TEXTRON INC, 10-Q filed on 10/25/2012
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 29, 2012
Oct. 12, 2012
Document and Entity Information
 
 
Entity Registrant Name
TEXTRON INC 
 
Entity Central Index Key
0000217346 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 29, 2012 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-29 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
281,825,575 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q3 
 
Consolidated Statements of Operations (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 29, 2012
Oct. 1, 2011
Sep. 29, 2012
Oct. 1, 2011
Revenues
 
 
 
 
Manufacturing revenues
$ 2,936 
$ 2,782 
$ 8,695 
$ 7,930 
Finance revenues
64 
32 
180 
91 
Total revenues
3,000 
2,814 
8,875 
8,021 
Costs, expenses and other
 
 
 
 
Cost of sales
2,475 
2,313 
7,222 
6,593 
Selling and administrative expense
265 
251 
856 
850 
Provision for losses on finance receivables
(1)
(4)
27 
Interest expense
52 
61 
160 
184 
Total costs, expenses and other
2,791 
2,628 
8,234 
7,654 
Income from continuing operations before income taxes
209 
186 
641 
367 
Income tax expense
67 
50 
206 
108 
Income (loss) from continuing operations
142 
136 
435 
259 
Income from discontinued operations, net of income taxes
Net income
$ 151 
$ 142 
$ 441 
$ 261 
Basic earnings per share
 
 
 
 
Continuing operations (in dollars per share)
$ 0.51 
$ 0.49 
$ 1.55 
$ 0.93 
Discontinued operations (in dollars per share)
$ 0.03 
$ 0.02 
$ 0.02 
$ 0.01 
Basic earnings per share (in dollars per share)
$ 0.54 
$ 0.51 
$ 1.57 
$ 0.94 
Diluted earnings per share
 
 
 
 
Continuing operations (in dollars per share)
$ 0.48 
$ 0.45 
$ 1.47 
$ 0.83 
Discontinued operations (in dollars per share)
$ 0.03 
$ 0.02 
$ 0.02 
 
Diluted earnings per share (in dollars per share)
$ 0.51 
$ 0.47 
$ 1.49 
$ 0.83 
Dividends per share
 
 
 
 
Common stock (in dollars per share)
$ 0.02 
$ 0.02 
$ 0.06 
$ 0.06 
Consolidated Statements of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 29, 2012
Oct. 1, 2011
Sep. 29, 2012
Oct. 1, 2011
Net income
$ 151 
$ 142 
$ 441 
$ 261 
Other comprehensive income (loss), net of tax:
 
 
 
 
Recognition of prior service cost and unrealized losses on pension and postretirement benefits
21 
15 
63 
48 
Foreign currency translation
(15)
(5)
Deferred gains (losses) on hedge contracts, net of reclassifications
(20)
(20)
Comprehensive income
$ 188 
$ 122 
$ 504 
$ 297 
Consolidated Balance Sheets (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
Sep. 29, 2012
Dec. 31, 2011
Assets
 
 
Cash and equivalents
$ 1,238 
$ 885 
Inventories
2,831 
2,402 
Total assets
13,065 
13,615 
Liabilities
 
 
Total liabilities
9,757 
10,870 
Shareholders' equity
 
 
Common stock
35 
35 
Capital surplus
1,157 
1,081 
Retained earnings
3,681 
3,257 
Accumulated other comprehensive loss
(1,562)
(1,625)
Total shareholders' equity including cost of treasury shares
3,311 
2,748 
Less cost of treasury shares
Total shareholders' equity
3,308 
2,745 
Total liabilities and shareholders' equity
13,065 
13,615 
Common shares outstanding (in thousands) (in shares)
281,732 
278,873 
Manufacturing group
 
 
Assets
 
 
Cash and equivalents
1,232 
871 
Accounts receivable, net
914 
856 
Inventories
2,831 
2,402 
Other current assets
549 
1,134 
Total current assets
5,526 
5,263 
Property, plant and equipment, less accumulated depreciation and amortization of $3,234 and $3,097
2,078 
1,996 
Goodwill
1,645 
1,635 
Other assets
1,421 
1,508 
Total assets
10,670 
10,402 
Liabilities
 
 
Current portion of long-term debt
521 
146 
Accounts payable
943 
833 
Accrued liabilities
1,751 
1,952 
Total current liabilities
3,215 
2,931 
Other liabilities
2,679 
2,826 
Long-term debt
1,817 
2,313 
Total liabilities
7,711 
8,070 
Finance group
 
 
Assets
 
 
Cash and equivalents
14 
Finance receivables held for investment, net
1,869 
2,321 
Finance receivables held for sale
184 
418 
Other assets
336 
460 
Total assets
2,395 
3,213 
Liabilities
 
 
Other liabilities
235 
333 
Due to Manufacturing group
76 
493 
Debt
1,735 
1,974 
Total liabilities
$ 2,046 
$ 2,800 
Consolidated Balance Sheets (Parenthetical) (Manufacturing group, USD $)
In Millions, unless otherwise specified
Sep. 29, 2012
Dec. 31, 2011
Manufacturing group
 
 
Accumulated depreciation and amortization on property, plant and equipment
$ 3,234 
$ 3,097 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 29, 2012
Oct. 1, 2011
Cash flows from operating activities
 
 
Net income (loss)
$ 441 
$ 261 
Less: Income from discontinued operations
Income (loss) from continuing operations
435 
259 
Non-cash items:
 
 
Depreciation and amortization
277 
289 
Provision for losses on finance receivables held for investment
(4)
27 
Portfolio losses on finance assets
58 
60 
Deferred income taxes
111 
(1)
Other, net
123 
Changes in assets and liabilities:
 
 
Accounts receivable, net
(56)
(29)
Inventories
(409)
(328)
Other assets
51 
114 
Accounts payable
108 
178 
Accrued and other liabilities
(318)
(178)
Captive finance receivables, net
148 
149 
Other operating activities, net
(6)
 
