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Note 1. Basis of Presentation
Our consolidated financial statements include the accounts of Textron Inc. (Textron) 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 29, 2012. 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. 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 2013 and 2012, 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 2013 and 2012 were $4 million and $(6) million, respectively, ($2 million and $(4) million after tax, or $0.01 and $(0.02) per diluted share, respectively). For the third quarter of 2013 and 2012, the gross favorable program profit adjustments totaled $12 million and $12 million, respectively, and the gross unfavorable program profit adjustments totaled $8 million and $18 million, respectively.
The changes in estimates increased income from continuing operations before income taxes in the first nine months of 2013 and 2012 by $13 million and $10 million, ($8 million and $6 million after tax, or $0.03 and $0.02 per diluted share, respectively). For the first nine months of 2013 and 2012, the gross favorable program profit adjustments totaled $30 million and $52 million, respectively, and the gross unfavorable program profit adjustments totaled $17 million and $42 million, respectively.
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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 |
| ||||||||
(In millions) |
|
September 28, |
|
September 29, |
|
September 28, |
|
September 29, |
| ||||
Three Months Ended |
|
|
|
|
|
|
|
|
| ||||
Service cost |
|
$ |
33 |
|
$ |
30 |
|
$ |
1 |
|
$ |
2 |
|
Interest cost |
|
72 |
|
77 |
|
5 |
|
6 |
| ||||
Expected return on plan assets |
|
(104) |
|
(102 |
) |
— |
|
— |
| ||||
Amortization of prior service cost (credit) |
|
4 |
|
4 |
|
(6) |
|
(3 |
) | ||||
Amortization of net actuarial loss |
|
46 |
|
29 |
|
2 |
|
2 |
| ||||
Net periodic benefit cost |
|
$ |
51 |
|
$ |
38 |
|
$ |
2 |
|
$ |
7 |
|
Nine Months Ended |
|
|
|
|
|
|
|
|
| ||||
Service cost |
|
$ |
100 |
|
$ |
89 |
|
$ |
5 |
|
$ |
5 |
|
Interest cost |
|
218 |
|
229 |
|
15 |
|
19 |
| ||||
Expected return on plan assets |
|
(314) |
|
(305 |
) |
— |
|
— |
| ||||
Amortization of prior service cost (credit) |
|
11 |
|
12 |
|
(11) |
|
(9 |
) | ||||
Amortization of net actuarial loss |
|
138 |
|
88 |
|
5 |
|
5 |
| ||||
Net periodic benefit cost |
|
$ |
153 |
|
$ |
113 |
|
$ |
14 |
|
$ |
20 |
|
Retirement Plan Amendment
During the third quarter of 2013, we amended one of our postretirement benefit plans which triggered a re-measurement of the plan’s projected benefit obligation. The discount rate for this plan was increased to 4.50% from 3.75%, while other assumptions remained consistent with year-end assumptions. As a result of the amendment and the revised discount rate, we recorded a reduction in unrealized losses and prior service cost of $55 million through other comprehensive income in the third quarter of 2013.
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Note 4. Accounts Receivable and Finance Receivables
Accounts Receivable
Accounts receivable is composed of the following:
(In millions) |
|
September 28, |
|
December 29, |
|
Commercial |
|
$ 708 |
|
$ 534 |
|
U.S. Government contracts |
|
340 |
|
314 |
|
|
|
1,048 |
|
848 |
|
Allowance for doubtful accounts |
|
(24) |
|
(19 |
) |
Total |
|
$ 1,024 |
|
$ 829 |
|
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 $136 million at September 28, 2013 and $149 million at December 29, 2012.
Finance Receivables
Finance receivables by portfolio, which includes both finance receivables held for investment and finance receivables held for sale, are presented in the following table:
(In millions) |
|
September 28, |
|
December 29, |
|
Captive |
|
$ 1,379 |
|
$ 1,704 |
|
Non-captive |
|
210 |
|
370 |
|
Total finance receivables |
|
1,589 |
|
2,074 |
|
Less: Allowance for losses |
|
62 |
|
84 |
|
Less: Finance receivables held for sale |
|
91 |
|
140 |
|
Total finance receivables held for investment, net |
|
$ 1,436 |
|
$ 1,850 |
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In the third quarter of 2013, we determined that we no longer had the intent to hold the remaining non-captive loan portfolio for the foreseeable future and, accordingly, transferred $34 million of the remaining non-captive loans, net of a $1 million allowance for losses, from the held for investment classification to the held for sale classification.
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. Recognition of interest income is suspended for these accounts and all cash collections are used 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 28, 2013 |
|
December 29, 2012 |
| ||||||||||||
(In millions) |
|
Performing |
|
Watchlist |
|
Nonaccrual |
|
Total |
|
Performing |
|
Watchlist |
|
Nonaccrual |
|
Total |
|
Captive |
|
$ 1,173 |
|
$ 101 |
|
$ 105 |
|
$ 1,379 |
|
$ 1,476 |
|
$ 130 |
|
$ 98 |
|
$ 1,704 |
|
Non-captive |
|
119 |
|
— |
|
— |
|
119 |
|
185 |
|
— |
|
45 |
|
230 |
|
Total |
|
$ 1,292 |
|
$ 101 |
|
$ 105 |
|
$ 1,498 |
|
$ 1,661 |
|
$ 130 |
|
$ 143 |
|
$ 1,934 |
|
% of Total |
|
86.3% |
|
6.7% |
|
7.0% |
|
|
|
85.9% |
|
6.7% |
|
7.4% |
|
|
|
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 28, 2013 |
|
December 29, 2012 |
| ||||||||||||||||
(In millions) |
|
Less Than |
|
31-60 |
|
61-90 |
|
Over |
|
Total |
|
Less Than |
|
31-60 |
|
61-90 |
|
Over |
|
Total |
|
Captive |
|
$ 1,206 |
|
$ 85 |
|
$ 62 |
|
$ 26 |
|
$ 1,379 |
|
$ 1,531 |
|
$ 87 |
|
$ 55 |
|
$ 31 |
|
$ 1,704 |
|
Non-captive |
|
119 |
|
— |
|
— |
|
— |
|
119 |
|
226 |
|
— |
|
1 |
|
3 |
|
230 |
|
Total |
|
$ 1,325 |
|
$ 85 |
|
$ 62 |
|
$ 26 |
|
$ 1,498 |
|
$ 1,757 |
|
$ 87 |
|
$ 56 |
|
$ 34 |
|
$ 1,934 |
|
We had no accrual status loans greater than 90 days past due at September 28, 2013 or December 29, 2012. At September 28, 2013 and December 29, 2012, 60+ days contractual delinquency as a percentage of finance receivables held for investment was 5.87% and 4.65%, respectively.
