TEXTRON INC, 10-Q filed on 7/29/2011
Quarterly Report
Document and Entity Information (USD $)
In Billions, except Share data
6 Months Ended
Jul. 2, 2011
Jul. 15, 2011
Jul. 2, 2010
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
TEXTRON INC 
 
 
Entity Central Index Key
0000217346 
 
 
Document Type
10-Q 
 
 
Document Period End Date
Jul. 02, 2011 
 
 
Amendment Flag
FALSE 
 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
Q2 
 
 
Current Fiscal Year End Date
--01-02 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
$ 4.4 
Entity Common Stock, Shares Outstanding
 
277,332,707 
 
Consolidated Statements of Operations (Unaudited) (USD $)
In Millions, except Per Share data
3 Months Ended
Jul. 2, 2011
3 Months Ended
Jul. 3, 2010
6 Months Ended
Jul. 2, 2011
6 Months Ended
Jul. 3, 2010
Revenues
 
 
 
 
Manufacturing revenues
$ 2,695 
$ 2,653 
$ 5,148 
$ 4,787 
Finance revenues
33 
56 
59 
132 
Total revenues
2,728 
2,709 
5,207 
4,919 
Costs, expenses and other
 
 
 
 
Cost of sales
2,225 
2,188 
4,280 
3,963 
Selling and administrative expense
295 
299 
599 
585 
Provision for losses on finance receivables
12 
44 
24 
99 
Interest expense
61 
69 
123 
140 
Special charges
 
10 
 
22 
Total costs, expenses and other
2,593 
2,610 
5,026 
4,809 
Income from continuing operations before income taxes
135 
99 
181 
110 
Income tax expense
43 
18 
58 
33 
Income from continuing operations
92 
81 
123 
77 
Income (loss) from discontinued operations, net of income taxes
(2)
(4)
(3)
Net income
$ 90 
$ 82 
$ 119 
$ 74 
Basic earnings per share
 
 
 
 
Continuing operations
$ 0.33 
$ 0.30 
$ 0.44 
$ 0.28 
Discontinued operations
$ (0.01)
 
$ (0.01)
$ (0.01)
Basic earnings per share
$ 0.32 
$ 0.30 
$ 0.43 
$ 0.27 
Diluted earnings per share
 
 
 
 
Continuing operations
$ 0.29 
$ 0.27 
$ 0.39 
$ 0.26 
Discontinued operations
 
 
$ (0.01)
$ (0.01)
Diluted earnings per share
$ 0.29 
$ 0.27 
$ 0.38 
$ 0.25 
Dividends per share
 
 
 
 
Common stock
$ 0.02 
$ 0.02 
$ 0.04 
$ 0.04 
Consolidated Balance Sheets (Unaudited) (USD $)
In Millions, except Share data in Thousands
Jul. 2, 2011
Jan. 1, 2011
Assets
 
 
Cash and equivalents
$ 651 
$ 931 
Inventories
2,562 
2,277 
Finance receivables held for sale
180 
413 
Total assets
14,839 
15,282 
Liabilities
 
 
Total liabilities
11,665 
12,310 
Shareholders' equity
 
 
Common stock
35 
35 
Capital surplus
1,278 
1,301 
Retained earnings
3,145 
3,037 
Accumulated other comprehensive loss
(1,260)
(1,316)
Total shareholders' equity including cost of treasury shares
3,198 
3,057 
Less cost of treasury shares
24 
85 
Total shareholders' equity
3,174 
2,972 
Total liabilities and shareholders' equity
14,839 
15,282 
Common shares outstanding (in thousands)
277,224 
275,739 
Manufacturing Group [Member]
 
 
Assets
 
 
Cash and equivalents
610 
898 
Accounts receivable, net
874 
892 
Inventories
2,562 
2,277 
Other current assets
1,395 
980 
Total current assets
5,441 
5,047 
Property, plant and equipment, less accumulated depreciation and amortization of $3,040 and $2,869
1,964 
1,932 
Goodwill
1,651 
1,632 
Other assets
1,692 
1,722 
Total assets
10,748 
10,333 
Liabilities
 
 
Short term and current portion of long-term debt
351 
19 
Accounts payable
742 
622 
Accrued liabilities
1,915 
2,016 
Total current liabilities
3,008 
2,657 
Long-term debt
2,192 
2,283 
Other liabilities
2,865 
2,993 
Total liabilities
8,065 
7,933 
Finance Group [Member]
 
 
Assets
 
 
Cash and equivalents
41 
33 
Finance receivables held for investment, net
3,345 
3,871 
Finance receivables held for sale
180 
413 
Other assets
525 
632 
Total assets
4,091 
4,949 
Liabilities
 
 
Other liabilities
379 
391 
Due to Manufacturing group
722 
326 
Debt
2,499 
3,660 
Total liabilities
$ 3,600 
$ 4,377 
Consolidated Balance Sheets (Unaudited) (Parenthetical) (Manufacturing Group [Member], USD $)
In Millions
Jul. 2, 2011
Jan. 1, 2011
Manufacturing Group [Member]
 
 
Assets
 
 
Accumulated depreciation and amortization on property, plant and equipment
$ 3,040 
$ 2,869 
Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Millions
6 Months Ended
Jul. 2, 2011
6 Months Ended
Jul. 3, 2010
Cash flows from operating activities:
 
 
Net income
$ 119 
$ 74 
Less: Income (loss) from discontinued operations
(4)
(3)
Income from continuing operations
123 
77 
Non-cash items:
 
 
Depreciation and amortization
195 
187 
Provision for losses on finance receivables held for investment
24 
99 
Portfolio losses on finance receivables
44 
50 
Deferred income taxes
57 
11 
Other, net
79 
55 
Changes in assets and liabilities:
 
 
Accounts receivable, net
36 
(94)
Inventories
(276)
(217)
Other assets
(51)
56 
Accounts payable
110 
152 
Accrued and other liabilities
(230)
(285)
Captive finance receivables, net
106 
159 
Other operating activities, net
 
Net cash provided by (used in) operating activities of continuing operations
219 
250 
Net cash used in operating activities of discontinued operations
(2)
(3)
Net cash provided by (used in) operating activities
217 
247 
Cash flows from investing activities:
 
 
Finance receivables originated or purchased
(110)
(270)
Finance receivables repaid
422 
990 
Proceeds on receivable sales
257 
343 
Capital expenditures
(169)
(83)
Net cash used in acquisitions
(3)
(43)
Proceeds from sale of repossessed assets and properties
72 
66 
Other investing activities, net
32 
36 
Net cash provided by (used in) investing activities
501 
1,039 
Cash flows from financing activities:
 
 
Payments on long-term lines of credit
(940)
(502)
Increase in short-term debt
189 
 
Principal payments on long-term debt
(511)
(1,491)
Proceeds from issuance of long-term debt
265 
28 
Proceeds from option exercises
Dividends paid
(11)
(11)
Other financing activities, net
(5)
 
Net cash used in financing activities
(1,009)
(1,974)
Effect of exchange rate changes on cash and equivalents
11 
(13)
Net increase (decrease) in cash and equivalents
(280)
(701)
Cash and equivalents at beginning of period
931 
1,892 
Cash and equivalents at end of period
651 
1,191 
Manufacturing Group [Member]
 
 
Cash flows from operating activities:
 
 
Net income
171 
152 
Less: Income (loss) from discontinued operations
(4)
(3)
Income from continuing operations
175 
155 
Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities:
 
 
Dividends received from TFC
179 
215 
Capital contribution paid to TFC under Support Agreement
(112)
(146)
Non-cash items:
 
 
Depreciation and amortization
180 
170 
Deferred income taxes
50 
32 
Other, net
66 
55 
Changes in assets and liabilities:
 
 
Accounts receivable, net
36 
(94)
Inventories
(279)
(217)
Other assets
(51)
51 
Accounts payable
110 
152 
Accrued and other liabilities
(210)
(206)
Other operating activities, net
(1)
Net cash provided by (used in) operating activities of continuing operations
146 
166 
Net cash used in operating activities of discontinued operations
(2)
(3)
Net cash provided by (used in) operating activities
144 
163 
Cash flows from investing activities:
 
 
Capital expenditures
(169)
(83)
Net cash used in acquisitions
(3)
(43)
Other investing activities, net
(39)
(17)
Net cash provided by (used in) investing activities
(211)
(143)
Cash flows from financing activities:
 
 
Payments on long-term lines of credit
 
(502)
Increase in short-term debt
189 
 
Intergroup financing
(395)
(212)
Principal payments on long-term debt
(13)
(11)
Proceeds from issuance of long-term debt
 
Proceeds from option exercises
Dividends paid
(11)
(11)
Other financing activities, net
(5)
 