Net cash provided by (used in) operating activities of continuing operations
402 
663 
Net cash used in operating activities of discontinued operations
(5)
(3)
Net cash provided by (used in) operating activities
397 
660 
Cash flows from investing activities
 
 
Finance receivables repaid
478 
665 
Finance receivables originated or purchased
(22)
(149)
Proceeds on receivable sales
113 
276 
Capital expenditures
(314)
(271)
Proceeds from sale of repossessed assets and properties
71 
77 
Other investing activities, net
13 
50 
Net cash provided by (used in) investing activities
339 
648 
Cash flows from financing activities
 
 
Principal payments on long-term and nonrecourse debt
(474)
(643)
Proceeds from issuance of long-term debt
88 
791 
Increase in short-term debt
 
227 
Payments on long-term lines of credit
 
(1,040)
Dividends paid
(17)
(17)
Other financing activities, net
15 
(18)
Net cash provided by (used in) financing activities
(388)
(700)
Effect of exchange rate changes on cash and equivalents
Net increase (decrease) in cash and equivalents
353 
611 
Cash and equivalents at beginning of period
885 
931 
Cash and equivalents at end of period
1,238 
1,542 
Manufacturing Group
 
 
Cash flows from operating activities
 
 
Net income (loss)
400 
332 
Less: Income from discontinued operations
Income (loss) from continuing operations
394 
330 
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities:
 
 
Dividends received from Finance Group
345 
179 
Capital contribution paid to Finance Group
(240)
(152)
Non-cash items:
 
 
Depreciation and amortization
257 
267 
Deferred income taxes
93 
27 
Other, net
73 
104 
Changes in assets and liabilities:
 
 
Accounts receivable, net
(56)
(29)
Inventories
(419)
(324)
Other assets
56 
113 
Accounts payable
108 
178 
Accrued and other liabilities
(208)
(174)
Other operating activities, net
(6)
 
Net cash provided by (used in) operating activities of continuing operations
397 
519 
Net cash used in operating activities of discontinued operations
(5)
(3)
Net cash provided by (used in) operating activities
392 
516 
Cash flows from investing activities
 
 
Capital expenditures
(314)
(271)
Other investing activities, net
(30)
Net cash provided by (used in) investing activities
(313)
(301)
Cash flows from financing activities
 
 
Principal payments on long-term and nonrecourse debt
(139)
(13)
Proceeds from issuance of long-term debt
 
496 
Intergroup financing
418 
(275)
Increase in short-term debt
 
227 
Dividends paid
(17)
(17)
Other financing activities, net
15 
(18)
Net cash provided by (used in) financing activities
277 
400 
Effect of exchange rate changes on cash and equivalents
Net increase (decrease) in cash and equivalents
361 
619 
Cash and equivalents at beginning of period
871 
898 
Cash and equivalents at end of period
1,232 
1,517 
Finance Group
 
 
Cash flows from operating activities
 
 
Net income (loss)
41 
(71)
Income (loss) from continuing operations
41 
(71)
Non-cash items:
 
 
Depreciation and amortization
20 
22 
Provision for losses on finance receivables held for investment
(4)
27 
Portfolio losses on finance assets
58 
60 
Deferred income taxes
18 
(28)
Other, net
(66)
19 
Changes in assets and liabilities:
 
 
Other assets
(5)
(3)
Accrued and other liabilities
(110)
(4)
Net cash provided by (used in) operating activities of continuing operations
(48)
22 
Net cash provided by (used in) operating activities
(48)
22 
Cash flows from investing activities
 
 
Finance receivables repaid
798 
1,008 
Finance receivables originated or purchased
(194)
(343)
Proceeds on receivable sales
113 
276 
Proceeds from sale of repossessed assets and properties
71 
77 
Other investing activities, net
22 
40 
Net cash provided by (used in) investing activities
810 
1,058 
Cash flows from financing activities
 
 
Principal payments on long-term and nonrecourse debt
(335)
(630)
Proceeds from issuance of long-term debt
88 
295 
Intergroup financing
(418)
275 
Payments on long-term lines of credit
 
(1,040)
Capital contributions paid to Finance group under Support Agreement
240 
152 
Other capital contributions paid to Finance group
 
40 
Dividends paid
(345)
(179)
Net cash provided by (used in) financing activities
(770)
(1,087)
Effect of exchange rate changes on cash and equivalents
 
(1)
Net increase (decrease) in cash and equivalents
(8)
(8)
Cash and equivalents at beginning of period
14 
33 
Cash and equivalents at end of period
$ 6 
$ 25 
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 December 31, 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.

 

Our financings are conducted through two separate borrowing groups.  The Manufacturing group consists of Textron Inc. consolidated with its majority-owned subsidiaries that operate in the Cessna, Bell, Textron Systems and Industrial segments.  The Finance group, which also is the Finance segment, consists of Textron Financial Corporation (TFC), its consolidated subsidiaries and three other finance subsidiaries owned by Textron Inc.  We designed this framework to enhance our borrowing power by separating the Finance group.  Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services.  Due to the fundamental differences between each borrowing group’s activities, investors, rating agencies and analysts use different measures to evaluate each group’s performance.  To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the consolidated financial statements.  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.

 

Use of Estimates

 

We prepare our financial statements in conformity with generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements.  Actual results could differ from those estimates.  Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated Statements of Operations in the period that they are determined.

 

During 2012 and 2011, we changed our estimates of revenues and costs on certain long-term contracts that are accounted for under the percentage-of-completion method of accounting.  The changes in estimates included in income from continuing operations before income taxes in the third quarter of 2012 and 2011 were $(6) million and $23 million, respectively, ($(4) million and $15 million after tax, or $(0.02) and $0.04 per diluted share, respectively).  For the third quarter of 2012 and 2011, the gross favorable program profit adjustments totaled $12 million and $28 million, respectively, and the gross unfavorable program profit adjustments totaled $18 million and $5 million, respectively.