Loan Modifications
Troubled debt restructurings occur when we have either modified the contract terms of finance receivables held for investment for borrowers experiencing financial difficulties or accepted a transfer of assets in full or partial satisfaction of the loan balance. The types of modifications we typically make include extensions of the original maturity date of the contract, 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 2013 and 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. Interest income recognized on impaired loans was not significant in the first nine months of 2013 or 2012.
A summary of impaired finance receivables, excluding leveraged leases, is provided below:
|
|
Recorded Investment |
|
|
|
|
|
|
| ||||||||||
(In millions) |
|
Impaired |
|
Impaired |
|
Total |
|
Unpaid |
|
Allowance |
|
Average |
| ||||||
September 28, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Captive |
|
$ |
64 |
|
$ |
76 |
|
$ |
140 |
|
$ |
143 |
|
$ |
21 |
|
$ |
135 |
|
Non-captive |
|
— |
|
— |
|
— |
|
— |
|
— |
|
24 |
| ||||||
Total |
|
$ |
64 |
|
$ |
76 |
|
$ |
140 |
|
$ |
143 |
|
$ |
21 |
|
$ |
159 |
|
December 29, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Captive |
|
$ |
61 |
|
$ |
66 |
|
$ |
127 |
|
$ |
128 |
|
$ |
15 |
|
$ |
121 |
|
Non-captive |
|
11 |
|
33 |
|
44 |
|
59 |
|
12 |
|
149 |
| ||||||
Total |
|
$ |
72 |
|
$ |
99 |
|
$ |
171 |
|
$ |
187 |
|
$ |
27 |
|
$ |
270 |
|
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 $119 million and $122 million of leveraged leases at September 28, 2013 and December 29, 2012, respectively, in accordance with authoritative accounting standards.
|
|
September 28, 2013 |
|
December 29, 2012 |
| ||||||||||||
|
|
Finance |
|
Allowance |
|
Allowance |
|
Finance |
|
Allowance |
|
Allowance |
| ||||
(In millions) |
|
Individually |
|
Collectively |
|
Evaluation |
|
Evaluation |
|
Individually |
|
Collectively |
|
Evaluation |
|
Evaluation |
|
Captive |
|
$ 140 |
|
$ 1,239 |
|
$ 21 |
|
$ 41 |
|
$ 127 |
|
$ 1,577 |
|
$ 15 |
|
$ 55 |
|
Non-captive |
|
— |
|
— |
|
— |
|
— |
|
44 |
|
64 |
|
12 |
|
2 |
|
Total |
|
$ 140 |
|
$ 1,239 |
|
$ 21 |
|
$ 41 |
|
$ 171 |
|
$ 1,641 |
|
$ 27 |
|
$ 57 |
|
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 expected future cash flows, discounted at the finance receivable’s effective interest rate, or the fair value of the underlying collateral if the finance receivable is collateral dependent, to its carrying amount. The expected future cash flows consider collateral value; financial performance and liquidity of our borrower; existence and financial strength of guarantors; estimated recovery costs, including legal expenses; and costs associated with the repossession/foreclosure and eventual disposal of collateral. When there is a range of potential outcomes, we perform multiple discounted cash flow analyses and weight the potential outcomes based on their relative likelihood of occurrence. The evaluation of our portfolio is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be received on impaired finance receivables and the estimated fair value of the underlying collateral, which may differ from actual results. While our analysis is specific to each individual account, critical factors included in this analysis for the Captive product line include industry valuation guides, age and physical condition of the collateral, payment history and existence and financial strength of guarantors.
We also establish an allowance for losses to cover probable but specifically unknown losses existing in the portfolio. For the Captive product line, the allowance is established as a percentage of non-recourse finance receivables, which have not been identified as requiring specific reserves. The percentage is based on a combination of factors, including historical loss experience, current delinquency and default trends, collateral values and both general economic and specific industry trends.
Finance receivables held for investment are charged off at the earlier of the date the collateral is repossessed or when no payment has been received for six months, unless management deems the receivable collectible.
A rollforward of the allowance for losses on finance receivables held for investment is provided below:
(In millions) |
|
Captive |
|
Non-captive |
|
Total |
| |||
For the nine months ended September 28, 2013 |
|
|
|
|
|
|
| |||
Beginning balance |
|
$ |
70 |
|
$ |
14 |
|
$ |
84 |
|
Provision for losses |
|
(6 |
) |
(17 |
) |
(23 |
) | |||
Charge-offs |
|
(7 |
) |
(2 |
) |
(9 |
) | |||
Recoveries |
|
5 |
|
6 |
|
11 |
| |||
Transfers |
|
— |
|
(1 |
) |
(1 |
) | |||
Ending balance |
|
$ |
62 |
|
$ |
— |
|
$ |
62 |
|
For the nine months ended September 29, 2012 |
|
|
|
|
|
|
| |||
Beginning balance |
|
$ |
101 |
|
$ |
55 |
|
$ |
156 |
|
Provision for losses |
|
1 |
|
(5 |
) |
(4 |
) | |||
Charge-offs |
|
(40 |
) |
(38 |
) |
(78 |
) | |||
Recoveries |
|
8 |
|
4 |
|
12 |
| |||
Ending balance |
|
$ |
70 |
|
$ |
16 |
|
$ |
86 |
|
|
Note 5. Inventories
(In millions) |
|
September 28, |
|
December 29, |
| ||
Finished goods |
|
$ |
1,374 |
|
$ |
1,329 |
|
Work in process |
|
2,679 |
|
2,247 |
| ||
Raw materials |
|
433 |
|
437 |
| ||
|
|
4,486 |
|
4,013 |
| ||
Progress/milestone payments |
|
(1,266) |
|
(1,301 |
) | ||
Total |
|
$ |
3,220 |
|
$ |
2,712 |
|
Note 6. Debt
On October 4, 2013, Textron entered into a senior unsecured revolving credit facility for an aggregate principal amount of $1.0 billion, of which up to $100 million is available for the issuance of letters of credit. This facility expires in October 2018 and replaced the existing 4-year facility that was scheduled to expire in March 2015. At September 28, 2013, there were no amounts borrowed against the prior facility.
