[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended June 28, 2008
|
OR
|
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Delaware
|
05-0315468
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
|
40
Westminster Street, Providence, RI
|
02903
|
|
(Address
of principal executive offices)
|
(zip
code)
|
Page
|
||
PART
I.
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
Financial
Statements
|
|
3
|
||
4
|
||
5
|
||
7
|
||
Item
2.
|
15
|
|
Item
3.
|
24
|
|
Item
4.
|
24
|
|
PART
II.
|
OTHER
INFORMATION
|
|
Item
2.
|
25
|
|
Item
4.
|
25
|
|
Item
6.
|
26
|
|
27
|
||
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
|||||||||||||
Revenues
|
||||||||||||||||
Manufacturing
|
$ | 3,742 | $ | 2,996 | $ | 7,046 | $ | 5,750 | ||||||||
Finance
|
177 | 239 | 391 | 449 | ||||||||||||
Total
revenues
|
3,919 | 3,235 | 7,437 | 6,199 | ||||||||||||
Costs,
expenses and other
|
||||||||||||||||
Cost
of sales
|
2,948 | 2,374 | 5,542 | 4,554 | ||||||||||||
Selling
and administrative
|
439 | 429 | 868 | 801 | ||||||||||||
Interest
expense, net
|
101 | 124 | 216 | 247 | ||||||||||||
Provision
for losses on finance receivables
|
40 | 11 | 67 | 16 | ||||||||||||
Total costs,
expenses and other
|
3,528 | 2,938 | 6,693 | 5,618 | ||||||||||||
Income
from continuing operations before income taxes
|
391 | 297 | 744 | 581 | ||||||||||||
Income
taxes
|
(130 | ) | (82 | ) | (247 | ) | (168 | ) | ||||||||
Income
from continuing operations
|
261 | 215 | 497 | 413 | ||||||||||||
Loss
from discontinued operations, net of income taxes
|
(3 | ) | (5 | ) | (8 | ) | (7 | ) | ||||||||
Net
income
|
$ | 258 | $ | 210 | $ | 489 | $ | 406 | ||||||||
Basic
earnings per share
|
||||||||||||||||
Continuing
operations
|
$ | 1.04 | $ | 0.86 | $ | 1.99 | $ | 1.65 | ||||||||
Discontinued
operations
|
(0.01 | ) | (0.02 | ) | (0.03 | ) | (0.03 | ) | ||||||||
Basic
earnings per share
|
$ | 1.03 | $ | 0.84 | $ | 1.96 | $ | 1.62 | ||||||||
Diluted
earnings per share
|
||||||||||||||||
Continuing
operations
|
$ | 1.03 | $ | 0.85 | $ | 1.95 | $ | 1.63 | ||||||||
Discontinued
operations
|
(0.01 | ) | (0.02 | ) | (0.03 | ) | (0.03 | ) | ||||||||
Diluted
earnings per share
|
$ | 1.02 | $ | 0.83 | $ | 1.92 | $ | 1.60 | ||||||||
Dividends
per share
|
||||||||||||||||
$2.08
Preferred stock, Series A
|
$ | 0.52 | $ | 0.52 | $ | 1.04 | $ | 1.04 | ||||||||
$1.40
Preferred stock, Series B
|
$ | 0.35 | $ | 0.35 | $ | 0.70 | $ | 0.70 | ||||||||
Common
stock
|
$ | 0.23 | $ | 0.194 | $ | 0.46 | $ | 0.388 |
June
28,
2008
|
December
29,
2007
|
|||||||
Assets
|
||||||||
Manufacturing
group
|
||||||||
Cash
and cash equivalents
|
$ | 424 | $ | 471 | ||||
Accounts
receivable, less allowance for doubtful accounts of $30 and
$34
|
1,209 | 1,083 | ||||||
Inventories
|
3,291 | 2,724 | ||||||
Other
current assets
|
482 | 568 | ||||||
Total current
assets
|
5,406 | 4,846 | ||||||
Property,
plant and equipment, less accumulated
depreciation and amortization
of $2,557 and $2,388
|
2,040 | 1,999 | ||||||
Goodwill
|
2,107 | 2,132 | ||||||
Other
assets
|
1,614 | 1,596 | ||||||
Total Manufacturing group
assets
|
11,167 | 10,573 | ||||||
Finance
group
|
||||||||
Cash
|
56 | 60 | ||||||
Finance
receivables, less allowance for losses of $126 and $89
|
8,474 | 8,514 | ||||||
Goodwill
|
169 | 169 | ||||||
Other
assets
|
830 | 640 | ||||||
Total Finance group
assets
|
9,529 | 9,383 | ||||||
Total assets
|
$ | 20,696 | $ | 19,956 | ||||
Liabilities
and shareholders’ equity
|
||||||||
Liabilities
|
||||||||
Manufacturing
group
|
||||||||
Current
portion of long-term debt and short-term debt
|
$ | 394 | $ | 355 | ||||
Accounts
payable
|
1,159 | 927 | ||||||
Accrued
liabilities
|
2,894 | 2,840 | ||||||
Total current
liabilities
|
4,447 | 4,122 | ||||||
Other
liabilities
|
2,147 | 2,289 | ||||||
Long-term
debt
|
1,805 | 1,793 | ||||||
Total Manufacturing group
liabilities
|
8,399 | 8,204 | ||||||
Finance
group
|
||||||||
Other
liabilities
|
531 | 462 | ||||||
Deferred