 

The changes in estimates increased income from continuing operations before income taxes in the first nine months of 2012 and 2011 by $10 million and $47 million, respectively, ($6 million and $30 million after tax, or $0.02 and $0.09 per diluted share, respectively).  For the first nine months of 2012 and 2011, the gross favorable program profit adjustments totaled $52 million and $70 million, respectively, and the gross unfavorable program profit adjustments totaled $42 million and $23 million, respectively.

Retirement Plans
Retirement Plans

Note 2:  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:

 

 

 

Pension Benefits

 

Postretirement Benefits
Other Than Pensions

 

(In millions)

 

September 29,
2012

 

October 1,
2011

 

September 29,
2012

 

October 1,
2011

 

Three Months Ended

 

 

 

 

 

 

 

 

 

Service cost

 

$

30

 

$

32

 

$

2

 

$

2

 

Interest cost

 

77

 

82

 

6

 

8

 

Expected return on plan assets

 

(102

)

(98

)

 

 

Amortization of prior service cost (credit)

 

4

 

4

 

(3

)

(2

)

Amortization of net loss

 

29

 

19

 

2

 

3

 

Net periodic benefit cost

 

$

38

 

$

39

 

$

7

 

$

11

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

Service cost

 

$

89

 

$

96

 

$

5

 

$

6

 

Interest cost

 

229

 

246

 

19

 

24

 

Expected return on plan assets

 

(305

)

(294

)

 

 

Amortization of prior service cost (credit)

 

12

 

12

 

(9

)

(5

)

Amortization of net loss

 

88

 

57

 

5

 

9

 

Net periodic benefit cost

 

$

113

 

$

117

 

$

20

 

$

34

 

 

Earnings Per Share
Earnings Per Share

Note 3:  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 EPS 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 EPS 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 call options purchased in connection with the issuance of the convertible notes and the capped call transaction entered into in 2011 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 of our 2011 Form 10-K, 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 EPS are as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

(In thousands)

 

September 29,
2012

 

October 1,
2011

 

September 29,
2012

 

October 1,
2011

 

Basic weighted-average shares outstanding

 

281,813

 

278,090

 

280,983

 

277,285

 

Dilutive effect of:

 

 

 

 

 

 

 

 

 

Convertible notes and warrants

 

14,763

 

22,332

 

14,219

 

34,632

 

Stock options and restricted stock units

 

344

 

444

 

495

 

837

 

Diluted weighted-average shares outstanding

 

296,920

 

300,866

 

295,697

 

312,754

 

 

Stock options to purchase 5 million and 7 million shares of common stock outstanding are excluded from our calculation of diluted weighted-average shares outstanding for the three and nine months ended September 29, 2012, respectively, as the exercise prices were greater than the average market price of our common stock for the periods.  Stock options to purchase 8 million and 5 million shares of common stock outstanding are excluded from our calculation of diluted weighted-average shares outstanding for both the three and nine months ended October 1, 2011, respectively, as the exercise prices were greater than the average market price of our common stock for the periods.  These securities could potentially dilute EPS in the future.

Accounts Receivable and Finance Receivables
Accounts Receivable and Finance Receivables

Note 4:  Accounts Receivable and Finance Receivables

 

Accounts Receivable

Accounts receivable is composed of the following:

 

(In millions)

 

September 29,
2012

 

December 31,
2011

 

Commercial

 

$

622

 

$

528

 

U.S. Government contracts

 

310

 

346

 

 

 

932

 

874

 

Allowance for doubtful accounts

 

(18

)

(18

)

Total accounts receivable, net

 

$

914

 

$

856

 

 

We have unbillable receivables primarily on U.S. Government contracts that arise when the revenues we have appropriately recognized based on performance cannot be billed yet under terms of the contract.  Unbillable receivables within accounts receivable totaled $180 million at September 29, 2012 and $192 million at December 31, 2011.

 

Finance Receivables

 

Finance receivables by product line, which includes both finance receivables held for investment and finance receivables held for sale, are presented in the following table.  Our captive business is reported as one product line, which primarily includes aviation finance receivables, and to a limited extent, golf equipment finance receivables.

 

(In millions)

 

September 29,
2012

 

December 31,
2011

 

Captive

 

$

1,681

 

$

1,945

 

Golf Mortgage

 

184

 

381

 

Structured Capital

 

150

 

208

 

Timeshare

 

113

 

318

 

Other liquidating

 

11

 

43

 

Total finance receivables

 

2,139

 

2,895

 

Less: Allowance for losses

 

86

 

156

 

Less: Finance receivables held for sale

 

184

 

418

 

Total finance receivables held for investment, net

 

$

1,869

 

$

2,321

 

 

Credit Quality Indicators and Nonaccrual Finance Receivables

 

We internally assess the quality of our finance receivables held for investment portfolio based on a number of key credit quality indicators and statistics such as delinquency, loan balance to estimated collateral value and the financial strength of individual borrowers and guarantors.  Because many of these indicators are difficult to apply across an entire class of receivables, we evaluate individual loans on a quarterly basis and classify these loans into three categories based on the key credit quality indicators for the individual loan.  These three categories are performing, watchlist and nonaccrual.

 

We classify finance receivables held for investment as nonaccrual if credit quality indicators suggest full collection of principal and interest is doubtful.  In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three months unless collection of principal and interest is not doubtful.  Cash payments on nonaccrual accounts, including finance charges, generally are applied to reduce the net investment balance.  We resume the accrual of interest when the loan becomes contractually current through payment according to the original terms of the loan or, if a loan has been modified, following a period of performance under the terms of the modification, provided we conclude that collection of all principal and interest is no longer doubtful.  Previously suspended interest income is recognized at that time.

 

Accounts are classified as watchlist when credit quality indicators have deteriorated as compared with typical underwriting criteria, and we believe collection of full principal and interest is probable but not certain.  All other finance receivables held for investment that do not meet the watchlist or nonaccrual categories are classified as performing.