4.50% Convertible Senior Notes and Related Transactions
On May 1, 2013, our remaining convertible senior notes matured, and we paid the holders of the notes $215 million in settlement of the face value of the notes. In addition, we issued 8.9 million shares of our common stock to converting holders in settlement of the excess of the conversion value over the face value of the notes; however, after giving effect to the exercise of the related call options and warrants discussed below, the incremental share settlement in excess of the face value of the notes resulted in a 7.4 million net share issuance.
Concurrently with the pricing of the convertible notes in May 2009, we entered into transactions with two counterparties, pursuant to which we purchased from the counterparties call options to acquire our common stock and sold to the counterparties warrants to purchase our common stock. The call options settled on May 1, 2013, while the warrants settled daily over a 45-day period beginning on February 27, 2013. We acquired 8.9 million shares of our common stock upon the settlement of the call options and issued an aggregate of 7.4 million shares of our common stock in connection with the settlement of the warrants during the first half of 2013. The settlement of the call options and warrants resulted in a $39 million net increase in treasury stock during 2013.
As disclosed in Note 8 of our 2012 Form 10-K, we previously entered into capped call transactions with the counterparties that covered an aggregate of 28.7 million shares of our common stock as of the end of 2012. The capped calls had a strike price of $13.125 per share and a cap price of $15.75 per share, which entitled us to receive the per share value of our stock price in excess of $13.125 up to a maximum stock price of $15.75 at the expiration date. Upon expiration of the capped calls, the market price of our common stock exceeded the maximum stock price, and we received $75 million in cash from the counterparties.
|
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 28, |
|
September 29, |
| ||
Accrual at the beginning of period |
|
$ |
222 |
|
$ |
224 |
|
Provision |
|
203 |
|
190 |
| ||
Settlements |
|
(210) |
|
(187 |
) | ||
Adjustments to prior accrual estimates |
|
(3) |
|
(2 |
) | ||
Accrual at the end of period |
|
$ |
212 |
|
$ |
225 |
|
|
Note 8. Accumulated Other Comprehensive Loss and Other Comprehensive Income
The components of Accumulated Other Comprehensive Loss are presented below:
(In millions) |
|
Foreign |
|
Pension and |
|
Deferred |
|
Accumulated |
| ||||
For the nine months ended September 28, 2013 |
|
|
|
|
|
|
|
|
| ||||
Beginning balance |
|
$ |
81 |
|
$ |
(1,857 |
) |
$ |
6 |
|
$ |
(1,770 |
) |
Other comprehensive income before reclassifications |
|
3 |
|
— |
|
(9 |
) |
(6 |
) | ||||
Amounts reclassified from Accumulated Other Comprehensive Loss |
|
— |
|
127 |
|
(2 |
) |
125 |
| ||||
Other comprehensive income |
|
3 |
|
127 |
|
(11 |
) |
119 |
| ||||
Ending balance |
|
$ |
84 |
|
$ |
(1,730 |
) |
$ |
(5 |
) |
$ |
(1,651 |
) |
For the nine months ended September 29, 2012 |
|
|
|
|
|
|
|
|
| ||||
Beginning balance |
|
$ |
79 |
|
$ |
(1,711 |
) |
$ |
7 |
|
$ |
(1,625 |
) |
Other comprehensive income before reclassifications |
|
(5 |
) |
— |
|
15 |
|
10 |
| ||||
Amounts reclassified from Accumulated Other Comprehensive Loss |
|
— |
|
63 |
|
(10 |
) |
53 |
| ||||
Other comprehensive income |
|
(5 |
) |
63 |
|
5 |
|
63 |
| ||||
Ending balance |
|
$ |
74 |
|
$ |
(1,648 |
) |
$ |
12 |
|
$ |
(1,562 |
) |
The before and after-tax components of Other Comprehensive Income are presented below:
(In millions) |
|
Pre-Tax |
|
Tax |
|
After-Tax |
| |||
For the three months ended September 28, 2013 |
|
|
|
|
|
|
| |||
Pension and postretirement benefits adjustments: |
|
|
|
|
|
|
| |||
Amortization of net actuarial loss* |
|
$ |
48 |
|
$ |
(18 |
) |
$ |
30 |
|
Amortization of prior service cost* |
|
(2 |
) |
1 |
|
(1 |
) | |||
Amendment to postretirement benefit plan |
|
55 |
|
(20 |
) |
35 |
| |||
Pension and postretirement benefits adjustments, net |
|
101 |
|
(37 |
) |
64 |
| |||
Deferred gains/losses on hedge contracts: |
|
|
|
|
|
|
| |||
Current deferrals |
|
3 |
|
(1 |
) |
2 |
| |||
Deferred gains/losses on hedge contracts, net |
|
3 |
|
(1 |
) |
2 |
| |||
Foreign currency translation adjustments |
|
8 |
|
4 |
|
12 |
| |||
Total |
|
$ |
112 |
|
$ |
(34 |
) |
$ |
78 |
|
For the three months ended September 29, 2012 |
|
|
|
|
|
|
| |||
Pension and postretirement benefits adjustments: |
|
|
|
|
|
|
| |||
Amortization of net actuarial loss* |
|
$ |
31 |
|
$ |
(10 |
) |
$ |
21 |
|
Amortization of prior service cost* |
|
1 |
|
(1 |
) |
— |
| |||
Pension and postretirement benefits adjustments, net |
|
32 |
|
(11 |
) |
21 |
| |||
Deferred gains/losses on hedge contracts: |
|
|
|
|
|
|
| |||
Current deferrals |
|
12 |
|
(3 |
) |
9 |
| |||
Reclassification adjustments |
|
— |
|
(1 |
) |
(1 |
) | |||
Deferred gains/losses on hedge contracts, net |
|
12 |
|
(4 |
) |
8 |
| |||
Foreign currency translation adjustments |
|
1 |
|
7 |
|
8 |
| |||
Total |
|
$ |
45 |
|
$ |
(8 |
) |
$ |
37 |
|
|
|
|
|
|
|
|
| |||
For the nine months ended September 28, 2013 |
|
|
|
|
|
|
| |||
Pension and postretirement benefits adjustments: |
|
|
|
|
|
|
| |||
Amortization of net actuarial loss* |
|
$ |
143 |
|
$ |
(51 |
) |
$ |
92 |
|
Amendment to postretirement benefit plan |
|
55 |
|
(20 |
) |
35 |
| |||
Pension and postretirement benefits adjustments, net |
|
198 |
|
(71 |
) |
127 |
| |||
Deferred gains/losses on hedge contracts: |
|
|
|
|
|
|
| |||
Current deferrals |
|
(11 |
) |
2 |
|
(9 |
) | |||
Reclassification adjustments |
|
(3 |
) |
1 |
|
(2 |
) | |||
Deferred gains/losses on hedge contracts, net |
|
(14 |
) |
3 |
|
(11 |
) | |||