income taxes
|
431 | 472 | ||||||
Debt
|
7,547 | 7,311 | ||||||
Total Finance group
liabilities
|
8,509 | 8,245 | ||||||
Total
liabilities
|
16,908 | 16,449 | ||||||
Shareholders’
equity
|
||||||||
Capital
stock:
|
||||||||
Preferred stock
|
2 | 2 | ||||||
Common stock
|
32 | 32 | ||||||
Capital
surplus
|
1,253 | 1,193 | ||||||
Retained
earnings
|
3,140 | 2,766 | ||||||
Accumulated
other comprehensive loss
|
(403 | ) | (400 | ) | ||||
4,024 | 3,593 | |||||||
Less
cost of treasury shares
|
236 | 86 | ||||||
Total
shareholders’ equity
|
3,788 | 3,507 | ||||||
Total
liabilities and shareholders’ equity
|
$ | 20,696 | $ | 19,956 | ||||
Common shares
outstanding
(in thousands)
|
248,434 | 250,061 |
Consolidated
|
||||||||
2008
|
2007
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 489 | $ | 406 | ||||
Less:
Loss from discontinued operations
|
(8 | ) | (7 | ) | ||||
Income
from continuing operations
|
497 | 413 | ||||||
Adjustments
to reconcile income from continuing operations to net cash
|
||||||||
provided
by operating activities:
|
||||||||
Earnings of
Finance group, net of distributions
|
- | - | ||||||
Depreciation
and amortization
|
206 | 153 | ||||||
Provision
for losses on finance receivables
|
67 | 16 | ||||||
Share-based
compensation
|
27 | 18 | ||||||
Deferred
income taxes
|
(33 | ) | 10 | |||||
Changes in
assets and liabilities excluding those related to
acquisitions
|
||||||||
and
divestitures:
|
||||||||
Accounts
receivable, net
|
(105 | ) | (103 | ) | ||||
Inventories
|
(668 | ) | (447 | ) | ||||
Other
assets
|
99 | 49 | ||||||
Accounts
payable
|
218 | 118 | ||||||
Accrued and
other liabilities
|
21 | 36 | ||||||
Captive
finance receivables, net
|
23 | (171 | ) | |||||
Other
operating activities, net
|
20 | 31 | ||||||
Net
cash provided by operating activities of continuing
operations
|
372 | 123 | ||||||
Net
cash used in operating activities of discontinued
operations
|
(9 | ) | (3 | ) | ||||
Net
cash provided by operating activities
|
363 | 120 | ||||||
Cash
flows from investing activities:
|
||||||||
Finance
receivables:
|
||||||||
Originated
or purchased
|
(5,818 | ) | (5,964 | ) | ||||
Repaid
|
5,257 | 5,463 | ||||||
Proceeds on
receivables sales and securitization sales
|
507 | 689 | ||||||
Net
cash used in acquisitions
|
(100 | ) | - | |||||
Capital
expenditures
|
(200 | ) | (142 | ) | ||||
Proceeds
from sale of property, plant and equipment
|
1 | 3 | ||||||
Purchase
of other marketable securities
|
(100 | ) | - | |||||
Other
investing activities, net
|
8 | 12 | ||||||
Net
cash (used in) provided by investing activities of continuing
operations
|
(445 | ) | 61 | |||||
Net
cash provided by investing activities of discontinued
operations
|
- | 32 | ||||||
Net
cash (used in) provided by investing activities
|
(445 | ) | 93 | |||||
Cash
flows from financing activities:
|
||||||||
Increase
(decrease) in short-term debt
|
34 | (145 | ) | |||||
Proceeds
from issuance of long-term debt
|
1,122 | 1,070 | ||||||
Principal payments
and retirements of long-
term
debt
|
(935 | ) | (992 | ) | ||||
Proceeds
from option exercises
|
38 | 69 | ||||||
Purchases
of Textron common stock
|
(134 | ) | (221 | ) | ||||
Dividends
paid
|
(115 | ) | (97 | ) | ||||
Excess
tax benefits related to stock option exercises
|
9 | 12 | ||||||
Net
cash provided by (used in) financing activities
|
19 | (304 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
12 | 8 | ||||||
Net
decrease in cash and cash equivalents
|
(51 | ) | (83 | ) | ||||
Cash
and cash equivalents at beginning of period
|
531 | 780 | ||||||
Cash
and cash equivalents at end of period
|
$ | 480 | $ | 697 |
Manufacturing
Group*
|
Finance
Group*
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Cash
flows from operating activities:
|
||||||||||||||||
Net
income
|
$ | 489 | $ | 406 | $ | 35 | $ | 76 | ||||||||
Less:
Loss from discontinued operations
|
(8 | ) | (7 | ) | - | - | ||||||||||
Income
from continuing operations
|
