
Charge-offs |
|
(43 |
) |
(27 |
) |
(40 |
) |
(14 |
) |
(124 |
) | |||||
Recoveries |
|
9 |
|
3 |
|
— |
|
10 |
|
22 |
| |||||
Transfers |
|
(3 |
) |
(80 |
) |
— |
|
(13 |
) |
(96 |
) | |||||
Balance at December 31, 2011 |
|
$ |
101 |
|
$ |
— |
|
$ |
40 |
|
$ |
15 |
|
$ |
156 |
|
Provision for losses |
|
1 |
|
— |
|
2 |
|
(6 |
) |
(3 |
) | |||||
Charge-offs |
|
(42 |
) |
— |
|
(32 |
) |
(10 |
) |
(84 |
) | |||||
Recoveries |
|
10 |
|
— |
|
1 |
|
4 |
|
15 |
| |||||
Balance at December 29, 2012 |
|
$ |
70 |
|
$ |
— |
|
$ |
11 |
|
$ |
3 |
|
$ |
84 |
|
(In millions) |
|
December 29, |
|
|
December 31, |
| ||
Loans |
|
$ |
1,389 |
|
|
$ |
1,496 |
|
Finance leases |
|
107 |
|
|
121 |
| ||
Total |
|
$ |
1,496 |
|
|
$ |
1,617 |
|
|
(In millions) |
|
December 29, |
|
|
December 31, |
| ||
Finished goods |
|
$ |
1,329 |
|
|
$ |
1,012 |
|
Work in process |
|
2,247 |
|
|
2,202 |
| ||
Raw materials and components |
|
437 |
|
|
399 |
| ||
|
|
4,013 |
|
|
3,613 |
| ||
Progress/milestone payments |
|
(1,301 |
) |
|
(1,211 |
) | ||
Total |
|
$ |
2,712 |
|
|
$ |
2,402 |
|
|
(Dollars in millions) |
|
Useful Lives |
|
|
December 29, |
|
|
December 31, |
| ||
Land and buildings |
|
4 - 40 |
|
|
$ |
1,604 |
|
|
$ |
1,502 |
|
Machinery and equipment |
|
1 - 15 |
|
|
3,822 |
|
|
3,591 |
| ||
|
|
|
|
|
5,426 |
|
|
5,093 |
| ||
Accumulated depreciation and amortization |
|
|
|
|
(3,277 |
) |
|
(3,097 |
) | ||
Total |
|
|
|
|
$ |
2,149 |
|
|
$ |
1,996 |
|
|
(In millions) |
|
|
|
|
December 29, |
|
|
December 31, |
| ||
Customer deposits |
|
|
|
|
$ |
725 |
|
|
$ |
729 |
|
Salaries, wages and employer taxes |
|
|
|
|
282 |
|
|
282 |
| ||
Current portion of warranty and product maintenance contracts |
|
|
|
|
180 |
|
|
198 |
| ||
Deferred revenues |
|
|
|
|
115 |
|
|
169 |
| ||
Retirement plans |
|
|
|
|
80 |
|
|
80 |
| ||
Other |
|
|
|
|
574 |
|
|
494 |
| ||
Total |
|
|
|
|
$ |
1,956 |
|
|
$ |
1,952 |
|
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
| |||
Accrual at beginning of year |
|
$ |
224 |
|
|
$ |
242 |
|
$ |
263 |
|
Provision |
|
255 |
|
|
223 |
|
189 |
| |||
Settlements |
|
(250 |
) |
|
(223 |
) |
(231 |
) | |||
Adjustments to prior accrual estimates* |
|
(7 |
) |
|
(18 |
) |
21 |
| |||
Accrual at end of year |
|
$ |
222 |
|
|
$ |
224 |
|
$ |
242 |
|
* Adjustments include changes to prior year estimates, new issues on prior year sales and currency translation adjustments.