Foreign currency translation adjustments |
|
6 |
|
(3 |
) |
3 |
| |||
Total |
|
$ |
190 |
|
$ |
(71 |
) |
$ |
119 |
|
For the nine months ended September 29, 2012 |
|
|
|
|
|
|
| |||
Pension and postretirement benefits adjustments: |
|
|
|
|
|
|
| |||
Amortization of net actuarial loss* |
|
$ |
93 |
|
$ |
(32 |
) |
$ |
61 |
|
Amortization of prior service cost* |
|
3 |
|
(1 |
) |
2 |
| |||
Pension and postretirement benefits adjustments, net |
|
96 |
|
(33 |
) |
63 |
| |||
Deferred gains/losses on hedge contracts: |
|
|
|
|
|
|
| |||
Current deferrals |
|
19 |
|
(4 |
) |
15 |
| |||
Reclassification adjustments |
|
(12 |
) |
2 |
|
(10 |
) | |||
Deferred gains/losses on hedge contracts, net |
|
7 |
|
(2 |
) |
5 |
| |||
Foreign currency translation adjustments |
|
(9 |
) |
4 |
|
(5 |
) | |||
Total |
|
$ |
94 |
|
$ |
(31 |
) |
$ |
63 |
|
*These components of other comprehensive income are included in the computation of net periodic pension cost. See Note 13 of our 2012 Annual Report on Form 10-K for additional information.
In the third quarter of 2013, we amended one of our postretirement benefit plans which triggered a re-measurement of the plan’s projected benefit obligation resulting in a $55 million reduction in unrealized losses and prior service costs, as discussed in Note 2.
|
Note 9. Commitments and Contingencies
We are subject to legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims relating to 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.
|
Note 10. 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) |
| ||||
(In millions) |
|
Borrowing Group |
|
Balance Sheet Location |
|
September 28, |
|
December 29, |
| ||
Assets |
|
|
|
|
|
|
|
|
| ||
Interest rate exchange contracts* |
|
Finance |
|
Other assets |
|
$ |
3 |
|
$ |
8 |
|
Foreign currency exchange contracts |
|
Manufacturing |
|
Other current assets |
|
— |
|
9 |
| ||
Total |
|
|
|
|
|
$ |
3 |
|
$ |
17 |
|
Liabilities |
|
|
|
|
|
|
|
|
| ||
Interest rate exchange contracts* |
|
Finance |
|
Other liabilities |
|
$ |
(6) |
|
$ |
(8 |
) |
Foreign currency exchange contracts |
|
Manufacturing |
|
Accrued liabilities |
|
(7) |
|
(5 |
) | ||
Total |
|
|
|
|
|
$ |
(13) |
|
$ |
(13 |
) |
*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 28, 2013. At September 28, 2013 and December 29, 2012, we had interest rate exchange contracts with notional amounts upon which the contracts were based of $268 million and $671 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 28, 2013 and December 29, 2012, we had foreign currency exchange contracts with notional amounts upon which the contracts were based on $641 million and $664 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 insignificant in both the first nine months of 2013 and 2012.
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 28, 2013, we had a net deferred loss of $5 million in Accumulated other comprehensive loss related to these cash flow hedges. Net gains and losses recognized in earnings and Accumulated other comprehensive loss on these cash flow hedges, including gains and losses related to hedge ineffectiveness, were not material in three and nine months ended September 28, 2013 and September 29, 2012. 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 $5 million after-tax gain for the first nine months of 2013, resulting in an accumulated net gain balance of $9 million at September 28, 2013. The ineffective portion of these hedges was insignificant.
Assets Recorded at Fair Value on a Nonrecurring Basis
During the periods ended September 28, 2013 and December 29, 2012, certain assets in the Finance group were measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). The table below sets forth the balance of those assets at the end of the period in which a fair value adjustment was taken.
(In millions) |
|
September 28, |
|
December 29, |
| ||
Finance receivables held for sale |
|
$ |
91 |
|
$ |
140 |
|
Impaired finance receivables |
|
55 |
|
72 |
| ||
Other assets |
|
26 |
|
76 |
| ||
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 28, 2013 and September 29, 2012.
|
|
Gain (Loss) |
| ||||||||||
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
(In millions) |
|
September 28, |
|
September 29, |
|
September 28, |
|
September 29, |
| ||||
Finance receivables held for sale |
|
$ |
13 |
|
$ |
22 |
|
$ |
30 |
|
$ |
66 |
|
Impaired finance receivables |
|
(3) |
|
(2 |
) |
(8) |
|
(9 |
) | ||||
Other assets |
|
(5) |
|
(13 |
) |
(10) |
|
(45 |
) | ||||
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 28, 2013, our finance receivables held for sale included the non-captive loan portfolio. Fair values of each loan in this portfolio were determined based on a combination of discounted cash flow models and recent third-party offers to estimate the price we expect to receive in the principal market for each loan, in an orderly transaction. The cash flow models 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, as well as quantitative assumptions, including discount rates and revenue and earnings multiples, which are used to estimate the value of the underlying collateral. The gains on finance receivables held for sale during the three and nine months ended September 28, 2013 and September 29, 2012 were primarily the result of the payoff of loans in amounts, and sale of loans at prices, in excess of the values established in previous periods.
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 impaired nonaccrual finance receivables secured by aviation assets, the fair values of collateral are determined primarily based on the use of industry pricing guides. Fair value measurements recorded on impaired finance receivables resulted in charges to provision for loan losses and primarily related to initial fair value adjustments.