497 | 413 | 35 | 76 | ||||||||||||
Adjustments
to reconcile income from continuing operations to net cash
provided
by operating activities:
|
||||||||||||||||
Earnings of Finance group, net of
distributions
|
107 | 59 | - | - | ||||||||||||
Depreciation and
amortization
|
187 | 134 | 19 | 19 | ||||||||||||
Provision for losses on finance
receivables
|
- | - | 67 | 16 | ||||||||||||
Share-based compensation
|
27 | 18 | - | - | ||||||||||||
Deferred income taxes
|
8 | (2 | ) | (41 | ) | 12 | ||||||||||
Changes in assets and liabilities excluding those
related to acquisitions
and divestitures:
|
||||||||||||||||
Accounts receivable, net
|
(105 | ) | (103 | ) | - | - | ||||||||||
Inventories
|
(656 | ) | (438 | ) | - | - | ||||||||||
Other assets
|
72 | 24 | 20 | 20 | ||||||||||||
Accounts payable
|
218 | 118 | - | - | ||||||||||||
Accrued and other
liabilities
|
29 | 24 | (8 | ) | 12 | |||||||||||
Captive finance receivables,
net
|
- | - | - | - | ||||||||||||
Other operating activities,
net
|
29 | 33 | (9 | ) | (2 | ) | ||||||||||
Net
cash provided by operating activities of continuing
operations
|
413 | 280 | 83 | 153 | ||||||||||||
Net
cash (used in) operating activities of discontinued
operations
|
(9 | ) | (3 | ) | - | - | ||||||||||
Net
cash provided by operating activities
|
404 | 277 | 83 | 153 | ||||||||||||
Cash
flows from investing activities:
|
||||||||||||||||
Finance
receivables:
|
||||||||||||||||
Originated or purchased
|
- | - | (6,338 | ) | (6,489 | ) | ||||||||||
Repaid
|
- | - | 5,690 | 5,795 | ||||||||||||
Proceeds on receivables sales and securitization
sales
|
- | - | 617 | 711 | ||||||||||||
Net
cash used in acquisitions
|
(100 | ) | - | - | - | |||||||||||
Capital
expenditures
|
(194 | ) | (138 | ) | (6 | ) | (4 | ) | ||||||||
Proceeds
on sale of property, plant and equipment
|
1 | 3 | - | - | ||||||||||||
Purchase
of other marketable securities
|
- | - | (100 | ) | - | |||||||||||
Other
investing activities, net
|
- | (2 | ) | 3 | 10 | |||||||||||
Net
cash (used in) provided by investing activities of continuing
operations
|
(293 | ) | (137 | ) | (134 | ) | 23 | |||||||||
Net
cash provided by investing activities of discontinued
operations
|
- | 32 | - | - | ||||||||||||
Net
cash (used in) provided by investing activities
|
(293 | ) | (105 | ) | (134 | ) | 23 | |||||||||
Cash
flows from financing activities:
|
||||||||||||||||
Increase
(decrease) in short-term debt
|
82 | (44 | ) | (48 | ) | (101 | ) | |||||||||
Proceeds
from issuance of long-term debt
|
- | 1 | 1,122 | 1,069 | ||||||||||||
Principal
payments and retirements of long-term debt
|
(49 | ) | (3 | ) | (886 | ) | (989 | ) | ||||||||
Proceeds
from option exercises
|
38 | 69 | - | - | ||||||||||||
Purchases
of Textron common stock
|
(134 | ) | (221 | ) | - | - | ||||||||||
Dividends
paid
|
(115 | ) | (97 | ) | (142 | ) | (135 | ) | ||||||||
Excess
tax benefits related to stock option exercises
|
9 | 12 | - | - | ||||||||||||
Net
cash (used in) provided by financing activities of continuing
operations
|
(169 | ) | (283 | ) | 46 | (156 | ) | |||||||||
Effect
of exchange rate changes on cash and cash equivalents
|
11 | 9 | 1 | (1 | ) | |||||||||||
Net
(decrease) increase in cash and cash equivalents
|
(47 | ) | (102 | ) | (4 | ) | 19 | |||||||||
Cash
and cash equivalents at
beginning of
period
|
471 | 733 | 60 | 47 | ||||||||||||
Cash
and cash equivalents at end of period
|
$ | 424 | $ | 631 | $ | 56 | $ | 66 |
(In
millions)
|
June
28,
2008
|
December
29,
2007
|
||||||
Finished
goods
|
$ | 1,061 | $ | 762 | ||||
Work
in process
|
1,983 | 1,868 | ||||||
Raw
materials
|
765 | 636 | ||||||
3,809 | 3,266 | |||||||
Less
progress/milestone payments
|
518 | 542 | ||||||
$ | 3,291 | $ | 2,724 |
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
(In
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
Net
income
|
$ | 258 | $ | 210 | $ | 489 | $ | 406 | ||||||||
Other
comprehensive income:
|
||||||||||||||||
Recognition of prior service