|
(In millions) |
|
|
December 29, |
|
|
December 31, |
| ||
Manufacturing group |
|
|
|
|
|
|
| ||
Long-term senior debt: |
|
|
|
|
|
|
| ||
6.50% due 2012 |
|
|
$ |
— |
|
|
$ |
139 |
|
3.875% due 2013 |
|
|
318 |
|
|
308 |
| ||
4.50% convertible senior notes due 2013 |
|
|
210 |
|
|
195 |
| ||
6.20% due 2015 |
|
|
350 |
|
|
350 |
| ||
4.625% due 2016 |
|
|
250 |
|
|
250 |
| ||
5.60% due 2017 |
|
|
350 |
|
|
350 |
| ||
7.25% due 2019 |
|
|
250 |
|
|
250 |
| ||
6.625% due 2020 |
|
|
242 |
|
|
231 |
| ||
5.95% due 2021 |
|
|
250 |
|
|
250 |
| ||
Other (weighted-average rate of 1.52% and 3.72%, respectively) |
|
|
81 |
|
|
136 |
| ||
|
|
|
2,301 |
|
|
2,459 |
| ||
Less: Current portion of long-term debt |
|
|
(535 |
) |
|
(146 |
) | ||
Total Long-term debt |
|
|
1,766 |
|
|
2,313 |
| ||
Total Manufacturing group debt |
|
|
$ |
2,301 |
|
|
$ |
2,459 |
|
Finance group |
|
|
|
|
|
|
| ||
Fixed-rate notes due 2013 (weighted-average rate of 5.28%) |
|
|
$ |
400 |
|
|
$ |
400 |
|
Variable-rate note due 2013 (weighted-average rate of 1.21% and 1.41%, respectively) |
|
|
48 |
|
|
100 |
| ||
Fixed-rate note due 2014 (5.13%) |
|
|
100 |
|
|
100 |
| ||
Fixed-rate notes due 2012-2017* (weighted-average rate of 4.88% and 4.48%, respectively) |
|
|
102 |
|
|
147 |
| ||
Fixed-rate notes due 2015-2022* (weighted-average rate of 2.70% and 2.76%, respectively) |
|
|
382 |
|
|
364 |
| ||
Variable-rate notes due 2015-2020* (weighted-average rate of 1.09% and 1.12%, respectively) |
|
|
64 |
|
|
62 |
| ||
Securitized debt (weighted-average rate of 1.55% and 2.08%, respectively) |
|
|
282 |
|
|
469 |
| ||
6% Fixed-to-Floating Rate Junior Subordinated Notes |
|
|
300 |
|
|
300 |
| ||
Fixed-rate note due 2037 (6.20%) |
|
|
— |
|
|
10 |
| ||
Fair value adjustments and unamortized discount |
|
|
8 |
|
|
22 |
| ||
Total Finance group debt |
|
|
$ |
1,686 |
|
|
$ |
1,974 |
|
* Notes amortize on a quarterly or semi-annual basis.
(In millions) |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
| |||||
Manufacturing group |
|
$ |
535 |
|
$ |
7 |
|
$ |
357 |
|
$ |
257 |
|
$ |
357 |
|
Finance group |
|
637 |
|
228 |
|
159 |
|
104 |
|
94 |
| |||||
Total |
|
$ |
1,172 |
|
$ |
235 |
|
$ |
516 |
|
$ |
361 |
|
$ |
451 |
|
|
|
|
|
|
|
|
Asset (Liability) |
| ||||||
(In millions) |
|
Borrowing Group |
|
Balance Sheet Location |
|
|
December 29, |
|
|
December 31, |
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
| ||
Interest rate exchange contracts* |
|
Finance |
|
Other assets |
|
|
$ |
8 |
|
|
$ |
22 |
|
Foreign currency exchange contracts |
|
Manufacturing |
|
Other current assets |
|
|
9 |
|
|
9 |
| ||
Total |
|
|
|
|
|
|
$ |
17 |
|
|
$ |
31 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
| ||
Interest rate exchange contracts* |
|
Finance |
|
Other liabilities |
|
|
$ |
(8 |
) |
|
$ |
(7 |
) |
Foreign currency exchange contracts |
|
Manufacturing |
|
Accrued liabilities |
|
|
(5 |
) |
|
(5 |
) | ||
Total |
|
|
|
|
|
|
$ |
(13 |
) |
|
$ |
(12 |
) |
*Interest rate exchange contracts represent fair value hedges.