 

A summary of finance receivables held for investment categorized based on the credit quality indicators discussed above is as follows:

 

 

 

September 29, 2012

 

December 31, 2011

 

(In millions)

 

Performing

 

Watchlist

 

Nonaccrual

 

Total

 

Performing

 

Watchlist

 

Nonaccrual

 

Total

 

Captive

 

$

1,447

 

$

142

 

$

92

 

$

1,681

 

$

1,558

 

$

251

 

$

136

 

$

1,945

 

Structured Capital

 

150

 

 

 

150

 

203

 

5

 

 

208

 

Timeshare

 

67

 

 

46

 

113

 

89

 

25

 

167

 

281

 

Other liquidating

 

4

 

 

7

 

11

 

25

 

 

18

 

43

 

Total

 

$

1,668

 

$

142

 

$

145

 

$

1,955

 

$

1,875

 

$

281

 

$

321

 

$

2,477

 

% of Total

 

85.3

%

7.3

%

7.4

%

 

 

75.7

%

11.3

%

13.0

%

 

 

 

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 are summarized in the table below:

 

 

 

September 29, 2012

 

December 31, 2011

 

(In millions)

 

Less Than
31 Days
Past Due

 

31-60
Days
Past Due

 

61-90
Days
Past Due

 

Over
90 Days
Past Due

 

Total

 

Less Than
31 Days
Past Due

 

31-60
Days
Past Due

 

61-90
Days
Past Due

 

Over
90 Days
Past Due

 

Total

 

Captive

 

$

1,482

 

$

92

 

$

29

 

$

78

 

$

1,681

 

$

1,758

 

$

69

 

$

43

 

$

75

 

$

1,945

 

Structured Capital

 

150

 

 

 

 

150

 

208

 

 

 

 

208

 

Timeshare

 

103

 

4

 

 

6

 

113

 

238

 

3

 

 

40

 

281

 

Other liquidating

 

10

 

 

 

1

 

11

 

35

 

 

 

8

 

43

 

Total

 

$

1,745

 

$

96

 

$

29

 

$

85

 

$

1,955

 

$

2,239

 

$

72

 

$

43

 

$

123

 

$

2,477

 

 

We had no accrual status loans that were greater than 90 days past due at September 29, 2012 or at December 31, 2011.  At September 29, 2012, the 60+ days contractual delinquency as a percentage of finance receivables held for investment was 5.83%, compared with 6.70% at December 31, 2011.

 

Loan Modifications

 

Troubled debt restructurings occur when we have either modified the contract terms of finance receivables held for investment for borrowers experiencing financial difficulties or accepted a transfer of assets in full or partial satisfaction of the loan balance.  The types of modifications we typically make include extensions of the original maturity date of the contract, extensions of revolving borrowing periods, delays in the timing of required principal payments, deferrals of interest payments, advances to protect the value of our collateral and principal reductions contingent on full repayment prior to the maturity date.  The changes effected by modifications made during the first nine months of 2012 to finance receivables held for investment were not material.

 

Impaired Loans

 

We evaluate individual finance receivables held for investment in non-homogeneous portfolios and larger accounts in homogeneous loan portfolios for impairment on a quarterly basis.  Finance receivables classified as held for sale are reflected at the lower of cost or fair value and are excluded from these evaluations.  A finance receivable is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement based on our review of the credit quality indicators discussed above.  Impaired finance receivables include both nonaccrual accounts and accounts for which full collection of principal and interest remains probable, but the account’s original terms have been, or are expected to be, significantly modified.  If the modification specifies an interest rate equal to or greater than a market rate for a finance receivable with comparable risk, the account is not considered impaired in years subsequent to the modification.  There was no significant interest income recognized on impaired loans in the first nine months of 2012 or 2011.

 

A summary of impaired finance receivables, excluding leveraged leases, is provided below:

 

 

 

Recorded Investment

 

 

 

 

 

 

 

(In millions)

 

Impaired
Loans with
No Related
Allowance for
Credit Losses

 

Impaired
Loans with
Related
Allowance for
Credit Losses

 

Total
Impaired
Loans

 

Unpaid
Principal
Balance

 

Allowance
For Losses
On Impaired
Loans

 

Average
Recorded
Investment

 

September 29, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Captive

 

$

52

 

$

61

 

$

113

 

$

117

 

$

14

 

$

119

 

Timeshare

 

33

 

38

 

71

 

100

 

13

 

164

 

Other liquidating

 

 

4

 

4

 

7

 

1

 

12

 

Total

 

$

85

 

$

103

 

$

188

 

$

224

 

$

28

 

$

295

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Captive

 

$

47

 

$

94

 

$

141

 

$

144

 

$

40

 

$

149

 

Timeshare

 

170

 

57

 

227

 

288

 

38

 

315

 

Golf Mortgage

 

 

 

 

 

 

232

 

Other liquidating

 

3

 

12

 

15

 

59

 

9

 

30

 

Total

 

$

220

 

$

163

 

$

383

 

$

491

 

$

87

 

$

726

 

 

A summary of the allowance for losses on finance receivables that are evaluated on an individual and on a collective basis is provided below.  The finance receivables reported in this table specifically exclude $150 million and $208 million of leveraged leases at September 29, 2012 and December 31, 2011, respectively, in accordance with authoritative accounting standards.