cost and unrealized losses on pension and postretirement
benefits
|
10 | 14 | 20 | 29 | ||||||||||||
Net deferred (loss) gain on
hedge contracts
|
(1 | ) | 27 | (17 | ) | 22 | ||||||||||
Other
|
13 | 26 | (5 | ) | 29 | |||||||||||
Comprehensive
income
|
$ | 280 | $ | 277 | $ | 487 | $ | 486 |
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
(In
thousands)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
Basic
weighted-average shares outstanding
|
249,430 | 249,703 | 249,322 | 250,026 | ||||||||||||
Dilutive
effect of convertible preferred shares,
stock options and restricted
stock units
|
4,589 | 4,568 | 4,944 | 4,714 | ||||||||||||
Diluted
weighted-average shares outstanding
|
254,019 | 254,271 | 254,266 | 254,740 |
Three
Months Ended
|
Six
Month Ended
|
|||||||||||||||
(In
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
Compensation
expense, net of hedge income or expense
|
$ | 17 | $ | 28 | $ | 23 | $ | 41 | ||||||||
Income
tax (benefit) expense
|
(3 | ) | (17 | ) | 8 | (19 | ) | |||||||||
Total
net compensation cost included in net income
|
$ | 14 | $ | 11 | $ | 31 | $ | 22 |
Number
of
Options
(In
thousands)
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Life
(In
years)
|
Aggregate
Intrinsic
Value
(In
millions)
|
|||||||||||||
Outstanding
at beginning of period
|
9,024 | $ | 35.37 | 6.3 | $ | 316 | ||||||||||
Granted
|
1,483 | 54.30 | ||||||||||||||
Exercised
|
(1,099 | ) | 34.55 | |||||||||||||
Canceled,
expired or forfeited
|
(66 | ) | 40.92 | |||||||||||||
Outstanding
at end of period
|
9,342 | $ | 38.43 | 6.7 | $ | 298 | ||||||||||
Exercisable
at end of period
|
6,099 | $ | 32.61 | 5.5 | $ | 230 |
Pension
Benefits
|
Postretirement
Benefits
Other
Than Pensions
|
|||||||||||||||
(In
millions)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Service
cost
|
$
|
37 | $ | 34 | $ | 3 | $ | 2 | ||||||||
Interest
cost
|
82 | 73 | 10 | 11 | ||||||||||||
Expected
return on plan assets
|
(109 | ) | (99 | ) | - | - | ||||||||||
Amortization
of prior service cost (credit)
|
5 | 5 | (2 | ) | (1 | ) | ||||||||||
Amortization
of net loss
|
6 | 12 | 4 | 5 | ||||||||||||
Net
periodic benefit cost
|
$
|
21 | $ | 25 | $ | 15 | $ | 17 |
Pension
Benefits
|
Postretirement
Benefits
Other
Than Pensions
|
|||||||||||||||
(In
millions)
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
Service
cost
|
$ | 74 | $ | 67 | $ | 5 | $ | 4 | ||||||||
Interest
cost
|
164 | 146 | 21 | 21 | ||||||||||||
Expected
return on plan assets
|
(218 | ) | (198 | ) | - | - | ||||||||||
Amortization
of prior service cost (credit)
|
10 | 9 | (3 | ) | (2 | ) | ||||||||||
Amortization
of net loss
|
12 | 25 | 8 | 11 | ||||||||||||
Net
periodic benefit cost
|
$ | 42 | $ | 49 | $ | 31 | $ | 34 |
Six
Months Ended
|
||||||||
(In
millions)
|
June
28,
2008
|
June
30,
2007
|
||||||
Accrual
at the beginning of period
|
$ | 321 | $ | 315 | ||||
Provision
|
97 | 93 | ||||||
Settlements
|
(98 | ) | (89 | ) | ||||
Adjustments
to prior accrual estimates
|
(7 | ) | 2 | |||||
Other
adjustments
|
(3 | ) | - | |||||
Accrual
at the end of period
|
$ | 310 | $ | 321 |
(In
millions)
|
Total
|
Quoted
Prices in Active Markets for Identical Assets or Liabilities
(Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable
Inputs
(Level
3)
|
||||||||||||
Assets
|
||||||||||||||||
Manufacturing
group
|
||||||||||||||||
Foreign exchange rate forward
contracts, net
|
$ | 26 | $ | - | $ | 26 | $ | - | ||||||||
Total Manufacturing
group
|
26 | - | 26 | - | ||||||||||||
Finance group
|
||||||||||||||||
Interest-only
strips
|
53 | - | - | 53 | ||||||||||||
Derivative financial
instruments, net
|
22 | - | 22 | - | ||||||||||||
Total Finance
group
|
75 | - | 22 | 53 | ||||||||||||
Total assets
|
$ | 101 | $ | - | $ | 48 | $ | 53 | ||||||||
Liabilities
|
||||||||||||||||
Manufacturing
group
|
||||||||||||||||
Cash settlement forward
contract
|
$ | 34 | $ | 34 | $ | - | $ | - | ||||||||
Total Manufacturing
group
|
34 | 34 | - | - | ||||||||||||