(In millions) |
|
|
December 29, |
|
|
December 31, |
| ||
Finance group |
|
|
|
|
|
|
| ||
Finance receivables held for sale |
|
|
$ |
140 |
|
|
$ |
418 |
|
Impaired finance receivables |
|
|
72 |
|
|
81 |
| ||
Other assets |
|
|
76 |
|
|
128 |
| ||
Manufacturing Group |
|
|
|
|
|
|
| ||
Intangible assets |
|
|
— |
|
|
15 |
| ||
|
|
|
Gain (Loss) |
| |||||
(In millions) |
|
|
2012 |
|
|
2011 |
| ||
Finance group |
|
|
|
|
|
|
| ||
Finance receivables held for sale |
|
|
$ |
76 |
|
|
$ |
(206 |
) |
Impaired finance receivables |
|
|
(11 |
) |
|
(82 |
) | ||
Other assets |
|
|
(51 |
) |
|
(49 |
) | ||
Manufacturing Group |
|
|
|
|
|
|
| ||
Intangible assets |
|
|
— |
|
|
(41 |
) | ||
|
|
|
December 29, 2012 |
|
|
December 31, 2011 |
| ||||||||
(In millions) |
|
|
Carrying |
|
Estimated |
|
|
Carrying |
|
Estimated |
| ||||
Manufacturing group |
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt, excluding leases |
|
|
$ |
(2,225 |
) |
$ |
(2,636 |
) |
|
$ |
(2,328 |
) |
$ |
(2,561 |
) |
Finance group |
|
|
|
|
|
|
|
|
|
|
| ||||
Finance receivables held for investment, excluding leases |
|
|
1,625 |
|
1,653 |
|
|
1,997 |
|
1,848 |
| ||||
Debt |
|
|
(1,686 |
) |
(1,678 |
) |
|
(1,974 |
) |
(1,854 |
) | ||||
|
(In millions) |
|
Severance Costs |
|
Asset Impairment |
|
Contract Terminations |
|
Total |
| ||||
Balance at January 2, 2010 |
|
$ |
48 |
|
$ |
— |
|
$ |
3 |
|
$ |
51 |
|
Provision in 2010 |
|
79 |
|
16 |
|
7 |
|
102 |
| ||||
Reversals |
|
(3 |
) |
— |
|
— |
|
(3 |
) | ||||
Non-cash settlement |
|
— |
|
(16 |
) |
— |
|
(16 |
) | ||||
Cash paid |
|
(67 |
) |
— |
|
(5 |
) |
(72 |
) | ||||
Balance at January 1, 2011 |
|
57 |
|
— |
|
5 |
|
62 |
| ||||
Cash paid |
|
(42 |
) |
— |
|
(2 |
) |
(44 |
) | ||||
Balance at December 31, 2011 |
|
15 |
|
— |
|
3 |
|
18 |
| ||||
Cash paid |
|
(10 |
) |
— |
|
(1 |
) |
(11 |
) | ||||
Balance at December 29, 2012 |
|
$ |
5 |
|
$ |
— |
|
$ |
2 |
|
$ |
7 |
|
|
|
|
Pension Benefits |
|
Postretirement Benefits | |||||||||||||||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
|
2012 |
|
|
2011 |
|
2010 |
| ||||||
Net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Service cost |
|
$ |
119 |
|
|
$ |
129 |
|
$ |
124 |
|
$ |
6 |
|
|
$ |
8 |
|
$ |
8 |
|
Interest cost |
|
305 |
|
|
327 |
|
328 |
|
25 |
|
|
33 |
|
34 |
| ||||||
Expected return on plan assets |
|
(407 |
) |
|
(393 |
) |
(385 |
) |
— |
|
|
— |
|
— |
| ||||||
Amortization of prior service cost (credit) |
|
16 |
|
|
16 |
|
16 |
|
(11 |
) |
|
(8 |
) |
(4 |
) | ||||||
Amortization of net actuarial loss |
|
118 |
|
|
75 |
|
41 |
|
7 |
|
|
11 |
|
11 |
| ||||||
Curtailment and special termination charges |
|
— |
|
|
(1 |
) |
2 |
|
— |
|
|
— |
|
— |
| ||||||
Net periodic benefit cost |
|
$ |
151 |
|
|
$ |
153 |
|
$ |
126 |
|
$ |
27 |
|
|
$ |
44 |
|
$ |
49 |
|
Other changes in plan assets and benefit obligations recognized in OCI, including foreign exchange |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current year actuarial loss (gain) |