Net cash used in financing activities
(231)
(734)
Effect of exchange rate changes on cash and equivalents
10 
(13)
Net increase (decrease) in cash and equivalents
(288)
(727)
Cash and equivalents at beginning of period
898 
1,748 
Cash and equivalents at end of period
610 
1,021 
Finance Group [Member]
 
 
Cash flows from operating activities:
 
 
Net income
(52)
(78)
Income from continuing operations
(52)
(78)
Non-cash items:
 
 
Depreciation and amortization
15 
17 
Provision for losses on finance receivables held for investment
24 
99 
Portfolio losses on finance receivables
44 
50 
Deferred income taxes
(21)
Other, net
13 
 
Changes in assets and liabilities:
 
 
Other assets
(3)
Accrued and other liabilities
(20)
(79)
Net cash provided by (used in) operating activities of continuing operations
28 
(11)
Net cash provided by (used in) operating activities
28 
(11)
Cash flows from investing activities:
 
 
Finance receivables originated or purchased
(244)
(471)
Finance receivables repaid
662 
1,350 
Proceeds on receivable sales
257 
343 
Proceeds from sale of repossessed assets and properties
72 
66 
Other investing activities, net
37 
38 
Net cash provided by (used in) investing activities
784 
1,326 
Cash flows from financing activities:
 
 
Payments on long-term lines of credit
(940)
 
Intergroup financing
395 
212 
Principal payments on long-term debt
(498)
(1,480)
Proceeds from issuance of long-term debt
265 
28 
Capital contributions paid to TFC under Support Agreement
112 
146 
Other capital contributions paid to Finance group
40 
20 
Dividends paid
(179)
(215)
Net cash used in financing activities
(805)
(1,289)
Effect of exchange rate changes on cash and equivalents
 
Net increase (decrease) in cash and equivalents
26 
Cash and equivalents at beginning of period
33 
144 
Cash and equivalents at end of period
$ 41 
$ 170 
Basis of Presentation
Basis of Presentation
Note 1: Basis of Presentation
Our consolidated financial statements include the accounts of Textron Inc. and its majority-owned subsidiaries. We have prepared these unaudited consolidated financial statements in accordance with accounting principles generally accepted in the U.S. for interim financial information. Accordingly, these interim financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. The consolidated interim financial statements included in this quarterly report should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the year ended January 1, 2011. In the opinion of management, the interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair presentation of our consolidated financial position, results of operations and cash flows for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts have been reclassified to conform with the current year presentation.
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, 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. All significant intercompany transactions are eliminated from the consolidated financial statements, including retail and wholesale financing activities for inventory sold by our Manufacturing group and financed by our Finance group.
Special Charges
Special Charges
Note 2: Special Charges
In 2010, special charges included restructuring costs incurred under a restructuring program that was completed at the end of 2010. There were no special charges in the first half of 2011.
Restructuring costs by segment and type for the three and six months ended July 3, 2010 are as follows:
                         
    Severance     Contract        
(In millions)   Costs     Terminations     Total  
 
Three Months Ended July 3, 2010
                       
 
Cessna
  $ 6     $     $ 6  
Textron Systems
    1             1  
Finance
    2       1       3  
 
 
  $ 9     $ 1     $ 10  
 
Six Months Ended July 3, 2010
                       
 
Cessna
  $ 14     $ 2     $ 16  
Bell
    1             1  
Textron Systems
    1             1  
Finance
    5       1       6  
Corporate
    (2 )           (2 )
 
 
  $ 19     $ 3     $ 22  
 
An analysis of our restructuring reserve activity is summarized below:
                         
    Severance     Contract        
(In millions)   Costs     Terminations     Total  
 
Balance at January 1, 2011
  $ 57     $ 5     $ 62  
Cash paid
    (33 )     (1 )     (34 )
 
Balance at July 2, 2011
  $ 24     $ 4     $ 28  
 
Retirement Plans
Retirement Plans
Note 3: Retirement Plans
We provide defined benefit pension plans and other postretirement benefits to eligible employees. The components of net periodic benefit cost for these plans are as follows:
                                 
                    Postretirement Benefits  
    Pension Benefits     Other Than Pensions  
 
    July 2,     July 3,     July 2,     July 3,  
(In millions)   2011     2010     2011     2010  
 
Three Months Ended
                               
 
Service cost
  $ 32     $ 31     $ 2     $ 2  
Interest cost
    82       79       8       8  
Expected return on plan assets
    (98 )     (92 )            
Amortization of prior service cost (credit)
    4       4       (2 )     (1 )
Amortization of net loss
    19       9       3       3  
 
Net periodic benefit cost
  $ 39     $ 31     $ 11     $ 12  
 
Six Months Ended
                               
 
Service cost
  $ 64     $ 62     $ 4     $ 4  
Interest cost
    164       158       16       16  
Expected return on plan assets
    (196 )     (184 )            
Amortization of prior service cost (credit)
    8       8       (3 )     (2 )
Amortization of net loss
    38       18       6       6  
 
Net periodic benefit cost
  $ 78     $ 62     $ 23     $ 24  
 
Comprehensive Income
Comprehensive Income
Note 4: Comprehensive Income
Our comprehensive income, net of taxes, is provided below:
                                 
    Three Months Ended     Six Months Ended  
    July 2,     July 3,     July 2,     July 3,  
(In millions)   2011     2010     2011     2010  
 
Net income
  $ 90     $ 82     $ 119     $ 74  
Other comprehensive income (loss):
                               
Recognition of prior service cost and unrealized losses on pension and postretirement benefits
    15       10       33       20  
Deferred gains on hedge contracts
    2             8       7  
Foreign currency translation and other
    3       (32 )     15       (41 )
 
Comprehensive income
  $ 110     $ 60     $ 175     $ 60  
 
Earnings per Share
Earnings Per Share
Note 5: Earnings Per Share
We calculate basic and diluted earnings per share (EPS) based on net income, which approximates income available to common shareholders for each period. Basic earnings per share is calculated using the two-class method, which includes the weighted-average number of common shares outstanding during the period and restricted stock units to be paid in stock that are deemed participating securities as they provide nonforfeitable rights to dividends. Diluted earnings per share considers the dilutive effect of all potential future common stock, including stock options, restricted stock units and the shares that could be issued upon the conversion of our convertible notes and upon the exercise of the related warrants. The convertible note call options purchased in connection with the issuance of the convertible notes are excluded from the calculation of diluted EPS as their impact is always anti-dilutive.
Upon conversion of our convertible notes, as described in Note 8, the principal amount would be settled in cash and the excess of the conversion value, as defined, over the principal amount may be settled in cash and/or shares of our common stock. Therefore, only the shares of our common stock potentially issuable with respect to the excess of the notes’ conversion value over the principal amount, if any, are considered as dilutive potential common shares for purposes of calculating diluted EPS.
The weighted-average shares outstanding for basic and diluted earnings per share are as follows:
                                 
    Three Months Ended     Six Months Ended  
    July 2,     July 3,     July 2,     July 3,  
(In thousands)   2011     2010     2011     2010  
 
Basic weighted-average shares outstanding
    277,406       274,098       276,882       273,636  
Dilutive effect of convertible notes, warrants, stock options and restricted stock units
    37,802       28,299       40,379       28,133  
 
Diluted weighted-average shares outstanding
    315,208       302,397       317,261       301,769  
 
Stock options to purchase 3 million shares of common stock outstanding are excluded from our calculation of diluted weighted-average shares outstanding for both the three- and six-month periods ended July 2, 2011 as the exercise prices were greater than the average market price of our common stock for the periods. Stock options to purchase 6 million shares of common stock outstanding are excluded from our calculation of diluted weighted-average shares outstanding for both the three- and six-month periods ended July 3, 2010 as the exercise prices were greater than the average market price of our common stock for the periods. These securities could potentially dilute earnings per share in the future.
Accounts Receivable and Finance Receivables
Accounts Receivable and Finance Receivables
Note 6: Accounts Receivable and Finance Receivables
Accounts Receivable
Accounts receivable is composed of the following:
                 
    July 2,     January 1,  
(In millions)   2011     2011  
 
Commercial
  $ 572     $ 496  
U.S. Government contracts
    320       416  
 
 
    892       912  
Allowance for doubtful accounts
    (18 )     (20 )
 
 
  $ 874     $ 892  
 
We have unbillable receivables 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 $165 million at July 2, 2011 and $195 million at January 1, 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:
                                 
(Dollars in millions)   July 2, 2011     January 1, 2011  
 
Aviation
  $ 1,985       52 %   $ 2,120       46 %
Golf equipment
    167       4       212       5  
Golf mortgage
    746       20       876       19  
Timeshare
    543       14       894       19  
Structured capital
    281       7       317       7  
Other liquidating
    102       3       207       4  
 