Total
liabilities
|
$ | 34 | $ | 34 | $ | - | $ | - |
(In
millions)
|
Three
Months Ended
June
28, 2008
|
Six
Months Ended
June
28, 2008
|
||||||
Balance,
beginning of period
|
$ | 52 | $ | 43 | ||||
Net
gains for the period:
|
||||||||
Increase due to securitization
gains on sale of finance receivables
|
21 | 42 | ||||||
Change in value recognized in
Finance revenues
|
- | 1 | ||||||
Change in value recognized in
other comprehensive income
|
(2 | ) | - | |||||
Collections
|
(18 | ) | (33 | ) | ||||
Balance,
end of period
|
$ | 53 | $ | 53 |
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
(In
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
REVENUES
|
||||||||||||||||
MANUFACTURING:
|
||||||||||||||||
Cessna
|
$ | 1,501 | $ | 1,203 | $ | 2,747 | $ | 2,171 | ||||||||
Bell
|
698 | 596 | 1,272 | 1,176 | ||||||||||||
Defense &
Intelligence
|
528 | 319 | 1,103 | 678 | ||||||||||||
Industrial
|
1,015 | 878 | 1,924 | 1,725 | ||||||||||||
3,742 | 2,996 | 7,046 | 5,750 | |||||||||||||
FINANCE
|
177 | 239 | 391 | 449 | ||||||||||||
Total
revenues
|
3,919 | $ | 3,235 | 7,437 | $ | 6,199 | ||||||||||
SEGMENT
OPERATING PROFIT
|
||||||||||||||||
MANUFACTURING:
|
||||||||||||||||
Cessna
|
$ | 262 | $ | 200 | $ | 469 | $ | 355 | ||||||||
Bell
|
68 | 7 | 121 | 32 | ||||||||||||
Defense &
Intelligence
|
67 | 52 | 138 | 118 | ||||||||||||
Industrial
|
58 | 59 | 108 | 119 | ||||||||||||
455 | 318 | 836 | 624 | |||||||||||||
FINANCE
|
13 | 68 | 55 | 120 | ||||||||||||
Segment
profit
|
468 | 386 | 891 | 744 | ||||||||||||
Corporate
expenses and other, net
|
(48 | ) | (66 | ) | (88 | ) | (116 | ) | ||||||||
Interest
expense, net
|
(29 | ) | (23 | ) | (59 | ) | (47 | ) | ||||||||
Income
from continuing operations before
income taxes
|
$ | 391 | $ | 297 | $ | 744 | $ | 581 |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
|||||||||||||
Federal
statutory income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||
Increase
(decrease) in taxes resulting from:
|
||||||||||||||||
State income
taxes
|
0.3 | 1.4 | 1.2 | 1.3 | ||||||||||||
Foreign tax rate
differential
|
(4.8 | ) | (1.6 | ) | (5.5 | ) | (1.6 | ) | ||||||||
Manufacturing
deduction
|
(1.3 | ) | (1.6 | ) | (1.3 | ) | (1.6 | ) | ||||||||
Equity hedge expense
(income)
|
1.0 | (1.9 | ) | 2.1 | (1.0 | ) | ||||||||||
Interest on tax
contingencies
|
3.8 | 1.2 | 2.6 | 1.2 | ||||||||||||
Canadian functional
currency
|
- | - | - | (0.3 | ) | |||||||||||
Favorable tax
settlements
|
- | (3.3 | ) | - | (1.7 | ) | ||||||||||
Other, net
|
(0.8 | ) | (1.6 | ) | (0.9 | ) | (2.4 | ) | ||||||||
Effective
income tax rate
|
33.2 | % | 27.6 | % | 33.2 | % | 28.9 | % |
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
(In
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
Revenues
|
$ | 1,501 | $ | 1,203 | $ | 2,747 | $ | 2,171 | ||||||||
Segment
profit
|
$ | 262 | $ | 200 | $ | 469 | $ | 355 |
Bell
|
||||||||||||||||
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
(In
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
Revenues
|
$ | 698 | $ | 596 | $ | 1,272 | $ | 1,176 | ||||||||
Segment
profit
|
$ | 68 | $ | 7 | $ | 121 | $ | 32 |
Defense
& Intelligence
|
||||||||||||||||
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
(In
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
Revenues
|
$ | 528 | $ | 319 | $ | 1,103 | $ | 678 | ||||||||
Segment
profit
|
$ | 67 | $ | 52 | $ | 138 | $ | 118 |
Industrial
|
||||||||||||||||
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
(In
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
Revenues
|
$ | 1,015 | $ | 878 | $ | 1,924 | $ | 1,725 | ||||||||
Segment
profit
|
$ | 58 | $ | 59 | $ | 108 | $ | 119 |
Finance
|
||||||||||||||||
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
(In
millions)
|
June
28,
2008
|
June
30,
2007
|
June
28,
2008
|
June
30,
2007
|
||||||||||||
Revenues
|
$ | 177 | $ | 239 | $ | 391 | $ | 449 | ||||||||
Segment
profit
|
$ | 13 | $ | 68 | $ | 55 | $ | 120 |
(In