|
$ |
402 |
|
|
$ |
556 |
|
$ |
171 |
|
$ |
15 |
|
|
$ |
(17 |
) |
$ |
— |
|
Current year prior service cost (credit) |
|
— |
|
|
7 |
|
5 |
|
(2 |
) |
|
(23 |
) |
(16 |
) | ||||||
Amortization of net actuarial loss |
|
(118 |
) |
|
(75 |
) |
(41 |
) |
(7 |
) |
|
(11 |
) |
(11 |
) | ||||||
Amortization of prior service credit (cost) |
|
(16 |
) |
|
(16 |
) |
(16 |
) |
11 |
|
|
8 |
|
4 |
| ||||||
Curtailments and settlements |
|
— |
|
|
1 |
|
(1 |
) |
— |
|
|
— |
|
— |
| ||||||
Total recognized in OCI, before taxes |
|
$ |
268 |
|
|
$ |
473 |
|
$ |
118 |
|
$ |
17 |
|
|
$ |
(43 |
) |
$ |
(23 |
) |
Total recognized in net periodic benefit cost and OCI |
|
$ |
419 |
|
|
$ |
626 |
|
$ |
244 |
|
$ |
44 |
|
|
$ |
1 |
|
$ |
26 |
|
(In millions) |
|
Pension |
|
Postretirement |
| ||
Net actuarial loss |
|
$ |
184 |
|
$ |
7 |
|
Prior service cost (credit) |
|
15 |
|
(11 |
) | ||
|
|
$ |
199 |
|
$ |
(4 |
) |
|
|
Pension Benefits |
|
Postretirement Benefits | |||||||||||
(In millions) |
|
2012 |
|
|
2011 |
|
2012 |
|
|
2011 |
| ||||
Change in benefit obligation |
|
|
|
|
|
|
|
|
|
|
| ||||
Benefit obligation at beginning of year |
|
$ |
6,325 |
|
|
$ |
5,877 |
|
$ |
561 |
|
|
$ |
614 |
|
Service cost |
|
119 |
|
|
129 |
|
6 |
|
|
8 |
| ||||
Interest cost |
|
305 |
|
|
327 |
|
25 |
|
|
33 |
| ||||
Amendments |
|
— |
|
|
7 |
|
(2 |
) |
|
(23 |
) | ||||
Plan participants’ contributions |
|
— |
|
|
— |
|
5 |
|
|
5 |
| ||||
Actuarial losses (gains) |
|
644 |
|
|
331 |
|
15 |
|
|
(17 |
) | ||||
Benefits paid |
|
(360 |
) |
|
(339 |
) |
(52 |
) |
|
(59 |
) | ||||
Foreign exchange rate changes |
|
29 |
|
|
(7 |
) |
— |
|
|
— |
| ||||
Other |
|
(9 |
) |
|
— |
|
6 |
|
|
— |
| ||||
Benefit obligation at end of year |
|
$ |
7,053 |
|
|
$ |
6,325 |
|
$ |
564 |
|
|
$ |
561 |
|
Change in fair value of plan assets |
|
|
|
|
|
|
|
|
|
|
| ||||
Fair value of plan assets at beginning of year |
|
$ |
5,013 |
|
|
$ |
4,559 |
|
|
|
|
|
| ||
Actual return on plan assets |
|
649 |
|
|
167 |
|
|
|
|
|
| ||||
Employer contributions |
|
389 |
|
|
628 |
|
|
|
|
|
| ||||
Benefits paid |
|
(360 |
) |
|
(339 |
) |
|
|
|
|
| ||||
Foreign exchange rate changes |
|
24 |
|
|
(3 |
) |
|
|
|
|
| ||||
Settlements and disbursements |
|
— |
|
|
1 |
|
|
|
|
|
| ||||
Fair value of plan assets at end of year |
|
$ |
5,715 |
|
|
$ |
5,013 |
|
|
|
|
|
| ||
Funded status at end of year |
|
$ |
(1,338 |
) |
|
$ |
(1,312 |
) |
$ |
(564 |
) |
|
$ |
(561 |
) |
|
|
Pension Benefits |
|
Postretirement Benefits | |||||||||||
(In millions) |
|
2012 |
|
|
2011 |
|
2012 |
|
|
2011 |
| ||||
Non-current assets |
|
$ |
61 |
|
|
$ |
54 |
|
$ |
— |
|
|
$ |
— |
|
Current liabilities |
|
(26 |
) |
|
(23 |
) |
(52 |
) |
|
(56 |
) | ||||
Non-current liabilities |
|
(1,373 |
) |
|
(1,343 |
) |
(512 |
) |
|
(505 |
) | ||||
Recognized in Accumulated other comprehensive loss, pre-tax: |