Total finance receivables
    3,824       100 %     4,626       100 %
Less: Allowance for losses
    299               342          
Less: Finance receivables held for sale
    180               413          
 
Total finance receivables held for investment, net
  $ 3,345             $ 3,871          
 
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 collateral value, the liquidity position of individual borrowers and guarantors, debt service coverage in the golf mortgage product line and default rates of our notes receivable collateral in the timeshare product line. 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 is doubtful. In addition, we automatically classify accounts as nonaccrual 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.
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 internally assigned credit quality indicators discussed above is as follows:
                                                                 
    July 2, 2011     January 1, 2011  
(In millions)   Performing     Watchlist     Nonaccrual     Total     Performing     Watchlist     Nonaccrual     Total  
 
Aviation
  $ 1,640     $ 203     $ 142     $ 1,985     $ 1,713     $ 238     $ 169     $ 2,120  
Golf equipment
    110       42       15       167       138       51       23       212  
Golf mortgage
    192       201       226       619       163       303       219       685  
Timeshare
    206       27       277       510       222       77       382       681  
Structured capital
    255       26             281       290       27             317  
Other liquidating
    44       2       36       82       130       11       57       198  
 
Total
  $ 2,447     $ 501     $ 696     $ 3,644     $ 2,656     $ 707     $ 850     $ 4,213  
 
% of Total
    67.2 %     13.7 %     19.1 %             63.0 %     16.8 %     20.2 %        
 
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 tables below:
                                         
    Less Than                     Greater Than        
    31 Days     31-60 Days     61-90 Days     90 Days        
(In millions)   Past Due     Past Due     Past Due     Past Due     Total  
 
July 2, 2011
                                       
Aviation
  $ 1,842     $ 44     $ 38     $ 61     $ 1,985  
Golf equipment
    144       11       3       9       167  
Golf mortgage
    522       12             85       619  
Timeshare
    425                   85       510  
Structured capital
    281                         281  
Other liquidating
    59       2       1       20       82  
 
Total
  $ 3,273     $ 69     $ 42     $ 260     $ 3,644  
 
January 1, 2011
                                       
Aviation
  $ 1,964     $ 67     $ 41     $ 48     $ 2,120  
Golf equipment
    171       13       9       19       212  
Golf mortgage
    543       12       7       123       685  
Timeshare
    533       14       6       128       681  
Structured capital
    317                         317  
Other liquidating
    166       2       1       29       198  
 
Total
  $ 3,694     $ 108     $ 64     $ 347     $ 4,213  
 
At July 2, 2011, accrual status loans that were 90 days past due totaled $7 million. We had no accrual status loans that were 90 days past due at January 1, 2011. At July 2, 2011, the 60+ days contractual delinquency as a percentage of finance receivables held for investment was 8.29%, compared with 9.77% at January 1, 2011.
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 the first half of 2011 or 2010.
The average recorded investment in impaired loans for the first half of 2011 and 2010 is provided below:
                                                 
            Golf     Golf             Other        
(In millions)   Aviation     Equipment     Mortgage     Timeshare     Liquidating     Total  
 
For the six months ended July 2, 2011
                                               
 
Impaired loans with a related allowance for losses recorded
  $ 136     $ 4     $ 193     $ 309     $ 18     $ 660  
Impaired loans with no related allowance for losses recorded
    20             92       48       18       178  
 
Total
  $ 156     $ 4     $ 285     $ 357     $ 36     $ 838  
 
For the six months ended July 3, 2010
                                               
 
Impaired loans with a related allowance for losses recorded
  $ 210     $ 4     $ 183     $ 357     $ 24     $ 778  
Impaired loans with no related allowance for losses recorded
    12       2       116       63       69       262  
 
Total
  $ 222     $ 6     $ 299     $ 420     $ 93     $ 1,040  
 
A summary of impaired finance receivables, excluding leveraged leases, and related allowance for losses is provided below:
                                                 
            Golf     Golf             Other        
(In millions)   Aviation     Equipment     Mortgage     Timeshare     Liquidating     Total  
 
July 2, 2011
                                               
 
Impaired loans with a related allowance for losses recorded:
                                               
Recorded investment
  $ 118     $ 3     $ 198     $ 245     $ 18     $ 582  
Unpaid principal balance
    120       3       208       281       24       636  
Related allowance
    43       1       44       86       9       183  
 
Impaired loans with no related allowance for losses recorded:
                                               
Recorded investment
    22             96       77       10       205  
Unpaid principal balance
    22             102       77       51       252  
 
Total impaired loans:
                                               
Recorded investment
    140       3       294       322       28       787  
Unpaid principal balance
    142       3       310       358       75       888  
Related allowance
    43       1       44       86       9       183  
 
January 1, 2011
                                               
 
Impaired loans with a related allowance for losses recorded:
                                               
Recorded investment
  $ 147     $ 4     $ 175     $ 355     $ 16     $ 697  
Unpaid principal balance
    144       5       178       385       15       727  
Related allowance
    45       2       39       102       3       191  
 
Impaired loans with no related allowance for losses recorded:
                                               
Recorded investment
    17             138       69       30       254  
Unpaid principal balance
    21             146       74       89       330  
 
Total impaired loans:
                                               
Recorded investment
    164       4       313       424       46       951  
Unpaid principal balance
    165       5       324       459       104       1,057  
Related allowance
    45       2       39       102       3       191  
 
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 and analysis by product line. 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, 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 using the probability-weighted approach.
The evaluation of our portfolios is inherently subjective as it requires estimates. These estimates include the amount and timing of future cash flows expected to be received on impaired finance receivables and the underlying collateral, which may differ from actual results. While our analysis is specific to each individual account, the most critical factors included in this analysis vary by product line. For the aviation product line, these factors include industry valuation guides, physical condition of the aircraft, payment history, and existence and financial strength of guarantors. For the golf equipment line, the critical factors are the age and condition of the collateral, while the factors for the golf mortgage line include historical golf course, hotel or marina cash flow performance; estimates of golf rounds and price per round or occupancy and room rates; market discount and capitalization rates; and existence and financial strength of guarantors. For the timeshare product line, the critical factors are the historical performance of consumer notes receivable collateral, real estate valuations, operating expenses of the borrower, the impact of bankruptcy court rulings on the value of the collateral, legal and other professional expenses and borrower’s access to capital.
We also establish an allowance for losses by product line to cover probable but specifically unknown losses existing in the portfolio. For homogeneous portfolios, including the aviation and golf equipment product lines, 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. For non-homogeneous portfolios, including the golf mortgage and timeshare product lines, the allowance is established as a percentage of watchlist balances, as defined on page 10, which represents a combination of assumed default likelihood and loss severity based on historical experience, industry trends and collateral values. In establishing our allowance for losses to cover accounts not specifically identified, the most critical factors for the aviation product line include the collateral value of the portfolio, historical default experience and delinquency trends; for golf equipment, factors considered include historical loss experience and delinquency trends; and for golf mortgage, factors include an evaluation of individual loan credit quality indicators such as delinquency, loan balance to collateral value, debt service coverage, existence and financial strength of guarantors, historical progression from watchlist to nonaccrual status and historical loss severity. For the timeshare product line, we evaluate individual loan credit quality indicators such as borrowing base shortfalls for revolving notes receivable facilities, default rates of our notes receivable collateral, borrower’s access to capital, historical progression from watchlist to nonaccrual status and estimates of loss severity based on analysis of impaired loans in the product line.
Finance receivables held for investment are written down to the fair value (less estimated costs to sell) of the related collateral at the earlier of the date when the collateral is repossessed or when no payment has been received for six months unless management deems the receivable collectable. Finance receivables are charged off when the remaining balance is deemed to be uncollectible.
A rollforward of the allowance for losses on finance receivables held for investment and a summary of its composition, based on how the underlying finance receivables are evaluated for impairment, is presented below. The finance receivables reported in the following table specifically exclude $281 million of leveraged leases at both July 2, 2011 and July 3, 2010, in accordance with authoritative accounting standards:
                                                 
                                    Structured        
                                    Capital and        
            Golf     Golf             Other        
(In millions)   Aviation     Equipment     Mortgage     Timeshare     Liquidating     Total  
 
For the six months ended July 2, 2011
                                               
 
Allowance for losses
                                               
Beginning balance
  $ 107     $ 16     $ 79     $ 106     $ 34     $ 342  
Provision for losses
    16       (2 )     (1 )     10       1       24  
Net charge-offs and transfers
    (17 )     (3 )     (4 )     (28 )     (15 )     (67 )
 