 

 

 

September 29, 2012

 

December 31, 2011

 

 

 

Finance
Receivables Evaluated

 

Allowance
Based on
Individual

 

Allowance
Based on
Collective

 

Finance
Receivables Evaluated

 

Allowance
Based on
Individual

 

Allowance
Based on
Collective

 

(In millions)

 

Individually

 

Collectively

 

Evaluation

 

Evaluation

 

Individually

 

Collectively

 

Evaluation

 

Evaluation

 

Captive

 

$

113

 

$

1,568

 

$

14

 

$

56

 

$

141

 

$

1,804

 

$

40

 

$

61

 

Timeshare

 

71

 

42

 

13

 

 

227

 

54

 

38

 

2

 

Other liquidating

 

4

 

7

 

1

 

2

 

15

 

28

 

9

 

6

 

Total

 

$

188

 

$

1,617

 

$

28

 

$

58

 

$

383

 

$

1,886

 

$

87

 

$

69

 

 

Allowance for Losses

 

We maintain the allowance for losses on finance receivables held for investment at a level considered adequate to cover inherent losses in the portfolio based on management’s evaluation.  For larger balance accounts specifically identified as impaired, including large accounts in homogeneous portfolios, a reserve is established based on comparing the carrying value with either a) the expected future cash flows, discounted at the finance receivable’s effective interest rate; or b) the fair value of the underlying collateral, if the finance receivable is collateral dependent.  The expected future cash flows consider collateral value; financial performance and liquidity of our borrower; existence and financial strength of guarantors; estimated recovery costs, including legal expenses; and costs associated with the repossession/foreclosure and eventual disposal of collateral.  When there is a range of potential outcomes, we perform multiple discounted cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence.  The evaluation of our portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results.  While our analysis is specific to each individual account, critical factors included in this analysis for the Captive product line include industry valuation guides, age and physical condition of the collateral, payment history and existence and financial strength of guarantors.

 

We also establish an allowance for losses to cover probable but specifically unknown losses existing in the portfolio.  For the Captive product line, the allowance is established as a percentage of non-recourse finance receivables, which have not been identified as requiring specific reserves.  The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values and both general economic and specific industry trends.

 

Finance receivables held for investment are written down to the fair value (less estimated costs to sell) of the related collateral when the collateral is repossessed and are charged off when the remaining balance is deemed to be uncollectible.

 

A rollforward of the allowances for losses on finance receivables held for investment is provided below:

 

(In millions)

 

Captive

 

Golf
Mortgage

 

Timeshare

 

Other
liquidating

 

Total

 

For the nine months ended September 29, 2012

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

101

 

$

 

$

40

 

$

15

 

$

156

 

Provision for losses

 

1

 

 

1

 

(6

)

(4

)

Charge-offs

 

(40

)

 

(29

)

(9

)

(78

)

Recoveries

 

8

 

 

1

 

3

 

12

 

Ending balance

 

$

70

 

$

 

$

13

 

$

3

 

$

86

 

For the nine months ended October 1, 2011

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

123

 

$

79

 

$

106

 

$

34

 

$

342

 

Provision for losses

 

15

 

4

 

7

 

1

 

27

 

Charge-offs

 

(39

)

(12

)

(35

)

(12

)

(98

)

Recoveries

 

8

 

1

 

 

9

 

18

 

Transfers

 

 

 

 

(13

)

(13

)

Ending balance

 

$

107

 

$

72

 

$

78

 

$

19

 

$

276

 

 

Inventories
Inventories

Note 5:  Inventories

 

(In millions)

 

September 29,
2012

 

December 31,
2011

 

Finished goods

 

$

1,351

 

$

1,012

 

Work in process

 

2,321

 

2,202

 

Raw materials

 

458

 

399

 

 

 

4,130

 

3,613

 

Progress/milestone payments

 

(1,299

)

(1,211

)

 

 

$

2,831

 

$

2,402

 

 

Debt
Debt

Note 6: Debt

 

At September 29, 2012, the principal amount of our convertible senior notes was $215 million.  Our common stock price exceeded the $17.06 per share conversion threshold price set forth for these convertible notes for at least 20 trading days during the 30 consecutive trading days ending on September 28, 2012.  Accordingly, these notes are convertible at the holder’s option through December 31, 2012.  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 senior notes.  Based on a September 29, 2012 stock price of $26.17, the “if converted value” exceeds the face amount of the remaining notes by $214 million; however, after giving effect to the exercise of the related outstanding call options and warrants, the incremental cash or share settlement in excess of the face amount would result in either a 6.5 million net share issuance or a cash payment of $171 million, or a combination of cash and stock, at our option.

Accrued Liabilities
Accrued Liabilities

Note 7:  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:

 

 

 

Nine Months Ended

 

(In millions)

 

September 29,
2012

 

October 1,
2011

 

Accrual at the beginning of period

 

$

224

 

$

242

 

Provision

 

190

 

162

 

Settlements

 

(187

)

(173

)

Adjustments to prior accrual estimates

 

(2

)

(11

)

Accrual at the end of period

 

$

225

 

$

220

 

 

Commitments and Contingencies
Commitments and Contingencies

Note 8:  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.

 

On February 7, 2012, a lawsuit was filed in the United States Bankruptcy Court, Northern District of Ohio, Eastern Division (Akron) by Brian A. Bash, Chapter 7 Trustee for Fair Finance Company against TFC, Fortress Credit Corp. and Fair Facility I, LLC.  TFC provided a revolving line of credit of up to $17.5 million to Fair Finance Company from 2002 through 2007.  The complaint alleges numerous counts against TFC, as Fair Finance Company’s working capital lender, including receipt of fraudulent transfers and assisting in fraud perpetrated on Fair Finance investors.  The Trustee seeks avoidance and recovery of alleged fraudulent transfers in the amount of $316 million as well as damages of $223 million on the other claims.  The Trustee also seeks trebled damages on all claims under Ohio law.  We intend to vigorously defend this lawsuit, and on April 20, 2012, TFC filed a motion to dismiss all claims in the complaint.  That motion is still pending.  An estimate of a range of possible loss cannot be made at this time due to the early stage of the litigation.

Derivative Instruments and Fair Value Measurements
Derivative Instruments and Fair Value Measurements

Note 9:  Derivative Instruments and Fair Value Measurements

 

We measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  We prioritize the assumptions that market participants would use in pricing the asset or liability into a three-tier fair value hierarchy.  This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exist, requiring companies to develop their own assumptions.  Observable inputs that do not meet the criteria of Level 1, which include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2.  Level 3 inputs are those that reflect our estimates about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.  Valuation techniques for assets and liabilities measured using Level 3 inputs may include methodologies such as the market approach, the income approach or the cost approach and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data.  These unobservable inputs are utilized only to the extent that observable inputs are not available or cost-effective to obtain.