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
|
2,750 |
|
|
2,455 |
|
99 |
|
|
91 |
| ||||
Prior service cost (credit) |
|
113 |
|
|
129 |
|
(41 |
) |
|
(50 |
) | ||||
|
|
|
|
|
|
| ||
(In millions) |
|
2012 |
|
|
2011 |
| ||
Projected benefit obligation |
|
$ |
6,869 |
|
|
$ |
6,153 |
|
Accumulated benefit obligation |
|
6,404 |
|
|
5,784 |
| ||
Fair value of plan assets |
|
5,470 |
|
|
4,786 |
| ||
|
|
Pension Benefits |
|
Postretirement Benefits | |||||||||||
|
|
2012 |
|
|
2011 |
|
2010 |
|
2012 |
|
|
2011 |
|
2010 |
|
Net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
4.94% |
|
|
5.71% |
|
6.20% |
|
4.75% |
|
|
5.50% |
|
5.50% |
|
Expected long-term rate of return on assets |
|
7.58% |
|
|
7.84% |
|
8.26% |
|
|
|
|
|
|
|
|
Rate of compensation increase |
|
3.49% |
|
|
3.99% |
|
4.00% |
|
|
|
|
|
|
|
|
Benefit obligations at year-end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
4.23% |
|
|
4.95% |
|
5.71% |
|
3.75% |
|
|
4.75% |
|
5.50% |
|
Rate of compensation increases |
|
3.48% |
|
|
3.49% |
|
3.99% |
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
2011 |
|
Medical cost trend rate |
|
8.4% |
|
|
9.0% |
|
Prescription drug cost trend rate |
|
8.4% |
|
|
9.0% |
|
Rate to which medical and prescription drug cost trend rates will gradually decline |
|
5.0% |
|
|
5.0% |
|
Year that the rates reach the rate where we assume they will remain |
|
2021 |
|
|
2021 |
|
(In millions) |
|
One- |
|
One- |
| ||
Effect on total of service and interest cost components |
|
$ |
3 |
|
$ |
(2 |
) |
Effect on postretirement benefit obligations other than pensions |
|
41 |
|
(36 |
) | ||
U.S. Plan Assets |
|
|
|
Domestic equity securities |
|
26% to 40% |
|
International equity securities |
|
11% to 22% |
|
Debt securities |
|
26% to 34% |
|
Private equity partnerships |
|
5% to 11% |
|
Real estate |
|
7% to 13% |
|
Hedge funds |
|
0% to 5% |
|
Foreign Plan Assets |
|
|
|
Equity securities |
|
36% to 70% |
|
Debt securities |
|
30% to 60% |
|
Real estate |
|
3% to 17% |
|
|
|
December 29, 2012 |
|
|
December 31, 2011 | |||||||||||||||
(In millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||||
Cash and equivalents |
|
$ |
16 |
|
$ |
157 |
|
$ |
— |
|
|
$ |
14 |
|
$ |
183 |
|
$ |
— |
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Domestic |
|
1,149 |
|
560 |
|
— |
|
|
1,017 |
|
482 |
|
— |
| ||||||
International |
|
981 |
|
268 |
|
— |
|
|
777 |
|
233 |
|
— |
| ||||||
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
National, state and local governments |
|
594 |
|
318 |
|
— |
|
|
630 |
|
254 |
|
— |
| ||||||
Corporate debt |
|
13 |
|
647 |
|
— |
|
|
34 |
|
494 |
|
— |
| ||||||
Asset-backed securities |
|
1 |
|
91 |
|
— |
|
|
3 |
|
74 |
|
— |
| ||||||
Private equity partnerships |
|
— |
|
— |
|
308 |
|
|
— |
|
— |
|
314 |
| ||||||
Real estate |
|
— |
|
— |
|
508 |
|
|
— |
|
— |
|
407 |
| ||||||
Hedge funds |