Ending balance
  $ 106     $ 11     $ 74     $ 88     $ 20     $ 299  
 
Ending balance based on individual evaluations
    43       1       44       86       9       183  
Ending balance based on collective evaluation
    63       10       30       2       11       116  
 
Finance receivables
                                               
Individually evaluated for impairment
  $ 140     $ 3     $ 294     $ 322     $ 28     $ 787  
Collectively evaluated for impairment
    1,845       164       325       188       54       2,576  
 
Balance at end of period
  $ 1,985     $ 167     $ 619     $ 510     $ 82     $ 3,363  
 
 
                                               
For the six months ended July 3, 2010
                                               
 
Allowance for losses
                                               
Beginning balance
  $ 114     $ 9     $ 65     $ 79     $ 74     $ 341  
Provision for losses
    16       7       51       32       (7 )     99  
Net charge-offs
    (30 )     (3 )     (41 )     (1 )     (13 )     (88 )
 
Ending balance
  $ 100     $ 13     $ 75     $ 110     $ 54     $ 352  
 
Ending balance based on individual evaluations
    39       1       40       99       2       181  
Ending balance based on collective evaluation
    61       12       35       11       52       171  
 
Finance receivables
                                               
Individually evaluated for impairment
  $ 163     $ 7     $ 304     $ 448     $ 85     $ 1,007  
Collectively evaluated for impairment
    2,081       227       484       634       363       3,789  
 
Balance at end of period
  $ 2,244     $ 234     $ 788     $ 1,082     $ 448     $ 4,796  
 
Inventories
Inventories
Note 7: Inventories
                 
    July 2,     January 1,  
(In millions)   2011     2011  
 
Finished goods
  $ 989     $ 784  
Work in process
    2,309       2,125  
Raw materials
    418       506  
 
 
    3,716       3,415  
Progress/milestone payments
    (1,154 )     (1,138 )
 
 
  $ 2,562     $ 2,277  
 
Debt
Debt
Note 8: Debt
On May 5, 2009, we issued $600 million of convertible notes with a maturity date of May 1, 2013 and concurrently purchased call options to acquire our common stock and sold warrants to purchase our common stock for the purpose of reducing the potential dilutive effect to our shareholders and/or our cash outflow upon the conversion of the convertible notes. For more information on these transactions, see Note 8 to the Consolidated Financial Statements in Textron’s 2010 Annual Report on Form 10-K. For at least 20 trading days during the 30 consecutive trading days ended June 30, 2011, our common stock price exceeded the $17.06 per share conversion threshold price set forth for these convertible notes. Accordingly, the notes are convertible at the holder’s option through September 30, 2011. We may deliver shares of common stock, cash or a combination of cash and shares of common stock in satisfaction of our obligations upon conversion of the convertible notes. We intend to settle the face value of the convertible notes in cash. Based on a July 2, 2011 stock price of $23.94, the “if converted value” exceeds the face amount of the notes by $494 million; however, after giving effect to the exercise of the call options and warrants, the incremental cash or share settlement in excess of the face amount would result in either a 15.6 million net share issuance or a cash payment of $374 million, or a combination of cash and stock, at our option. We have continued to classify these convertible notes as long-term based on our intent and ability to maintain the debt outstanding for at least one year through the use of various funding sources available to us.
Accrued Liabilities
Accrued Liabilities
Note 9: Accrued Liabilities
We provide limited warranty and product maintenance programs, including parts and labor, for certain products for periods ranging from one to five years. Changes in our warranty and product maintenance liabilities are as follows:
                 
    Six Months Ended  
 
    July 2,     July 3,  
(In millions)   2011     2010  
 
Accrual at the beginning of period
  $ 242     $ 263  
Provision
    111       83  
Settlements
    (116 )     (113 )
Adjustments to prior accrual estimates
    (7 )      
 
Accrual at the end of period
  $ 230     $ 233  
 
Commitments and Contingencies
Commitments and Contingencies
Note 10: Commitments and Contingencies
We are subject to legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims relating to 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.
Derivative Instruments and Fair Value Measurements
Derivative Instruments and Fair Value Measurements
Note 11. 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, and 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)  
 
            July 2,     January 1,  
(In millions)   Borrowing Group   Balance Sheet Location   2011     2011  
 
Assets
                       
Interest rate exchange contracts*
  Finance   Other assets   $ 29     $ 34  
Foreign currency exchange contracts
  Manufacturing   Other current assets     42       39  
 
Total
          $ 71     $ 73  
 
Liabilities
                       
Interest rate exchange contracts*
  Finance   Other liabilities   $ (5 )   $ (6 )
Foreign currency exchange contracts
  Manufacturing   Accrued liabilities     (9 )     (2 )
 
Total
          $ (14 )   $ (8 )
 
*   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 July 2, 2011. At July 2, 2011 and January 1, 2011, we had interest rate exchange contracts with notional amounts of $0.9 billion and $1.1 billion, 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 July 2, 2011 and January 1, 2011, we had foreign currency exchange contracts with notional amounts of $713 million and $635 million, respectively.
The Finance group also has investments in other marketable securities totaling $23 million and $51 million at July 2, 2011 and January 1, 2011, respectively, that are classified as available for sale. These investments are classified as Level 2 as the fair value for these notes was determined based on observable market inputs for similar securitization interests in markets that are relatively inactive compared with the market environment in which they were originally issued and based on bids received from prospective purchasers.
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 the first half of 2011 and 2010.
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 July 2, 2011, we had a net deferred gain of $28 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 the three- and six-month periods ended July 2, 2011 and July 3, 2010. 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 OCI, produced a $27 million after-tax gain in the first half of 2011, resulting in an accumulated net gain balance of $41 million at July 2, 2011. The ineffective portion of these hedges was insignificant.
Assets Recorded at Fair Value on a Nonrecurring Basis
The table below presents those assets that are measured at fair value on a nonrecurring basis that had fair value measurement adjustments during the first half of 2011 and 2010. These assets were measured using significant unobservable inputs (Level 3) and include the following:
                                 
                    Gain (Loss)  
    Balance at     Six Months Ended  
 
    July 2,     July 3,     July 2,     July 3,  
(In millions)   2011     2010     2011     2010  
 
Finance group
                               
Impaired finance receivables
  $ 407     $ 519     $ (50 )   $ (104 )
Finance receivables held for sale
    180       421       (14 )     (15 )
Other assets
    91       87       (18 )     (26 )
 
Impaired Finance Receivables — Impaired nonaccrual finance receivables are included in the table above since the measurement of required reserves on our impaired finance receivables is significantly dependent on the fair value of the underlying collateral. Fair values of collateral are determined based on the use of appraisals, industry pricing guides, input from market participants, our recent experience selling similar assets or internally developed discounted cash flow models. Fair value measurements recorded on impaired finance receivables resulted in charges to provision for loan losses and primarily were related to initial fair value adjustments.
Finance Receivables Held for Sale — Finance receivables held for sale are recorded at the lower of cost or fair value. As a result of our plan to exit the non-captive Finance business certain finance receivables are classified as held for sale. At July 2, 2011, the finance receivables held for sale are primarily assets in the golf mortgage, other liquidating and timeshare product lines. Timeshare and other liquidating finance receivables classified as held for sale were identified at the individual loan level; whereas golf course mortgages were identified as a portion of a larger portfolio with common characteristics based on the intention to balance the sale of certain loans with the collection of others to maximize economic value. These finance receivables 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 our finance receivables. The estimate of fair value was determined based on the use of discounted cash flow models to estimate the exit price we expect to receive in the principal market for each type of loan in an orderly transaction, which includes both the sale of pools of similar assets and the sale of individual loans. The models we used incorporate 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 credit line utilization rates. Where available, assumptions related to the expectations of current market participants are compared with observable market inputs, including bids from prospective purchasers of similar loans and certain bond market indices for loans perceived to be of similar credit quality. Although we utilize and prioritize these market observable inputs in our discounted cash flow models, these inputs are not typically derived from markets with directly comparable loan structures, industries and collateral types. Therefore, all valuations of finance receivables held for sale involve significant management judgment, which can result in differences between our fair value estimates and those of other market participants.
Other assets — Other assets include repossessed assets and properties, operating assets received in satisfaction of troubled finance receivables and other investments, which are accounted for under the equity method of accounting and have no active, quoted market prices. The fair value of these assets is determined based on the use of appraisals, industry pricing guides, input from market participants, our recent experience selling similar assets or internally developed discounted cash flow models. For our other investments, the discounted cash flow models incorporate assumptions specific to the nature of the investments’ business and underlying assets and include industry valuation benchmarks such as discount rates, capitalization rates and cash flow multiples.
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:
                                 