millions)
|
Quarter
|
First Half
|
||||||
Lower market interest
rates
|
$ | (41 | ) | $ | (69 | ) | ||
Gains on the sale of
leveraged lease investment
|
(21 | ) | (16 | ) | ||||
Change in estimate for
leveraged lease transactions
|
(9 | ) | (9 | ) | ||||
Benefit from variable-rate
receivable interest rate floors
|
6 | 6 | ||||||
Higher securitization
gains
|
5 | 10 | ||||||
Leveraged lease residual value
impairments
|
(3 | ) | 8 |
(In
millions)
|
Quarter
|
First Half
|
||||||
Increase in the provision for
loan losses
|
$ | (29 | ) | $ | (51 | ) | ||
Gains on the sale of leveraged
lease investment
|
(21 | ) | (16 | ) | ||||
Higher borrowing costs
relative to market rates
|
(9 | ) | (19 | ) | ||||
Change in estimate for
leveraged lease transactions
|
(9 | ) | (9 | ) | ||||
Leveraged lease residual value
impairments
|
(3 | ) | 8 | |||||
Higher securitization
gains
|
5 | 10 |
June
28,
|
December
29,
|
|||||||
(Dollars
in millions)
|
2008
|
2007
|
||||||
Nonperforming
assets
|
$ | 216 | $ | 123 | ||||
Nonaccrual
finance receivables
|
$ | 176 | $ | 79 | ||||
Allowance
for losses
|
$ | 126 | $ | 89 | ||||
Ratio
of nonperforming assets to total finance assets
|
2.31 | % | 1.34 | % | ||||
Ratio
of allowance for losses on receivables to nonaccrual finance
receivables
|
71.8 | % | 111.7 | % | ||||
60+
days contractual delinquency as a percentage of finance
receivables
|
0.61 | % | 0.43 | % |
Six
Months Ended
|
||||||||
(In
millions)
|
June
28,
2008
|
June
30,
2007
|
||||||
Operating
activities
|
$ | 413 | $ | 280 | ||||
Investing
activities
|
$ | (293 | ) | $ | (137 | ) | ||
Financing
activities
|
$ | (169 | ) | $ | (283 | ) |
Six
Months Ended
|
||||||||
(In
millions)
|
June
28,
2008
|
June
30,
2007
|
||||||
Operating
activities
|
$ | 83 | $ | 153 | ||||
Investing
activities
|
$ | (134 | ) | $ | 23 | |||
Financing
activities
|
$ | 46 | $ | (156 | ) |
Six
Months Ended
|
||||||||
(In
millions)
|
June
28,
2008
|
June
30,
2007
|
||||||
Operating
activities
|
$ | 372 | $ | 123 | ||||
Investing
activities
|
$ | (445 | ) | $ | 61 | |||
Financing
activities
|
$ | 19 | $ | (304 | ) |
Six
Months Ended
|
||||||||
(In
millions)
|
June
28,
2008
|
June
30,
2007
|
||||||
Reclassifications
from investing activities:
|
||||||||
Finance receivable originations
for Manufacturing group inventory sales
|
$ | (520 | ) | $ | (525 | ) | ||
Cash received from customers,
sale of receivables and securitizations
|
543 | 354 | ||||||
Other
|
(5 | ) | (4 | ) | ||||
Total
reclassifications from investing activities
|
18 | (175 | ) | |||||
Dividends
paid by Finance group to Manufacturing group
|
(142 | ) | (135 | ) | ||||
Total
reclassifications and adjustments to operating activities
|
$ | (124 | ) | $ | (310 | ) |
(In
millions)
|
Facility
Amount
|
Commercial
Paper
Outstanding
|
Letters
of
Credit
Outstanding
|
Amount
Not Reserved as Support for Commercial Paper and Letters of
Credit
|
||||||||||||
Manufacturing
group — multi-year facility expiring in 2012*
|
$ | 1,250 | $ | 89 | $ | 22 | $ | 1,139 | ||||||||
Finance
group — multi-year facility expiring in 2012
|
1,750 | 1,340 | 7 | 403 | ||||||||||||
Total
|
$ | 3,000 | $ | 1,429 | $ | 29 | $ | 1,542 |
Item
3.
|
QUANTITA
TIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
|
Item
4.
|
CONTROLS AND
PROCEDURES
|
Item
2.
|
UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF
PROCEEDS
|
Issuer
Repurchases of Equity Securities
|
Total
Number
of
Shares
Purchased
|
Average
Price
Paid
per
Share
(Excluding
Commissions)
|
Total
Number of
Shares
Purchased as
Part
of Publicly
Announced
Plan
|
Maximum
Number
of Shares
that
May Yet Be
Purchased
Under
the Plan
|
|||||||||||||
Month
1 (March 30, 2008, –
May
3, 2008)
|
– | – | – | 21,103,000 | ||||||||||||
Month
2 (May 4, 2008 -
May
31, 2008)
|
3,225 | $ | 61.98 | – | 21,103,000 | |||||||||||
Month
3 (June 1, 2008 -
June
28, 2008)
|
1,886,000 | 50.12 | 1,886,000 | 19,217,000 | ||||||||||||
Total
|
1,889,225 | $ | 50.14 | 1,886,000 |
TEXTRON
INC.
