19 Textron Inc. Annual Report • 2013
Transportation Vehicles product lines, partially offset by an unfavorable foreign exchange impact of $80 million,
primarily related to theweakeningof the euro.
•
Higher Finance revenues of $112million as describedmore fully in theSegment Analysis below.
•
Lower TextronSystems revenues of $135million, primarily due to lower volume across all product lines.
Cost of Sales andSellingandAdministrativeExpense
(Dollars inmillions)
2013
2012
2011
Operating expenses
$ 11,257 $ 11,184 $ 10,503
Cost of sales
10,131 10,019
9,308
% change comparedwith prior period
1%
8%
Grossmarginas apercentage ofManufacturing revenues
15.4% 16.7% 16.7%
Selling and administrative expenses
1,126
1,165 $ 1,195
% change comparedwith prior period
(3)% (3)%
Manufacturing cost of sales and selling and administrative expenses together comprise our operating expenses. Changes in
operating expenses aremore fully discussed in our Segment Analysis below.
Cost of sales as a percentage ofmanufacturing revenueswas 84.6% in2013, and 83.3% in both 2012 and 2011.
Consolidatedmanufacturing cost of sales increased $112million, 1%, in 2013, comparedwith 2012, primarily due to higher sales
volume at Bell and the impact frombusinesses acquired in 2013, partially offset by lower sales at Cessna andTextronSystems. In
2013, gross margin as a percentage of manufacturing revenues decreased 130 basis points primarily due to unfavorable
performance at Bell, largely due tomanufacturing inefficiencies associatedwith labor disruptions resulting from negotiationswith
bargained employees and with the implementation of a new enterprise resource planning system in the first quarter of 2013, as
well as lowerCitation jet andCitiationAir volume at Cessna.
Selling and administrative expenses decreased $39 million, 3%, in 2013 compared with 2012, largely due to a reduction in
administrative expenses of $26million and lower provision for loan losses of $20million at the Finance segment, both primarily
associatedwith the non-captive business. Selling and administrative expensewas also impacted by $28million in severance costs
incurred in 2013 at Cessna, which were largely offset by a $27million charge from an unfavorable arbitration award incurred in
2012 at Cessna.
In 2012, consolidatedmanufacturing cost of sales increased $711million, 8%, comparedwith 2011, principally due to higher net
sales volume. Cost of sales was reduced by $65 million in 2012 from foreign exchange fluctuations, primarily in the Industrial
segment due to theweakening of the euro. In addition, cost of sales included $37million in charges related to our newUAS fee-
for-service contracts at Textron Systems, which were offset by the impact of 2011 charges at Textron Systems of $60 million
related to the impairment of intangible assets and severance costs. Selling and administrative expense decreased $30million, 3%,
in 2012, comparedwith2011. The decreasewas largely driven by lower operating expenses of $56million at the Finance segment
primarily associated with the exit of the non-captive business, partially offset by a $27 million charge at Cessna from an unfavorable
arbitrationawarddescribedmore fully in theSegmentAnalysisbelow.
Interest Expense
(Dollars inmillions)
2013
2012
2011
Interest expense
$
173 $
212 $
246
% change comparedwith prior period
(18)%
(14)%
Interest expense on theConsolidated Statement of Operations includes interest for both the Finance andManufacturing borrowing
groups with interest related to intercompany borrowings eliminated. Interest expense for the Finance segment is included within
segment profit and includes intercompany interest.
Consolidated interest expense decreased $39million, 18%, in 2013, comparedwith 2012, and$34million, 14%, in2012 compared
with2011, primarily due to lower average debt outstanding.
ValuationAllowance onTransfer ofGolfMortgagePortfolio toHeld for Sale
In the fourth quarter of 2011, we determined that we no longer had the intent to hold the remaining Golf Mortgage portfolio for
investment for the foreseeable future, and, accordingly, transferred $458 million of the remaining Golf Mortgage finance
receivables, net of an $80 million allowance for loan losses, from the held for investment classification to the held for sale