    July 2, 2011     January 1, 2011  
 
    Carrying     Estimated     Carrying     Estimated  
(In millions)   Value     Fair Value     Value     Fair Value  
 
Manufacturing group
                               
Long-term debt, excluding leases
  $ (2,219 )   $ (2,776 )   $ (2,172 )   $ (2,698 )
Finance group
                               
Finance receivables held for investment, excluding leases
    2,878       2,639       3,345       3,131  
Debt
    (2,499 )     (2,442 )     (3,660 )     (3,528 )
 
Fair value for the Manufacturing group debt is determined using market observable data for similar transactions. At July 2, 2011 and January 1, 2011, approximately 44% and 33%, respectively, of the fair value of term debt for the Finance group was determined based on observable market transactions. 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. We utilize the same valuation methodologies to determine the fair value estimates for finance receivables held for investment as used for finance receivables held for sale.
Income Tax Expense
Income Tax Expense
Note 12: Income Tax Expense
For both the three and six months ended July 2, 2011, income tax expense equated to an effective income tax rate (provision on income from continuing operations) of 32%, compared to the Federal statutory income tax rate of 35%.
For the three and six months ended July 3, 2010, income tax expense equated to an effective income tax rate of 18% and 30%, compared to the Federal statutory income tax rate of 35%. In the second quarter of 2010, the rate was significantly lower than the statutory rate primarily due to $10 million in benefits related to changes in the functional currency of two Canadian subsidiaries as a result of the termination of the qualified business status for one subsidiary and a Quebec legislative change for another subsidiary. For the first half of 2010, the effective tax rate included the write-off of an $11 million deferred tax asset related to a change in the tax treatment of the Medicare Part D program related to U.S. health-care legislation enacted in the first quarter of 2010, partially offset by $10 million in benefits related to changes in the functional currency of two Canadian subsidiaries noted above.
Segment Information
Segment Information
Note 13: Segment Information
We operate in, and report financial information for, the following five business segments: Cessna, Bell, Textron Systems, Industrial and Finance. 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 and a reconciliation of segment profit to income from continuing operations before income taxes are as follows:
                                 
    Three Months Ended     Six Months Ended  
 
    July 2,     July 3,     July 2,     July 3,  
(In millions)   2011     2010     2011     2010  
 
REVENUES
                               
Manufacturing Group
                               
Cessna
  $ 652     $ 635     $ 1,208     $ 1,068  
Bell
    872       823       1,621       1,441  
Textron Systems
    452       534       897       992  
Industrial
    719       661       1,422       1,286  
 
 
    2,695       2,653       5,148       4,787  
Finance Group
    33       56       59       132  
 
Total revenues
  $ 2,728     $ 2,709     $ 5,207     $ 4,919  
 
SEGMENT OPERATING PROFIT
                               
Manufacturing Group
                               
Cessna
  $ 5     $ 3     $ (33 )   $ (21 )
Bell
    120       108       211       182  
Textron Systems
    49       70       102       125  
Industrial
    55       51       116       100  
 
 
    229       232       396       386  
Finance Group
    (33 )     (71 )     (77 )     (129 )
 
Segment profit
    196       161       319       257  
Corporate expenses and other, net
    (23 )     (17 )     (62 )     (54 )
Interest expense, net for Manufacturing group
    (38 )     (35 )     (76 )     (71 )
Special charges
          (10 )           (22 )
 
Income from continuing operations before income taxes
  $ 135     $ 99     $ 181     $ 110  
 
Accounting Policies (Policies)
We calculate basic and diluted earnings per share (EPS) based on net income, which approximates income available to common shareholders for each period. Basic earnings per share is calculated using the two-class method, which includes the weighted-average number of common shares outstanding during the period and restricted stock units to be paid in stock that are deemed participating securities as they provide nonforfeitable rights to dividends. Diluted earnings per share considers the dilutive effect of all potential future common stock, including stock options, restricted stock units and the shares that could be issued upon the conversion of our convertible notes and upon the exercise of the related warrants. The convertible note call options purchased in connection with the issuance of the convertible notes are excluded from the calculation of diluted EPS as their impact is always anti-dilutive.
Upon conversion of our convertible notes, as described in Note 8, the principal amount would be settled in cash and the excess of the conversion value, as defined, over the principal amount may be settled in cash and/or shares of our common stock. Therefore, only the shares of our common stock potentially issuable with respect to the excess of the notes’ conversion value over the principal amount, if any, are considered as dilutive potential common shares for purposes of calculating diluted EPS.
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 collateral value, the liquidity position of individual borrowers and guarantors, debt service coverage in the golf mortgage product line and default rates of our notes receivable collateral in the timeshare product line. 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 is doubtful. In addition, we automatically classify accounts as nonaccrual 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.
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.
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 the first half of 2011 or 2010.
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 and analysis by product line. 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, 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 using the probability-weighted approach.
The evaluation of our portfolios is inherently subjective as it requires estimates. These estimates include the amount and timing of future cash flows expected to be received on impaired finance receivables and the underlying collateral, which may differ from actual results. While our analysis is specific to each individual account, the most critical factors included in this analysis vary by product line. For the aviation product line, these factors include industry valuation guides, physical condition of the aircraft, payment history, and existence and financial strength of guarantors. For the golf equipment line, the critical factors are the age and condition of the collateral, while the factors for the golf mortgage line include historical golf course, hotel or marina cash flow performance; estimates of golf rounds and price per round or occupancy and room rates; market discount and capitalization rates; and existence and financial strength of guarantors. For the timeshare product line, the critical factors are the historical performance of consumer notes receivable collateral, real estate valuations, operating expenses of the borrower, the impact of bankruptcy court rulings on the value of the collateral, legal and other professional expenses and borrower’s access to capital.
We also establish an allowance for losses by product line to cover probable but specifically unknown losses existing in the portfolio. For homogeneous portfolios, including the aviation and golf equipment product lines, 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. For non-homogeneous portfolios, including the golf mortgage and timeshare product lines, the allowance is established as a percentage of watchlist balances, as defined on page 10, which represents a combination of assumed default likelihood and loss severity based on historical experience, industry trends and collateral values. In establishing our allowance for losses to cover accounts not specifically identified, the most critical factors for the aviation product line include the collateral value of the portfolio, historical default experience and delinquency trends; for golf equipment, factors considered include historical loss experience and delinquency trends; and for golf mortgage, factors include an evaluation of individual loan credit quality indicators such as delinquency, loan balance to collateral value, debt service coverage, existence and financial strength of guarantors, historical progression from watchlist to nonaccrual status and historical loss severity. For the timeshare product line, we evaluate individual loan credit quality indicators such as borrowing base shortfalls for revolving notes receivable facilities, default rates of our notes receivable collateral, borrower’s access to capital, historical progression from watchlist to nonaccrual status and estimates of loss severity based on analysis of impaired loans in the product line.
Finance receivables held for investment are written down to the fair value (less estimated costs to sell) of the related collateral at the earlier of the date when the collateral is repossessed or when no payment has been received for six months unless management deems the receivable collectable. Finance receivables are charged off when the remaining balance is deemed to be uncollectible.
Special Charges (Tables)
                         
    Severance     Contract        
(In millions)   Costs     Terminations     Total  
 
Three Months Ended July 3, 2010
                       
 
Cessna
  $ 6     $     $ 6  
Textron Systems
    1             1  
Finance
    2       1       3  
 
 
  $ 9     $ 1     $ 10  
 
Six Months Ended July 3, 2010
                       
 
Cessna
  $ 14     $ 2     $ 16  
Bell
    1             1  
Textron Systems
    1             1  
Finance
    5       1       6  
Corporate
    (2 )           (2 )
 
 
  $ 19     $ 3     $ 22  
 
                         
    Severance     Contract        
(In millions)   Costs     Terminations     Total  
 
Balance at January 1, 2011
  $ 57     $ 5     $ 62  
Cash paid
    (33 )     (1 )     (34 )
 
Balance at July 2, 2011
  $ 24     $ 4     $ 28  
 
Retirement Plans (Tables)
Schedule Of Costs Of Retirement Plans
                                 
                    Postretirement Benefits  
    Pension Benefits     Other Than Pensions  
 
    July 2,     July 3,     July 2,     July 3,  
(In millions)   2011     2010     2011     2010  
 
Three Months Ended
                               
 
Service cost
  $ 32     $ 31     $ 2     $ 2  
Interest cost
    82       79       8       8  
Expected return on plan assets
    (98 )     (92 )            
Amortization of prior service cost (credit)
    4       4       (2 )     (1 )
Amortization of net loss
    19       9       3       3  
 