|
— |
|
— |
|
104 |
|
|
— |
|
— |
|
97 |
| ||||||
Total |
|
$ |
2,754 |
|
$ |
2,041 |
|
$ |
920 |
|
|
$ |
2,475 |
|
$ |
1,720 |
|
$ |
818 |
|
(In millions) |
|
Hedge Funds |
|
Private Equity |
|
Real Estate |
| |||
Balance at beginning of year |
|
$ |
97 |
|
$ |
314 |
|
$ |
407 |
|
Actual return on plan assets: |
|
|
|
|
|
|
| |||
Related to assets still held at reporting date |
|
7 |
|
(7 |
) |
26 |
| |||
Related to assets sold during the period |
|
— |
|
34 |
|
3 |
| |||
Purchases, sales and settlements, net |
|
— |
|
(33 |
) |
72 |
| |||
Balance at end of year |
|
$ |
104 |
|
$ |
308 |
|
$ |
508 |
|
(In millions) |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018-2022 |
| ||||||
Pension benefits |
|
$ |
353 |
|
$ |
356 |
|
$ |
360 |
|
$ |
367 |
|
$ |
373 |
|
$ |
2,003 |
|
Post-retirement benefits other than pensions |
|
54 |
|
52 |
|
50 |
|
49 |
|
46 |
|
191 |
| ||||||
|
|
|
|
|
|
|
|
| ||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
| |||
U.S. |
|
$ |
644 |
|
|
$ |
137 |
|
$ |
(63 |
) |
Non-U.S. |
|
197 |
|
|
200 |
|
149 |
| |||
Total income from continuing operations before income taxes |
|
$ |
841 |
|
|
$ |
337 |
|
$ |
86 |
|
|
|
|
|
|
|
|
| ||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
| |||
Current: |
|
|
|
|
|
|
|
| |||
Federal |
|
$ |
40 |
|
|
$ |
(23 |
) |
$ |
(79 |
) |
State |
|
9 |
|
|
15 |
|
3 |
| |||
Non-U.S. |
|
29 |
|
|
29 |
|
19 |
| |||
|
|
78 |
|
|
21 |
|
(57 |
) | |||
Deferred: |
|
|
|
|
|
|
|
| |||
Federal |
|
169 |
|
|
67 |
|
59 |
| |||
State |
|
23 |
|
|
1 |
|
(5 |
) | |||
Non-U.S. |
|
(10 |
) |
|
6 |
|
(3 |
) | |||
|
|
182 |
|
|
74 |
|
51 |
| |||
Income tax expense (benefit) |
|
$ |
260 |
|
|
$ |
95 |
|
$ |
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
2011 |
2010 | |||
Federal statutory income tax rate |
|
35.0% |
|
35.0% |
35.0% | |||
Increase (decrease) in taxes resulting from: |
|
|
|
|
| |||
State income taxes |
|
2.2 |
|
3.1 |
(2.7) | |||
Non-U.S. tax rate differential and foreign tax credits |
|
(5.4) |
|
(9.4) |
(60.5) | |||
Unrecognized tax benefits and interest |
|
0.2 |
|
1.2 |
17.5 | |||
Cash surrender value of life insurance |
|
(0.5) |
|
(1.5) |
(5.1) | |||
Nondeductible healthcare claims |
|
— |
|
— |
12.7 | |||
Change in status of subsidiaries |
|
— |
|
— |
12.0 | |||
Research credit |
|
— |
|
(2.5) |
(5.4) | |||
Valuation allowance on contingent receipts |
|
— |
|
— |
(2.0) | |||
Other, net |
|
(0.6) |
|
2.2 |
(7.9) | |||
Effective rate |
|
30.9% |
|
28.1% |
(6.4)% |
|
|
|
|
|
| |||
(In millions) |
|
December 29, |
|
|
December 31, 2011 |
| ||
Balance at beginning of year |
|
$ |
294 |
|
|
$ |
285 |
|
Additions for tax positions related to current year |
|
5 |
|
|
8 |
| ||
Additions for tax positions of prior years |
|
2 |
|
|
8 |
| ||
Reductions for tax positions of prior years |
|
(3 |
) |
|
(7 |
) | ||
Reductions for expiration of statute of limitations and settlements |
|
(8 |
) |
|
