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19 Textron Inc. Annual Report • 2013
Transportation Vehicles product lines, partially offset by an unfavorable foreign exchange impact of $80 million,
primarily related to the weakening of the euro.
• Higher Finance revenues of $112 million as described more fully in the Segment Analysis below.
• Lower Textron Systems revenues of $135 million, primarily due to lower volume across all product lines.
Cost of Sales and Selling and Administrative Expense
(Dollars in millions) 2013 2012 2011
Operating expenses $ 11,257 $ 11,184 $ 10,503
Cost of sales 10,131 10,019 9,308
% change compared with prior period 1% 8%
Gross margin as a percentage of Manufacturing revenues 15.4% 16.7% 16.7%
Selling and administrative expenses 1,126 1,165 $ 1,195
% change compared with prior period (3)% (3)%
Manufacturing cost of sales and selling and administrative expenses together comprise our operating expenses. Changes in
operating expenses are more fully discussed in our Segment Analysis below.
Cost of sales as a percentage of manufacturing revenues was 84.6% in 2013, and 83.3% in both 2012 and 2011.
Consolidated manufacturing cost of sales increased $112 million, 1%, in 2013, compared with 2012, primarily due to higher sales
volume at Bell and the impact from businesses acquired in 2013, partially offset by lower sales at Cessna and Textron Systems. In
2013, gross margin as a percentage of manufacturing revenues decreased 130 basis points primarily due to unfavorable
performance at Bell, largely due to manufacturing inefficiencies associated with labor disruptions resulting from negotiations with
bargained employees and with the implementation of a new enterprise resource planning system in the first quarter of 2013, as
well as lower Citation jet and CitiationAir 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 $26 million and lower provision for loan losses of $20 million at the Finance segment, both primarily
associated with the non-captive business. Selling and administrative expense was also impacted by $28 million in severance costs
incurred in 2013 at Cessna, which were largely offset by a $27 million charge from an unfavorable arbitration award incurred in
2012 at Cessna.
In 2012, consolidated manufacturing cost of sales increased $711 million, 8%, compared with 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 the weakening of the euro. In addition, cost of sales included $37 million in charges related to our new UAS 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 $30 million, 3%,
in 2012, compared with 2011. The decrease was largely driven by lower operating expenses of $56 million 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
arbitration award described more fully in the Segment Analysis below.
Interest Expense
(Dollars in millions) 2013 2012 2011
Interest expense $ 173 $ 212 $ 246
% change compared with prior period (18)% (14)%
Interest expense on the Consolidated Statement of Operations includes interest for both the Finance and Manufacturing 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 $39 million, 18%, in 2013, compared with 2012, and $34 million, 14%, in 2012 compared
with 2011, primarily due to lower average debt outstanding.
Valuation Allowance on Transfer of Golf Mortgage Portfolio to Held 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