Net periodic benefit cost
  $ 39     $ 31     $ 11     $ 12  
 
Six Months Ended
                               
 
Service cost
  $ 64     $ 62     $ 4     $ 4  
Interest cost
    164       158       16       16  
Expected return on plan assets
    (196 )     (184 )            
Amortization of prior service cost (credit)
    8       8       (3 )     (2 )
Amortization of net loss
    38       18       6       6  
 
Net periodic benefit cost
  $ 78     $ 62     $ 23     $ 24  
 
Comprehensive Income (Tables)
Schedule of Comprehensive Income (Loss)
                                 
    Three Months Ended     Six Months Ended  
    July 2,     July 3,     July 2,     July 3,  
(In millions)   2011     2010     2011     2010  
 
Net income
  $ 90     $ 82     $ 119     $ 74  
Other comprehensive income (loss):
                               
Recognition of prior service cost and unrealized losses on pension and postretirement benefits
    15       10       33       20  
Deferred gains on hedge contracts
    2             8       7  
Foreign currency translation and other
    3       (32 )     15       (41 )
 
Comprehensive income
  $ 110     $ 60     $ 175     $ 60  
 
Earnings per Share (Tables)
Weighted-average shares outstanding for basic & Diluted earnings per share
                                 
    Three Months Ended     Six Months Ended  
    July 2,     July 3,     July 2,     July 3,  
(In thousands)   2011     2010     2011     2010  
 
Basic weighted-average shares outstanding
    277,406       274,098       276,882       273,636  
Dilutive effect of convertible notes, warrants, stock options and restricted stock units
    37,802       28,299       40,379       28,133  
 
Diluted weighted-average shares outstanding
    315,208       302,397       317,261       301,769  
 
Accounts Receivable and Finance Receivables (Tables)
                 
    July 2,     January 1,  
(In millions)   2011     2011  
 
Commercial
  $ 572     $ 496  
U.S. Government contracts
    320       416  
 
 
    892       912  
Allowance for doubtful accounts
    (18 )     (20 )
 
 
  $ 874     $ 892  
 
                                 
(Dollars in millions)   July 2, 2011     January 1, 2011  
 
Aviation
  $ 1,985       52 %   $ 2,120       46 %
Golf equipment
    167       4       212       5  
Golf mortgage
    746       20       876       19  
Timeshare
    543       14       894       19  
Structured capital
    281       7       317       7  
Other liquidating
    102       3       207       4  
 
Total finance receivables
    3,824       100 %     4,626       100 %
Less: Allowance for losses
    299               342          
Less: Finance receivables held for sale
    180               413          
 
Total finance receivables held for investment, net
  $ 3,345             $ 3,871          
 
                                                                 
    July 2, 2011     January 1, 2011  
(In millions)   Performing     Watchlist     Nonaccrual     Total     Performing     Watchlist     Nonaccrual     Total  
 
Aviation
  $ 1,640     $ 203     $ 142     $ 1,985     $ 1,713     $ 238     $ 169     $ 2,120  
Golf equipment
    110       42       15       167       138       51       23       212  
Golf mortgage
    192       201       226       619       163       303       219       685  
Timeshare
    206       27       277       510       222       77       382       681  
Structured capital
    255       26             281       290       27             317  
Other liquidating
    44       2       36       82       130       11       57       198  
 
Total
  $ 2,447     $ 501     $ 696     $ 3,644     $ 2,656     $ 707     $ 850     $ 4,213  
 
% of Total
    67.2 %     13.7 %     19.1 %             63.0 %     16.8 %     20.2 %        
 
                                         
    Less Than                     Greater Than        
    31 Days     31-60 Days     61-90 Days     90 Days        
(In millions)   Past Due     Past Due     Past Due     Past Due     Total  
 
July 2, 2011
                                       
Aviation
  $ 1,842     $ 44     $ 38     $ 61     $ 1,985  
Golf equipment
    144       11       3       9       167  
Golf mortgage
    522       12             85       619  
Timeshare
    425                   85       510  
Structured capital
    281                         281  
Other liquidating
    59       2       1       20       82  
 
Total
  $ 3,273     $ 69     $ 42     $ 260     $ 3,644  
 
January 1, 2011
                                       
Aviation
  $ 1,964     $ 67     $ 41     $ 48     $ 2,120  
Golf equipment
    171       13       9       19       212  
Golf mortgage
    543       12       7       123       685  
Timeshare
    533       14       6       128       681  
Structured capital
    317                         317  
Other liquidating
    166       2       1       29       198  
 
Total
  $ 3,694     $ 108     $ 64     $ 347     $ 4,213  
 
                                                 
            Golf     Golf             Other        
(In millions)   Aviation     Equipment     Mortgage     Timeshare     Liquidating     Total  
 
For the six months ended July 2, 2011
                                               
 
Impaired loans with a related allowance for losses recorded
  $ 136     $ 4     $ 193     $ 309     $ 18     $ 660  
Impaired loans with no related allowance for losses recorded
    20             92       48       18       178  
 
Total
  $ 156     $ 4     $ 285     $ 357     $ 36     $ 838  
 
For the six months ended July 3, 2010
                                               
 
Impaired loans with a related allowance for losses recorded
  $ 210     $ 4     $ 183     $ 357     $ 24     $ 778  
Impaired loans with no related allowance for losses recorded
    12       2       116       63       69       262  
 
Total
  $ 222     $ 6     $ 299     $ 420     $ 93     $ 1,040  
 
                                                 
            Golf     Golf             Other        
(In millions)   Aviation     Equipment     Mortgage     Timeshare     Liquidating     Total  
 
July 2, 2011
                                               
 
Impaired loans with a related allowance for losses recorded:
                                               
Recorded investment
  $ 118     $ 3     $ 198     $ 245     $ 18     $ 582  
Unpaid principal balance
    120       3       208       281       24       636  
Related allowance
    43       1       44       86       9       183  
 
Impaired loans with no related allowance for losses recorded:
                                               
Recorded investment
    22             96       77       10       205  
Unpaid principal balance
    22             102       77       51       252  
 
Total impaired loans:
                                               
Recorded investment
    140       3       294       322       28       787  
Unpaid principal balance
    142       3       310       358       75       888  
Related allowance
    43       1       44       86       9       183  
 
January 1, 2011
                                               
 
Impaired loans with a related allowance for losses recorded:
                                               
Recorded investment
  $ 147     $ 4     $ 175     $ 355     $ 16     $ 697  
Unpaid principal balance
    144       5       178       385       15       727  
Related allowance
    45       2       39       102       3       191  
 
Impaired loans with no related allowance for losses recorded:
                                               
Recorded investment
    17             138       69       30       254  
Unpaid principal balance
    21             146       74       89       330  
 
Total impaired loans:
                                               
Recorded investment
    164       4       313       424       46       951  
Unpaid principal balance
    165       5       324       459       104       1,057  
Related allowance
    45       2       39       102       3       191  
 
                                                 
                                    Structured        
                                    Capital and        
            Golf     Golf             Other        
(In millions)   Aviation     Equipment     Mortgage     Timeshare     Liquidating     Total  
 
For the six months ended July 2, 2011
                                               
 
Allowance for losses
                                               
Beginning balance
  $ 107     $ 16     $ 79     $ 106     $ 34     $ 342  
Provision for losses
    16       (2 )     (1 )     10       1       24  
Net charge-offs and transfers
    (17 )     (3 )     (4 )     (28 )     (15 )     (67 )
 
Ending balance
  $ 106     $ 11     $ 74     $ 88     $ 20     $ 299  
 
Ending balance based on individual evaluations
    43       1       44       86       9       183  
Ending balance based on collective evaluation
    63       10       30       2       11       116  
 
Finance receivables
                                               
Individually evaluated for impairment
  $ 140     $ 3     $ 294     $ 322     $ 28     $ 787  
Collectively evaluated for impairment
    1,845       164       325       188       54       2,576  
 
Balance at end of period
  $ 1,985     $ 167     $ 619     $ 510     $ 82     $ 3,363  
 
 
                                               
For the six months ended July 3, 2010
                                               
 
Allowance for losses
                                               
Beginning balance
  $ 114     $ 9     $ 65     $ 79     $ 74     $ 341  
Provision for losses
    16       7       51       32       (7 )     99  
Net charge-offs
    (30 )     (3 )     (41 )     (1 )     (13 )     (88 )
 
Ending balance
  $ 100     $ 13     $ 75     $ 110     $ 54     $ 352  
 
Ending balance based on individual evaluations
    39       1       40       99       2       181  
Ending balance based on collective evaluation
    61       12       35       11       52       171  
 
Finance receivables
                                               
Individually evaluated for impairment
  $ 163     $ 7     $ 304     $ 448     $ 85     $ 1,007  
Collectively evaluated for impairment
    2,081       227       484       634       363       3,789  
 