— |
| ||
Balance at end of year |
|
$ |
290 |
|
|
$ |
294 |
|
(In millions) |
|
|
December 29, |
|
|
December 31, |
| ||
Deferred tax assets |
|
|
|
|
|
|
| ||
Obligation for pension and postretirement benefits |
|
|
$ |
643 |
|
|
$ |
635 |
|
Accrued expenses* |
|
|
205 |
|
|
193 |
| ||
Deferred compensation |
|
|
180 |
|
|
196 |
| ||
Loss carryforwards |
|
|
81 |
|
|
74 |
| ||
Valuation allowance on finance receivables held for sale |
|
|
40 |
|
|
130 |
| ||
Allowance for credit losses |
|
|
39 |
|
|
68 |
| ||
Inventory |
|
|
30 |
|
|
38 |
| ||
Deferred income |
|
|
29 |
|
|
52 |
| ||
Other, net |
|
|
168 |
|
|
172 |
| ||
Total deferred tax assets |
|
|
1,415 |
|
|
1,558 |
| ||
Valuation allowance for deferred tax assets |
|
|
(165 |
) |
|
(189 |
) | ||
|
|
|
$ |
1,250 |
|
|
$ |
1,369 |
|
Deferred tax liabilities |
|
|
|
|
|
|
| ||
Leasing transactions |
|
|
$ |
(217 |
) |
|
$ |
(285 |
) |
Property, plant and equipment, principally depreciation |
|
|
(138 |
) |
|
(145 |
) | ||
Amortization of goodwill and other intangibles |
|
|
(110 |
) |
|
(111 |
) | ||
Total deferred tax liabilities |
|
|
(465 |
) |
|
(541 |
) | ||
Net deferred tax asset |
|
|
$ |
785 |
|
|
$ |
828 |
|
* Accrued expenses includes warranty and product maintenance reserves, self-insured liabilities, interest and restructuring reserves.
|
|
|
|
|
| ||||
(In millions) |
|
|
December 29, |
|
|
December 31, |
| ||
Current |
|
|
$ |
256 |
|
|
$ |
288 |
|
Non-current |
|
|
591 |
|
|
532 |
| ||
|
|
|
847 |
|
|
820 |
| ||
Finance group’s net deferred tax asset (liability) |
|
|
(62 |
) |
|
8 |
| ||
Net deferred tax asset |
|
|
$ |
785 |
|
|
$ |
828 |
|
(In millions) |
|
|
| |
Non-U.S. net operating loss with no expiration |
|
$ |
94 |
|
Non-U.S. net operating loss expiring through 2032 |
|
50 |
| |
State net operating loss and tax credits, net of tax benefits, expiring through 2032 |
|
49 |
| |
U.S. federal tax credits beginning to expire in 2021 |
|
19 |
| |
|
|
|
|
|
|
|
|
| ||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
| |||
Interest paid: |
|
|
|
|
|
|
|
| |||
Manufacturing group |
|
$ |
135 |
|
|
$ |
135 |
|
$ |
145 |
|
Finance group |
|
64 |
|
|
89 |
|
127 |
| |||
Taxes paid, net of refunds received: |
|
|
|
|
|
|
|
| |||
Manufacturing group |
|
(7 |
) |
|
30 |
|
59 |
| |||
Finance group |
|
43 |
|
|
(65 |
) |
101 |
| |||
|
|
|
Revenues |
|
Segment Profit (Loss) | |||||||||||||||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
|
2012 |
|
|
2011 |
|
2010 |
| ||||||
Cessna |
|
$ |
3,111 |
|
|
$ |
2,990 |
|
$ |
2,563 |
|
$ |
82 |
|
|
$ |
60 |
|
$ |
(29 |
) |
Bell |
|
4,274 |
|
|
3,525 |
|
3,241 |
|
639 |
|
|
521 |
|
427 |
| ||||||
Textron Systems |
|
1,737 |
|
|
1,872 |
|
1,979 |
|
132 |
|
|
141 |
|
230 |
| ||||||
Industrial |
|
2,900 |
|
|
2,785 |
|
2,524 |
|
215 |
|
|
202 |
|
162 |
| ||||||
Finance |
|
215 |
|
|
103 |
|
218 |
|
64 |
|
|
(333 |
) |
(237 |
) | ||||||
Total |
|
$ |