 

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

 

The assets and liabilities that are recorded at fair value on a recurring basis consist primarily of our derivative financial instruments, which are categorized as Level 2 in the fair value hierarchy.  The fair value amounts of these instruments that are designated as hedging instruments are provided below:

 

 

 

 

 

 

 

Asset (Liability)

 

(In millions)

 

Borrowing Group

 

Balance Sheet Location

 

September 29,
 2012

 

December 31,
2011

 

Assets

 

 

 

 

 

 

 

 

 

Interest rate exchange contracts*

 

Finance

 

Other assets

 

$

12

 

$

22

 

Foreign currency exchange contracts

 

Manufacturing

 

Other current assets

 

17

 

9

 

Total

 

 

 

 

 

$

29

 

$

31

 

Liabilities

 

 

 

 

 

 

 

 

 

Interest rate exchange contracts*

 

Finance

 

Other liabilities

 

$

(9

)

$

(7

)

Foreign currency exchange contracts

 

Manufacturing

 

Accrued liabilities

 

(2

)

(5

)

Total

 

 

 

 

 

$

(11

)

$

(12

)

 

*Interest rate exchange contracts represent fair value hedges.

 

The Finance group’s interest rate exchange contracts are not exchange traded and are measured at fair value utilizing widely accepted, third-party developed valuation models.  The actual terms of each individual contract are entered into a valuation model, along with interest rate and foreign exchange rate data, which is based on readily observable market data published by third-party leading financial news and data providers.  Credit risk is factored into the fair value of these assets and liabilities based on the differential between both our credit default swap spread for liabilities and the counterparty’s credit default swap spread for assets as compared with a standard AA-rated counterparty; however, this had no significant impact on the valuation at September 29, 2012.  At September 29, 2012 and December 31, 2011, we had interest rate exchange contracts with notional amounts upon which the contracts were based of $716 million and $848 million, respectively.

 

Foreign currency exchange contracts are measured at fair value using the market method valuation technique.  The inputs to this technique utilize current foreign currency exchange forward market rates published by third-party leading financial news and data providers.  These are observable data that represent the rates that the financial institution uses for contracts entered into at that date; however, they are not based on actual transactions so they are classified as Level 2.  At September 29, 2012 and December 31, 2011, we had foreign currency exchange contracts with notional amounts upon which the contracts were based of $620 million and $645 million, respectively.

 

Fair Value Hedges

 

Our Finance group enters into interest rate exchange contracts to mitigate exposure to changes in the fair value of its fixed-rate receivables and debt due to fluctuations in interest rates.  By using these contracts, we are able to convert our fixed-rate cash flows to floating-rate cash flows.  The amount of ineffectiveness on our fair value hedges and the gain (loss) recorded in the Consolidated Statements of Operations were both insignificant in the first nine months of 2012 and 2011.

 

Cash Flow Hedges

 

We manufacture and sell our products in a number of countries throughout the world, and, therefore, we are exposed to movements in foreign currency exchange rates.  The primary purpose of our foreign currency hedging activities is to manage the volatility associated with foreign currency purchases of materials, foreign currency sales of products, and other assets and liabilities in the normal course of business.  We primarily utilize forward exchange contracts and purchased options with maturities of no more than three years that qualify as cash flow hedges and are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and overhead expenses.  At September 29, 2012, we had a net deferred gain of $12 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 nine months ended September 29, 2012 and October 1, 2011.  We do not expect the amount of gains and losses in Accumulated other comprehensive loss that will be reclassified to earnings in the next twelve months to be material.

 

We hedge our net investment position in major currencies and generate foreign currency interest payments that offset other transactional exposures in these currencies. To accomplish this, we borrow directly in foreign currency and designate a portion of foreign currency debt as a hedge of net investments. We also may utilize currency forwards as hedges of our related foreign net investments. We record changes in the fair value of these contracts in other comprehensive income to the extent they are effective as cash flow hedges.  If a contract does not qualify for hedge accounting or is designated as a fair value hedge, changes in the fair value of the contract are recorded in earnings.  Currency effects on the effective portion of these hedges, which are reflected in the foreign currency translation adjustment account within other comprehensive income, produced a $9 million after-tax loss for the nine months ended September 29, 2012, resulting in an accumulated net gain balance of $9 million at September 29, 2012.  The ineffective portion of these hedges was insignificant.

 

Assets Recorded at Fair Value on a Nonrecurring Basis

 

The following table sets forth the balance of each asset class measured at fair value on a nonrecurring basis during the period ended September 29, 2012 and December 31, 2011. These assets are in the Finance group and were measured using significant unobservable inputs (Level 3).

 

(In millions)

 

September 29,
2012

 

December 31,
2011

 

Finance receivables held for sale

 

$

184

 

$

418

 

Impaired finance receivables

 

75

 

81

 

Other assets

 

122

 

128

 

 

The following table represents the fair value adjustments recorded for each asset class measured at fair value on a non-recurring basis during the three and nine months ended September 29, 2012 and October 1, 2011.

 

 

 

Gain (Loss)

 

 

 

Three Months Ended

 

Nine Months Ended

 

(In millions)

 

September 29,
2012

 

October 1,
2011

 

September 29,
2012

 

October 1,
2011

 

Finance receivables held for sale

 

$

22

 

$

(8

)

$

66

 

$

(22

)

Impaired finance receivables

 

(2

)

(23

)

(9

)

(73

)

Other assets

 

(13

)

(8

)

(45

)

(26

)

 

Finance receivables held for sale — Finance receivables held for sale are recorded at fair value on a nonrecurring basis during periods in which the fair value is lower than the cost value.  There are no active, quoted market prices for these finance receivables.  At September 29, 2012, our finance receivables held for sale represents the Golf Mortgage portfolio.  Fair value of this portfolio was determined based on the use of discounted cash flow models to estimate the price we expect to receive in the principal market for each pool of similar loans, in an orderly transaction.  The discount rates utilized in these models are derived from prevailing interest rate indices and are based on the nature of the assets, discussions with market participants and our experience in the actual disposition of similar assets.  The cash flow models also include the use of qualitative assumptions regarding the borrower’s ability to pay and the period of time that will likely be required to restructure and/or exit the account through acquisition of the underlying collateral.  We utilize revenue and earnings multiples to determine the expected value of the loan collateral. The range of multiples used is based on bids from prospective buyers, inputs from market participants and prices at which sales have been transacted for similar properties.  The gains on finance receivables held for sale for the three and nine months ended September 29, 2012 are primarily the result of the payoff of loans in amounts, and sale of loans at prices, in excess of the values established in previous periods.