Balance at end of period
  $ 2,244     $ 234     $ 788     $ 1,082     $ 448     $ 4,796  
 
Inventories (Tables)
Inventories
                 
    July 2,     January 1,  
(In millions)   2011     2011  
 
Finished goods
  $ 989     $ 784  
Work in process
    2,309       2,125  
Raw materials
    418       506  
 
 
    3,716       3,415  
Progress/milestone payments
    (1,154 )     (1,138 )
 
 
  $ 2,562     $ 2,277  
 
Accrued Liabilities (Tables)
Accruals
                 
    Six Months Ended  
 
    July 2,     July 3,  
(In millions)   2011     2010  
 
Accrual at the beginning of period
  $ 242     $ 263  
Provision
    111       83  
Settlements
    (116 )     (113 )
Adjustments to prior accrual estimates
    (7 )      
 
Accrual at the end of period
  $ 230     $ 233  
 
Derivative Instruments and Fair Value Measurements (Tables)
                         
            Asset (Liability)  
 
            July 2,     January 1,  
(In millions)   Borrowing Group   Balance Sheet Location   2011     2011  
 
Assets
                       
Interest rate exchange contracts*
  Finance   Other assets   $ 29     $ 34  
Foreign currency exchange contracts
  Manufacturing   Other current assets     42       39  
 
Total
          $ 71     $ 73  
 
Liabilities
                       
Interest rate exchange contracts*
  Finance   Other liabilities   $ (5 )   $ (6 )
Foreign currency exchange contracts
  Manufacturing   Accrued liabilities     (9 )     (2 )
 
Total
          $ (14 )   $ (8 )
 
                                 
                    Gain (Loss)  
    Balance at     Six Months Ended  
 
    July 2,     July 3,     July 2,     July 3,  
(In millions)   2011     2010     2011     2010  
 
Finance group
                               
Impaired finance receivables
  $ 407     $ 519     $ (50 )   $ (104 )
Finance receivables held for sale
    180       421       (14 )     (15 )
Other assets
    91       87       (18 )     (26 )
 
                                 
    July 2, 2011     January 1, 2011  
 
    Carrying     Estimated     Carrying     Estimated  
(In millions)   Value     Fair Value     Value     Fair Value  
 
Manufacturing group
                               
Long-term debt, excluding leases
  $ (2,219 )   $ (2,776 )   $ (2,172 )   $ (2,698 )
Finance group
                               
Finance receivables held for investment, excluding leases
    2,878       2,639       3,345       3,131  
Debt
    (2,499 )     (2,442 )     (3,660 )     (3,528 )
 
Segment Information (Tables)
Segment information
                                 
    Three Months Ended     Six Months Ended  
 
    July 2,     July 3,     July 2,     July 3,  
(In millions)   2011     2010     2011     2010  
 
REVENUES
                               
Manufacturing Group
                               
Cessna
  $ 652     $ 635     $ 1,208     $ 1,068  
Bell
    872       823       1,621       1,441  
Textron Systems
    452       534       897       992  
Industrial
    719       661       1,422       1,286  
 
 
    2,695       2,653       5,148       4,787  
Finance Group
    33       56       59       132  
 
Total revenues
  $ 2,728     $ 2,709     $ 5,207     $ 4,919  
 
SEGMENT OPERATING PROFIT
                               
Manufacturing Group
                               
Cessna
  $ 5     $ 3     $ (33 )   $ (21 )
Bell
    120       108       211       182  
Textron Systems
    49       70       102       125  
Industrial
    55       51       116       100  
 
 
    229       232       396       386  
Finance Group
    (33 )     (71 )     (77 )     (129 )
 
Segment profit
    196       161       319       257  
Corporate expenses and other, net
    (23 )     (17 )     (62 )     (54 )
Interest expense, net for Manufacturing group
    (38 )     (35 )     (76 )     (71 )
Special charges
          (10 )           (22 )
 
Income from continuing operations before income taxes
  $ 135     $ 99     $ 181     $ 110  
 
Special Charges (Details) (USD $)
In Millions
3 Months Ended
Jul. 3, 2010
6 Months Ended
Jul. 3, 2010
Restructuring cost by segment
 
 
Special charges
$ 10 
$ 22 
Severance Costs [Member]
 
 
Restructuring cost by segment
 
 
Special charges
19 
Severance Costs [Member] |
Cessna [Member]
 
 
Restructuring cost by segment
 
 
Special charges
14 
Severance Costs [Member] |
Bell [Member]
 
 
Restructuring cost by segment
 
 
Special charges
 
Severance Costs [Member] |
Textron Systems [Member]
 
 
Restructuring cost by segment
 
 
Special charges
Severance Costs [Member] |
Finance [ Member]
 
 
Restructuring cost by segment
 
 
Special charges
Severance Costs [Member] |
Corporate [Member]
 
 
Restructuring cost by segment
 
 
Special charges
 
(2)
Contract Terminations [Member]
 
 
Restructuring cost by segment
 
 
Special charges
Contract Terminations [Member] |
Cessna [Member]
 
 
Restructuring cost by segment
 
 
Special charges
 
Contract Terminations [Member] |
Finance [ Member]
 
 
Restructuring cost by segment
 
 
Special charges
Cessna [Member]
 
 
Restructuring cost by segment
 
 
Special charges
16 
Bell [Member]
 
 
Restructuring cost by segment
 
 
Special charges
 
Textron Systems [Member]
 
 
Restructuring cost by segment
 
 
Special charges
Finance [ Member]
 
 
Restructuring cost by segment
 
 
Special charges
Corporate [Member]
 
 
Restructuring cost by segment
 
 
Special charges
 
$ (2)
Special Charges (Details 1) (USD $)
In Millions
6 Months Ended
Jul. 2, 2011
Restructuring reserve
 
Restructuring Reserve, Beginning Balance
$ 62 
Cash paid
(34)
Restructuring Reserve, Ending Balance
28 
Severance Costs [Member]
 
Restructuring reserve
 
Restructuring Reserve, Beginning Balance
57 
Cash paid
(33)
Restructuring Reserve, Ending Balance
24 
Contract Terminations [Member]
 
Restructuring reserve
 
Restructuring Reserve, Beginning Balance
Cash paid
(1)
Restructuring Reserve, Ending Balance
$ 4 
Retirement Plans (Details) (USD $)
In Millions
3 Months Ended
Jul. 2, 2011
3 Months Ended
Jul. 3, 2010
6 Months Ended
Jul. 2, 2011
6 Months Ended
Jul. 3, 2010
Pension Plans Defined Benefit [Member]
 
 
 
 
Defined Benefit Plan Net Periodic Benefit Cost
 
 
 
 
Service cost
$ 32 
$ 31 
$ 64 
$ 62 
Interest cost
82 
79 
164 
158 
Expected return on plan assets
(98)
(92)
(196)
(184)
Amortization of prior service cost (credit)
Amortization of net loss
19 
38 
18 
Net periodic benefit cost
39 
31 
78 
62 
Other Postretirement Benefit Plans Defined Benefit [Member]
 
 
 
 
Defined Benefit Plan Net Periodic Benefit Cost
 
 
 
 
Service cost
Interest cost
16 
16 
Amortization of prior service cost (credit)
(2)
(1)
(3)
(2)
Amortization of net loss
Net periodic benefit cost
$ 11 
$ 12 
$ 23 
$ 24 
Comprehensive Income (Details) (USD $)
In Millions
3 Months Ended
Jul. 2, 2011
3 Months Ended
Jul. 3, 2010
6 Months Ended
Jul. 2, 2011
6 Months Ended
Jul. 3, 2010
Comprehensive Income (Loss), Net of Tax, Attributable to Parent
 
 
 
 
Net income
$ 90 
$ 82 
$ 119 
$ 74 
Other comprehensive income (loss):
 
 
 
 
Recognition of prior service cost and unrealized losses on pension and postretirement benefits
15 
10 
33 
20 
Deferred gains on hedge contracts
 
Foreign currency translation and other
(32)
15 
(41)
Comprehensive income
$ 110 
$ 60 
$ 175 
$ 60 
Earnings per Share (Details)
In Thousands
3 Months Ended
Jul. 2, 2011
3 Months Ended
Jul. 3, 2010
6 Months Ended
Jul. 2, 2011
6 Months Ended
Jul. 3, 2010
Weighted-average shares outstanding for basic & Diluted earnings per share
 
 
 