Other assets
Other assets in the table above primarily include repossessed golf and hotel properties and aviation assets. The fair value of our golf and hotel properties is determined based on the use of discounted cash flow models, bids from prospective buyers or inputs from market participants. The fair value of our aviation assets is largely determined based on the use of industry pricing guides. If the carrying amount of these assets is higher than their estimated fair value, we record a corresponding charge to income for the difference.
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 28, 2013 |
|
December 29, 2012 |
| ||||
(In millions) |
|
Carrying |
|
Estimated |
|
Carrying |
|
Estimated |
|
Manufacturing group |
|
|
|
|
|
|
|
|
|
Long-term debt, excluding leases |
|
$ (1,847 |
) |
$ (2,034) |
|
$ (2,225 |
) |
$ (2,636 |
) |
Finance group |
|
|
|
|
|
|
|
|
|
Finance receivables held for investment, excluding leases |
|
1,235 |
|
1,194 |
|
1,625 |
|
1,653 |
|
Debt |
|
(1,278 |
) |
(1,267) |
|
(1,686 |
) |
(1,678 |
) |
Fair value for the Manufacturing group debt is determined using market observable data for similar transactions or Level 2 inputs. At September 28, 2013 and December 29, 2012, approximately 29% and 46%, respectively, of the fair value of debt for the Finance group was determined based on observable market transactions (Level 1). The remaining Finance group debt was determined based on discounted cash flow analyses using observable market inputs from debt with similar duration, subordination and credit default expectations (Level 2). Fair value estimates for finance receivables held for investment were determined based on internally developed discounted cash flow models primarily utilizing significant unobservable inputs (Level 3), which include estimates of the rate of return, financing cost, capital structure and/or discount rate expectations of current market participants combined with estimated loan cash flows based on credit losses, payment rates and expectations of borrowers’ ability to make payments on a timely basis.
|
Note 11. Income Tax Expense
Income tax expense equated to an effective income tax rate of 32.4% and 27.5% for the three and nine months ended September 28, 2013, respectively, compared with the U.S. federal statutory income tax rate of 35%. In the first nine months of 2013, the difference between the effective income tax rate and the statutory income tax rate was primarily due to benefits from income attributable to international operations in countries with lower tax rates and a favorable impact of four percentage points, resulting from the retroactive reinstatement and extension of the Federal Research and Development Tax Credit as part of the American Taxpayer Relief Act of 2012 enacted on January 2, 2013. The difference between the effective income tax rate and the federal statutory income tax rate for the three months ended September 28, 2013 was not significant.
For the three and nine months ended September 29, 2012, the difference between the effective income tax rate and the federal statutory income tax rate was not significant.
|
Note 12. 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 28, |
|
September 29, |
|
September 28, |
|
September 29, |
| ||||
REVENUES |
|
|
|
|
|
|
|
|
| ||||
Manufacturing Group |
|
|
|
|
|
|
|
|
| ||||
Cessna |
|
$ |
593 |
|
$ |
778 |
|
$ |
1,861 |
|
$ |
2,210 |
|
Bell |
|
1,162 |
|
1,075 |
|
3,136 |
|
3,125 |
| ||||
Textron Systems |
|
405 |
|
400 |
|
1,256 |
|
1,166 |
| ||||
Industrial |
|
711 |
|
683 |
|
2,239 |
|
2,194 |
| ||||
|
|
2,871 |
|
2,936 |
|
8,492 |
|
8,695 |
| ||||
Finance Group |
|
33 |
|
64 |
|
106 |
|
180 |
| ||||
Total revenues |
|
$ |
2,904 |
|
$ |
3,000 |
|
$ |
8,598 |
|
$ |
8,875 |
|
SEGMENT OPERATING PROFIT |
|
|
|
|
|
|
|
|
| ||||
Manufacturing Group |
|
|
|
|
|
|
|
|
| ||||
Cessna |
|
$ |
(23) |
|
$ |
30 |
|
$ |
(81) |
|
$ |
59 |
|
Bell |
|
131 |
|
165 |
|
395 |
|
462 |
| ||||
Textron Systems |
|
35 |
|
21 |
|
107 |
|
96 |
| ||||
Industrial |
|
52 |
|
38 |
|
188 |
|
172 |
| ||||
|
|
195 |
|
254 |
|
609 |
|
789 |
| ||||
Finance Group |
|
13 |
|
28 |
|
47 |
|
62 |
| ||||
Segment profit |
|
208 |
|
282 |
|
656 |
|
851 |
| ||||
Corporate expenses and other, net |
|
(34) |
|
(38 |
) |
(109) |
|
(105 |
) | ||||
Interest expense, net for Manufacturing group |
|
(29) |
|
(35 |
) |
(96) |
|
(105 |
) | ||||
Income from continuing operations before income taxes |
|
$ |
145 |
|
$ |
209 |
|
$ |
451 |
|
$ |
641 |
|
|
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 2013 and 2012, 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 2013 and 2012 were $4 million and $(6) million, respectively, ($2 million and $(4) million after tax, or $0.01 and $(0.02) per diluted share, respectively). For the third quarter of 2013 and 2012, the gross favorable program profit adjustments totaled $12 million and $12 million, respectively, and the gross unfavorable program profit adjustments totaled $8 million and $18 million, respectively.
The changes in estimates increased income from continuing operations before income taxes in the first nine months of 2013 and 2012 by $13 million and $10 million, ($8 million and $6 million after tax, or $0.03 and $0.02 per diluted share, respectively). For the first nine months of 2013 and 2012, the gross favorable program profit adjustments totaled $30 million and $52 million, respectively, and the gross unfavorable program profit adjustments totaled $17 million and $42 million, respectively.