|
|||
Date:
|
July
25, 2008
|
/s/Richard
L. Yates
|
|
Richard
L. Yates
Senior
Vice President and Corporate Controller
(principal
accounting officer)
|
10.1
|
Letter
Agreement between Textron and Scott C. Donnelly dated June 26,
2008
|
|
12.1
|
Computation
of ratio of income to fixed charges of Textron Inc. Manufacturing
Group
|
|
12.2
|
Computation
of ratio of income to fixed charges of Textron Inc. including all
majority-owned subsidiaries
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
Six
Months
Ended
June
28, 2008
|
||||
Fixed
charges:
|
||||
Interest
expense
|
$ | 67 | ||
Estimated interest portion of
rents
|
16 | |||
Total fixed
charges
|
$ | 83 | ||
Income:
|
||||
Income from continuing
operations before income taxes
|
$ | 744 | ||
Dividends in excess of pretax
income of Textron Finance
|
87 | |||
Fixed charges
|
83 | |||
Adjusted income
|
$ | 914 | ||
Ratio
of income to fixed charges
|
11.01 |
Six
Months
Ended
June
28, 2008
|
||||
Fixed
charges:
|
||||
Interest
expense
|
$ | 224 | ||
Estimated interest portion of
rents
|
18 | |||
Total fixed
charges
|
$ | 242 | ||
Income:
|
||||
Income from continuing
operations before income taxes
|
$ | 744 | ||
Fixed charges
|
242 | |||
Adjusted income
|
$ | 986 | ||
Ratio
of income to fixed charges
|
4.07 |
1.
|
I
have reviewed this quarterly report on Form 10-Q of Textron
Inc.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b)
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
c)
|
evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
d)
|
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
a)
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
|
b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
|
Date:
|
July 25,
2008
|
/s/
Lewis B. Campbell
|
|
Lewis
B. Campbell
Chairman,
President and Chief Executive
Officer
|
1.
|
I
have reviewed this quarterly report on Form 10-Q of Textron
Inc.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a)
|
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b)
|
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
c)
|
evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
d)
|
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
a)
|
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
|
b)
|
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
|
Date:
|
July 25,
2008
|
/s/ Ted R. French | |
Ted
R. French
Executive
Vice President and Chief
Financial
Officer
|
(1)
|
The
Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934;
and
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
Date:
|
July 25,
2008
|
/s/
Lewis B. Campbell
|
|
Lewis
B. Campbell
Chairman,
President and Chief Executive
Officer
|
(1)
|
The
Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934;
and
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
Date:
|
July
25, 2008
|
/s/
Ted R. French
|
|
Ted
R. French
|
|||
Executive
Vice President and Chief
Financial
Officer
|
Lewis
B. Campbell
Chairman,
President and Chief Executive Officer
Textron
Inc.
|
40
Westminster St.
Providence,
RI 02903
Tel:
(401) 457-2322
Fax:
(401) 457-3682
lcampbell@textron.com
|
·
|
Base
salary of $850,000 per year.
|
·
|
An
annual incentive award for 2008 (payable in March 2009) under Textron’s
annual incentive plan, in an amount determined by the Organization and
Compensation Committee by applying the 2008 performance goals and award
levels for executive officers to your base salary on a non-prorated basis;
but in no event shall your annual incentive award for 2008 be less than
$1,320,000.
|
·
|
Target
awards under Textron’s annual incentive plan for 2009 and subsequent years
having a “target” value of at least 90% of base salary, payable upon the
attainment of any performance goals established for the year by the
Organization and Compensation Committee. Actual payouts may
vary from zero to 200% of your target award each year based on the
Organization and Compensation Committee’s determination that Textron has
attained these performance goals. Payouts are made within the
first 2½ months after the end of the performance
period.
|
·
|
A
long-term incentive award for 2009 with a value of $3,500,000, and
long-term incentive awards for subsequent years as determined by the
Organization and Compensation Committee as part of its review of senior
management compensation. Long-term incentive awards will
consist of performance shares or performance share units, restricted stock
or restricted stock units, stock options, or other equity awards in
proportions and subject to vesting requirements and other terms and
conditions determined by the Organization and Compensation
Committee. Each component of your 2009 award will be in the
same proportions as awarded to me. At present, awards of
restricted stock and restricted stock units include dividend equivalents
paid currently in cash.
|
·
|
Effective
on the later of July 1, 2008, and three business days after your first day
of employment with Textron, three pro-rata awards of performance share
units for the award cycles ending in 2008, 2009, and 2010, based on the
time remaining within each performance cycle, with a combined value of
$2,100,000. The performance share units will be payable upon
the achievement of any performance goals established for the award cycle
by the Organization and Compensation Committee. The award for
2008 also will be subject to a requirement that you not voluntarily
terminate your employment with Textron before the first anniversary of the
grant date, and will be payable after you satisfy this minimum vesting
requirement. This minimum vesting requirement is mandated by
Textron’s 2007 Long-Term Incentive Plan (LTIP), as approved by
shareholders.