 

Based on our qualitative assumptions, we separate the loans into three categories for the cash flow models.  In the first category, we include loans that we assume will be paid in accordance with the contractual terms of the loan.  In the second category, we include loans where we perceive that the borrower has less of an ability to pay, and we assume that the loan will be restructured and resolved typically over a period of one to four years.  For the third category, we assume that the borrower will default on the loan and that it will be resolved within an average of 24 months.  The fair values of these finance receivables are sensitive to variability in both the quantitative and qualitative assumptions.  Changes in the borrower’s ability to pay or the period of time required to restructure and/or exit accounts may significantly increase or decrease the fair value of these finance receivables, and, to a lesser extent, fluctuations in discount rates and/or revenue and earnings multiples could also change the fair value of these finance receivables.

 

Impaired finance receivables — Impaired nonaccrual finance receivables represent assets recorded at fair value on a nonrecurring basis since the measurement of required reserves on our impaired finance receivables is significantly dependent on the fair value of the underlying collateral.  For our Captive impaired nonaccrual finance receivables, the fair values of collateral are determined primarily based on the use of industry pricing guides.  Our Timeshare impaired nonaccrual finance receivables largely consist of notes receivable loans to developers of resort properties which are collateralized by pools of consumer notes receivable.  Fair values of collateral are estimated using cash flow models incorporating estimates of credit losses in the consumer notes pools and the developer’s ability to mitigate losses through the repurchase or replacement of defaulted notes. Fair value measurements recorded on impaired finance receivables resulted in charges to provision for loan losses and primarily related to initial fair value adjustments.

 

Other assets — Other assets in the table above primarily include repossessed golf and hotel properties and aviation assets at September 29, 2012.  The fair value of our golf and hotel properties is determined based on the use of discounted cash flow models, bids from prospective buyers or inputs from market participants.  The fair value of our aviation assets is largely determined based on the use of industry pricing guides.  If the carrying amount of these assets is higher than their estimated fair value, we record a corresponding charge to income for the difference.

 

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:

 

 

 

September 29, 2012

 

December 31, 2011

 

(In millions)

 

Carrying
Value

 

Estimated
Fair Value

 

Carrying
Value

 

Estimated
Fair Value

 

Manufacturing group

 

 

 

 

 

 

 

 

 

Long-term debt, excluding leases

 

$

(2,212

)

$

(2,650

)

$

(2,328

)

$

(2,561

)

Finance group

 

 

 

 

 

 

 

 

 

Finance receivables held for investment, excluding leases

 

1,618

 

1,610

 

1,997

 

1,848

 

Debt

 

(1,735

)

(1,711

)

(1,974

)

(1,854

)

 

Fair value for the Manufacturing group debt is determined using market observable data for similar transactions or Level 2 inputs.  At September 29, 2012 and December 31, 2011, approximately 44% and 53%, respectively, of the fair value of term debt for the Finance group was determined based on observable market transactions (Level 1).  The remaining Finance group debt was determined based on discounted cash flow analyses using observable market inputs from debt with similar duration, subordination and credit default expectations (Level 2). Fair value estimates for finance receivables held for investment were determined based on internally developed discounted cash flow models primarily utilizing significant unobservable inputs (Level 3), which include estimates of the rate of return, financing cost, capital structure and/or discount rate expectations of current market participants combined with estimated loan cash flows based on credit losses, payment rates and expectations of borrowers’ ability to make payments on a timely basis.

Income Tax Expense
Income Tax Expense

Note 10:  Income Tax Expense

 

For the three and nine months ended September 29, 2012, the difference between the Federal statutory income tax rate and the effective income tax rate was not significant.

 

For the three and nine months ended October 1, 2011, income tax expense equated to an effective income tax rate of 27% and 29%, respectively, compared with the Federal statutory income tax rate of 35%.  In the third quarter of 2011, the rate was significantly lower than the statutory income tax rate due to a 3% benefit associated with the early termination of certain leveraged leases included in the Finance segment and a 6% benefit associated with a higher proportion of income attributable to international operations in countries with lower tax rates.

Segment Information
Segment Information

Note 11:  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 and certain corporate expenses.  The measurement for the Finance segment 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

 

Nine Months Ended

 

(In millions)

 

September 29,
2012

 

October 1,
2011

 

September 29,
2012

 

October 1,
2011

 

REVENUES

 

 

 

 

 

 

 

 

 

Manufacturing Group

 

 

 

 

 

 

 

 

 

Cessna

 

$

778

 

$

771

 

$

2,210

 

$

1,979

 

Bell

 

1,075

 

894

 

3,125

 

2,515

 

Textron Systems

 

400

 

462

 

1,166

 

1,359

 

Industrial

 

683

 

655

 

2,194

 

2,077

 

 

 

2,936

 

2,782

 

8,695

 

7,930

 

Finance Group

 

64

 

32

 

180

 

91

 

Total revenues

 

$

3,000

 

$

2,814

 

$

8,875

 

$

8,021

 

SEGMENT OPERATING PROFIT

 

 

 

 

 

 

 

 

 

Manufacturing Group

 

 

 

 

 

 

 

 

 

Cessna

 

$

30

 

$

33

 

$

59

 

$

 

Bell

 

165

 

143

 

462

 

354

 

Textron Systems

 

21

 

47

 

96

 

149

 

Industrial

 

38

 

37

 

172

 

153

 

 

 

254

 

260

 

789

 

656

 

Finance Group

 

28

 

(24

)

62

 

(101

)

Segment profit

 

282

 

236

 

851

 

555

 

Corporate expenses and other, net

 

(38

)

(13

)

(105

)

(75

)

Interest expense, net for Manufacturing group

 

(35

)

(37

)

(105

)

(113

)

Income from continuing operations before income taxes

 

$

209

 

$

186

 

$

641

 

$

367

 

 

Basis of Presentation (Policies)
Use of Estimates

Use of Estimates

 

We prepare our financial statements in conformity with generally accepted accounting principles, which require us to make estimates and assumptions that affect the amounts reported in the financial statements.  Actual results could differ from those estimates.  Our estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the Consolidated Statements of Operations in the period that they are determined.