|
|
|
Pension Benefits |
|
Postretirement Benefits |
| ||||||||
(In millions) |
|
September 28, |
|
September 29, |
|
September 28, |
|
September 29, |
| ||||
Three Months Ended |
|
|
|
|
|
|
|
|
| ||||
Service cost |
|
$ |
33 |
|
$ |
30 |
|
$ |
1 |
|
$ |
2 |
|
Interest cost |
|
72 |
|
77 |
|
5 |
|
6 |
| ||||
Expected return on plan assets |
|
(104) |
|
(102 |
) |
— |
|
— |
| ||||
Amortization of prior service cost (credit) |
|
4 |
|
4 |
|
(6) |
|
(3 |
) | ||||
Amortization of net actuarial loss |
|
46 |
|
29 |
|
2 |
|
2 |
| ||||
Net periodic benefit cost |
|
$ |
51 |
|
$ |
38 |
|
$ |
2 |
|
$ |
7 |
|
Nine Months Ended |
|
|
|
|
|
|
|
|
| ||||
Service cost |
|
$ |
100 |
|
$ |
89 |
|
$ |
5 |
|
$ |
5 |
|
Interest cost |
|
218 |
|
229 |
|
15 |
|
19 |
| ||||
Expected return on plan assets |
|
(314) |
|
(305 |
) |
— |
|
— |
| ||||
Amortization of prior service cost (credit) |
|
11 |
|
12 |
|
(11) |
|
(9 |
) | ||||
Amortization of net actuarial loss |
|
138 |
|
88 |
|
5 |
|
5 |
| ||||
Net periodic benefit cost |
|
$ |
153 |
|
$ |
113 |
|
$ |
14 |
|
$ |
20 |
|
|
(In millions) |
|
September 28, |
|
December 29, |
|
Commercial |
|
$ 708 |
|
$ 534 |
|
U.S. Government contracts |
|
340 |
|
314 |
|
|
|
1,048 |
|
848 |
|
Allowance for doubtful accounts |
|
(24) |
|
(19 |
) |
Total |
|
$ 1,024 |
|
$ 829 |
|
(In millions) |
|
September 28, |
|
December 29, |
|
Captive |
|
$ 1,379 |
|
$ 1,704 |
|
Non-captive |
|
210 |
|
370 |
|
Total finance receivables |
|
1,589 |
|
2,074 |
|
Less: Allowance for losses |
|
62 |
|
84 |
|
Less: Finance receivables held for sale |
|
91 |
|
140 |
|
Total finance receivables held for investment, net |
|
$ 1,436 |
|
$ 1,850 |
|
|
|
September 28, 2013 |
|
December 29, 2012 |
| ||||||||||||
(In millions) |
|
Performing |
|
Watchlist |
|
Nonaccrual |
|
Total |
|
Performing |
|
Watchlist |
|
Nonaccrual |
|
Total |
|
Captive |
|
$ 1,173 |
|
$ 101 |
|
$ 105 |
|
$ 1,379 |
|
$ 1,476 |
|
$ 130 |
|
$ 98 |
|
$ 1,704 |
|
Non-captive |
|
119 |
|
— |
|
— |
|
119 |
|
185 |
|
— |
|
45 |
|
230 |
|
Total |
|
$ 1,292 |
|
$ 101 |
|
$ 105 |
|
$ 1,498 |
|
$ 1,661 |
|
$ 130 |
|
$ 143 |
|
$ 1,934 |
|
% of Total |
|
86.3% |
|
6.7% |
|
7.0% |
|
|
|
85.9% |
|
6.7% |
|
7.4% |
|
|
|
|
|
September 28, 2013 |
|
December 29, 2012 |
| ||||||||||||||||
(In millions) |
|
Less Than |
|
31-60 |
|
61-90 |
|
Over |
|
Total |
|
Less Than |
|
31-60 |
|
61-90 |
|
Over |
|
Total |
|
Captive |
|
$ 1,206 |
|
$ 85 |
|
$ 62 |
|
$ 26 |
|
$ 1,379 |
|
$ 1,531 |
|
$ 87 |
|
$ 55 |
|
$ 31 |
|
$ 1,704 |
|
Non-captive |
|
119 |
|
— |
|
— |
|
— |
|
119 |
|
226 |
|
— |
|
1 |
|
3 |
|
230 |
|
Total |
|
$ 1,325 |
|
$ 85 |
|
$ 62 |
|
$ 26 |
|
$ 1,498 |
|
$ 1,757 |
|
$ 87 |
|
$ 56 |
|
$ 34 |
|
$ 1,934 |
|
|
Recorded Investment |
|
|
|
|
|
|
| ||||||||||
(In millions) |
|
Impaired |
|
Impaired |
|
Total |
|
Unpaid |
|
Allowance |
|
Average |
| ||||||
September 28, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Captive |
|
$ |
64 |
|
$ |
76 |
|
$ |
140 |
|
$ |
143 |
|
$ |
21 |
|
$ |
135 |
|
Non-captive |
|
— |
|
— |
|
— |
|
— |
|
— |
|
24 |
| ||||||
Total |
|
$ |
64 |
|
$ |
76 |
|
$ |
140 |
|
$ |
143 |
|
$ |
21 |
|
$ |
159 |
|
December 29, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Captive |
|
$ |
61 |
|
$ |
66 |
|
$ |
127 |
|
$ |
128 |
|
$ |
15 |
|
$ |
121 |
|
Non-captive |
|
11 |
|
33 |
|
44 |
|
59 |
|
12 |
|
149 |
| ||||||
Total |
|
$ |
72 |
|
$ |
99 |
|
$ |
171 |
|
$ |
187 |
|
$ |
27 |
|
$ |
270 |
|
|
|
September 28, 2013 |
|
December 29, 2012 |
| ||||||||||||
|
|
Finance |
|
Allowance |
|
Allowance |
|
Finance |
|
Allowance |
|
Allowance |
| ||||
(In millions) |
|
Individually |
|
Collectively |
|
Evaluation |
|
Evaluation |
|
Individually |
|
Collectively |
|
Evaluation |
|
Evaluation |
|
Captive |
|
$ 140 |
|
$ 1,239 |
|
$ 21 |
|
$ 41 |
|
$ 127 |
|
$ 1,577 |
|
$ 15 |
|
$ 55 |
|
Non-captive |
|
— |
|
— |
|
— |
|
— |
|
44 |
|
64 |
|
12 |
|
2 |
|
Total |
|
$ 140 |
|
$ 1,239 |
|
$ 21 |
|
$ 41 |
|
$ 171 |
|
$ 1,641 |
|
$ 27 |
|
$ 57 |
|
(In millions) |
|
Captive |
|
Non-captive |
|
Total |
| |||
For the nine months ended September 28, 2013 |
|
|
|
|
|
|
| |||
Beginning balance |
|
$ |
70 |
|
$ |
14 |
|
$ |
84 |
|
Provision for losses |
|
(6 |
) |
(17 |
) |
(23 |
) | |||
Charge-offs |
|
(7 |
) |
(2 |
) |
(9 |
) | |||
Recoveries |
|
5 |
|
6 |
|
11 |
| |||
Transfers |
|
— |
|
(1 |
) |
(1 |
) | |||
Ending balance |
|
$ |
62 |
|
$ |
— |
|
$ |
62 |
|
For the nine months ended September 29, 2012 |
|
|
|
|
|
|
| |||
Beginning balance |
|
$ |
101 |
|
$ |
55 |
|
$ |
156 |
|
Provision for losses |
|
1 |
|
(5 |
) |
(4 |
) | |||
Charge-offs |
|
(40 |
) |
(38 |
) |
(78 |
) | |||
Recoveries |
|
8 |
|
4 |
|
12 |
| |||
Ending balance |
|
$ |
70 |
|
$ |
16 |
|
$ |
86 |
|
|
(In millions) |
|
September 28, |
|
December 29, |
| ||
Finished goods |
|
$ |
1,374 |
|
$ |