|
·
|
Effective
on the later of July 1, 2008, and three business days after your first day
of employment with Textron, an initial award of nonqualified stock options
with a value of $2,510,000 (determined using standard Towers Perrin
methodology), having a 10-year term and an exercise price equal to the
fair market value of Textron stock on the grant date, and to become
exercisable 20% on first business day of the month on or after the
anniversary of the grant date in each year from 2010 through 2014,
provided that you are still employed by Textron on each vesting
date. Because the 2007 LTIP limits annual individual grants to
200,000 stock options in any year, your stock option grant will be for a
maximum of 200,000 shares. Any additional amount necessary to
reach the $2,510,000 target value will be paid in cash within 30 days
after your first day of employment with
Textron.
|
·
|
A
nonqualified pension benefit determined using the benefit formula under
the Textron Master Retirement Plan (but without regard to the limits on
compensation and benefits imposed by the Internal Revenue Code), taking
into account your service with both General Electric and Textron, and
using the definition of pensionable compensation and final average
compensation in the Textron Spillover Pension Plan. This
nonqualified pension benefit will become 100% vested upon the earlier of
your completion of ten years of service with Textron and your attainment
of age 62 while employed by Textron, and will be reduced by the combined
value of any benefit you are eligible to receive under (1) a tax-qualified
defined benefit plan maintained by General Electric, (2) a tax-qualified
defined benefit plan maintained by Textron (before any reduction in your
tax-qualified defined benefit to reflect an offset for your account under
the Textron Retirement Account Plan), and (3) the Textron Spillover
Pension Plan (or any successor nonqualified defined benefit plan
maintained by Textron). The forms of payment and other terms of
your nonqualified pension benefit will be as determined by the Board and
reflected in a separate document or an appendix to the Textron Spillover
Pension Plan.
|
·
|
Eligibility
to participate in the Deferred Income Plan for Textron Executives, or any
successor elective deferred compensation plan offered to Textron’s senior
executives. You would participate in the Deferred Income Plan
as a “Schedule A” participant, which is the participation level that
applies to Textron’s other senior executives. The Deferred
Income Plan currently provides a matching contribution equal to 10% of any
elective deferred income (not including deferrals of base salary) that a
Schedule A participant allocates to the Textron stock unit account in the
plan. You would be eligible to receive this matching
contribution to the same extent as other Schedule A
participants.
|
·
|
Eligibility
to participate in Textron’s health, disability, life insurance, annual
physical, and other welfare benefit programs at the same level as
Textron’s other senior executives.
|
·
|
Eligibility
for four weeks of paid vacation, and for relocation benefits consistent
with (and subject to the same tax treatment as) the benefits under
Textron’s relocation policy for senior
executives.
|
·
|
A
cash payment of $4,100,000, payable in two installments. The
first installment of $2,100,000 is to be paid no later than September 30,
2008. The remaining balance
of
|
|
$2,000,000
is to be paid no later than February 28, 2009, provided that you are still
employed by Textron on December 31,
2008.
|
·
|
Effective
on the later of July 1, 2008, and three business days after your first day
of employment with Textron, an award of restricted stock units with a
value of $7,500,000, with 75% of the units vesting ratably on the first
business day of the month on or after the anniversary of the grant date in
each of 2009, 2010, and 2011, and with the remaining 25% of the units
vesting ratably on the first business day of the month on or after the
anniversary of the grant date in each of 2012, 2013, and 2016; provided
that you are, in each case, still employed by Textron on the vesting
date. The award will be paid to you in shares of Textron stock
within 2½ months after the restricted stock units vest. You
will be eligible to receive dividend equivalents paid currently in cash on
the entire award.
|
/s/ Lewis B. Campbell |
Date:
|
June 30, 2008 | |
Lewis
B. Campbell
|
Signed:
|
/s/ Scott C. Donnelly |
Date:
|
June 26, 2008 | |
Scott
C. Donnelly
|
Regular
Separation
Benefits
|
Change
in Control Separation Benefits
|
Accrued
obligations
Compensation
previously earned but not yet paid, such as unpaid base salary, unpaid
amount of previous year’s annual incentive compensation, and amounts
accrued and vested under other benefit plans and programs.
|
Accrued
obligations
Compensation
previously earned but not yet paid, such as unpaid base salary, unpaid
amount of previous year’s annual incentive compensation, and amounts
accrued and vested under other benefit plans and programs.
|
|
(a)
|
Any
"person" or "group" (within the meaning of Section 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
other than the Company, any trustee or other fiduciary holding Company
common stock under an employee benefit plan of the Company or a related
company, or any corporation which is owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of the Company's common stock, is or becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act) of more than
thirty percent (30%) of the then outstanding voting
stock;
|
|
(b)
|
During
any period of two (2) consecutive years, individuals who at the beginning
of such period constitute the Board and any new director whose election by
the Board or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the two year period
or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the
Board;
|
|
(c)
|
The
consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or being
converted into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
|
|
(d)
|
The
approval of the stockholders of the Company of a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of its
assets.
|