12,237 |
|
|
$ |
11,275 |
|
$ |
10,525 |
|
$ |
1,132 |
|
|
$ |
591 |
|
$ |
553 |
|
Special charges |
|
|
|
|
|
|
|
|
— |
|
|
— |
|
(190 |
) | ||||||
Corporate expenses and other, net |
|
|
|
|
|
|
|
|
(148 |
) |
|
(114 |
) |
(137 |
) | ||||||
Interest expense, net for Manufacturing group |
|
|
|
|
|
|
|
|
(143 |
) |
|
(140 |
) |
(140 |
) | ||||||
Income from continuing operations before income taxes |
|
|
|
|
|
|
|
|
$ |
841 |
|
|
$ |
337 |
|
$ |
86 |
|
|
|
Revenues | |||||||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
| |||
Rotor aircraft |
|
$ |
4,274 |
|
|
$ |
3,525 |
|
$ |
3,241 |
|
Fixed-wing aircraft |
|
3,111 |
|
|
2,990 |
|
2,563 |
| |||
Unmanned aircraft systems, armored security vehicles, precision weapons and other |
|
1,737 |
|
|
1,872 |
|
1,979 |
| |||
Fuel systems and functional components |
|
1,842 |
|
|
1,823 |
|
1,640 |
| |||
Powered tools, testing and measurement equipment |
|
398 |
|
|
402 |
|
330 |
| |||
Golf, turf-care, and light transportation vehicles |
|
660 |
|
|
560 |
|
554 |
| |||
Finance |
|
215 |
|
|
103 |
|
218 |
| |||
Total |
|
$ |
12,237 |
|
|
$ |
11,275 |
|
$ |
10,525 |
|
|
|
Assets |
|
Capital Expenditures |
|
Depreciation and Amortization | ||||||||||||||||||||||
(In millions) |
|
December 29, |
|
|
December 31, |
|
2012 |
|
|
2011 |
|
2010 |
|
2012 |
|
|
2011 |
|
2010 |
| ||||||||
Cessna |
|
$ |
2,224 |
|
|
$ |
2,078 |
|
$ |
93 |
|
|
$ |
101 |
|
$ |
47 |
|
$ |
102 |
|
|
$ |
109 |
|
$ |
106 |
|
Bell |
|
2,399 |
|
|
2,247 |
|
172 |
|
|
184 |
|
123 |
|
102 |
|
|
95 |
|
92 |
| ||||||||
Textron Systems |
|
1,987 |
|
|
1,948 |
|
108 |
|
|
37 |
|
41 |
|
75 |
|
|
85 |
|
81 |
| ||||||||
Industrial |
|
1,755 |
|
|
1,664 |
|
97 |
|
|
94 |
|
51 |
|
70 |
|
|
72 |
|
72 |
| ||||||||
Finance |
|
2,322 |
|
|
3,213 |
|
— |
|
|
— |
|
— |
|
25 |
|
|
32 |
|
31 |
| ||||||||
Corporate |
|
2,346 |
|
|
2,465 |
|
10 |
|
|
7 |
|
8 |
|
9 |
|
|
10 |
|
11 |
| ||||||||
Total |
|
$ |
13,033 |
|
|
$ |
13,615 |
|
$ |
480 |
|
|
$ |
423 |
|
$ |
270 |
|
$ |
383 |
|
|
$ |
403 |
|
$ |
393 |
|
|
|
Revenues* |
|
Property, Plant and Equipment, | |||||||||||||
(In millions) |
|
2012 |
|
|
2011 |
|
2010 |
|
December 29, |
|
|
December 31, | |||||
United States |
|
$ |
7,586 |
|
|
$ |
7,138 |
|
$ |
6,688 |
|
$ |
1,644 |
|
|
$ |
1,557 |
Europe |
|
1,655 |
|
|
1,577 |
|
1,448 |
|
275 |
|
|
236 | |||||
Canada |
|
447 |
|
|
289 |
|
347 |
|
106 |
|
|
100 | |||||
Latin America and Mexico |
|
893 |
|
|
820 |
|
815 |
|
43 |
|
|
36 | |||||
Asia and Australia |
|
1,264 |
|
|
1,032 |
|
776 |
|
82 |
|
|
76 | |||||
Middle East and Africa |
|
392 |
|
|
419 |
|
451 |
|
— |
|
|
— | |||||
Total |
|
$ |
12,237 |
|
|
$ |
11,275 |
|
$ |
10,525 |
|
$ |
2,150 |
|
|
$ |
2,005 |
* Revenues are attributed to countries based on the location of the customer.
** Property, plant and equipment, net are based on the location of the asset.
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