1,329 |
|
Work in process |
|
2,679 |
|
2,247 |
| ||
Raw materials |
|
433 |
|
437 |
| ||
|
|
4,486 |
|
4,013 |
| ||
Progress/milestone payments |
|
(1,266) |
|
(1,301 |
) | ||
Total |
|
$ |
3,220 |
|
$ |
2,712 |
|
|
|
Nine Months Ended |
| ||||
(In millions) |
|
September 28, |
|
September 29, |
| ||
Accrual at the beginning of period |
|
$ |
222 |
|
$ |
224 |
|
Provision |
|
203 |
|
190 |
| ||
Settlements |
|
(210) |
|
(187 |
) | ||
Adjustments to prior accrual estimates |
|
(3) |
|
(2 |
) | ||
Accrual at the end of period |
|
$ |
212 |
|
$ |
225 |
|
|
(In millions) |
|
Foreign |
|
Pension and |
|
Deferred |
|
Accumulated |
| ||||
For the nine months ended September 28, 2013 |
|
|
|
|
|
|
|
|
| ||||
Beginning balance |
|
$ |
81 |
|
$ |
(1,857 |
) |
$ |
6 |
|
$ |
(1,770 |
) |
Other comprehensive income before reclassifications |
|
3 |
|
— |
|
(9 |
) |
(6 |
) | ||||
Amounts reclassified from Accumulated Other Comprehensive Loss |
|
— |
|
127 |
|
(2 |
) |
125 |
| ||||
Other comprehensive income |
|
3 |
|
127 |
|
(11 |
) |
119 |
| ||||
Ending balance |
|
$ |
84 |
|
$ |
(1,730 |
) |
$ |
(5 |
) |
$ |
(1,651 |
) |
For the nine months ended September 29, 2012 |
|
|
|
|
|
|
|
|
| ||||
Beginning balance |
|
$ |
79 |
|
$ |
(1,711 |
) |
$ |
7 |
|
$ |
(1,625 |
) |
Other comprehensive income before reclassifications |
|
(5 |
) |
— |
|
15 |
|
10 |
| ||||
Amounts reclassified from Accumulated Other Comprehensive Loss |
|
— |
|
63 |
|
(10 |
) |
53 |
| ||||
Other comprehensive income |
|
(5 |
) |
63 |
|
5 |
|
63 |
| ||||
Ending balance |
|
$ |
74 |
|
$ |
(1,648 |
) |
$ |
12 |
|
$ |
(1,562 |
) |
(In millions) |
|
Pre-Tax |
|
Tax |
|
After-Tax |
| |||
For the three months ended September 28, 2013 |
|
|
|
|
|
|
| |||
Pension and postretirement benefits adjustments: |
|
|
|
|
|
|
| |||
Amortization of net actuarial loss* |
|
$ |
48 |
|
$ |
(18 |
) |
$ |
30 |
|
Amortization of prior service cost* |
|
(2 |
) |
1 |
|
(1 |
) | |||
Amendment to postretirement benefit plan |
|
55 |
|
(20 |
) |
35 |
| |||
Pension and postretirement benefits adjustments, net |
|
101 |
|
(37 |
) |
64 |
| |||
Deferred gains/losses on hedge contracts: |
|
|
|
|
|
|
| |||
Current deferrals |
|
3 |
|
(1 |
) |
2 |
| |||
Deferred gains/losses on hedge contracts, net |
|
3 |
|
(1 |
) |
2 |
| |||
Foreign currency translation adjustments |
|
8 |
|
4 |
|
12 |
| |||
Total |
|
$ |
112 |
|
$ |
(34 |
) |
$ |
78 |
|
For the three months ended September 29, 2012 |
|
|
|
|
|
|
| |||
Pension and postretirement benefits adjustments: |
|
|
|
|
|
|
| |||
Amortization of net actuarial loss* |
|
$ |
31 |
|
$ |
(10 |
) |
$ |
21 |
|
Amortization of prior service cost* |
|
1 |
|
(1 |
) |
— |
| |||
Pension and postretirement benefits adjustments, net |
|
32 |
|
(11 |
) |
21 |
| |||
Deferred gains/losses on hedge contracts: |
|
|
|
|
|
|
| |||
Current deferrals |
|
12 |
|
(3 |
) |
9 |
| |||
Reclassification adjustments |
|
— |
|
(1 |
) |
(1 |
) | |||
Deferred gains/losses on hedge contracts, net |
|
12 |
|
(4 |
) |
8 |
| |||
Foreign currency translation adjustments |
|
1 |
|
7 |
|
8 |
| |||
Total |
|
$ |
45 |
|
$ |
(8 |
) |
$ |
37 |
|
|
|
|
|
|
|
|
| |||
For the nine months ended September 28, 2013 |
|
|
|
|
|
|
| |||
Pension and postretirement benefits adjustments: |
|
|
|
|
|
|
| |||
Amortization of net actuarial loss* |
|
$ |
143 |
|
$ |
(51 |
) |
$ |
92 |
|
Amendment to postretirement benefit plan |
|
55 |
|
(20 |
) |
35 |
| |||
Pension and postretirement benefits adjustments, net |
|
198 |
|
(71 |
) |
127 |
| |||
Deferred gains/losses on hedge contracts: |
|
|
|
|
|
|
| |||
Current deferrals |
|
(11 |
) |
2 |
|
(9 |
) | |||
Reclassification adjustments |
|
(3 |
) |
1 |
|
(2 |
) | |||
Deferred gains/losses on hedge contracts, net |
|
(14 |
) |
3 |
|
(11 |
) | |||
Foreign currency translation adjustments |
|
6 |
|
(3 |
) |
3 |
| |||
Total |
|
$ |
190 |
|
$ |
(71 |
) |
$ |
119 |
|
For the nine months ended September 29, 2012 |
|
|
|
|
|
|
| |||
Pension and postretirement benefits adjustments: |
|
|
|
|
|
|
| |||
Amortization of net actuarial loss* |
|
$ |
93 |
|
$ |
(32 |
) |
$ |
61 |
|
Amortization of prior service cost* |
|
3 |
|
(1 |
) |
2 |
| |||
Pension and postretirement benefits adjustments, net |
|
96 |
|
(33 |
) |
63 |
| |||
Deferred gains/losses on hedge contracts: |
|
|
|
|
|
|
| |||
Current deferrals |
|
19 |
|
(4 |
) |
15 |
| |||
Reclassification adjustments |
|
(12 |
) |
2 |
|
(10 |
) | |||
Deferred gains/losses on hedge contracts, net |
|
7 |
|
(2 |
) |
5 |
| |||
Foreign currency translation adjustments |
|
(9 |
) |
4 |
|
(5 |
) | |||
Total |
|
$ |
94 |
|
$ |
(31 |
) |
$ |
63 |
|
*These components of other comprehensive income are included in the computation of net periodic pension cost. See Note 13 of our 2012 Annual Report on Form 10-K for additional information.