 

During 2012 and 2011, we changed our estimates of revenues and costs on certain long-term contracts that are accounted for under the percentage-of-completion method of accounting.  The changes in estimates included in income from continuing operations before income taxes in the third quarter of 2012 and 2011 were $(6) million and $23 million, respectively, ($(4) million and $15 million after tax, or $(0.02) and $0.04 per diluted share, respectively).  For the third quarter of 2012 and 2011, the gross favorable program profit adjustments totaled $12 million and $28 million, respectively, and the gross unfavorable program profit adjustments totaled $18 million and $5 million, respectively.

 

The changes in estimates increased income from continuing operations before income taxes in the first nine months of 2012 and 2011 by $10 million and $47 million, respectively, ($6 million and $30 million after tax, or $0.02 and $0.09 per diluted share, respectively).  For the first nine months of 2012 and 2011, the gross favorable program profit adjustments totaled $52 million and $70 million, respectively, and the gross unfavorable program profit adjustments totaled $42 million and $23 million, respectively.

Retirement Plans (Tables)
Components of net periodic benefit cost

 

 

Pension Benefits

 

Postretirement Benefits
Other Than Pensions

 

(In millions)

 

September 29,
2012

 

October 1,
2011

 

September 29,
2012

 

October 1,
2011

 

Three Months Ended

 

 

 

 

 

 

 

 

 

Service cost

 

$

30

 

$

32

 

$

2

 

$

2

 

Interest cost

 

77

 

82

 

6

 

8

 

Expected return on plan assets

 

(102

)

(98

)

 

 

Amortization of prior service cost (credit)

 

4

 

4

 

(3

)

(2

)

Amortization of net loss

 

29

 

19

 

2

 

3

 

Net periodic benefit cost

 

$

38

 

$

39

 

$

7

 

$

11

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

Service cost

 

$

89

 

$

96

 

$

5

 

$

6

 

Interest cost

 

229

 

246

 

19

 

24

 

Expected return on plan assets

 

(305

)

(294

)

 

 

Amortization of prior service cost (credit)

 

12

 

12

 

(9

)

(5

)

Amortization of net loss

 

88

 

57

 

5

 

9

 

Net periodic benefit cost

 

$

113

 

$

117

 

$

20

 

$

34

 

Earnings Per Share (Tables)
Weighted-average shares outstanding for basic and diluted EPS

 

 

 

Three Months Ended

 

Nine Months Ended

 

(In thousands)

 

September 29,
2012

 

October 1,
2011

 

September 29,
2012

 

October 1,
2011

 

Basic weighted-average shares outstanding

 

281,813

 

278,090

 

280,983

 

277,285

 

Dilutive effect of:

 

 

 

 

 

 

 

 

 

Convertible notes and warrants

 

14,763

 

22,332

 

14,219

 

34,632

 

Stock options and restricted stock units

 

344

 

444

 

495

 

837

 

Diluted weighted-average shares outstanding

 

296,920

 

300,866

 

295,697

 

312,754

 

 

Accounts Receivable and Finance Receivables (Tables)

 

(In millions)

 

September 29,
2012

 

December 31,
2011

 

Commercial

 

$

622

 

$

528

 

U.S. Government contracts

 

310

 

346

 

 

 

932

 

874

 

Allowance for doubtful accounts

 

(18

)

(18

)

Total accounts receivable, net

 

$

914

 

$

856

 

 

 

(In millions)

 

September 29,
2012

 

December 31,
2011

 

Captive

 

$

1,681

 

$

1,945

 

Golf Mortgage

 

184

 

381

 

Structured Capital

 

150

 

208

 

Timeshare

 

113

 

318

 

Other liquidating

 

11

 

43

 

Total finance receivables

 

2,139

 

2,895

 

Less: Allowance for losses

 

86

 

156

 

Less: Finance receivables held for sale

 

184

 

418

 

Total finance receivables held for investment, net

 

$

1,869

 

$

2,321

 

 

 

 

 

September 29, 2012

 

December 31, 2011

 

(In millions)

 

Performing

 

Watchlist

 

Nonaccrual

 

Total

 

Performing

 

Watchlist

 

Nonaccrual

 

Total

 

Captive

 

$

1,447

 

$

142

 

$

92

 

$

1,681

 

$

1,558

 

$

251

 

$

136

 

$

1,945

 

Structured Capital

 

150

 

 

 

150

 

203

 

5

 

 

208

 

Timeshare

 

67

 

 

46

 

113

 

89

 

25

 

167

 

281

 

Other liquidating

 

4

 

 

7

 

11

 

25

 

 

18

 

43

 

Total

 

$

1,668

 

$

142

 

$

145

 

$

1,955

 

$

1,875

 

$

281

 

$

321

 

$

2,477

 

% of Total

 

85.3

%

7.3

%

7.4

%

 

 

75.7

%

11.3

%

13.0

%

 

 

 

 

 

 

September 29, 2012

 

December 31, 2011

 

(In millions)

 

Less Than
31 Days
Past Due

 

31-60
Days
Past Due

 

61-90
Days
Past Due

 

Over
90 Days
Past Due

 

Total

 

Less Than
31 Days
Past Due

 

31-60
Days
Past Due

 

61-90
Days
Past Due

 

Over
90 Days
Past Due

 

Total

 

Captive

 

$