 
Basic weighted-average shares outstanding
277,406 
274,098 
276,882 
273,636 
Dilutive effect of Convertible Notes, warrants, stock options and restricted stock units
37,802 
28,299 
40,379 
28,133 
Diluted weighted-average shares outstanding
315,208 
302,397 
317,261 
301,769 
Earnings per Share (Details Textual)
In Millions
3 Months Ended
Jul. 2, 2011
3 Months Ended
Jul. 3, 2010
6 Months Ended
Jul. 2, 2011
6 Months Ended
Jul. 3, 2010
Earnings Per Share (Textuals) [Abstract]
 
 
 
 
Shares of Common Stock Outstanding excluded from calculation
Accounts Receivable and Finance Receivables (Details) (USD $)
In Millions
Jul. 2, 2011
Jan. 1, 2011
Accounts Receivable, Net [Abstract]
 
 
Accounts Receivable, Gross
$ 892 
$ 912 
Allowance for doubtful accounts
(18)
(20)
Commercial [Member]
 
 
Accounts Receivable, Net [Abstract]
 
 
Accounts Receivable, Gross
572 
496 
U. S. Government Contracts [Member]
 
 
Accounts Receivable, Net [Abstract]
 
 
Accounts Receivable, Gross
320 
416 
Manufacturing Group [Member]
 
 
Accounts Receivable, Net [Abstract]
 
 
Accounts Receivable, Net
$ 874 
$ 892 
Accounts Receivable and Finance Receivables (Details 1) (USD $)
In Millions, unless otherwise specified
Jul. 2, 2011
Jan. 1, 2011
Jul. 3, 2010
Jan. 2, 2010
Finance Receivables
 
 
 
 
Total finance receivables
$ 3,824 
$ 4,626 
 
 
Finance receivables, percent
100.00% 
100.00% 
 
 
Less: Allowance for losses
299 
342 
(352)
(341)
Less: Finance receivables held for sale
180 
413 
 
 
Aviation [Member]
 
 
 
 
Finance Receivables
 
 
 
 
Total finance receivables
1,985 
2,120 
 
 
Finance receivables, percent
52.00% 
46.00% 
 
 
Golf Equipment [Member]
 
 
 
 
Finance Receivables
 
 
 
 
Total finance receivables
167 
212 
 
 
Finance receivables, percent
4.00% 
5.00% 
 
 
Golf Mortgage [Member]
 
 
 
 
Finance Receivables
 
 
 
 
Total finance receivables
746 
876 
 
 
Finance receivables, percent
20.00% 
19.00% 
 
 
Timeshare [Member]
 
 
 
 
Finance Receivables
 
 
 
 
Total finance receivables
543 
894 
 
 
Finance receivables, percent
14.00% 
19.00% 
 
 
Structured Capital [Member]
 
 
 
 
Finance Receivables
 
 
 
 
Total finance receivables
281 
317 
 
 
Finance receivables, percent
7.00% 
7.00% 
 
 
Other Liquidating [Member]
 
 
 
 
Finance Receivables
 
 
 
 
Total finance receivables
102 
207 
 
 
Finance receivables, percent
3.00% 
4.00% 
 
 
Finance Group [Member]
 
 
 
 
Finance Receivables
 
 
 
 
Less: Finance receivables held for sale
180 
413 
 
 
Total finance receivables held for investment, net
$ 3,345 
$ 3,871 
 
 
Accounts Receivable and Finance Receivables (Details 2) (USD $)
In Millions, unless otherwise specified
Jul. 2, 2011
Jan. 1, 2011
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
$ 3,644 
$ 4,213 
Aviation [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
1,985 
2,120 
Aviation [Member] |
Performing [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
1,640 
1,713 
Aviation [Member] |
Watchlist [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
203 
238 
Aviation [Member] |
Nonaccrual [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
142 
169 
Golf Equipment [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
167 
212 
Golf Equipment [Member] |
Performing [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
110 
138 
Golf Equipment [Member] |
Watchlist [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
42 
51 
Golf Equipment [Member] |
Nonaccrual [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
15 
23 
Golf Mortgage [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
619 
685 
Golf Mortgage [Member] |
Performing [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
192 
163 
Golf Mortgage [Member] |
Watchlist [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
201 
303 
Golf Mortgage [Member] |
Nonaccrual [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
226 
219 
Timeshare [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
510 
681 
Timeshare [Member] |
Performing [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
206 
222 
Timeshare [Member] |
Watchlist [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
27 
77 
Timeshare [Member] |
Nonaccrual [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
277 
382 
Structured Capital [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
281 
317 
Structured Capital [Member] |
Performing [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
255 
290 
Structured Capital [Member] |
Watchlist [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
26 
27 
Other Liquidating [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
82 
198 
Other Liquidating [Member] |
Performing [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
44 
130 
Other Liquidating [Member] |
Watchlist [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
11 
Other Liquidating [Member] |
Nonaccrual [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
36 
57 
Performing [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
2,447 
2,656 
Finance receivables held for investment based on the internally assigned credit quality, percent
67.20% 
63.00% 
Watchlist [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
501 
707 
Finance receivables held for investment based on the internally assigned credit quality, percent
13.70% 
16.80% 
Nonaccrual [Member]
 
 
Finance receivables held for investment based on the internally assigned credit quality
 
 
Total finance receivables held for investment
$ 696 
$ 850 
Finance receivables held for investment based on the internally assigned credit quality, percent
19.10% 
20.20% 
Accounts Receivable and Finance Receivables (Details 3) (USD $)
In Millions
Jul. 2, 2011
Jan. 1, 2011
Finance receivables held for investment by delinquency aging
 
 
Financing receivable held for investment, recorded investment, 0 To 30 days past due
$ 3,273 
$ 3,694 
Financing receivable held for investment, recorded investment, 31 to 60 days past due
69 
108 
Financing receivable held for investment, recorded investment, 61 days to 90 days past due
42 
64 
Financing receivable held for investment, recorded investment, greater than 90 days past due
260 
347 
Total finance receivables held for investment
3,644 
4,213 
Aviation [Member]
 
 
Finance receivables held for investment by delinquency aging
 
 
Financing receivable held for investment, recorded investment, 0 To 30 days past due
1,842 
1,964 
Financing receivable held for investment, recorded investment, 31 to 60 days past due
44 
67 
Financing receivable held for investment, recorded investment, 61 days to 90 days past due
38 
41 
Financing receivable held for investment, recorded investment, greater than 90 days past due
61 
48 
Total finance receivables held for investment
1,985 
2,120 
Golf Equipment [Member]
 
 
Finance receivables held for investment by delinquency aging
 
 
Financing receivable held for investment, recorded investment, 0 To 30 days past due
144 
171 
Financing receivable held for investment, recorded investment, 31 to 60 days past due
11 
13 
Financing receivable held for investment, recorded investment, 61 days to 90 days past due
Financing receivable held for investment, recorded investment, greater than 90 days past due
19 
Total finance receivables held for investment
167 
212 
Golf Mortgage [Member]
 
 
Finance receivables held for investment by delinquency aging
 
 
Financing receivable held for investment, recorded investment, 0 To 30 days past due
522 
543 
Financing receivable held for investment, recorded investment, 31 to 60 days past due
12 
12 
Financing receivable held for investment, recorded investment, 61 days to 90 days past due
 
Financing receivable held for investment, recorded investment, greater than 90 days past due
85 
123 
Total finance receivables held for investment
619 
685 
Timeshare [Member]
 
 
Finance receivables held for investment by delinquency aging
 
 
Financing receivable held for investment, recorded investment, 0 To 30 days past due
425 
533 
Financing receivable held for investment, recorded investment, 31 to 60 days past due
 
14 
Financing receivable held for investment, recorded investment, 61 days to 90 days past due
 
Financing receivable held for investment, recorded investment, greater than 90 days past due
85 
128 
Total finance receivables held for investment
510 
681 
Structured Capital [Member]
 
 
Finance receivables held for investment by delinquency aging
 
 
Financing receivable held for investment, recorded investment, 0 To 30 days past due
281 
317 
Total finance receivables held for investment
281 
317 
Other Liquidating [Member]
 
 
Finance receivables held for investment by delinquency aging
 
 
Financing receivable held for investment, recorded investment, 0 To 30 days past due
59 
166 
Financing receivable held for investment, recorded investment, 31 to 60 days past due
Financing receivable held for investment, recorded investment, 61 days to 90 days past due
Financing receivable held for investment, recorded investment, greater than 90 days past due
20 
29 
Total finance receivables held for investment
$ 82 
$ 198 
Accounts Receivable and Finance Receivables (Details 4) (USD $)
In Millions
Jul. 2, 2011
Jan. 1, 2011
Impaired Financing Receivables
 
 
Recorded investment
$ 787 
$ 951 
Unpaid principal balance
888 
1,057 
Related allowance
183 
191 
Aviation [Member] |
Impaired Financing Receivable With Related Allowance For Losses Recorded [Member