|
|
|
|
|
|
|
Asset (Liability) |
| ||||
(In millions) |
|
Borrowing Group |
|
Balance Sheet Location |
|
September 28, |
|
December 29, |
| ||
Assets |
|
|
|
|
|
|
|
|
| ||
Interest rate exchange contracts* |
|
Finance |
|
Other assets |
|
$ |
3 |
|
$ |
8 |
|
Foreign currency exchange contracts |
|
Manufacturing |
|
Other current assets |
|
— |
|
9 |
| ||
Total |
|
|
|
|
|
$ |
3 |
|
$ |
17 |
|
Liabilities |
|
|
|
|
|
|
|
|
| ||
Interest rate exchange contracts* |
|
Finance |
|
Other liabilities |
|
$ |
(6) |
|
$ |
(8 |
) |
Foreign currency exchange contracts |
|
Manufacturing |
|
Accrued liabilities |
|
(7) |
|
(5 |
) | ||
Total |
|
|
|
|
|
$ |
(13) |
|
$ |
(13 |
) |
*Interest rate exchange contracts represent fair value hedges.
(In millions) |
|
September 28, |
|
December 29, |
| ||
Finance receivables held for sale |
|
$ |
91 |
|
$ |
140 |
|
Impaired finance receivables |
|
55 |
|
72 |
| ||
Other assets |
|
26 |
|
76 |
| ||
|
|
Gain (Loss) |
| ||||||||||
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
(In millions) |
|
September 28, |
|
September 29, |
|
September 28, |
|
September 29, |
| ||||
Finance receivables held for sale |
|
$ |
13 |
|
$ |
22 |
|
$ |
30 |
|
$ |
66 |
|
Impaired finance receivables |
|
(3) |
|
(2 |
) |
(8) |
|
(9 |
) | ||||
Other assets |
|
(5) |
|
(13 |
) |
(10) |
|
(45 |
) |
|
|
September 28, 2013 |
|
December 29, 2012 |
| ||||
(In millions) |
|
Carrying |
|
Estimated |
|
Carrying |
|
Estimated |
|
Manufacturing group |
|
|
|
|
|
|
|
|
|
Long-term debt, excluding leases |
|
$ (1,847 |
) |
$ (2,034) |
|
$ (2,225 |
) |
$ (2,636 |
) |
Finance group |
|
|
|
|
|
|
|
|
|
Finance receivables held for investment, excluding leases |
|
1,235 |
|
1,194 |
|
1,625 |
|
1,653 |
|
Debt |
|
(1,278 |
) |
(1,267) |
|
(1,686 |
) |
(1,678 |
) |
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
(In millions) |
|
September 28, |
|
September 29, |
|
September 28, |
|
September 29, |
| ||||
REVENUES |
|
|
|
|
|
|
|
|
| ||||
Manufacturing Group |
|
|
|
|
|
|
|
|
| ||||
Cessna |
|
$ |
593 |
|
$ |
778 |
|
$ |
1,861 |
|
$ |
2,210 |
|
Bell |
|
1,162 |
|
1,075 |
|
3,136 |
|
3,125 |
| ||||
Textron Systems |
|
405 |
|
400 |
|
1,256 |
|
1,166 |
| ||||
Industrial |
|
711 |
|
683 |
|
2,239 |
|
2,194 |
| ||||
|
|
2,871 |
|
2,936 |
|
8,492 |
|
8,695 |
| ||||
Finance Group |
|
33 |
|
64 |
|
106 |
|
180 |
| ||||
Total revenues |
|
$ |
2,904 |
|
$ |
3,000 |
|
$ |
8,598 |
|
$ |
8,875 |
|
SEGMENT OPERATING PROFIT |
|
|
|
|
|
|
|
|
| ||||
Manufacturing Group |
|
|
|
|
|
|
|
|
| ||||
Cessna |
|
$ |
(23) |
|
$ |
30 |
|
$ |
(81) |
|
$ |
59 |
|
Bell |
|
131 |
|
165 |
|
395 |
|
462 |
| ||||
Textron Systems |
|
35 |
|
21 |
|
107 |
|
96 |
| ||||
Industrial |
|
52 |
|
38 |
|
188 |
|
172 |
| ||||
|
|
195 |
|
254 |
|
609 |
|
789 |
| ||||
Finance Group |
|
13 |
|
28 |
|
47 |
|
62 |
| ||||
Segment profit |
|
208 |
|
282 |
|
656 |
|
851 |
| ||||
Corporate expenses and other, net |
|
(34) |
|
(38 |
) |
(109) |
|
(105 |
) | ||||
Interest expense, net for Manufacturing group |
|
(29) |
|
(35 |
) |
(96) |
|
(105 |
) | ||||
Income from continuing operations before income taxes |
|
$ |
145 |
|
$ |
209 |
|
$ |
451 |
|
$ |
641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|