Return on Invested Capital (ROIC)

(Dollars in millions) 2014 2013 2012 2011 2010
ROIC Income          
Income from continuing operations1 $605 $498 $581 $242 $92
Interest expense for Manufacturing group 94 77 90 88 88
Special charges and gain on sale of businesses/product lines 153
Operating results of business units in discontinued operations, net of taxes 8
ROIC Income $699 $575 $679 $330 $333
Invested Capital at end of year          
Total shareholders’ equity $4,272 $4,384 $2,991 $2,745 $2,972
Total Manufacturing group debt 2,811 1,931 2,301 2,459 2,302
Loan to Finance group (490) (315)
Cash and equivalents for Manufacturing group (731) (1,163) (1,378) (871) (898)
Eliminate special charges, net of income taxes 153
Invested Capital at end of year, as adjusted 6,352 5,152 3,914 3,843 4,214
Invested Capital at beginning of year 5,152 3,914 3,843 4,061 4,249
Average Invested Capital $5,752 $4,533 $3,879 $3,952 $4,232
Return on Invested Capital2 12.2% 12.7% 17.5% 8.4% 7.9%
  1. In 2014, included the following pre-tax items: $63 million of amortization expenses related to fair value step-up adjustments of Beechcraft acquired inventories sold during the period and $52 million in acquisition and restructuring costs related to the Beechcraft acquisition. 2013 included the following pre-tax items: $28 million in severance costs in connection with a voluntary separation program at Textron Aviation and $15 million of charges related to our Unmanned Systems fee-for-service contracts at Textron Systems. 2012 included the following pre-tax items: $37 million in charges related to our Unmanned Systems fee-for-service contracts at Textron Systems and a $27 million charge from an unfavorable arbitration award at Textron Aviation. 2011 included the following pre-tax items: $41 million non-cash impairment charge to write down certain intangible assets, approximately $19 million in severance costs at Textron Systems and a $186 million non-cash initial mark-to-market adjustment for remaining finance receivables in the Golf Mortgage portfolio.
  2. In 2014, we changed our policy for calculating ROIC to include the impact of acquisitions in the year they are acquired. In the past, we excluded both operating income from acquisitions from ROIC income and the cash used for acquisitions from invested capital at end of year. All prior periods have been restated to include these amounts.

Return on invested capital (ROIC) is a non-GAAP financial measure that our management believes is useful to investors as a measure of performance and of the effectiveness of the use of capital in our operations. We measure ROIC by dividing ROIC income by average invested capital. ROIC income includes income from continuing operations and adds back after-tax amounts for 1) interest expense for the Manufacturing group, 2) special charges, 3) gains or losses on the sales of businesses or product lines and 4) operating results related to discontinued operations.

At the beginning of the year, our invested capital represents total shareholders’ equity and Manufacturing group debt, less its cash and equivalents and any outstanding amounts loaned to the Finance group. At the end of the year, we typically adjust ending invested capital for significant events unrelated to our normal operations for the year such as dispositions and special charges.